How to Interpret a Government Contract

The paramount goal of contract interpretation is to find a single interpretation that accurately reflects the intent of the parties.  Once that intent is determined, courts will generally hold the parties to it.  See Firestone Tire & Rubber Co. v. United States, 444 F.2d 547 (Ct. Cl. 1971).  This sounds simple but can be complicated by shoddy contract drafting and poor communication.  Vague contracts reduce efficiency, invite costly litigation, and sour the Government-contractor relationship.  Eliminate ambiguity and avoid confusion by crafting clear solicitations and contracts.  Learn the basic rules of contract interpretation and apply them to acquisitions.

Christoph Mlinarchik, JD, CFCM, PMP | Owner, www.Christoph LLC.com

Intrinsic versus extrinsic evidence

Courts look to intrinsic evidence first, which includes everything within the four corners of the contract itself.  In contrast, extrinsic evidence concerns external factors.  Extrinsic evidence involves the circumstances surrounding the contract, e.g., pre-award negotiations, prior course of dealing, or industry standards.  Generally, intrinsic evidence is preferred to extrinsic evidence.  Courts will only consider extrinsic evidence if the intent of the parties cannot be determined from the contract itself (using intrinsic evidence).  See Coast Federal Bank, FSB v. United States, 323 F.3d 1035 (Fed. Cir. 2003).  This policy encourages parties to draft contracts that stand on their own merit, rather than rely on outside information.

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Pay special attention to defined words and technical terms

Words derive meaning from context.  The same word has different meanings depending on when, where, and how it is used.  For this reason, contracts often include a “Definitions” section to clarify key words.  Do not neglect the “Definitions” section; it is vital to the contract.  For acquisition-related terms, a common practice is to fix the meaning of the word as defined in FAR 2.101 or another section.  Consider carefully the implications of each definition and always remember that context matters.

Beyond specific definitions in the contract, courts may use outside sources to define key terms.  The Restatement (Second) of Contracts states in section 202(3) that “Unless a different intention is manifested, [where] language has a general meaning it is interpreted in accordance with that meaning [and] technical terms and words of art are given their technical meaning when used in a transaction within their technical field.”  As such, courts rely on two key sources of information for words not defined in the contract.

Authoritative dictionaries or “common usage” are the first source.  Plain meaning or common usage is strong evidence of the intent of the parties.  See Ahrens v. United States, 62 Fed. Cl. 664 (2004).  Alternatively, if the term is not defined in the contract and it is clearly not used in its common context, courts will consider it to be a “technical” term.  In that case, courts will use extrinsic evidence to select an appropriate technical definition.  See Western States Constr. Co. v. United States, 26 Cl. Ct. 818 (1992).  This could include trade journals, industry practice, or the testimony of technical experts in the field.

Harmonize the contract—leave no part meaningless

A contract must be read as a whole.  When applying this axiom, courts use two cardinal principles: (1) parts of a contract must be read together and harmonized if possible and (2) preference is given to an interpretation which gives effect to all terms and leaves no clause meaningless.  See NVT Techs., Inc. v. United States, 370 F.3d 1153 (Fed. Cir. 2004).  This means the winning interpretation usually refers to multiple sections of the contract, rather than relying on one portion and ignoring others.

Courts assume that if the parties include language in the contract, it was included for a reason.  Arguments that assume that a portion of the contract (such as the “Definitions” section) is meaningless will fall upon deaf ears. Courts will consider all parts of the contract relevant and are reluctant to ignore entire sections.  See Big Chief Drilling Co. v. United States, 26 Cl. Ct 1276 (1992).

Order of Precedence

Government contracts often include a shortcut for resolving inconsistencies between sections.  Inclusion of the “Order of Precedence” FAR clause provides clear guidance for conflicts over disputed terms and conditions.  For negotiated procurements, the relevant FAR clause is 52.215-8, which states: “Any inconsistency in this solicitation shall be resolved by giving precedence in the following order: (a) The Schedule (excluding the specifications). (b) Representations and other instructions. (c) Contract clauses. (d) Other documents, exhibits, and attachments. (e) The specifications.”

Contra proferentem and the duty to seek clarification

Common law precedent developed a policy to encourage the drafter of the contract to do a good job—confusing or inconsistent portions are interpreted against the drafter.  In this way, sloppy contract writers are punished by their own mistakes.  As the Restatement (Second) of Contracts, section 206 puts it, “that meaning is generally preferred which operates against the party who supplies the words.”  The legal concept is called contra proferentem, which is Latin for “against the drafter.”  This doctrine holds the drafter accountable for errors, as long as the interpretation of the non-drafting party is reasonable.  See Oenga v. United States, 96 Fed. Cl. 479 (2010).

There is a catch to contra proferentem; the non-drafting party does not get the advantage in all cases.  Contra proferentem will not be applied if the non-drafting party did not seek clarification or explanation for an ambiguity or inconsistency which it was or should have been aware.  See Nielsen-Dillingham Builders, J.V. v. United States, 43 Fed. Cl. 5 (1999).  Again, this is a rule of interpretation that encourages the parties to act on that which they control.  Just as contra proferentem urges the drafting party to write a clearly-written contract, this policy requires the non-drafting party to perform due diligence.  The non-drafting party must read the contract and query any confusing or inconsistent terms.  Otherwise, the non-drafting party may waive its right to benefit from contra proferentem.  This rule of interpretation is known as the “duty to seek clarification.”

Collaborative contracting

The rules of contract interpretation discussed above share an important similarity.  They encourage everyone to write and negotiate contracts in a careful and collaborative manner.  Contracts are meant to represent a “meeting of the minds” between the signing parties.  There should be meaningful discussions while developing contracts and both parties should be comfortable and familiar with the final product.  Discover and resolve disputes, mistakes, and inconsistencies as early as possible to avoid future problems.

CHRISTOPH MLINARCHIK, JD, CFCM, PMP is an attorney, expert witness, professional instructor, consultant, and author of 50+ publications on contract law and acquisitions. As owner of www.ChristophLLC.com, he teaches courses and advises on contracting, source selections, proposals, bid protests, and Government contract law to federal, military, and private industry professionals nationwide—from novices to C-level executives. Christoph was a senior contracting officer for the Department of Defense and has diverse Defense contracting experience across the Air Force, Navy, Pentagon, and Office of the Secretary of Defense. He also previously served as an Air Force JAG acquisitions attorney. Christoph was recently honored with the “Top Professionals Under 40” award by National Contract Management Association.

Christoph LLC is available for consultation, advice, and in-house training about Federal contracting topics, including source selections, proposals, Government contract law, bid protests, and more. Visit www.ChristophLLC.com or email Christoph@ChristophLLC.com for details.