RULES OF CONTRACT INTERPRETATION

The first rule of contract interpretation is to examine the plain meaning of contract language giving reasonable meaning to all parts of the contract.  LAI Services, Inc. v. Gates, 573 F.3d 1306, 1314 (Fed. Cir. 2009).  See also, Coast Fed. Bank, FSB v. United States, 323 F.3d 1035 (Fed. Cir. 2003); Philadelphia Authority for Industrial Development v. United States, 114 Fed. Cl. 519 (2014). 

A contract must be construed in its entirety “so as to harmonize and give meaning to all its provisions.”  Thanet Corp. v. United States, 219 Ct. Cl. 75, 82, 591 F.2d 629, 633 (1979).  The entire contract clause, not just a portion of it, must be analyzed to ascertain the clear meaning of the clause.  See, e.g., Tri-O, Inc. v. United States, 28 Fed. Cl. 463 (1993). 

When construing a contract, the rule is to read the contract as a whole so as to give meaning to each of its provisions.  Hol-Gar Mfg. Corp v. United States, 351 F.2d 972 (Ct. Cl. 1965).  Proper contract interpretation gives meaning to all provisions and makes sense.  McAbee Constr. Inc. v. United States, 97 F.3d 1431, 1435 (Fed. Cir. 1996).  Proper contract interpretation requires a review of all relevant language in a contract schedule to resolve the meaning of language in the specification.  Boyajian v. United States, 423 F.2d 1231 (Ct. Cl. 1970).  The rules on contract interpretation seek to avoid ambiguity.  C. Sanchez and Son, Inc. v. United States, 6 F.3d 1539, 1543 (Fed Cir. 1993); Beta Systems, Inc. v. United States, 838 F.2d 1179, 1185 (Fed. Cir. 1988).

If the words are ambiguous, the second step in contract interpretation is to examine the conduct of the parties at the time to determine if that conduct resolves the ambiguity.  If so, the ambiguity is resolved in favor of the party arguing for that meaning.  KDI Development, Inc. v. Johnson, 495 Fed. Appx. 84 (Fed. Cir. 2012).  The intended interpretation of the parties often can be gleaned from their actions prior to the time the dispute arose.  Evidence of this behavior has been given controlling weight.  Macke Co. v. United States, 467 F.2d 1323 (Ct. Cl. 1972). 

If the language is latently ambiguous, and the contractor’s interpretation is reasonable, the contractor’s interpretation will prevail over the one advanced by the government.  Input/Output Tech, Inc. v. United States, Fed. Cl. 65, 72-73 (Ct. Cl. 1999).  A latent ambiguity usually becomes evident when two conflicting interpretations appear reasonable.  Id.  The contractor is not required to prove the ambiguity. If the contractor’s interpretation is reasonable, the government’s reasonable alternative interpretation demonstrates the ambiguity which results in interpretation against the government.  United States v. Turner Constr. Co., 819 F.2d 283 (Fed. Cir. 1987).

bill@spriggsconsultingservices.com