Key Takeaways

  • Contract authority refers to the legal ability to act on behalf of another party or entity in contractual matters.
  • Apparent authority can make unauthorized actions legally binding under specific conditions.
  • The FMCSA recognizes common, contract, and broker authority in the transportation industry.
  • 33 U.S. Code § 891d governs multiyear federal contracts, emphasizing cost-efficiency and accountability.
  • Interstate vs. intrastate commerce distinctions determine regulatory requirements for carriers.
  • Federal contracting requires delegated authority and ratification procedures to validate unauthorized actions.
  • Agencies must follow strict protocols to ensure valid procurement actions and uphold legal enforceability.

Contract authority refers to the ability given to an individual or agency to act on another's behalf in order to carry out a specific task.

Lack of Authority vs. Apparent Authority

A lack of authority refers to a party acting on behalf of another without having been granted the permission to do so, or a party who has been granted permission to act on another's behalf interfering with areas that they have not been granted specific permission to handle. In this instance, any action made is not legally binding.

There are two instances where a party operating under a lack of authority may legally bind another:

  • When authority is approved after the fact.
  • Cases of apparent authority.

Apparent authority is similar in the sense that the acting party was not given explicit permission to act on behalf of the other, but such permission is reasonably implied. For example, employees often act on behalf of their employer and have the ability to bind them in contract with another entity. Apparent authority is often a necessary component of business, as many companies would be unable to function if responsibility was not shared.

Ratification and Delegation in Federal Contract Authority

In the context of federal contracting, only specific officials are empowered to bind the government in contractual agreements. These individuals, called contracting officers, derive their authority from a formal written delegation. When someone without proper authority attempts to enter into a contract on behalf of the government, the agreement is not immediately valid.

However, such actions may be ratified. Ratification refers to the process where a contracting officer, who has appropriate authority, retroactively approves an unauthorized commitment. According to the Federal Acquisition Regulation (FAR), ratification is only permissible when:

  • The contracting officer would have had the authority to enter into the agreement initially.
  • The government has received a benefit from the commitment.
  • There is no indication of bad faith or fraud.
  • Funds are available for the purchase.

Ratification serves as a safeguard against unauthorized obligations while ensuring fairness for vendors who have performed in good faith.

Common, Contract, and Broker Authority

In the case of the Federal Motor Carrier Safety Administration, which regulates haul transportation between states:

  • Common authority involves for-hire transportation services provided to the general public by a common carrier.
  • Contract authority involves for-hire transportation services provided to a specific entity by a contract carrier.
  • Broker authority involves a company finding for-hire carries to transport cargo that belongs to an additional party.

Key Differences Between Common and Contract Authority

While both common and contract authority involve the transportation of goods, they differ in scope and obligations:

  • Common authority allows a carrier to transport goods for the general public. These carriers must accept any job offered within their operating scope, assuming they have capacity. They operate on a non-exclusive basis and often publish standard rates.
  • Contract authority enables a carrier to transport goods for specific customers under a private agreement. These carriers are not required to serve the general public and usually negotiate individualized rates and service terms.

Broker authority remains distinct, as brokers do not operate vehicles but instead arrange transportation through authorized carriers.

Understanding which type of authority applies helps businesses remain compliant with FMCSA regulations and structure logistics agreements effectively.

33 U.S. Code § 891d - Contract Authority

According to the 33 U.S. Code § 891d, multiyear contracts require:

  • Funding be obtained throughout the duration of the contact to avoid ending the contract.
  • The contract must promote the best interests of the country through the promotion of economic efficiency and competition.

Similarly, multiyear contracts require certain provisions:

  • Payment depends on the availability of funds prior to payment.
  • The expectations of the contract must be clearly outlined.
  • Plans outlining what will happen in the event of early contract termination, including amounts liable.

Prior to entering into a service contract, there are many considerations to make:

  • It must be in the public's best interest.
  • The duration of the contract does not exceed seven years.
  • The contract must cost less to execute than other available options.

Federal Budget Implications and Contract Authority

Contract authority in federal budgeting allows agencies to obligate funds in advance of appropriations. It is frequently used in long-term infrastructure projects, such as highway construction. Under this model, Congress grants agencies the authority to enter into binding contracts that will be funded through future budget authority.

Key aspects of this approach include:

  • Advance commitment of funds: Agencies can start projects immediately, enhancing planning and execution.
  • Apportionment oversight: The Office of Management and Budget (OMB) monitors contract authority allocations to prevent over-obligation.
  • Reimbursement framework: Contract authority often pairs with reimbursement authority, where funds are disbursed after the obligation is incurred.

This mechanism supports efficient long-term planning while maintaining fiscal responsibility under federal financial regulations.

Interstate Commerce vs Intrastate Commerce: Frequently Asked Questions

Interstate commerce involves crossing state boundaries. With this, there must be a physical cross of state lines, or the intent to cross, made by:

  • The vehicle.
  • The passengers.
  • The cargo.

When interstate commerce is involved, safety and operating regulations must be followed on both the federal and local levels. The state in which a vehicle is registered must be aware of the intention of interstate commerce before state lines are crossed to ensure compliance with the International Registration Plan and the International Fuel Tax Agreement.

The state in which the vehicle is registered is responsible for collecting fees and distributing them according to the other states that will be involved.

Intrastate commerce does not involve crossing state lines. In this case, local regulations need to be followed in addition to three federal laws:

  1. All drivers must have a commercial driver's license.
  2. All drivers must be tested for drugs and alcohol.
  3. Maintain financial responsibility for hazardous materials and substances.

Similarly, a USDOT number will be needed if:

  1. The vehicles used are over 10,000 pounds.
  2. If there will be between nine to 15 passengers being transported for compensation.
  3. If there will be over 16 passengers being transported.
  4. If hazardous materials are involved (in the case of interstate commerce).

A For-Hire carrier involves receiving compensation for the service provided. These carriers need:

  • A USDOT number (these are not transferable).
  • Operating authority, which is called an MC number (this will not change in the event of a change in name, nor will a new certificate be issued with the updated name).

Merely applying for the correct permits is not enough. Until the correct permits have been issued, interstate transportation is not allowed. A simple search of the FMCSA database can determine if operating authority is active.

Consequences of Operating Without Proper Contract Authority

Operating without the required contract authority can lead to severe penalties and business disruptions. The FMCSA enforces strict rules around who can engage in for-hire interstate commerce. Consequences include:

  • Civil penalties: Fines can exceed $10,000 per violation for operating without proper authority.
  • Out-of-service orders: Vehicles may be detained until the operator secures the appropriate permits.
  • Ineligibility for contracts: Companies lacking operating authority are typically barred from bidding on government or commercial shipping contracts.
  • Insurance complications: Operating unlawfully may void liability insurance, exposing carriers to legal and financial risks.

Businesses must ensure their USDOT and MC numbers are active and accurate before transporting goods across state lines.

Frequently Asked Questions

  1. What is contract authority in federal budgeting?
    Contract authority allows agencies to commit to spending before actual appropriations are available, facilitating multi-year planning.
  2. How is contract authority different from appropriated funds?
    While appropriated funds are backed by immediate budget allocation, contract authority represents a promise of future funding authorized by law.
  3. Can an unauthorized contract be legally enforced?
    Generally no, unless it is later ratified by someone with proper authority under specific legal conditions.
  4. What is the purpose of FMCSA operating authority?
    It ensures that carriers and brokers meet safety, insurance, and financial requirements before operating in interstate commerce.
  5. Do contract carriers have to accept every shipment offered?
    No, unlike common carriers, contract carriers can selectively choose their clients and negotiate terms privately.

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