RULES OF CONTRACT INTERPRETATION

It's time we got back to the basics.  Many, if not most, contract disputes involve questions of contract interpretation.  Judge David James of the Armed Services Board of Contract Appeals (ASBCA) recently has reminded us of these rules, citing precedent from the Court of Appeals for the Federal Circuit (CAFC).  The language Judge James was asked to interpret is the following:

This chart depicts by size what the Government anticipates ordering under the resultant contract.  Each delivery order issued will stipulate exactly what sizes and quantifies the Government will require for delivery.

The contractor argued that if the quantities ordered varied from what was anticipated, there would be an upward or downward price adjustment.  Applying the rules of contract interpretation, Judge James disagreed with the contractor and held that the size tariff chart did not guarantee that the percentage of each size to be ordered would conform to the size tariff percentage for each such size.  So what are the rules of interpretation he applied?

The following rules have been stated over and over again in CAFC and ASBCA opinions:

1. "In resolving disputes involving contract interpretation, we begin by examining the plain language of the contract."
2. We construe a contract "to effectuate its spirit and purpose giving reasonable meaning to all parts of the contract."
3. The threshold question is whether the plain language of the contract "supports only one reading or supports more than one reading and is ambiguous."
4. If a contract is susceptible of more than one reasonable interpretation, it is ambiguous.  But both interpretations must fall within a "zone of reasonableness."
5. In choosing between competing reasonable interpretations of an ambiguous contract provision, the general rule of contra proferentem requires the ambiguity to be resolved against the drafter
6. An exception to the rule of contra proferentem arises when an ambiguity is to "patent and glaring" that it is unreasonable for a contractor not to discover it and inquire.

After stating these rules, Judge James examined dictionary definitions of the word "anticipate" and determined the word does not denote or connote exactitude.  Therefore, the contractor's interpretation was not within the zone of reasonableness.

Keep these rules of contract interpretation close.  They have been repeated over and over again by the judicial tribunals dealing with government contracts.  Both sides to a contract interpretation dispute should be guided by these principles.  Perhaps by paying more attention to the law announced by these tribunals, we can resolve more disputes short of full blown litigation.

bill@spriggslawgroup.com   Other posts at http://scs.mymediaroom.com/blog/.