Contracts vs. Federal Contracts

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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Contract law allows people, businesses, the government and other entities to enter into legally enforceable promises with each other. Contracts put the power of the courts behind the promises made, which means that they make it possible for business to be done and for people to make deals without fear of loss. Most of the laws that relate to contracts are common law and are set on a state by state basis, although a Uniform Commercial Code (UCC) has been adopted in whole or in part by all states that helps to streamline the laws related to contracts for the sale of goods. When a contract is made with the federal government, additional laws apply to protect the tax paying public.

Contract Law Basics

Contracts can be broadly grouped into two types: unilateral contracts and bilateral contracts. In unilateral contracts, only one party makes a promise. For instance, if someone promises $100 to the first person who paints his house, then the house painter wouldn’t make a promise to paint the house- he’d just go and paint it and the homeowner would be obligated to give him the $100. In a unilateral contract, both parties make a promise. For instance, the homeowner could promise $100 in exchange for a promise to paint his house.

When contracts are entered into, there are a number of requirements that they must fulfill. One of the most basic requirements is that contracts must contain something called “consideration.” Essentially, this means each person is promising, doing something, or offering something of value. Without consideration or some type of bargained-for exchange, the agreement will not be enforced as a valid contract. For instance, if a woman promises her friend $100 but the friend promises nothing in return and does nothing to earn the $100, then no contract is formed- the $100 is a gift. While consideration must be present in a contract, the items being promised or exchanged do not have to be equal value. For instance, if a woman promises $100 in exchange for her friend giving her $2, if her friend fulfills the contract terms and gives her the $2, then the $100 must be given or the contract will be considered to have been breached.

Breach of Contract

Because a contract is a legally enforceable promise or agreement, when the parties do not perform as required by the contract, the legal system will provide a remedy. The person or entity that failed to fulfill the contractual obligations can be sued for breach of contract. He must prove that the contract was actually breached, which means the other party didn’t perform as required. He must also prove that the breach caused some type of actual monetary loss, called damages.

Only actual, provable damages are recoverable in a contract law case; attorney’s fees typically aren’t repaid and there are no punitive damages as there are in tort cases. The person who suffered damage as a result of a breach must also “mitigate” damages, which means he must take steps to minimize the financial loss.

A person accused of breaching a contract has a number of possible defenses, including that the contract was created under duress or that there was a material misrepresentation in the creation of the contract. An intervening act of God that makes the contract impossible to perform may also be another defense to breach, as is lack of capacity to contract (such as being under 18 at the time the contract was entered into). Failure to read or understand the contract, however, is not an excuse for breaching a contract.

Special Requirements for Federal Contracts

While all contracts must follow the basic rules of contract formation and consideration, federal contracts are treated differently and special rules apply to them. This is important because the government uses taxpayer funds to enter into contracts and should be entering into only those contracts that serve the public good. There are many, many special requirements for government contracts including a requirement that there be an open and transparent bidding policy before a contract for services is entered into with a particular party. To understand all of the additional requirements imposed in government contracts, it is best to speak with an attorney who has experience in government contracts..

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