National Institute of Standards and Technology--Use

B-245714 Dec 13, 1991 Jump To VIEW DECISION RELATED PAGES GAO CONTACTS Highlights BACKGROUND EDI is the electronic exchange of business information between parties. EDI is being used to transmit shipping notices. Electronic contracting is the use of EDI technologies to create contractual obligations. It is possible for an agency to contract in a fraction of the time that traditional practices take. NIST is in the process of developing standards for electronic signatures to be used in various applications. (1) a binding agreement between an agency and another person (including an agency) that is. Binding Agreement The primary purpose of section 1501(a)(1) is "to require that there be an offer and an acceptance imposing liability on both parties." 39 Comp.Gen. 829. The handwritten signature is probably the most universally accepted evidence of an agreement to be bound by the terms of a contract. View Decision B-245714, Dec 13, 1991, 71 Comp.Gen. 109 MISCELLANEOUS TOPICS - Science/Technology - Electronic data - interchange - Use - Contracts PROCUREMENT - Contract Formation Principles - Contracts - Electronic data interchange - Use Contracts formed using Electronic Data Interchange technologies may constitute valid obligations of the government for purposes of 31 U.S.C. Sec. 1501, so long as the technology used provides the same degree of assurance and certainty as traditional "paper and ink" methods of contract formation. National Institute of Standards and Technology-- Use of Electronic Data Interchange Technology to Create Valid Obligations: By letter dated September 13, 1991, the Director, Computer Systems Laboratory, National Institute of Standards and Technology (NIST), asked whether federal agencies can use Electronic Data Interchange (EDI) technologies, such as message authentication codes and digital signatures, to create valid contractual obligations that can be recorded consistent with 31 U.S.C. Sec. 1501. For the reasons stated below, we conclude that agencies can create valid obligations using properly secured EDI systems. BACKGROUND EDI is the electronic exchange of business information between parties, usually via a computer, using an agreed upon format. EDI is being used to transmit shipping notices, invoices, bid requests, bid quotes and other messages. Electronic contracting is the use of EDI technologies to create contractual obligations. EDI allows the parties to examine the contract, usually on video monitors, but sometimes on paper facsimiles, store it electronically (for example on magnetic tapes, on discs, or in special memory chips), and recall it from storage to review it on video monitors, reproduce it on paper or even mail it via electronic means. Using EDI technologies, it is possible for an agency to contract in a fraction of the time that traditional practices take. As NIST pointed out in its request, the "paperless" nature of the technology has raised the question of whether electronic contracts constitute obligations which may be recorded against the government. NIST is in the process of developing standards for electronic signatures to be used in various applications, /1/ including the formation of contracts, but has been advised that section 1501 imposes a barrier to the use of electronic technologies by federal agencies in this regard. DISCUSSION Section 1501 establishes the criteria for recording obligations against the government. The statute provides, in pertinent part, as follows: "(a) An amount shall be recorded as an obligation of the United States Government only when supported by documentary evidence of-- (1) a binding agreement between an agency and another person (including an agency) that is-- (A) in writing, in a way and form, and for a purpose authorized by law. 31 U.S.C. Sec. 1501(a)(1)(A). Under this provision, two requirements must be satisfied: first, the agreement must bind both the agency and the party with whom the agency contracts; second, the agreement must be in writing. Binding Agreement The primary purpose of section 1501(a)(1) is "to require that there be an offer and an acceptance imposing liability on both parties." 39 Comp.Gen. 829, 831 (1960). Hence the government may record an obligation under section 1501 only upon evidence that both parties to the contract willfully express the intent to be bound. As explained below, EDI technology provides both the agency and the contractor the means to electronically "sign" a contract. A signature traditionally has provided such evidence. See generally 65 Comp.Gen. 806, 810 (1986). Because of its uniqueness, the handwritten signature is probably the most universally accepted evidence of an agreement to be bound by the terms of a contract. See 65 Comp.Gen. at 810. Courts, however, have demonstrated a willingness to accept other notations, not necessarily written by hand. See, e.g., Ohl & Co. v. Smith Iron Works, 288 U.S. 170, 176 (1932) (initials)] Zacharie v. Franklin, 37 U.S.