Blogs

Posted on Friday, August 10, 2018

Software-Seller Benefits from Vendor-Friendly Commercial Items Rules

FAR Part 12 – Acquisition of Commercial Items contains unique contracting policies not found in other parts of FAR. For example, changes to a commercial items contract must be bilateral and may not be made unilaterally by the government like under the traditional Changes clause. FAR Part 12’s unique rules recently helped a software vendor win a breach of contract claim.

Under a FAR Part 12 Commercial Items contract, CiyaSoft sold the Army 12 single-user software licenses for software that translated English into Dari or Pashto and vice versa. After CiyaSoft learned that multiple-users had improperly used these single-user licenses, it sued the government for breach of contract, claiming that the Army had violated CiyaSoft’s single-user license terms.

At the Armed Services Board of Contract Appeals (ASBCA), the Army argued that it could not have breached CiyaSoft’s licenses because CiyaSoft’s licenses were not part of the contract. The Army reasoned that its contracting officer did not know or discuss any terms of a licensing agreement with CiyaSoft, the contract itself had no licensing terms, and the Army major who received the software was not authorized to revise the contract by accepting the terms of the licensing agreement.

Although the ASBCA agreed with the government’s facts, it found none of them relevant and held that the Army had breached CiyaSoft’s contract.

First, it was irrelevant that the contracting officer had no actual knowledge of the terms of the licensing agreement: a contract cannot be voided simply because one party fails to read it. Here, the Army was buying 12 software licenses and the contracting officer accordingly “had a duty to inquire as to its terms, which he failed to do.” Because he did not ask about the terms and should have, the Board imputed knowledge of the terms to the Army.

Second, the contract had license terms which, although not expressly included in the contract, had in fact been shipped with the software. When the government buys commercial computer software under FAR Part 12, it is government policy that the software “shall be acquired under licenses customarily provided to the public to the extent such licenses are consistent with federal law and otherwise satisfy the government’s needs.” (FAR 12.212(a)). In this case, although the contract itself had not restricted the government’s right to use the software, the vendor’s standard commercial license did and it limited the government’s use of each license to a single user.

Third, the Board found that the license terms had been legally “accepted,” not by the Army major receiving the software, but by the software’s users. According to CiyaSoft’s license, a user effectively accepts CiyaSoft’s terms by opening the box containing the software and the license terms (“shrinkwrap”) and then clicking acceptance of the terms as part of the software installation process (“clickwrap”). Therefore, when the Army’s users opened and installed the software, they accepted the company’s single-user restriction.

Summing up its decision, the board said that “the government can be bound by the terms of a commercial software license it has neither negotiated nor seen prior to the receipt of the software, so long as the terms are consistent with those customarily provided by the vendor to other purchasers and do not otherwise violate federal law.”
CiyaSoft Corp., ASBCA No. 59519, June 27, 2018.

This case is an excellent example of how the FAR’s unique commercial items rules can be the difference between a contractor winning or losing a case. Although there are not many differences with other FAR sections, the variances that do exist typically involve fundamental contracting concepts like acceptance of items, termination of the contract, and warranties.

Vendors who sell both commercial items and non-commercial items to the government must be aware of these differences. They should not assume that the government’s rules are uniform regardless of what the government is buying.

Terry O’Connor is a Partner at Berenzweig Leonard. Terry and Stephanie Wilson lead the firm’s Government Contracts practice. Terry can be reached at toconnor@berenzweiglaw.com.