"Cold Take” Alert: There’s A Reason It’s Called “Working At Risk”

Last month, the U.S. Court of Federal Claims issued a decision underscoring the substantial risk contractors incur if they perform work not properly authorized by the appropriate government authority. The decision in Panther Brands, LLC v. United States, No. 16-1157C (Dec. 17, 2019) serves as a stark reminder that, even in the face of contrary past customer practice and verbal assurances by seemingly appropriate personnel, typically only Contracting Officers have the authority to contractually bind the government. And if you work without a valid contract in place, you very well might not get paid for your efforts.

The back story of Panther Brands is a familiar one of an ongoing business relationship that ends unexpectedly (at least per the contractor’s perspective) and the subsequent dispute over work performed but not yet paid. The facts of the matter were largely undisputed. Beginning in 2008, the Army National Guard annually sponsored Panther racing teams in the IndyCar Series to advertise and market itself. In 2012, Panther entered into a new sponsorship agreement for the Guard – via an intermediary prime contractor LM&O – that would extend through the last race of the 2013 season with a one-year extension that could be exercised in writing on or before July 31, 2013. The agreement paid Panther $12.8 million in the first year and at least another $12.8 million if the extension was exercised.

It was not disputed that, since their first work on behalf of the Guard in 2008, Panther would routinely begin its preparation for the next racing season before a written sponsorship agreement was in place. There was also evidence that the Guard was aware that it was the custom and practice for Panther to be orally authorized to proceed with its preparations based upon a verbal confirmation of the Guard’s exercise of a renewal option.

Even the CO herself testified (in words that will chill the hearts of government contracts lawyers everywhere) that the Guard would often “make relations with vendors and let the contracting process catch up when it could.” Alas, as Panther was to learn, sometimes the contracting process does not “catch up.”

Consistent with the CO’s testimony and past practice, Panther received multiple, verbal indications that the second contract year – i.e. for the 2014 racing season – was authorized. These included statements from the Contracting Officer’s Representative (COR), who testified that he specifically informed Panther in February 2013 that the “IndyCar contract … was being renewed for 2014, and that [Panther] should start preparing for the 2014 season.” Notwithstanding these communications, Panther did not sign any extension of the IndyCar sponsorship agreement, let alone do so prior to July 31 as their existing contract required. Later in 2013 and notwithstanding the earlier statements to Panther, the Guard began exploring the possibility of sponsoring a different racing team for the 2014 season. It ultimately did so, selecting Rahal Letterman Lanigan Racing (RLL); and the award to RLL survived Panther’s bid protest effort to hold on to its sponsorship work on behalf of the Guard.

Following its failed protest effort, Panther sought to recover approximately $5,000,000 for the work it had performed in anticipation of supporting the Guard during the 2014 season. In the absence of an actual contract for the work (i.e., with no extension having been signed), the company asserted theories of implied-in-fact contract, estoppel and ratification via the government’s silence given its knowledge of Panther’s activities in support of 2014. None prevailed, and Panther was left holding a seven-figure bag of unrecoverable costs.

Panther’s implied-in-fact argument foundered on the fact that there was no evidence that the individuals who purportedly authorized their 2014 related work actually had the authority to do so. This was particularly so with regard to the COR, who the Court noted was not “authorized to award, agree to, or sign any contract or modification thereto, or in any way obligate the payment of money by the Government.” Panther’s ratification and estoppel theories similarly failed because of a lack of evidence that the CO – i.e., the only official actually capable of authorizing the company’s work – had knowledge of the COR’s statement or that she acquiesced or agreed with his authorization for Panther to begin work in support of 2014. This was so, even though the CO testified that she was aware of and had acquiesced to previous, similar verbal authorizations when the Guard contracted directly with Panther and not through the intermediary prime contractor LM&O.

The old saw that “the customer is always right” might remain generally applicable, even in the federal contracting context. But as Panther Brands makes clear, contractors need to have an exact understanding of who can speak for – and more importantly bind – their government customer. Failing to do so can result in expensive lessons in the vagaries of contract formation.