Construction Law

Handshake Deals with the Government are not Binding

By John P. Ahlers

American convention in the commercial world is for parties negotiating a contract to shake hands when they have reached an agreement. This tradition is an indication that the parties have entered into a legally binding contract. Contractors dealing with the government should not be misled into thinking that handshakes with government officials have any legal significance. For a deal to be binding with the government it must be in writing.

In the recent case of Northrop Grumman Systems Corp., ASBCA 54774, 210 W.L. 2998260 (July 2010) is a vivid example of courts not upholding a handshake deal. In Northrop Grumman Systems Corp. the contractor and the government had engaged in protracted negotiations to resolve a troubled weapons system. After the lengthy negotiations, which was attended by the Army representatives, including the Contracting Officer and the contractor. The terms of the agreement were written on a white board, the Army project manager and contractor representatives affirmed they had a deal and shook hands. When the contract modification was not forthcoming, the contractor filed a claim.

The Armed Services Board (court) rejected the contractor's claim holding that the Army project manager did not have authority to enter into the bargain. The court ignored the contactor's argument that the Contracting Officer was part of the agreement, by allowing the Army project manager to "shake on the deal." The Board characterized the handshake as an "informal, courteous gesture." The lesson here is that contract modifications with the government must be in writing and signed by the Contracting Officer.

Full post as published by Construction Law Blog on November 11, 2010 (boomark / email).