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Beware of Unauthorized Officials in Executing a Federal Healthcare Contract

Scott Honiberg and Jeff Weinstein, for HealthLeaders Media, April 6, 2009

It's unlikely that most people take the time to read all the way through any kind of commercial contract. All that fine print and paragraph after paragraph of legal jargon seems to be written by and for lawyers.

A federal healthcare contract isn't much different. However, once you receive an award from a government agency, it is important that your organization reads and is familiar with the entire contract, including provisions incorporated by reference. Many of the clauses included "by reference" are "boilerplate" and completely irrelevant to the work to be performed, but by law, must be included. On the other hand, some of the clauses incorporated "by reference," as well as others included in full are indeed important, and warrant careful attention.

Once you begin to perform under the contract, one important rule is to accept direction only from an "authorized" official. The key point here is to know the difference between an authorized and "unauthorized" individual.

In a healthcare contract, while the inclination may be to assume that medical or clinical staff of the government are authorized to provide direction to a contractor, they are frequently not the ones officially vested with the authority to execute a contract or implement changes. Typically, only the contracting officer (CO) and specifically identified designee (often the Contracting Officer's Technical Representative, or COTR) are authorized to give instructions or changes to a contractor.

If you proceed with services at the direction of a government employee who isn't authorized to give such direction, you may find it difficult to be paid for those services. A related rule of thumb is that you shouldn't volunteer to perform extra work in the hope that you'll work out payment later with the government. Make sure that you have written direction from an authorized government official before performing.

What if an authorized government agent directs you to perform work that you believe isn't part of your contract? Organizations that are relatively new to federal contracting are often caught off guard by such requests and assume that because they've been asked to do something, they must comply.

To the uninitiated, the "intimidation factor" can be a powerful deterrent to challenge the directions of an official agency representative. Many inexperienced contractors do not realize that there are a variety of informal and formal ways to resolve questions about whether a requirement is "in scope" (e.g., within the scope of work formally approved as part of their contract), or "out-of-scope" (e.g., not something that was originally part of the scope of work).

Beware of the intimidation factor. Just because you get a request—or even a demand—to perform something, it doesn't mean you must comply without recourse. One of the clauses frequently cited "by reference" in most federal healthcare contracts is the Disputes Clause (FAR 52.212-4(d)), which provides an important mechanism for resolving such issues.

Unless the government has materially breached the contract, the best strategy is to keep performing those services that are not in question, while attempting to resolve other issues with contracting staff informally. If informal avenues are not successful, you have the right to file a claim or other request for relief afterward.

The government ultimately retains the right to terminate a contractor "for default," however, from a practical standpoint, terminations for default are relatively rare, as frequently the parties are able to resolve differences to their mutual satisfaction. Another important difference between federal and commercial contracts is the government's right to unilaterally terminate a contract for their "convenience." This right allows the government to end a contract without being subject to a breach-of-contract suit as could easily occur in the private sector between two parties if one decided to simply walk away from an existing agreement.

While it may initially appear that the government has the upper hand in federal healthcare contracts, federal procurement law provides important rights to the contractor as well. A contractor has the right to submit a claim if the government orders work outside the scope of the contract; a contractor's performance will be excused if performance is impossible or impracticable through no fault of the contractor; and a contractor may assert its right to an excusable delay if it cannot perform on schedule and it is not negligent or otherwise at fault. Finally, the law recognizes that the government has a "duty to cooperate" with a contractor, and cannot "hinder" the contractor's performance. Again, any government failure to uphold this duty may be actionable.

By now, you realize the importance of record keeping when doing work on a government contract. It's best to communicate with the government in writing, or at least keep detailed notes of phone conversations and meetings. In addition, the contract itself will instruct you on what types of records you must keep, and for how long. It's a good practice to have and follow a written record-keeping policy, and to keep a log of any contract documents you destroy, including the date of destruction. Good record keeping will simplify government audits, and will help if you or the government assert a claim concerning contract performance and administration.

In next month's article, we will discuss "set-asides" (e.g., contracts that are set aside for certain socioeconomic categories of businesses) for healthcare services within the federal marketplace.


Scott Honiberg is president and Jeff Weinstein is counsel at Potomac Health Associates, Inc. They can be reached at S.Honiberg@PHAInc.com or J.weinstein@PHAInc.com , respectively.
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