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Undefinitized Contract Action (‘UCA’) of Defense Industries

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The UCA model is commonly used in the United States in defense contracts F-35 Joint Strike Fighter Program is a well-known example of this. The article aims to evaluate the UCA and compare it with similar legal instruments of Turkish Law.

Basic Principles of  UCA

The Undefinitized Contract Actions is regulated under Defense Federal Acquisition Regulation Supplement’s (‘DFARS’) subpart 217.74 of the United States. It is necessary to have a foreknowledge regarding the cover of ‘contract action’ and ‘definitization’ terms in order to understand the concept of UCA. Accordingly, a contract action can be observed as contract modifications for additional supplies/services or task/delivery orders. However, the scope of contract action does not include change orders, administrative changes, funding modifications, or any other contract modifications that are within the scope and under the terms of the contract.

The definitization contains any agreement on, or determination of contract terms, specifications, and price, which converts the undefinitized contract action to a definitive contract. Therefore, undefinitized contract action can simply be defined as any contract action for which the contract terms, specifications, or price are not agreed upon before the performance is begun under the action. Letter contracts, orders under basic ordering agreements, and provisioned item orders for which the price has not been agreed upon before the commencement of performance can be given as general examples of UCA.

The implication of UCA is limited by the same regulation in order to avoid parties to manipulate its benefits. Pursuant to Section 217.7403, UCA shall be used only when the negotiation of definitive contract action is not possible in enough time to meet the Government’s requirements. UCA shall also be used if the Government’s interest demands that the Contractor is given a binding commitment so that contract performance can begin immediately. A UCA still shall cover detailed program/project background, not-to-exceed price and proposed definitization schedule.

The advantage of the UCA is to use the time efficiently while government and industry still discuss to finalize the contract provisions while it has also challenges that the contractor has little incentive to control costs during UCA which creates a potential for inefficient use of resources. Although, applying UCA must be considered when it is necessary, government agencies may prefer to use it widely because of its easiness. Moreover, meeting the definitization in accordance with the time frame is never certain.

Undefinitized Contract Actions in Turkish Law

Turkish law does not stipulate UCAs as a contract model. However, as per the Turkish Code of Obligations (‘the TCO’) dated 4.02.2011 and numbered 6098 it is possible to postpone deciding on some provisions of a commercial contract following the contract’s date of entry into force; yet this freedom given to the parties is not infinite. As per the TCO, some contract types prescribed in legislation has objective material provisions and secondary provisions. Contracts cannot enter into force without the mutual agreement of the parties on objective material provisions and as such parties’ declaration of intent regarding relevant provisions must be coherent. For example, in sale purchase agreements, product to be sold and the price of the product must be determined by the parties prior to the date of entry into force. Nevertheless, parties may opt to determine such material provisions in future based on objective criteria. To give an example, parties may determine the price-based market value of the products to be sold in a contract on a specific date rather than a specific price. Other than the objective material provisions, parties are free to determine secondary provisions as long as there is a mutual agreement.  This freedom given to the parties to a contract would be effective especially in defense industry where sub-contractors are common as the administration (or the employer) would often require additional works from the contractor and as a result price of the contract and time of completion may change. For that very reason, determination of objective material provisions may be challenging, and legal remedies offered in TCO and other relevant legislation is helpful.

In terms of administrative law, the use of UCA may be objected by a claim of contradiction to the basic principles of public procurement. Pursuant to 5th Article of Public Procurement Law numbered 4734, the administration shall ensure transparency, dependability and efficient use of the sources besides of other things. Considering comfort that is provided to parties by UCAs, their compliance with such principles may be questioned unless their protection is clarified by regulative bodies.

Authors: Batuhan Ecin, Kaan Erdoğan

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