What Does Contracting Authority Involve?
Contracting authority refers to the scope and right of a person or organization to enter into contracts and bind that person or organization to said contract. In the legal context, an agent with the relevant authority can bind the principal to a contract. This agent has the legal power to create relations between the principal and third parties by virtue of the principal-agent relationship.
Contracting authority is relevant to establishing whether a contract was entered into by a person with or without authority to bind the principal. A contract entered into with an individual lacking contracting authority is voidable at the option of the other party to the contract. In the case of a principal-agent relationship, acts of the agent can bring the principal and the third party into binding relations. The principal can ratify the agent’s acts if the agent was acting in accordance with the contracting authority and the contract would have been valid if entered into by the principal.
Contracting authority is present before, during , and after the signing of a contract. Contracting authority for a contract may be limited to a specific period of time. Governing boards and commission officers’ authorities to enter into contracts are usually restricted by applicable state law and/or agency rules. In governmental units, state law provisions may limit the ability or authority of governing boards and commissions to enter into contracts. When created by statute, the authority contains the limitations that exist within the statutory language.
A person cannot assign their authority to bind an organization or principal to a contract inter se the principal and third parties. The principal or agent can delegate their authority to fulfill contractual obligations, such as subcontracting construction work after a party enters into a construction contract. Delegation of authority by assignment, in most circumstances, is not permissible. The doctrine of apparent authority is relevant when the authorization of the subject contract is challenged. Apparent authority refers to a situation where a principal, by its conduct, reasonably shows a third party that an agent has contracting authority. The principal can hold allegedly unauthorized contract obligations against the third party under the doctrine of apparent authority in some cases.
Roles and Responsibilities of the Contracting Authority
A contracting authority is any person or entity authorized to make a contract on behalf of a government department or public body. Both in the United States and Canada, contracting authorities have substantial discretion, as more than merely managers, but as key decision-makers in the execution of government contracts. Contracting authorities are akin to trustees of public funds. Similar to their duties in the private sector to safeguard company assets, contracting authorities are entrusted with the administration of public resources in furtherance of the public interest. One of the most significant responsibilities of a contracting authority involves procurement activities. The role of the contracting authority is to oversee and manage the procurement process from start to finish. This includes: During the procurement process, the contracting authority must ensure that the procurement is carried out in accordance with applicable procurement rules; the terms of the Request for Proposals or other applicable Request for Tenders; and the governing legislation, policies, procedures and guidelines. In the context of a Request for Proposals, the contracting authority is responsible for the interpretation of the RFP and any addenda; qualification of the bidders and the responsiveness of the proposals received; the conduct of the evaluation process; and the negotiation of the contract terms and conditions with the selected bidder.
Significance of Contracting Authority in Public Procurement
The significance of contracting authority in the context of public procurement cannot be overstated. Public procurements are often awarded after issuing an advertisement inviting interested vendors to submit offers or bids. Consequently, both the evaluation of the submissions and the eventual award of a contract are subject to review by various agencies. In this context, compliance with the statutory framework is absolutely essential. In the event that an agency, political subdivision, authority, or other public entity or officer, knowingly grants a contract or makes a purchase without the requisite authority, that agency, political subdivision, authority, or other public entity or officer may be personally responsible for the cost of the contract thus awarded or procurement thus made. In addition, an agency, political subdivision, authority, or other public entity may be barred from receiving any State grants, payments or proceeds if it, or an officer thereof, knowingly violates the requirements of the law.
Contracting Authority and Risk Management Practices
Management of risk is an important aspect of contract management. Not every contract between a customer and a contractor is executed properly. In fact, most of the contracts that my team reviews on behalf of government contractors are not executed properly. There are often provisions that are missing from the contract or provisions that are modified that aren’t appropriately negotiated.
But, just because the customer’s contracting authority executes the contract does not mean that the contract is the best representation of the agreement between the parties. It is important for a contractor to understand the contracting authority of the person executing the contract. A person may have contracting authority that is limited to not exceed a certain amount. The solicitation may provide that only the contracting officer has the authority to modify the contract. And, the contract may provide that it is not subject to any oral modifications.
Contracting authority is particularly important because, too often, a contracting officer signs a contract that contains standard FAR clauses that the contracting officer cannot be expected to understand. And, then the customer expects the contractor to comply with the contract as written. To mitigate this issue, every time you submit a proposal, you should review it to make sure that the proposed contract reflects your understanding of the agreement and is consistent with your proposal. If it is not, you should object to the contract. Otherwise, you may be risking your performance by signing a contract that is not in your interest.
It is important to be aware of the risks you agree to take on during contract performance. Part of the initial proposal evaluation is the government asking what risks your proposed approach involves. Your contract proposal should outline these risks. For instance, if you will not be able to perform under the contract terms and conditions if fuel prices go up by 20%, you need to inform the government. If you don’t, you will be obligated to perform even if you suffer a significant loss. Your contract proposal will be the government’s best opportunity to negotiate the scope of risks you are willing to take on. So, don’t be afraid to disclose risks facing your business, but also communicate how those risks will be addressed so that the government can become comfortable with the terms and conditions.
Challenges for the Contracting Authority
Contracting authorities face a number of challenges in performing their roles effectively and efficiently. Challenges can arise in the context of budgeting, compliance with transparency requirements, and managing suppliers and contract performance.
Contracting authorities must exercise budgetary restraint in a competitive fiscal environment, while still securing the goods and/or services required to meet government priorities. Challenges may occur if the product or service required is not commonly used, or if the offering is highly specialized. In such cases, contracting authorities may have to go through competitive processes several times to secure the best offer. This can result in significant delays, as the market may not be able to accommodate the urgency of the need. If contracting authorities then need to plan for a "bridging" contract (i.e. to obtain goods and/or services until they are able to establish a new contract through an RFP process), this adds to the costs and delays.
Transparency requirements , such as the need to post contract award notices on buyandsell.gc.ca and requirements in support of the Open Government Initiative (for example, the Contract Review Process), are intended to create fairness and accountability. However, if these transparency requirements are not properly understood, or if they are not followed, contracting authorities may face delays when audits and investigations of contracting authority activities arise.
Supplier and contract performance management relies on effective communication and consensus with multiple stakeholders. However, differing interests from stakeholders can lead to challenges in determining how to address under-performance, or a dispute with the supplier. If the contracting authority cannot resolve the issue internally, they may need to ask the Departmental Audit Committee to conduct a formal review. However, if the committee is busy, or if the issue is not deemed to be of sufficient importance, the audit may take considerable time to be completed. This can slow down performance management efforts, cause frustration for stakeholders, and ultimately result in delays in providing services to Canadians.
Best Practices for Contracting Authority Success
Although specific best practices will depend on the budget environment and level of outsourcing, there are ways contracting authorities in all budget environments can increase efficiency and effectiveness. One of the biggest gains in efficiency and effectiveness comes from technological integration. Technology can help by informing contracting authorities when contracts are up for renewal and monitoring deliverables. Contracting authorities can also create templates and checklists for common contracts; a common process lowers overall transaction costs. For example, a check-list makes sure that standard review protocols are applied. Template contracts can be modified across business units or divisions, saving time and effort. Repetitive contracts, such as equipment leases, can be standardized entirely.
Technology can also assist with document management. Tools can track approval and review through a series of approvals and create an easily retrievable repository of the information. This can decrease time spent searching for documents from past procurements. Contractors can upload documents and information directly into the system, eliminating "versioning" issues and decreasing the risk that the wrong document is sent. Document management tools can easily pull in supporting data from past procurements, assisting in the creation of NAICs.
Enhanced training can also increase the efficiency and effectiveness of contracting authorities. Most contracts have limited value. However, certain high-value contracts are signed, renewed, or modified in ways that can significantly increase life cycle costs. The costs often far out-weigh any one-year budget cut. However, by investing in training that targeted higher-value contracts, those contracts may better reflect the needs of the contracting authority and the market. For example, a contracting authority can identify its top 10 highest value contracts and train program managers on the costs of contract renewal and how to prevent unnecessary increases in costs and scope. Training focuses on when to competitively bid, when to renegotiate, and when to file a complaint with the Office of Competition Advocate.
Stakeholder engagement can also improve efficiency and effectiveness. Engaging stakeholders in reviewing a contract may reduce the time needed to approve the contract because all stakeholders have been informed of the terms. Many controversial contracts or contracts with significant scope limitations have been contentious because stakeholders were not informed and involved early in the procurement process. Engaging stakeholders also permits contractors to know up-front highlighted issues, such as sweat shop policies or social accountability plans, and work to ensure that those concerns are resolved. Stakeholder engagement can also be economically beneficial; when small businesses are involved in the procurement process, they are able to tailor their offerings, sometimes significantly decreasing the overall price of a contract. Stakeholder engagement also has social benefits as issues are addressed up-front, rather than raised at the end of the process when the issue is too costly to easily remedy.
Looking Ahead: Contracting Authority Trends
Emerging trends and developments in contracting authority include changes to the technology of procurement and transportation, including new types of cargo shipping infrastructure at ports and new technologies related to the sale and transfer of proprietary information.
Transformation will be evident in different areas of procurement, including how proprietary information is conveyed. This is especially true within government. Contracts could also be more modular due to emerging forms of international procurement. In some cases, this may even lead to clusters of contracts with an established vendor or developer providing many different items over a set amount of time to one government agency, as opposed to one larger or even single contract for a completion of the project. Again, the changing needs of the government plays a role here as well.
Breaking things down into smaller components rather than operating under larger contracts for individual government agencies can help to save time and costs, while also reducing some of the complication when it comes to approving new spending . Government agencies can allocate individual budget figures to contracts, making adjustments for the next fiscal year as necessary when things change.
There are limits to these larger contracts, as well. For example, there is a cap on the amount of money that the U.S. government can approve at one time when it comes to construction projects. The amount varies by year. So the concept of smaller contracts can help to avoid the problems that often arise when the government is unable to pre-approve larger sums of money for capital projects.
And as governments move toward outsourcing more responsibilities to the private sector, there are indications that contracting authority will become even more critical for companies dealing with governments. The rules may change on these smaller contracts on a state-by-state level, too, but it’s clear that these smaller modular arrangements are a clear trend that will affect public procurement in the future.
These and other trends, as well as legal changes around contracting authority, will be topics going forward in the coming years.