Introduction
The Federal Acquisition Regulations (FAR) governs procurement procedures in most government entities. However, some federal government entities are governed by additional laws such as DFAR and GSAR. These regulations stipulate the procedures and rules to be adhered to by government agencies when conducting business. FAR was enacted to protect the interests of the federal government as a trustee to tax payers. Consequently, it tends to favor the federal government and by extension, the taxpayers. Besides, it seeks to protect business entities that contract with the government from abuses by the federal government owing to the fact that the federal government is endowed with significantly disproportionately huge leverage that tilts the power balance in its favor. On the other hand, Uniform Commercial Code (UCC) is the law that governs contracts between and among commercial persons. Its salient and distinguishing characteristic is that it seeks to entrench equal power balance among contracting entities by according them equal legal bargaining leverage to negotiate contractual terms and conditions and resolve contractual disputes. It is supplemented and complemented by Common Law.
This paper addresses itself to the comparison between the legal positions taken the UCC and the FAR on certain aspects of the sale of goods such as the transfer of title, assignment, inspection and acceptance, risk of losses, excusable delays, warranty and limitation of liability. To this end, it shall critically analyze the points of congruence and departure on the aforementioned limbs between the two pieces of regulations.
Inspection and Acceptance
Inspection of services is enshrined in FAR 52.246-4. It accords the government the “right to inspect and test all services called for by the contract to the extent practicable at all times and places during the term of the contract”. However, this right is qualified by the condition to the effect that the inspection is not to delay the work.
The contractor is mandated to put in place and maintain systems of inspections that meet the federal government inspection standards. Consequently, the government is obligated to conduct surveillance of such systems. The government is also accorded the right to review documents of inspection in the course of performance of the contract in question.
All the inspection rights as discussed above are retained by the federal government with regard to purchases of commercial items. However, the government’s right to review inspection documents is precluded in this case. Besides, the UCC position regarding seller's warranty as to conformity of goods to contractual requirements is incorporated by dint of FAR 52.212-4 (a). FAR also provides for inspections by the contractor. The responsibility attached is based on the terms of the contract. It is provided for under the FAR 46.202-4.
On the other hand, the UCC reiterates the common law position of the buyer’s right to inspect the goods. Similar to the position in the FAR regarding the federal government’s inspection rights, the UCC 2-523 entitles the buyer with the right to inspect the goods in question at any time before payment is made. However, the manner of inspection is restricted by reasonability as opposed to undue delays. Furthermore, it provides that the cost of inspection is to be footed by the buyer. Nevertheless, the cost shifts to the seller in the event that the goods are rejected.
Regarding acceptance, the FAR does not stipulate a specific manner of acceptance. However, its broad definition of acceptance seems to suggest that both formal acceptance and implied acceptance would suffice.
A major distinction between FAR and UCC regarding acceptance is clear in respect of acceptance of works containing defects in the patent. According to the UCC, acceptance of such work entitles the buyer to pursue damages, whereas according to FAR, the federal government is deprived of all remedies.
Warranty
The warranty provisions are enshrined in Article 2-313 through to Article 2-315 of the UCC. This section of the UCC provides for both express and implied warranties as to various attributes of the goods in question. It appears to define express warranty as “affirmation of fact or promise forming part of the bargain”. Such warranties comprise legitimate expectations that the goods shall correspond to the description of goods or to the sample where the sale of goods is executed by sample.
Additionally, Article 2-314 of the UCC embodies implied warranties as to merchantability of the goods. It provides that there is implied warranty that the goods shall be fit for the ordinary purposes for which they are traded and that they shall be of reasonable fair or average quality.
Moreover, implied warranty as to fitness for a particular purpose finds expression in Article 2-315 of the UCC. However, this implied warranty attaches only in specific situations such as where the seller is reasonably aware of the buyer’s intended use of the goods in question. It is predicated in the case where the seller is aware that the buyer is relying on the seller’s experience and expertise.
On the other hand, the FAR categorizes warranties according to commercially and non-commercially of the purchases in question. Articles 52.246-17 through to 52.246-18 for instance, provides for compulsory warranties for purchases of both simple and complex noncommercial items. To this end, there is mandated warranty that the goods and services shall be devoid of defects and that there is conformity of the goods with the requirements of the contract. However, unlike equivalent provisions in the UCC, warranties as to merchantability of the goods and services are precluded with respect to government purchases of non-commercial items.
Provisions as to warranties relating to purchases of commercial items by the government by the government are incorporated by Article 52.212-4 (o). It more or less incorporates the warranties similar to those provided for by the UCC to govern commercial practices. The one that is emphasized is the warranty as to merchantability of goods, especially with regard to fitness for purpose. Additionally, it introduces negotiability into terms of warranties in the contract.
Assignment
Assignment provisions are enshrined in Article 2-210.1 (a) of the UCC. It provides that both the buyer and the seller have the right to assign rights under a contract. However, it stipulates the circumstances under which the said right is precluded. They comprise situations where the assignment of such rights would fundamentally alter the duty of the other party to the contract, fundamentally overburdens the other party or increases the risk forced on that party by the contract or fundamentally jeopardizes the chances of the other party of obtaining return performance. Additionally, it makes void the agreements that are contrary to an assignment of rights to damages for fundamental contractual breaches.
Assignment is more or less similar in FAR to the approach taken by the UCC. It is provided for by Article 52.232 of the FAR. It entitles the contractor with the right to assign its rights to be paid amounts due to him to a trustee, a bank, or other financial institutions. The government is mandated hereunder not to disclose any classified information in the contract to the assignees of the contactor in the course of executing the assignment. The position taken by the FAR appears to be different from that of the UCC in so far as the FAR only limits the assignment to financial institutions and is silent on the assignment to other parties. It adopts a narrow approach compared to the broad approach taken by the UCC with respect to classes of persons that qualify for assignment.
Provisions as to title of goods are encapsulated in Article 2-401.1 of the UCC. It provides that the title to goods passes following identification of a contract between the buyer and the seller. Furthermore, it states that the title passes from the seller to the buyer at the place and time where the performance of the sale contract is completed by the buyer with reference to the physical delivery of the goods. However, the title passes with reference to the physical delivery of a tangible document of title from the seller to the buyer irrespective of physical delivery of the goods in question.
On the other hand, provisions as to title under FAR are expressed in Article 52.246-16 of the FAR. The provision categorically states that title passes to the government from the contractor upon formal acceptance of the contract in question. This is the general rule governing the transfer of title with regard to contracts for the acquisition of commercial items, where the government is a party to the contract. The provision further states that the title passes irrespective of the time and geographical place in which physical possession of the goods is assumed by the government.
Risk of Loss
The provisions regarding the risk of loss without breach of contractual terms and its effects of breach thereof are incorporated in the UCC by dint of Article 2-509 through to Article 2-510. It specifically provides that the risk of loss passes to the buyer from the seller upon delivery of the goods to the carrier in instances where the seller is mandated by the contract to deliver the goods by the carrier without stipulating the exact physical location of the delivery. Moreover, the risk of loss passes to the buyer where the goods are in the possession of the baillee at the instance where the buyer receives the negotiable instrument, or on the bailee’s acknowledgement of the buyer’s right to possession of the goods. Nevertheless, these stipulations are subject to agreements to the contrary by the parties.
More so, the Article provides that the risk of loss does not pass to the buyer where the seller breaches a contractual term as to the delivery of the goods with the result of giving effect to the buyer’s right to rejection of goods.
However, with regard to risk of losses under FAR, the approach taken appears to be similar to that in commercial transactions between private entities. The risk of losses follows the title. Accordingly, the risk of losses passes from the contractor to the government upon passing of the title to the government. However, the general rule according to the wording of the provisions seems to be that the risk of losses where the supply of goods is the concern thereof shall remain with the contractor and shall pass to the government upon delivery of goods to the carrier or upon acceptance of the delivery of goods by the government at the destination stipulated by the contract. Article 52.246-16 of the FAR stipulates that the contractor shall not be liable for losses of whatever kind occasioned by negligence of employees, officers or agents of the government acting within the scope of their employment.
Excusable Delays
The provisions governing excusable delays in commercial transactions find expression in Article 2-615 through to Article 2-616. Accordingly, the UCC excuses the seller for delay in delivery of goods owing to compliance in good faith of unanticipated foreign or domestic laws or in instances where performance of the contract has been rendered impracticable by the occurrence of an unforeseen contingency at the time of conclusion of the contract. However, the aforementioned excuse is qualified by the seller’s fair and reasonable allocation of resources for part performance of the contract where the seller’s ability to perform the contracts is partly impaired and upon seasonal issuance of notices of delay by the seller to the buyer.
Excusable delay is governed by Article 52.219-14 of the FAR. A careful analysis reveals no significant difference from the approach taken by the UCC.
Limitation of Liability
Limitation of liability provisions for commercial transactions among private entities are governed by Article 9-628 of the UCC. It provides for non-liability of secured parties to debtors as a general rule. However, there are exceptions to the rule. The chief exception is instances where the secured party is aware of the fact that the other party is the debtor or an obligor, is cognizant of the identity of that party and has a means of communicating with the said party.
On the other hand, limitation of liability provisions under FAR finds expression in Article 52.246-22 of the FAR. It shields the contractor from liability to the government following government’s acceptance of service provided by the contractor under the contract. Nevertheless, the said limitation of liability is predicated on the contractor having performed the contract in good faith coupled with the condition that the defects or deficiencies surrounding government’s acceptance of the contract ought not to have been occasioned by willful misconduct on the part of the contractor.
Conclusion
In conclusion, the paper takes cognizance of the fact that there are notable differences between the UCC and the FAR as discussed. Instances of departure between the ICC positions and FAR areas have been discussed above, arise from attempts by the FAR to level the playing field by curing the power imbalance that exists between the government and private entities. However, it acknowledges that there exist points of congruence on certain aspects of the sale of goods in both pieces of regulations
References
Cibinic, J., Nash, R. C., & Nagle, J. F. (2006). Administration of Government Contracts. Washington DC: Walters Kluwer.
Hornyak, J. P. (2013, March 13). Article 2 of the Uniform Commercial Code: A Primer for Government Contractors. Retrieved March 9, 2016, from NCMA: http://resources.ncmahq.org/chapters/boston/52nd%20Annual%20March%20Workshop/52nd%20Annual%20March%20Workshop%20Course%20Materials/15.%20ADAMIAN%20260%20Commercial%20Contracting%20Under%20the%20UCC.PDF
McKenna Long & Aldridge LLP. (2012). Government Vs Commercial Contracts: Specific Comparisons Between the FAR and the UCC. Retrieved March 9, 2016, from McKenna Long & Aldridge LLP: http://www.ncmasd.org/images/Pres_20120418-Govt.vs.CommercialContracts.pdf
Office of the Federal Register. (2011). Code of Federal Regulations, Title 48, Federal Acquisition Regulations. Washington DC: GPO.
