When a contractor delivers goods to the government that do not conform to the precise requirements of the contract, the results are usually . . . not good. When the agency specifies certain products in the contract, the contractor should plan to satisfy the exact specifications (or prepare to suffer the consequences).
A straightforward example arose recently on a GSA construction contract. The contract called for the installation of products from specifically named manufactures (with limited sources identified). The contract also expressly called out that the agency would not permit substitutions for those named products.
After award, the contractor proposed substitutions for what it considered “equivalent” products from a manufacturer that did not appear on the agency’s approved source list. The agency declined to consider the contractor’s requested exceptions.
The contractor wisely proceeded to provide the brand name products – but also filed claims seeking the excess costs associated with those products (as compared to the lower-priced equivalents that it suggested to the agency). The contractor argued that the agency improperly rejected the substitution.
Not surprisingly, the Civilian Board of Contract Appeals granted the agency’s motion to dismiss. The Board found that the contract language clearly did not provide for substitutions – and that GSA did not breach the contract by refusing to consider the contractor’s proposed equivalents.
Was the contractor totally out of line with this request? No. There are certainly examples of agencies waiving contract requirements – even for specified products. But that would be the exception to the rule. Without a waiver, the contractor certainly did the right thing by providing the brand name products.
When contractors substitute products without a waiver, we quickly descend into discussions about breach of contract remedies (or worse). At a minimum, the government is entitled to tap into the contractor’s costs savings from using a product other than the one specified. The government can even seek damages from the contractor when the substituted product is objectively equal (based on the perceived damaged to the government’s competitive procurement system).
Even worse, agencies often view product substitutions as an intent to defraud the government, leading to criminal sanctions or alleged Civil False Claims Act violations. Examples arise when contractors intentionally mismark products or otherwise seek to mislead the agency into believing it is receiving something other than the product actually supplied.
Given the government’s current posture in prosecuting fraud under the False Claims Act, contractors must be wary of even honest mistakes being treated as allegedly intentional fraud.
Contractors must read and abide the contract’s fine print. Substitutions are not forbidden in government contracting, but must be treated as the narrow exception to the larger rule.
Nick Solosky is a Partner in Fox Rothschild’s Government Contracts & Construction Practice. You can reach Nick directly at NSolosky@FoxRothschild.com or 202-696-1460.