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Posted on Monday, January 13, 2014

Decision 1. Do Not Create “Apparent Authority”

With so many government contract legal decisions handed down during any year, it’s helpful at the start of the New Year to summarize those handed down the previous year that impact a government contractor’s bottom line. Over the next four days, we will provide a summary of an important decision from last year, typically one that serves as a reminder of the costly consequences of ignoring the often-obscure rules of government contracting.

Today, we describe “apparent authority”, a one-sided legal concept that does not apply to the government but does apply to a government contractor and can cost a government contractor dearly.

Decision 1. Do Not Create “Apparent Authority”

If a contractor is not vigilant, it can be harmed by “apparent authority.”  This dangerous concept is best explained by the Seven Seas Shiphandlers, LLC.  Seven Seas had a contract for work with the U.S. government in Afghanistan.  For convenience, Seven Seas let one of its subcontractor’s employees deliver Seven Seas’ invoices to the government. Also, on several occasions, the government gave him Seven Seas’ payments in cash which he gave to Seven Seas. But in early June 2009, the government gave him over $240,000 as full payment for five Seven Seas contracts and he has not been seen since then. A board concluded that the government could avoid paying Seven Seas for those five contracts if the government could prove that Seven Seas had given the subcontractor’s employee “apparent authority” to receive Seven Seas’ payments. Seven Seas Shiphandlers LLC, ASBCA 57875-79, 26 November 2012.Terry O’Connor is the Director of Government Contracts with Berenzweig Leonard, LLP, a DC regional business law firm. He can be reached at toconnor@BerenzweigLaw.com.

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