Government Contractors Could Lose Key Protection, Attorneys Warn

WASHINGTON, April 13, 2016 /PRNewswire/ -- Unless overturned by the U.S. Supreme Court, a federal ruling threatens to erode a basic protection enjoyed by businesses that contract with the government, according to veteran litigators with national law firm LeClairRyan.

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"The plain language of a contract has always meant precisely what it says, not what the government claims it means," said Thomas A. Coulter, a shareholder in LeClairRyan's Alexandria and Richmond, Va., offices. "And yet this fundamental principle of contract law could suffer lasting damage—with potentially far-reaching implications for contractors—if the High Court declines to examine, and ultimately reject, the Air Force's treatment of our client, Distributed Solutions, Inc."

LeClairRyan submitted a brief on March 10 asking the Supreme Court to take up the case of Distributed Solutions Inc. v. Deborah Lee James, Secretary of the Air Force (15-1157). The contract dispute hinges on whether the Air Force had a perpetual right to use Distributed Solutions' proprietary software required to successfully run the multi-million dollar purchasing and contract management support system for over 3,500 Air Force activities that operate using Non-Appropriated Funds.

During the course of negotiations, the government drafted and agreed to clearly worded language indicating that its usage rights for the software were valid only for the life of the five-year contract, Coulter explained. However, toward the end of the contract, the government claimed the right to use the software perpetually—with no obligation to pay licensing fees after the contract had ended.

"The meaning of the phrase '[t]his modification [which contained the government's right to use the software] is valid for the entire life of the contract'-- language the Government drafted -- is clear and unambiguous," the attorney said, "Despite acknowledging the clarity of its own language, the government later claimed that the language did not mean what it clearly said."

Distributed Solutions filed an unsuccessful claim with the Air Force. A review board denied the company's appeal in August 2014. In the review board's judgment, Distributed Solutions should have avoided the dispute by better explaining its interpretation of the provision in question. The Federal Circuit upheld this view, which runs counter to time-honored legal principles in contract law, said Stephen M. Faraci, a shareholder in LeClairRyan's Richmond office.

Unless corrected, these judgments could have far-reaching implications for contractors, the attorney said. "Bear in mind, this language was drafted by the government itself," Faraci noted. "So does this mean that, moving forward, parties contracting with the government will need to inquire about the meaning of language drafted by the government, regardless of the language's clarity, to avoid the risk that the government later will reverse itself?"

This new expectation for contractors to question the meaning of clear and unambiguous wording will be particularly onerous to small businesses, which are a significant source of innovation for government operations, according to Coulter.  Such an expectation could deter small businesses from entering into government contracts to avoid the expense of employing attorneys to negotiate each word of the contract in order to ensure they can hold the government to its contractual obligations, he said.    

Given that government contracts are already voluminous and complex, often with multiple modification provisions, such an expectation would be unprecedented, unworkable and unwise, added Joseph M. Rainsbury, counsel in LeClairRyan's Roanoke office. "Plain contractual language speaks for itself and has always been sufficient, legally," he said. "Contractors such as Distributed Solutions should not be expected to read between the lines or to inform the government about their interpretations of clearly worded provisions."

"Should the judgment stand, contractors with proprietary software will have significant concerns about the business costs/risks of developing counteracting contracting language needed to prevent the government from later arbitrarily reinterpreting the intent of plain language that they have previously agreed to," said Daniel E. Carr, Founder and CEO of Distributed Solutions, which is a small business. "This is particularly true if software innovation is at the core of what the company is and does," Carr said. "If a company implements for the government an innovative proprietary solution, it simply must know that this will not involve the sudden, unexpected and unfair loss of its precious intellectual property. This kind of overreach might be commonplace around the world, but it is not supposed to happen in the United States."

About LeClairRyan

As a trusted advisor, LeClairRyan provides business counsel and client representation in corporate law and litigation.  In this role, the firm applies its knowledge, insight and skill to help clients achieve their business objectives while managing and minimizing their legal risks, difficulties and expenses.  With offices in California, Colorado, Connecticut, Delaware, Georgia, Maryland, Massachusetts, Michigan, Nevada, New Jersey, New York, Pennsylvania, Texas, Virginia and Washington, D.C., the firm has approximately 380 attorneys representing a wide variety of clients throughout the nation.  For more information about LeClairRyan, visit www.leclairryan.com.

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