Ch.26 – Authority to Settle

Authority to settle refers to the power vested in an individual to legally bind the an agency, corporation, company, partnership, or other party to a proposed settlement agreement.  At least two aspects of settlement authority must be mentioned for consideration.  The first is “who” has such authority, and the second is “what” they do in the ADR process.

Authority to Settle

The contract documents (or pre-award documents like a solicitation or proposal) typically identify individuals who have the authority to contractually bind the parties.  When proceeding with ADR, it is very important to understand who has authority to bind each party so that enforceable settlement agreements can be executed.

Contractors do business under many different legally recognized organizations, e.g., sole-proprietorships, partnerships, joint ventures, corporations, associations, etc.  Authority of an individual person to bind these business organizations can be actual authority or apparent authority, depending on the circumstances.  See Restatement (3d) of Agency, Secs. 2.01 – 2.03.  Government contracting officers are obligated to ensure that the person(s) signing a contractual document on behalf of a contractor have appropriate authority.  FAR 4.102.

Government agencies, however, are bound only by those who have actual authority, and the Supreme Court has long recognized that the United States government is not bound by the unauthorized acts of its employees.  Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 68 S.Ct. 1, 92 L.Ed. 10 (1947).  Generally speaking, this means that apparent authority theories will not prevail to bind the government.  Instead, a person dealing with the Government must ensure that the person with whom they deal has actual authority to bind the government.  As the Supreme Court explained in Merrill when it denied an insurance claim from an unfortunately misled farmer:

[T]he Wheat Crop Insurance Regulations were binding on all who sought to come within the Federal Crop Insurance Act, regardless of actual knowledge of what is in the Regulations or of the hardship resulting from innocent ignorance.  The oft-quoted observation in Rock Island, Arkansas & Louisiana R. Co. v. United States, 254 U.S. 141, 143, 41 S.Ct. 55, 56, 65 L.Ed. 188 (1917) that ‘Men must turn square corners when they deal with the Government,’ does not reflect a callous outlook.  It merely expresses the duty of all courts to observe the conditions defined by Congress for charging the public treasury.  The ‘terms and conditions’ defined by the Corporation, under authority of Congress, for creating liability on the part of the Government preclude recovery for the loss of the reseeded wheat no matter with what good reason the respondents thought they had obtained insurance from the Government.

Merrill, 332 U.S. at 385.  Authority to bind the Government to a settlement agreement may vary.  In most cases, such authority rests with a sufficiently warranted contracting officer.  FAR 4.101.

Role During the ADR Process

In terms of participation in any non-binding form of ADR, it is essential that the parties designate principal negotiating representatives (principals) in advance of the ADR proceeding.  The principals should be at a high enough level within their respective organizations and should have sufficient authority to commit their organizations to a complete settlement of the controversy.  It is preferable that these principals not be involved directly in the evaluation or award of the contract at issue (for bid protests) or in the day-to-day administration of the contract (for claims or appeals), so that they may maintain a certain degree of objectivity during the course of the ADR proceeding.  In addition to the principals, each party should make available for the ADR proceeding the individuals within their organizations who possess first-hand knowledge of the facts.


Authority of Government Officers

“… anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority. … And this is so even though, as here, the [Government’s] agent himself may have been unaware of the limitations upon his authority.”

Fed. Crop Ins. Corp. v. Merrill
(S.Ct. 1947)