Unauthorized commitments are orders placed by persons lacking the proper authority to commit that amount of funds. Specifically, the Federal Acquisition Regulation (FAR) defines the term as “an agreement that is not binding because the Government representative who made it lacked the authority to enter into such an agreement on behalf of the Government.” Only a warranted contracting officer bears the legal authority to bind the Government up to the limit of his or her warrant. So by definition, any contractual agreement entered into by a Government representative not holding a warrant of sufficient authority must be considered invalid. These non-binding agreements must be ratified by a warranted contracting officer in order to validate them. Ratification describes the process of correcting the unauthorized commitment so as to make the contract legitimate and binding. Note that not all unauthorized commitments can be ratified, and in such cases, the liability for the expended funds can become a personal liability for the person who committed the funds without proper authority. The Federal Acquisition Regulation (FAR) prescribes that ratifications be sufficiently painful for everyone involved so as to discourage them from happening very often. As such, contracting officers take great pains to train their supported agencies to avoid these burdensome errors.
In my ten years of contracting experience, I have dealt with several unauthorized commitments, but the most significant happened early in my career. As a mid-grade Major in the Army, I had about one year’s contracting experience when this incident occurred. A brigade stationed in Germany had received orders to deploy to Iraq, and needed about $500,000 in repair parts for various vehicle systems to bring them to full combat readiness. If I recall correctly, US Army Europe had some form of contractual agreement with the manufacturer (located in Sweden), but no one in that brigade was authorized to place orders. A young, eager but inexperienced captain contacted the manufacturer and ordered the necessary parts, and the contractor accepted the order and shipped the items, along with an invoice. The unit submitted the invoice to the finance office for payment, and the finance office naturally balked, asking for the contract authorizing the expenditure of funds.
Of course, no such authority existed, because the order had not been placed by a warranted contracting officer. This meant that a huge unauthorized commitment had just been uncovered. The lowest level of authority for ratification is the head of the contracting office. Army policy at the time further stated that any such incident exceeding the Micro Purchase Threshold of $3,000, up to $100,000 must be ratified by the Commander of the US Army Contracting Command – Europe. Any instance exceeding $100,000 must be ratified by the Head of the Contracting Activity, which was the Army Contracting Agency (ACA), headed by a civilian two-star equivalent.
Eventually, the problem landed on my desk. I investigated the matter, and concluded that everyone had acted in good faith, but had nevertheless done the wrong thing. The captain should never have contacted the manufacturer, let alone placed an order. The contractor should have known to confirm the order with the contracting officer (or office) listed in the contract. And the brigade’s staff and higher headquarters should have better controlled the process to prevent it from ever arising. Nevertheless, the mistake had to be ratified, and that process proved to be a “significant emotional event” for everyone involved. Remember, the dollar value for the ordered parts approached $500,000, so naturally, the brigade staff, the contracting office and everyone related to the issue became involved in a very unpleasant review and scrutiny of the incident.
In the end, the ACA representative ratified the unauthorized commitment, because the unit truly did need the parts, and because except for the missing contract authority, everything else about the purchase was legal. Thankfully, no lasting harm was done to any party, and the worst of it was some egg on the face. But had a few things been different, such as no funds available, or the parts not been truly necessary, then that young captain could have been facing a very costly lesson, or the contractor could have had to absorb the lost shipping and re-stocking expenses. Thus, it is vitally important that everyone in the contracting process, even the supplier, know and understand the limits of the authorities being used for the contract.