Contractor and Sub Contractor Agreements

Merritt vs. United States There is a critical distinction between contracts that are implied in fact and those that are implied in law. The latter is founded in law and provides the legal basis for contracts. Contracts are lawful agreements; therefore, there is no greater authority that a contract that is implied in law due to the lawfulness of such a document. Contracts implied in fact, however, are implications that are not founded in law and that are merely founded in whatever sort of facts pertain to a particular contract.

Thus, contracts implied in law are legal in that they are lawful by nature, whereas contracts implied in fact do not necessarily have a legal basis for their implications. As such, there are numerous reasons for why Congress would seek to limit the jurisdiction of contracts that are implied in fact. One such reason is that such contracts are not necessarily rooted in a legal basis -- certainly not to the extent that contracts which are implied in law are.

Moreover, there is virtually no limitation to the scope of a contract that is implied in fact. Quite simply, there could be numerous facts which apply to a contract. Without a legal basis for those facts, contracting parties could introduce any assortment and number of facts that are applied to a contract. However, those facts might not necessarily have any sort of legal precedent or basis.

Subsequently, Congress would want to limit the authority or jurisdiction of these contracts because they could be so widespread and result in a host of sweeping implications that may or may not be directly related to the original contract. From a legal standpoint, then, it is more advantageous for Congress to extend or concentrate on the jurisdiction of those contracts that are implied in law, since they directly correlate to legal issues that have an objective basis.

Contracts implied in fact can take on subjective connotations and perceptions that vary from one party to another, whereas those implied in law are objective. It is quite clear how a prime contractor can protect itself against sudden terminations with the contracting party when it has a subcontract with another party to meet the original needs mandated by the contracting party.

Simply put, the prime contractor has to explicitly denote the terms of which it will do business with the subcontractor, and indicate that those terms are subject to change based on its agreement with the contracting party (or with that party that will actually receive the goods or services facilitated by the prime contractor and generated by the subcontractor).

Specifically, then, the prime contractor must draw up a clause in its agreement with the subcontractor that states that the amount of materials or services it requires is actually dependent on its relationship, terms, and contract with the contracting party. In some instance, it is prudent for the prime contractor to inform its contract with the proverbial 'kill fee' -- in.