Analyzing what is a voidable contract is sometimes confusing even sophisticated parties. For example, many recent construction cases involved instances where the contract between the contractor and the government was held by the ASBCA to be a voidable contract given various mistakes made by the contractor.
What is a voidable contract definition in federal procurement?
A voidable contract can be defined as a valid contract that could potentially be rejected by one of the parties. One party is bound by the contract but the other may reject the contract as voidable. Generally, a court may decide that there is a voidable contract if there is misrepresentation or some level or fraud. The facts of each case will determine the outcome. Other reasons to meet the legal definition of a voidable contract in federal procurement include:
- Procurement fraud
- Fraud takes many shapes: providing false certifications, forging documents, etc.
- Wrongdoing/gross mistake
- Material misrepresentation
- Prohibited conflict of interest
The ASBCA will hold that the agreement is a voidable contract if the contractor would not have received the contract but for the illegal conduct. Rendering a contract void ab initio (meaning “from the beginning” and it treats the contract as if it never existed) is a harsh penalty, but it is in place to help guarantee the integrity of the federal contracting process and to protect the public from corruption. See information about offeror representations and certifications.
While the Government does have a responsibility to verify certificates presented in the proposal (which itself can lead to a right to revoke acceptance under the Inspection of Construction clause), this is not a sufficient defense for contractors where the requirements were met to find a voidable contract. The verification is in place for the Government’s benefit, not the contractor.
Government’s Proof of a Voidable Contract? To prove that there should be a voidable contract, the government must show that the contractor:
- Obtained the contract by
- Making a false statement
All three elements must be proven.
Attributable Actions: Actions by various company personnel, including a company’s owner, director, project manager and the like are attributed to the company itself; the acts of one person can cause a voidable contract, which can have vast effects on other employees on the conduct who depend on the contract. It is important as an owner of a company to have proper regulations in place so that this does not happen to your company.
Can contractors recover money for work already performed on the voidable contract?
In short, no. In one recent case, Dongbuk R&U Engineering Company, the contractor knowingly misrepresented its employee licenses, and the court found a voidable contract void from the beginning. Dongbuk argued that even though there was a voidable contract, the Government must still pay it for the work already performed. The ASBCA noted that Dongbuk engaged in fraud to gain the contract; they were seeking payment on the contract itself, which was illegal and fraudulent and therefore, never valid.
“When one has been guilty of fraud, one cannot recover in any form of action.”
To overcome the penalties of a voidable contract, it is crucial to meet the requirements set out in the solicitation and to avoid falsifying documents or certifications. Many motives for this are monetary related, but the risk certainly does not outweigh the benefit, which can be short-lived and costly in the end.
In a recent case, the solicitation stated that a master electrician certification was required. Otherwise, the bid would not be considered. The contractor who was awarded the contract provided a false certification, and it was then declared to be a voidable contract. These acts cause massive delays and detriment to the government and all other bidders who may have been qualified.
If you have any questions regarding the federal voidable contract definition, or if you think there may be a claim against you, call any of our government contractor defense attorneys at 1-866-601-5518 for a free consultation.