IN-SOURCING CHALLENGE NEARLY SUCCEEDS

Judge Christine Miller of the Court of Federal Claims (COFC) has just issued an opinion denying injunctive relief to a contractor complaining that the Air Force's decision to in-source work the contractor had been performing violated statutory law.  The contractor contended that the Air Force violated the National Defense Authorization Act (NDAA) for fiscal year 2012 which requires the Secretary of Defense to ensure that the cost of performance by a contractor compared to the cost of performance in house would be equal to or exceed the lesser of 10% of the personnel costs of performance or $10 million.  Since the savings was 7.9% the contractor argued the in-sourcing decision violated the statute.

Judge Miller writes a veritable treatise on the key legal issues in bringing such a suit.  This is great reading for lawyers.  First, she addresses subject matter jurisdiction saying "prudential standing" must be considered after first determining jurisdiction.  The key statutory requirement on jurisdiction is whether the alleged violation occurred in connection with a procurement or a proposed procurement. After a thorough discussion, she determines the definition includes the process for determining a need for property or services.  The Air Force's decision to in-source involved such a process.

Next, Judge Miller examines whether the contractor was an interested party.  The contractor was, after all, the incumbent contractor, and after a lengthy explanation, Judge Miller finds that the contractor was an actual or prospective bidder with a direct economic interest in the procurement or proposed procurement.  Given the opportunity, the contractor would have as substantial chance of performing the services in the future.  There also was an issue of mootness in the case.  Because there was an option period remaining on the contractor's contract, Judge Miller found she could fashion a remedy and the case was not, therefore, moot.

Judge Miller than tackled the issue of prudential standing.  Prudential standing requires that a contractor's grievance must arguably fall within the zone of interests protected by the statute invoked in the suit.  Department of Defense (DOD) procedures required by the statutory provisions in the NDAA limit DOD's ability to convert from contractor to civilian performance.  Therefore, the contractor came within the zone of interests protected by the NDAA and the contractor accordingly has prudential standing.

But Judge Miller denies injunctive relief primarily because the contractor's case failed on one of the four prongs of such relief, success on the merits of the case. Based on the timing of when the in-sourcing decision actually occurred, she holds the NDAA did not apply to the case at all.  The statute was not retroactive and the Air Force was not required to adhere to the 2012 NCAA because the events complained of occurred much earlier.  Although she found lack of success on the merits, Judge Miller also examined the irreparable harm to the contractor (existing), the balancing of the hardships (favoring relief in this case) and the public interest (determined against the contractor because no statute was violated).

We now have several opinions from the COFC upon which a contractor can seek judicial relief with regard to in-sourcing decisions.  But the bottom line is that such a suit will not stand any chance of success unless the contractor can show a violation of a statute.

bill@spriggslawgroup.com           www.spriggslawgroup.com

ANTIDOTES FOR THE "UNABATED CRISIS"

This is the third in a series of comments on the Professional Services Council (PSC) and Grant Thornton LLP study report on acquisition's unabated crisis.  Here, we suggest some antidotes for recovery.

1. More Myth Busting.  The report quotes respondents to the survey as generally applauding the Office of Procurement Policy (OFPP) myth busting memos but they were "not widely distributed" and they "need to be pushed". They need to get "marketed".  Not only that, OFPP needs to write more of them.  And senior procurement professionals need to help by suggesting new myth busting topics.  Myth busting is the singular most important and potentially effective initiative undertaken in the procurement field in decades. 
2. Institute a Help Hotline.  We've considered a mentor/protege program with retirees serving as mentors and rejected it as impracticable and unworkable.  However, a well-designed and properly administered help hotline has a real chance of success.  Well-screened retiree volunteers could handle requests for advice and counsel based on their particular field of experience and expertise.  
3. Fix the Debriefing Debacle.  The myth busing memos just didn't go far enough.  It's time to require oral debriefings and to enforce the regulation on what's discussed.  And finally, it is time to release redacted copies of the source selection evaluation board report and the source selection decision prior to the debriefing.  Enough is enough.  Transparency begins here.
4. Fix the LPTA Debacle.  The pendulum has swung back to advertised procurement now know as sealed bidding.  Best value is not LPTA.  LPTA is tantamount to sealed bidding.  Follow the tried and true rules in FAR.  Get rid of LPTA in Part 15 and call a spade a spade.  If the goal is lowest price, technically acceptable, use Part 14.
5. Educate the Lawyers.  One participant in the PSC/Grant Thornton survey said the myth busting memos "had a positive effect because we had general counsels saying, 'no, you can't talk to contractors at all.'"  We know because we've been there.  In house lawyers can be facilitators or obstructionists.  We believe too many lawyers are the latter.  They need to go to school taught by non lawyers who explain what clients are looking for.  Their clients want them to act as facilitators.  They should be helping their clients.  They also need help on how to negotiate.
6. Train by the Case Study Method.  Law schools have been doing it forever.  The only way to learn is by the case study method.  In procurement, we have the opportunity to train by real life case studies.  Experience is the best teacher.  Next best is training by reviewing and analyzing actual cases.  

We've heard from the cynics who badmouth the myth buster memos.  But they are a small minority and insignificant in their negative influence.  We applaud the leadership of OFPP.  They are the thinkers and the writers.  It's up to the rest of us to follow through.  Senior procurement executives must discharge their leadership responsibility by making sure the OFPP messages are carried out in the field. Neophytes need the initiative to follow OFPP's best practice guides (that's really what the myth buster memos are).

Hopefully, we will see more myth buster memos.  As for the other antidotes, let us know what you think.

bill@spriggsconsultingservices.com
 

ACQUISITION'S "UNABATED CRISIS"

As we've reported, the Acquisition Policy Survey conducted by the Professional Services Council (PSC) and Grant Thornton LLP is a must read for all executives and practicing professionals who deal with federal government acquisition in any form at any level.  There is having to do less with less.  Then, a highly risk-averse culture threatens innovation and smart buying decisions.  Balancing price against tradeoff analyses has become an enormous challenge.  To top it off, the very people responsible for the day to day decisions lack experience, mentoring and sufficient training.  And their innovation and reasonable risk taking is severely inhibited by the growing compliance regime.  (Oversight and transparency also inhibit contractor innovation.)

Budget uncertainty is a new issue.  In the past, budgets did not receive a high level of attention in the survey.  "Smart acquisition" has become the watch-phrase.  But so far the prime, if not the almost singular example of smartness, is strategic sourcing.  Smart buying requires smart people.  With the challenges ahead, senior leaders recommend investments in training and maintaining the procurement workforce.  But budget realities threaten investments in its size and competence.  "Over the years, survey respondents have demonstrated a growing concern, even frustration, with the status quo.  That concern, as well as a call for real change and action, is one of the clearest messages that can be drawn from this year's results."

Training alone cannot replace the value gained from experience.  Retirements rob the workforce of mentors.  Acquisition personnel have "stopped thinking" and lack necessary communication and negotiation skills.  Notwithstanding OFPP's myth busting memo success, government personnel continue to fear bid protests and are uncertain about the rules of communication.  "We still have contracting officers and program managers who have the perception that you can't speak with industry.  We tell people they must so they can get better proposals."  There is an urgent need to market the myth busting message.

"Money next year is declining, but the oversight interests will increase because there is less money, and there will be intense interest in how we're spending the money."  Oversight is having a severely negative effect.  "We have this zero-risk mentality from the oversight community and it has a chilling effect."  Resources are overextended in responding to the oversight by Congress and the audit/inspector general communities.  This inhibits taking reasonable business risks.  Increasing audit and compliance requirements will continue to constrain innovation in the acquisition community.

"Budget pressures, concerns over protests and oversight scrutiny and relative ease of decision making have led to a shift from best value to LPTA as a more and more common driver for source selection decisions."

In summary, the survey report characterizes the challenges to the acquisition community as an unabated crisis.  The the common thread throughout the report is the need to enhance the quality and quantity of the procurement workforce.  The report concludes with this admonition:

Efforts to enhance the support given to the acquisition workforce have not delivered the results needed.  Going forward, new thinking--about training and development, hiring policies, supporting and encouraging innovation (including the inevitable associated failures) and appropriately resourcing the acquisition workforce--is clearly needed.

In our next article, we will suggest solutions.  Whether it's a crisis or a conundrum, we all need to address the issues.  Our thanks to PSC and Grant Thornton.  Their report is indeed required reading.

bill@spriggsconsultingservices.com

THE TOP THREE CHALLENGES FOR 2013

The Professional Services Council and Grant Thornton LLP have just released their biennial survey of federal government acquisition leaders.  The purpose of the survey is to provide government and industry leaders perspectives on the state of federal acquisition policy.  The report highlights the top three concerns:  1) budget stability, 2) the acquisition workforce and 3) collaboration, transparency and oversight.  It's a must read for any professional in the field and for all government and industry leaders.

In every edition of the survey over the last decade, respondents to the survey have identified workforce resources, capabilities, training and development as top concerns.  "People, people, people . . . having the right number of competent, trained acquisition personnel is the number one issue."  With inexperienced people in the procurement workforce and an increasing federal retirement rate, acquisition leaders fear that education and training resources will not be available to meet the challenges ahead, particularly those resulting from budget austerity.

"Continuing resolutions (CRs) force agencies to procure only the barest essentials, regardless of the impact on an agency's investment strategy."  Budget cuts mean tough choices.  This translates into the need for a strong workforce to get the best value for expenditures.  Tighter budgets force price-based decisions potentially limiting innovation and best value.  The need for promoting lessons learned is greater than ever before.

Finally, the report notes:  "We have this zero-risk mentality from the oversight community and it has a chilling effect."  This mentality is coming at the worst possible time.  "We are seeing the criminalizing of mistakes."  In discussing collaboration, transparency and oversight, the report notes the need for greater speed in the acquisition process while maintaining safeguards, the need to institutionalize processes and encourage innovation.

The report notes that although workforce training exists, it cannot replace the value gained from experience and the benefits of mentoring.  Experience and mentoring are both at risk from retirements.  Above all, communication skills are needed.  "Acquisition personnel have stopped thinking.  They want templates."  Critical thinking is now at a premium.  The report concludes that although many talented and passionate people have tried to improve training, they have not delivered the needed results.  "Now is the time to assess new, more innovative, cross-functional and contemporary ways to rapidly and more effectively help develop this vital workforce."  (Emphasis added.)

One other major take-away from the report is the fundamental disconnect between the acquisition and oversight communities which must be reconciled and repaired. It's been called the "Great Divide". There is an ongoing and destructive conflict that is severely inhibiting innovation and reasonable risk taking.  The every growing compliance regime may not be adding value to the procurement process and is robbing particularly the inexperienced workforce of the incentive to innovate and take risks.

bill@spriggsconsultingservices.com

OUT OF SCOPE CHANGES

When is a change out of the scope of the contract?  Judge Marian Horn of the Court of Federal Claims (COFC) has just written the definitive treatise on the subject of the rules used to decide when a change exceeds the scope of the original contract. Two types of facts are implicated.  The first is when a contractor on an awarded contract complains the change is beyond the scope of the contract.  The other is when a competitor complains that the change is beyond the scope of the original contract and therefore should, under the Competition in Contracting Act (CICA), be open for competition.  Judge Horn had before her the latter complaint.  In either case, however, the central question is whether the contract, as modified, calls for essentially the same performance.

The rule has always been that modifications of an existing contract are permissible as long as the modification is within the scope of the original competitive procurement.  (The same rule applies to the scope of the changes clause.)  Since the Federal Acquisition Regulation (FAR) is no help here, the judicial tribunals have relied on the "cardinal change" doctrine to test whether the modification or change is in-scope or violates the competition requirements of CICA.  The cardinal change doctrine addresses whether a change or modification exceeds the scope of the contract changes clause.  In the case before Judge Horn, the issue was whether the modification was within the scope of the original competition.

What is a cardinal change?  A cardinal change occurs when the government alters the work so drastically that it effectively requires the contractor to perform duties materially different from those originally required.  Just as the cardinal change doctrine prohibits an agency from compelling a contractor to perform beyond the scope of the original bargain, the CICA prevents an agency from ordering work materially different from the contract for which the competition was held.

What is "materially different"?  Lack of resemblance to the original work. Substantial changes in the type of work, performance period and cost of the work. It's a question of fact for which there is no mechanical or arithmetical answer.  The courts and boards look to changes to the quantity of work, an increase in the cost of the work, the sheer number of changes, the cumulative effect of the changes to the work and changes to the time and place of the work.

But in the bid protest arena, there is another factor to consider.  Did the solicitation for the original contract adequately advise the bidders of the potential for the type of changes that in fact occurred?  Is the modification of a nature which potential bidders would reasonably have anticipated?  Is it something potential bidders would have expected to fall within the contract changes clause?

If the court concludes as a matter of law that the modification was contemplated in the original procurement and the type or work, quantity, performance period, and costs have not substantially changed, CICA is not implicated and the protest will be dismissed.  Which is exactly what Judge Horn did.  Case dismissed.

The cardinal change doctrine articulates a firm set of rules.  Whether you are a disgruntled bidder or a contractor tearing out your hair over the nature or size of a modification, you can avail yourself of the argument that you have encountered a cardinal change.  As a contractor, you don't have to perform such a change.  It's a breach of the contract.  As a disgruntled bidder, you can protest under CICA your right to compete for the work.

bill@spriggsconsultingservices.com

CREATING A CULTURE OF ETHICAL BEHAVIOR

Just how does an organization create a culture of doing things right? Culture is defined as a set of values, attitudes, goals and practices that characterize an organization.  It is an integrated pattern of human knowledge, belief and behavior, the characteristic features of everyday behavior shared by people in an organization.  Many people come to the organization with the right moral compass. Others don't.  The challenge in an organization is to get everyone singing from the same sheet music.  How is that best accomplished?

We all know the culture of doing things right has to start with top management. Much has been written about leadership coming from the top.  But others have recognized the need for day to day leadership from middle management.  Our military experience teaches us that with the right kind of leadership from the top all the way down, even the lowest private in the ranks learns the acceptable behavior.  Leadership from the top means supervision of all leaders all the way down the line.  From general to colonel to major to captain to lieutenant to sergeant to corporal, the message must get through to everyone.

Training is required but of limited utility.  Online training in our opinion is ineffective.  The challenge is to keep the message fresh.  Often, an organization runs the risk of the message going stale or being forgotten.  Training has to be meaningful, not mind numbing.  It has to be alive, vibrant and relevant, something you can touch and feel which stays with you.

The crux of an effective program to promote a culture of ethical behavior is two-fold: 1) publication of case examples and 2) recognition of outstanding ethical behavior.  These approaches should be at the top of the list.  We all know we learn and remember better from actual experience or study of cases of real events.  An organization seeking to instill the culture of always doing the right thing and always doing things right must spread the word of real life examples of exemplary behavior.  The examples should come from the ranks and those displaying the behavior should be recognized by the top leaders (and all other leaders) in the organization.

Learn by example.  Simple.  The way to establish the baseline set of values, attitudes, goals and practices for the organization is by publicizing and recognizing the exemplary behavior of members of the organization.

bill@spriggslawgroup.com               www.spriggslawgroup.com

TURNING BEST VALUE INTO LPTA

We never thought we would ever say this but forget FAR on best value and LPTA. Listen to the Government Accountability Office (GAO) and the Court of Federal Claims (COFC).  As we have written over and over again, GAO and COFC have said it is illegal to turn a solicitation announcing a best value tradeoff analysis into a lowest price technically acceptable (LPTA) procurement without amending the solicitation to announce the change to the prospective competitors.

And we also have written about the confusing language in the regulation which apparently suggests to some contracting officers that there is a continuum along which they can slide in the source selection process which results in awarding on the basis of LPTA when the agency has stated in the solicitation that a tradeoff analysis will be performed.  Again, and hopefully for the last time, best value, in the real world use of the language, means a tradeoff analysis will be performed.  Best value and tradeoffs are synonymous.  LPTA proscribes tradeoffs.  They are two different animals.  Read our prior discussions.

What often happens in the real world is that best value technical evaluations have been scored as equal (everybody gets a good) and then the award goes to the lowest priced proposal.  No, there is nothing wrong with that if in fact the evaluations really are valid and defensible.  However, equalization that is forced by a desire to get to the lowest price, is wrong.  And we believe LPTA, whether properly announced or not, is no way to seek best value, to say nothing of the way in which LPTA inhibits innovation and competition for excellence.

If the government specifies in detail what it wants (the old detailed specification approach), LPTA, and for that matter FAR Part 14 sealed bidding, are appropriate. But if the government issues a performance specification and wants innovative solutions, best value tradeoffs should be used.  Once that decision is made, it is improper to change the rules in the middle of the game without amending the solicitation and starting over.  You'd think by now everyone would have this message.  We'd like to see LPTA go.  Best value is tradeoffs.  LPTA is FAR Part 14.

bill@spriggslawgroup.com       www.spriggslawgroup.com

DIFFERING SITE CONDITION RULES

The Government Accountability Office Contract Appeals Board (GAO CAB) has just reminded us of the rules for determining whether a contractor has a claim for differing site conditions on a construction project.  The GAO CAB denied the contractor's claim for an equitable adjustment for costs incurred to fabricate and install replacement windows in the United States Supreme Court.  The window subcontractor encountered unanticipated conditions at the site.  The Board denied the claim finding that the drawings put the contractor on notice of the requirements and the subcontractor failed to conduct a meaningful investigation of the site.  Theories of recovery discussed include type 1 and 2 differing site conditions, defective specifications and superior knowledge.

The contractor contended the trapezoidal shape of the windows constituted a type 1 differing site condition because the contract drawings listed dimensions that were rectangular in shape.  But the Board noted the drawings gave clear warnings that "some windows will be tapered."  This note, said the Board, put the contractor on notice that the windows might not be rectangular and the contractor should have inquired about the obvious conflict between the dimensions provided and the note that some windows might be tapered.

Now to the rules.  To prevail on a claim for type 1 differing site condition, the contractor must prove that: 1) the contract documents indicate the site conditions which form the basis of the claim; 2) the contractor reasonably interpreted the contract documents and reasonably relied on the indicated site conditions; 3) the site conditions actually encountered differed materially from those indicated in the contract; 4) the site conditions encountered were not reasonably foreseeable from all the information available at the time of proposal submission; and 5) the contractor suffered damages as a result of the materially different site conditions.

The contractor also lost on its type 2 claim.  Again, the rules.  To prevail on this claim, the contractor must prove that the physical condition was both unusual and unknown.  An unusual condition is one that differs materially from that ordinarily encountered and generally recognized as inhering in the work of the character provided for in the contract.  An unknown condition is one that could not have been reasonably anticipated from a site inspection, a review of the contract documents, or the contractor's general experience prior to submitting its proposal.  Merely being unaware of an unusual condition does not, alone, constitute a type 2 differing site condition. (The shape of the windows was not hidden.  You could see the shape from the street if you looked closely.)

The other theories of recovery were also denied mainly because the contractor was warned of the possibility of a problem, failed to inquire, and therefore assumed the risk.  Another rule.  Assumption of risk based on a failure to inquire about a patent (or obvious) ambiguity in the solicitation documents defeats a contractor's claim based on any theory of recovery.

The lesson learned is one we've repeated over and over again.  Scour the solicitation documents for obvious ambiguities.  Raise them with the contracting officer.  If he refuses to amend the solicitation to clarify, protest to GAO or assume the risk and forget about possibly filing a claim.  What's obvious?  It's a dangerous game.  The answer is elusive as the line between hidden and obvious is in the eye of the beholder.

bill@spriggslawgroup.com            www.spriggslawgroup.com

"OUTCOME PREDICTION" AT GAO

In 1996, the Government Accountability Office (GAO), began using a type of alternative dispute resolution (ADR) known as "outcome prediction".  It usually takes place after all the parties have thoroughly briefed the issues raised in the original and supplemental protests, an evidentiary hearing has taken place (which is fairly rare), and all that is left is the GAO decision.  It typically involves a conference call convened by the GAO attorney handling the case.  The purpose is to explain to the parties the likely success or failure of their legal arguments. Although the prediction is not a formal decision, it is vetted up the ladder of authority within GAO before announced to the parties.

The willingness to provide an outcome prediction is generally an indication that the protest is viewed as meritorious such that a reasonable agency inquiry into the protest would show facts disclosing the protester's arguments had merit.  GAO may well tell the parties that the protest will be sustained if the decision actually is written up.  The agency then is left with the option of allowing GAO to issue its decision or the agency may decide to take corrective action.  If the agency concedes and agrees to take corrective action, the case is dismissed by GAO as academic.  In the past, this often left the protester with no real remedy since the corrective action might or might not actually be taken and, of course, result in a further protest.  But GAO is making things better by being more specific on its outcome prediction recommendation.

The new GAO best practice is to make it clear what corrective action it is recommending.  The protester, meanwhile, is still left out in the cold with no control over whether the agency decides to take corrective action and the form it will take.  GAO correctly is not only making its recommendation clear, it also recites the action the agency agrees to take in its dismissal letter.  If GAO is clear in its recommendation and reduces it to writing, there now is a chance the agency will bind itself to actually taking the corrective action recommended.

In the end, however, the protester prevailing in an outcome prediction lacks assurance that the challenged procurement violations will not be repeated.  Hence, protests following corrective action are not uncommon.  But GAO has paved the way to meaningful corrective action by making its outcome predictions contain recommendations that instruct the agency on the proper corrective action.

The problem of an agency announcing corrective action before outcome prediction remains.  If any agency concedes before outcome prediction it can avoid GAO's recommendation and take the action it unilaterally decides to take.  Although this approach is laudable in some cases, it can also lead to mischief and leave the protester without any control over its protest.  The protester can, however, protest anew if the corrective action is flawed.

All in all, we applaud GAO's efforts to dispose of cases by outcome prediction. Although most protesters would prefer GAO issue a written decision sustaining their protests, if GAO is specific enough in its outcome prediction and the agency agrees to do what GAO recommends, the result will be the same.

bill@spriggslawgroup.com                 www.spriggslawgroup.com

TO IMPROVE PROCUREMENT, REHIRE RETIREES TO TRAIN YOUNG WORKFORCE

From Federal Times:

Frank Kendall, the Pentagon’s top acquisition executive, was recently quoted as saying he is looking for ways to creatively transfer the expertise of experienced people leaving the workforce to the new generation and give people the experience they need to develop their skills and careers. The problem with today’s federal procurement workforce is that experienced hands are leaving, leadership is under performing in finding ways to transfer expertise to the new generation, and many younger workers lack the requisite initiative to find and pursue best-practice experiences.

One of the main problems is poor communication between federal procurement staffs and industry.

The Office of Management and Budget’s Office of Federal Procurement Policy (OFPP) has tried to fix the problem. In February 2011 and again in May 2012, OFPP officials issued memos to the federal acquisition community in hopes of prompting a more healthy and engaged dialogue between federal procurement staffs and vendors. These memos were titled, “Myth-busting: Addressing misconceptions to improve communication with industry during the acquisition process.”

The memos encourage “early, frequent and constructive engagement with industry,” especially in cases involving complex, high-risk procurements. In short, the memos say feds need to buy more like it’s done in the commercial world. They need to talk more with industry to find out how it’s done and how commercial products and services can fill government needs. Talking more with industry also helps the feds by encouraging private innovation and by learning how to take advantage of it. But these myth-busting guides languish at many agencies. The word just does not get to the field.

Communication isn’t the only problem. Among the most serious is the emphasis feds place on “lowest price, technically acceptable” procurement actions. When the government overused detailed design specifications, performance specifications were born. Detailed requirements lend themselves to pass or fail technical evaluation and award to the lowest price. But we’re now in the performance specification era where “best value” trade-offs should rule. Performance specifications and lowest price technically acceptable selection are a bad mix. Poor leadership at the top and inexperience at the bottom have created this problem.

There is such a thing as the wisdom of the ages in federal procurement. We’ve learned that fixed prices for ill-defined statements of work are a bad idea. We’ve also flirted with the notion that buying like the commercial world can be a good idea. We’ve also learned that full and open debriefings prevent more protests than they encourage and that cooperation and communication with the contractor not only are legal requirements, they also help assure successful contractor performance. There is a vast storehouse of valuable best-practice information in the memory of the retiring workforce on any number of subjects relevant to today’s procurement activities.

Kendall is looking for “ways to creatively transfer” this book of wisdom to the new generation of acquisition workers. We see a simple solution that will take some hard work. First, OFPP needs to write more memos like the myth-busters memos. It needs to update and expand on its 1994 best practices for contract administration guide.

Senior acquisition executives who receive the OFPP memos need to do a better job of leadership in making sure the word gets to the field. They also need to be held accountable for making sure best practices are in fact practiced in the field. Finally, the new generation needs to find the winners, understand their winning ways and adopt the practices experience has taught will work. In other words, the new generation need to exercise better initiative in finding the wisdom of the ages in procurement.

How do you creatively transfer that expertise? We propose that the retiring generation assist OFPP in writing down best practices for contract formation and administration. Senior acquisition executives need to commit to making sure the word gets to the field. And the new generation needs to exercise initiative in finding the best-practice experience and in following it.

Start with communication. The myth-busting memos are the model. Those best practices have been vetted thoroughly by the most experienced professionals in the business.

It’s not enough to lament the loss of experienced contract people and hope some magical management formula can fill the void. It’s a simple matter of passing on the wisdom of the ages. Rehire the retirees. Ask them to help OFPP put together the best-practice guide. Write it down, push it down and supervise its implementation.

William J. Spriggs is a member of the Spriggs Law Group, a government contracts law firm.

 http://www.federaltimes.com/article/20121126/ADOP06/311260002/To-improve-procurement-rehire-retirees-train-young-workforce?odyssey=tab%7Ctopnews%7Ctext%7CAdvice%20&%20Opinion

IN PRAISE OF DOD's BETTER BUYING POWER 2.0

Frank Kendall has just released his Memorandum for Defense Acquisition Workforce on the subject "Better Buying Power 2.0: Continuing the Pursuit for Greater Efficiency and Productivity in Defense Spending."  We applaud this excellent direction to the government workforce and hope is gets the close attention it deserves.  It covers 36 Department of Defense (DOD) initiatives organized into seven focus areas.  The basic goal remains the same: to "deliver better value to the taxpayer and Warfighter by improving the way the Department does business." Achieving that goal "will require the professionalism and dedication I know I can expect from everyone in the workforce," he says.

This is a preliminary memo to be followed by a more detailed one with more specific goals. We'd like to focus on one of the areas: Incentivize Productivity and Innovation in Industry and Government.

The memo emphasizes the need to employ appropriate contract types.  The original Better Buying Power (BBP) memo pressed for more use of fixed price incentive (FPI) contracts.  Now, DOD refines its guidance to emphasize the use of the appropriate contract vehicle for the product or services being acquired.  One type does not fit all applications.  This initiative will focus "on improving the training of management and contracting personnel in the appropriate use of all contract types." We particularly applaud this effort.  We have commented for years about the need to spend more time and effort on the selection of the right type of contract for the work to be performed.

The memo also seeks to better define value in best value buys.  DOD notes that industry tends to default to a threshold level of performance to control costs and because the government gives unpredictable credit for performance above the minimum.  DOD needs to improve its ability to define value above the minimum level so industry can bid more intelligently.  "This will spur innovation by providing a predicable basis by which companies can bid enhanced performance with the knowledge that any increased costs are within an acceptable range."  Praiseworthy, indeed.

Finally, and perhaps most importantly, the memo admonishes the workforce that when lowest price, technically acceptable (LPTA) selection criteria are used, the government should define technically acceptable to ensure needed quality. "Industry has expressed concerns about the use of Lowest Price, Technically Acceptable (LPTA) selection criteria that essentially default to the lowest price bidder, independent of quality."  Indeed.  This has to be one of industry's major complaints.  We've written often about LPTA abuses.  At least DOD has listened to the criticism.  We think budget issues drive buyers to LPTA so we don't hold out much hope for improvement on this initiative.  We'll see.

The good news is that DOD is listening to industry on the subjects of best value and LPTA source selection criteria.  And we think the preliminary version of BBP 2.0 does an excellent job of setting the goals.  We look forward to the more detailed memo that will outline the specific goals and requirements which is due out in two months.

bill@spriggsconsultingservices.com

FLAWED TECHNICAL AND PRICE REALISM EVALUATION

The Government Accountability Office (GAO) has just issued a decision sustaining a protest on the grounds that the agency failed to perform a proper technical and price realism proposal evaluation.  The agency did not properly consider the awardee's proposed technical approach and also failed to reasonably consider this technical approach in conducting its price realism assessment.

The evaluation of an offeror's proposal is a matter within the agency's discretion. In reviewing an agency's evaluation of proposals, GAO will determine from the record whether the agency's judgment was reasonable and consistent with the stated evaluation criteria and applicable procurement statutes and regulations. GAO does not substitute its judgment for that of the agency.  But it tests the agency's reasoning and whether the agency has complied with the rules, including the requirement of proper documentation.

We should insert here the importance of keeping up with the opinions and decisions of judicial tribunals, including GAO.  Public procurement is based on detailed statutes and regulations because we taxpayers demand the ability to control how our dollars are spent.  But of equal importance are the pronouncements of the various tribunals hearing protests and disputes.  They also lay down the law. And the great thing about reading these cases is that they take place in real life situations which make it easier to apply the legal principles to practice.  That's why law schools use the case study method of learning.  Read the cases.

In this protest, the successful awardee proposed extensive use of uncleared personnel to perform work which could involve classified material.  After examining the record carefully, GAO concluded "that DIA did not reasonably consider CSC's proposed use of 'large numbers' of uncleared personnel to perform the solicitation requirements in evaluating CSC's proposal, and sustain the protest on this basis." (GAO added in a footnote that it did not give the agency's "post-hoc" argument "any weight".)

On price realism, GAO reiterated the rule that price realism need not necessarily be considered in evaluating proposals for fixed price awards.  However, an agency may alert bidders that the agency will consider whether prices reflect on an understanding of the contract requirements.  "Analyzing whether an offeror's fixed price is so low that it reflects a lack of understanding of solicitation requirements is the crux of a price realism evaluation . . . ."  The record in this case showed the large numbers of uncleared personnel may have been the principle reason for the awardee's much lower price.  GAO sustained the protest on this ground as well.

It's important to study the rules in these factual contexts to see how the various tribunals apply them to actual experiences.

bill@spriggslawgroup.com             www.spriggslawgroup.com

SO JUST WHAT ARE BEST PRACTICES?

Elliott Branch, President of the National Contract Management Association (NCMA), and one of our best senior acquisition executives, stimulates our thinking by asking some really important questions:

What is a best practice?  How do you know one when you see it?  Who decides whether it is a best practice?  How do you kill it when it ceases to be one?

Excellent questions.  Are they in the eye of the beholder?  By what authority do they become  anointed?  Who suggests them and who promulgates them and how? With what follow up?  How do they get "killed" or erased and how is their effectiveness tracked?

We believe that the job starts with Elliott as the President of NCMA.  NCMA is made up of both industry and government professionals and is composed of chapters across the nation and around the world. Elliott should collect best practice suggestions on a topic of his choosing from NCMA chapters and members.  He should then select a blue ribbon small panel to review and edit them, and send them to Lesley Field and Joanie Newhart at the Office of Procurement Policy (OFPP).  OFPP should then do its vetting and issue them as a guide or in memos (such as myth busters) to senior acquisition executives who should in turn disseminate them to the field and follow up to make sure they are put into practice.

This is not rocket science.  The model is there.  OFPP's myth buster memos provide the guide on how to do this.  And OFPP is now following up with a survey to see how the memos are working and what needs to be done to make them work better (or presumably, kill one or two).

Our experience is in dispute avoidance.  We've seen many bad practices emerge in the course of litigation.  So we suggest open debriefings to avoid protests and scrubbing solicitations carefully to avoid claims, for example.  Our experience is based on over forty years in the litigation trenches.  We know a best practice when we see one based on this experience.  Other senior procurement professionals have seen much more and have really good advice to pass on to the younger generation. Elliott needs to tap that experience.

One final thought for now.  If the Court of Appeals for the Federal Circuit (CAFC) says something, its the law.  For that matter, the lower tribunals (Court of Federal Claims and Boards of Contract Appeals) also tell us the law provided they are not reversed by the CAFC.  It's the law.  If they say the government is supposed to cooperate with, communicate with and enable a contractor to perform, that is a best practice.  One starting point is taking language from the pens of the judges.

In a sense, Elliot's questions are rhetorical.  He is doing what he does so well, stimulating our thought.  A best practice is what our best, most experienced practitioners say it is.  They know it because they've seen it first hand.  They decide. And they pass their wisdom on to the less experienced.  And since they are practitioners, they know when to kill something that is not working.

NCMA needs to collaborate with OFPP.  The myth buster memos are the model to be followed.  Let's work together on this.  We know OFPP applauds this effort.  If you doubt that, just call or write Lesley or Joanie.

bill@spriggsconsultingservices.com    

LACK OF GOOD FAITH NOT SAME AS BAD FAITH

The Civilian Board of Contract Appeals (CBCA) has just released an opinion on a motion to dismiss in which the board reiterates the rule that proving the lack of good faith does not require the claimant contractor to allege and prove bad faith. The contractor alleged that the government breached its implied duty of good faith and fair dealing by refusing to respond to the contractor's many requests for the government to discharge its contractual duties.  The Board denied the motion to dismiss and noted that it was premature for the contractor to claim its attorney fees and costs incurred in responding to the government's motion.

"The covenant of good faith and fair dealing is inherent in every contract," the Board wrote.  Further, "[a] claim that HUD breached the implied covenant of good faith does not require a showing of bad faith."  As we've pointed out before in these articles, a claim that the government breached its duty of good faith and fair dealing is not the same as a claim the government acted in bad faith.  Bad faith involves motivation by malice.

The obligation of good faith and fair dealing is written into every contract by operation of law.  It is implied.  The duty of good faith and fair dealing can be breached, said the CBCA, by lack of diligence, negligence, or a failure to cooperate. As we have often repeated, the government has a duty to cooperate with the contractor or as the Armed Services Board of Contract Appeals (ASBCA) says, the government has a "duty to do whatever is reasonably necessary to enable the contractor to perform."

So the CBCA found that the absence of an allegation of bad faith did not defeat the contractor's claim and it denied the motion to dismiss.

The government often takes far too lightly a number of implied obligations it has in every contract.  It has the duty to provide specifications free from errors, conflicts and omissions which are commercially practicable to perform.  It has the duty to cooperate with the contractor and not interfere in the contractor's performance. It has the duty to communicate with the contractor.  Yes, the duty to communicate. And it has the duty to disclose information it has which is vital to the contractor's performance.  This latter obligation exists even if the parties are equally ignorant of the information but the government is in a better position to know it.

Stonewalling a contractor isn't just a bad business judgment.  It's illegal.  It's a breach of contract.  And damages for breach of contract can in appropriate cases include lost anticipated profits.

These kind of cases should not arise in today's enlightened procurement community.  This may be just another example of the people in the field not getting the message or not caring to follow it.

bill@spriggslawgroup.com            www.spriggslawgroup.com

OFPP IS MORE IMPORTANT THAN YOU MAY THINK

Yesterday, we heard Joanie Newhart address the Prince William Chamber of Commerce Government Contracting Committee during which she eloquently laid out the Office of Procurement Policy's (OFPP) continuing agenda and skillfully handled questions about the importance of OFPP's work.  OFPP does not handle procurements.  But its work may be more important than you think.

OFPP is big on the strategic sourcing initiative because of its emphasis on getting more work to small businesses.  She brushed aside the criticism that the competition for consolidated buys would leave some small business competitors out in the cold.  That's what competition is all about.  Instead, she emphasized that the goal was to award a larger portion of procurement dollars to small businesses through strategic sourcing.  That, after all, is why the word strategic is used.

She also talked about the policy emphasis on commercial buying and how agencies need to be better at finding commercial solutions where appropriate.  Recalling the myth buster memos she helped write, she emphasized that the government must spend more time talking with industry about commercial solutions to government needs.

In one light bulb moment, she reminded government procurement personnel that "if FAR [the Federal Acquisition Regulation] doesn't say you can't do it, do it."

But now to the really important point about OFPP.  During the questioning, Joanie deftly handled criticism that OFPP policies are not being followed in the field. OFPP is doing everything allowed by law to get its messages to the field.  It really got us to thinking.

The problem in the field is not that OFPP got too cute with "myth busting" or that it doesn't send the right messages to the right people. The problem is two fold: 1) agency acquisition leaders are underachieving in their leadership; and 2) contract workers in the field are not finding the winners (meaning the experienced hands), listening to them and implementing their advice on best practices.  It's not enough to lament the loss of experienced contracting people.  The young people in the field who have been tossed into the vacuum need to exercise greater initiative.  Find the experience and follow it.

Yes, OFPP is more important than you think.  It's policy leadership has been stellar through the years and we may even be entering the golden years of policy making. OFPP sends its memos to all senior acquisition officials.  If the message is not getting to the field, it is the responsibility of those senior officials.  We must hold them accountable for their lack of leadership.  But the people in the field also bear a heavy responsibility to listen to OFPP and follow the experienced leaders.

We have our best policy makers in OFPP.  It's high time we all listened to them.

bill@spriggsconsultingservices.com

BEST PRACTICES: FULL AND OPEN DEBRIEFINGS

Yes, we believe full and open competition also means full and open debriefings. FAR 15.506(d) starts out stating the minimum and goes on to list 6 items to be covered for a minimal debriefing post award.  Note item number 6 requires "[r]easonable responses to relevant questions about whether source selection procedures contained in the solicitation, applicable regulations, and other applicable authorities were followed."  Pretty broad, huh.  "Other applicable authorities" would include Government Accountability Office (GAO) decisions and opinions of the Court of Federal Claims (COFC).  Item number 4 on the list requires, at a minimum, a summary of the "rationale for award".

That brings us to a critical best practice.  We believe debriefings should include release of the source selection evaluation board (SSEB) evaluations and the source selection decision document (SSDD).  Before the debriefing.  A debriefing which should be face to face.  Of course these documents must be expurgated (lawyers prefer the word redacted) to comply with FAR 15.506(e).  But don't go overboard.  A contractor's proprietary markings do not necessarily make it so.  Contractors mark a lot of material that is not protectable when put to the tests required by the regulation.  Government officials are free to scrutinize contractor's claims of trade secrets, confidential data and the like.

Why full and open debriefings?  Because, as Dan Gordon has said, they prevent more protests than they promote.  Simple.  Hard for many to believe, but true. We've been in the protest trenches for decades and we can testify that more contractors file "blind" protests to discover what happened than those who file when they are satisfied they've seen nearly everything.  If a contractor is spoiling for a protest, it is unlikely a closed debriefing will keep it from filing the protest.  Open up the debriefing and you just may avoid the protest.

There is much debate about the adversarial nature of the procurement system, the lack of communication and the almost total absence of "partnering".  To some extent, we believe that is inevitable given our system of strict rules and regulations and the burgeoning competition for less and less work.  However, full and open communication through debriefings is a giant step in the direction of restoring trust and reducing litigation.

One more note.  Many of us rail at the apparently increasing numbers of frivolous protests.  In our opinion, one way to expose and hopefully reduce that population is to conduct full and open debriefings.  Many frivolous protests we've seen are "blind" protests in which wild allegations are made with no factual support from the record.  Reducing this population is a step in the right direction.

Finally, one of the impediments to full and open debriefings is that the government has not have followed "the solicitation, applicable regulations, and other applicable authorities."  Forget the debriefing. Step up to the plate and take corrective action. Right then and there.  Taking corrective action promptly is a best practice to be sure.

bill@spriggsconsultingservices.com

BEST PRACTICES: VETTING SOLICITATIONS

When Dan Gordon was Administrator of the Office of Procurement Policy (OFPP), he is reported to have replied to a contracting officer who said she was nervous about communicating with industry representatives because she did not want to get in trouble with her lawyers:  "My answer to her was, if you need to, take five lawyers from your agency with you, but have the meetings.  Lawyers are your friends."  Dan, of course, is extraordinarily enlightened, but he also knows there are a bunch of good lawyers out there.  Lawyers can be obstructionists (just telling you what you cannot do).  Or, the good ones tell you what to do to get the best result.

The first best practice we think of us making sure the solicitation is legally sufficient and written in clear, concise and understandable language.  In our experience, most disputes arise because of the failure to properly vet (evaluate for approval) the solicitation.  We also believe lawyers are indispensable at this stage. Good lawyers who are working with their clients to make sure the best results are achieved.  And we mean on both sides.

To our way of thinking, draft solicitations are a must.  And they always should be reviewed for clarity and legal sufficiency by agency lawyers.  Contractors also should engage counsel to complement the effort.  Contractors should not hesitate to raise questions about unclear language.  If necessary, they also should not shy from protesting promptly to make sure the solicitation gets an independent view. Cliches abound.  An ounce of prevention . . . .  Pay now or more later.

We believe that the most frequent failures of language are in the statement of work and the evaluation factors.  After all, what can be more important than clarity about what is to be done and how the proposed contractor will be evaluated?  Post award claims based on contract interpretation should virtually be eliminated if solicitations are properly vetted and the team of reviewers includes good lawyers.
For those who complain that this vetting process takes too much time, take a look at how much time gets wasted on the back end in the disputes process over what meaning was intended.

Dan Gordon is one of our leaders.  We should listen to him.  We've heard some of our would be leaders scoff at the myth busting memos  he sponsored.  They think the descriptive term is too cute.  Get over yourselves and past the title.  Dispute avoidance and resolution is all about communication.  All true leaders in the government contracts field agree on that.  Proper communication at the solicitation stage is just part of the required communication package which must accompany every procurement.

bill@spriggsconsultingservices.com

MORE ON CONTRACT MANAGEMENT BEST PRACTICES

When the Office of Federal Procurement Policy (OFPP) issued its l994 "A Guide to Best Practices for Contract Administration", it began by saying it was the "first in a series of guidebooks" on best practices.  Disappointingly, there have been no others. We're calling for a collaborative effort to finish the job.  It will take the combined talents of procurement and program officials from executive departments and agencies, and representatives from the private sector.  We think the National Contract Management Association (NCMA) should play a major role in coordinating the effort with OFPP.

To get the ball rolling, here are some salient quotations from OFPP's original work:

Contract Administration involves those activities performed by government officials after a contract has been awarded to determine how well the government and the contractor performed to meet the requirements of the contract.  It encompasses all dealings between the government and the contractor from the time the contract is awarded until the work has been completed and accepted or the contract terminated, payment has been made, and disputes have been resolved.  As such, contract administration constitutes that primary part of the procurement process that assures the government gets what it paid for.

In contract administration, the focus is on obtaining supplies and services, of requisite quality, on time, and within budget.  While the legal requirements of the contract are determinative of the proper course of action of government officials in administering a contract, the exercise of skill and judgment is often required in order to protect effectively the public interest.

Best Practices are defined as techniques that agencies may use to help detect and avoid problems in the acquisition, management, and administration of contracts.  Best practices are practical techniques gained from practical experience that may be used to improve the procurement process.  (Emphasis in the original.)

As in the case of the 1994 Guide, which dealt with the Contracting Officer's Technical Representative (COTR), a team must be established to plan and carry out this project of completing the best practices guide.  The team should conduct interviews with contracting officials and private sector representatives to gather best practices or "tricks-of-the-trade" that could be applicable on a government wide basis.

So we continue our open letter to Elliott Branch, President of NCMA, to establish and lead the team in this effort.  To borrow an admonition from the 1994 Guide: "The primary objective of the contract administration project is to establish best practices that agencies can use to improve contract administration to assure responsiveness to customers and best value to taxpayers."

bill@spriggsconsultingservices.com

CONTRACT MANAGEMENT BEST PRACTICES

Recently, we attended a National Contract Management Association (NCMA) meeting on the subject of "Best Practice Initiatives:  A Call to Arms."  The Office of Federal Procurement Policy (OFPP) published a best practices guide for contract management in 1994 (limited in scope) and it has not updated or added to the guide since then.  Last month, Lesley Field and Joanie Newhart from OFPP said they love the idea of best practices based on practical experience.  The myth busting documents were designed as best practices on communication but OFPP wants to do more guides.

The "Call to Arms" meeting was just that:  A clarion call for assembling a team to prepare various best practices guides most likely organized by subject matter. Examples included, evaluation factors, debriefings, best value source selection, protests, termination procedures, changes and monitoring performance, to name a few.

Best practice guides, well vetted by seasoned practitioners, are long overdue.  This needs to be a collaborative effort between government and industry perhaps best sponsored by NCMA.  OFPP welcomes such an effort and suggests that the project be narrowed to a few key subjects or even organizing the effort by contract types. OFPP wants very specific guidance with samples and templates with on line resources.

Complaints abound, whether justified or not, about the lack of experience at the working level of contract formation and management.  The most experienced contract managers have left the workforce and are not always asked to teach the newcomers.  But learning is best instilled by doing.  And best practices should be the collection of the best practical methods of doing things published and vetted by the most seasoned professionals.

So this is a call to arms to the seniors.  Get involved.  Let's start passing on our collective knowledge of how contract management is best practiced.  Perhaps this also is an open letter to Elliott Branch, a senior level government procurement expert, who also happens to be President of NCMA.  Let's get organized at the grass roots.  NCMA chapter by NCMA chapter, let's put the seasoned professionals to work putting together best practice guides for OFPP to promote.

In the end, of course, the problem always will be making sure the word gets to the right people.  We've heard a lot of comment about how the myth busting memos have not changed practices in the field. That's another problem.  Let's first write the manual, then work the issue of its acceptance.  Frankly, in our opinion, it's all about leadership.  The right leadership will make sure the practices are followed in the field.

bill@spriggsconsultingservices.com

PRICE REALISM: WHAT, WHEN AND HOW?

What is price realism, when should it be used and how?  The Government Accountability Office (GAO) recently has sustained a protest involving an improper price realism analysis and in the process reminded us what price realism is and how it is to be employed.  We add the "when".

The protester argued that the agency's evaluation of its proposal and best value tradeoff determination was unreasonable because the evaluators performed a realism analysis of proposed pricing, finding the protester's price to be so low as to call into question its understanding of the solicitation requirements and its ability to perform successfully.  GAO agreed because price realism was not included in the evaluation factors.

The agency argued it did not conduct a price realism analysis because it did not adjust prices to determine probable cost.  GAO says poppycock. The agency misunderstands price realism as it does not involved adjusting prices.  The agency cannot adjust prices for evaluation of award of a fixed price contract.  Rather, of course, a price realism evaluation involves an assessment of an offeror's low fixed price to see whether the low price reflects a lack of understanding of contract requirements or performance risk.  The agency did that.  So what's the problem?

The problem in the protest was that bidders must be given reasonable notice that a business decision to submit low pricing will be considered as reflecting on their understanding of the requirements or the risk associated with their proposals.  (If there are no evaluation criteria on price realism, a low ball price reflects instead on the contractor's ability and capacity to perform, a matter of responsibility.)

In this case, the evaluation factors only referred to "reasonableness" of the pricing which goes to whether it is too high.  "Because below cost prices are not inherently improper, when offerors are competing for award of a fixed-price contract . . . they must be given reasonable notice that their business decision to submit a low-priced proposal can be considered in assessing their understanding or the risk associated with their proposal."  Thus, consideration of price realism must be announced in the evaluation factors.  

Now to the "when".  We believe that price realism should be included in all lowest price, technically acceptable (LPTA) procurements.  There, perhaps more than anywhere else, the government risks awarding to contractors who may not know what they are doing or don't understand the risks.

bill@spriggslawgroup.com          www. spriggslawgroup.com

SUBMITTING T FOR C PROPOSAL WHILE T FOR D IS PENDING

Contractors are permitted to file a termination for convenience (T for C) proposal while a termination for default (T for D) is pending, even when the T for D is in litigation.  All Federal Acquisition Regulation (FAR) default clauses provide that improper T for D's will be converted to T for C's.  The government contract judicial tribunals have recognized that prior to the time the default is overturned, the contractor can submit its T for C settlement proposal and that proposal can be treated as a claim under the Contract Disputes Act (CDA) since the demand for T for C costs creates the dispute necessary to convert the proposal into a claim.  An appeal of the T for C claim, however, probably will be dismissed as premature without prejudice to reinstatement when the T for D is converted.

The reason contractors submit T for C proposals when they are terminated for default is that the conversion, when it happens, is deemed by law to have occurred at the time of termination for default.  That is, the T for C relates back to the time of T for D.  This means that legally, the contract was the subject of a T for C all along. This in turn means that settlement expenses incurred in connection with the T for C can be recovered from the time the contract was terminated for default.

Settlement expenses include contractor in house costs and outside consultant and attorney fees.  If the costs relate to and are properly allocable to the T for C settlement proposal, they can be recovered.  Thus, during the pending negotiation and litigation of the T for D, if the contractor engages in attempts to settle the case based on its T for C settlement proposal, the costs properly can be included in the T for C settlement proposal.  The contractor, consultants and attorneys keep separate accounts for litigation of the T for D and attempts to settle the case based on the T for C proposal.

As a practical matter, the smart contractor immediately prepares its T for C proposal when it appeals its T for D.  It allocates litigation costs to the T for D litigation account.  It also sets up a separate account for preparation and negotiation of the T for C settlement.  As it engages the government in discussions on conversion of the T for D to a T for C and payment of its T for C proposal, it charges its costs for that effort to the T for C settlement account.

As we've pointed out before, contractors may also include an equitable adjustment in contract price as part of its T for C settlement proposal.  The costs of this contract administration effort also are recoverable.  Each compensable change is an excusable cause of delay or non performance and equitable adjustments through the changes clause can avoid the application of the adjustment for loss formula and any limitation on recovery imposed by the original contract price ceiling.

Don't forget this blog site is word searchable.  To complete your research using these articles, you may wish to do a word search on related subjects.

bill@spriggslawgroup.com          www.spriggslawgroup.com

WHAT IS THE "RIPPLE EFFECT"?

Following up on our discussion of the effect of the change on the changed work ("whether or not changed" in the changes clause), it is appropriate to examine what is commonly called the "ripple effect". In many cases, the cumulative effect of a number of changes when viewed collectively can produce an unforeseeable impact on the unchanged work.  The changes create a synergistic disruptive result. The contractor no longer can proceed with the original work as planned.

The ripple effect, however, can result from a single major change or government caused delay.  It is not limited to cases involving numerous changes.  A single change can produce the same causal chain leading to loss of productivity, diminished efficiency and even further delay.

Here is where proof of causation and effective price and schedule impact come into play.  Proof of causation is essential.  The contractor must draw a straight line connection between the government acts or omissions and the price and schedule impact.  In our experience, it is essential to engage a forensic experts to conduct the analysis.  We most often rely on McGovern & Greene (see a link on www.spriggsconsultingservices.com) for assistance.  Jim McGovern has been able to assist contractors in the calculation of lost productivity, reduced efficiency and under absorbed overhead calculations.

One Board case summarizes impact costs as follows:

Impact costs are additional costs occurring as a result of the loss of productivity; loss of productivity is also termed inefficiency.  Thus, impact costs are simply increased labor costs that stem from the disruption to labor productivity resulting from a change in working conditions cause by a contract change.  Productivity is inversely proportional to the man-hours necessary to produce a given unit of product. As is self-evident, if productivity declines, the number of man-hours of labor to produce a given task will increase.

Identifying the increased costs is not the difficult task.  Explaining why and how they are caused by the change is the challenge.

bill@spriggslawgroup.com               www.spriggslawgroup.com

PROTESTERS MUST SHOW PREJUDICE

In two recent decisions, the Government Accountability Office (GAO) clearly has restated the rule that for GAO to sustain a protest, the protester must show it was prejudiced by the agency error, even if that error is admitted by the agency.

"Our Office will not sustain a protest unless the protester demonstrates a reasonable possibility that it was prejudiced by the agency's actions, that is, unless the protester demonstrates that but for the agency's actions, it would have had a substantial chance of receiving the award."  (Emphasis added.)

In one case, the protester argued that the agency improperly based its final evaluation on the protesters initial proposal which were changed in its final proposal revision.  The agency acknowledged that it erred but argued the protester was not prejudiced because the heart of the significant weakness the agency found in the protester's proposal was its failure to meet certain small business goals, overall small business participation and women-owned business participation.  This weakness persisted in the final proposal revision. Thus, GAO found no prejudice and denied the protest.

In another case, the agency admitted that it waived a requirement for the firm that was awarded the contract.  GAO said that in cases where an agency waives a requirement, it will sustain a protest only if the protester is prejudiced.  "In such circumstances, prejudice does not mean that, had the agency failed to waive the requirement, the awardee would have been unsuccessful."  GAO went on to explain:

Rather, the pertinent question is whether the protester would have submitted a different offer that would have had a reasonable possibility of being selected for award had it known that the requirement would be waived.

The protester failed to argue that the waiver affected the submission of its offer, so GAO found no basis to sustain that aspect of the protest (although it was sustained on other grounds).

The lesson is clear for both sides.  Protesters must show they were prejudiced by the improper agency action.  Agencies need to be aware that they need to examine the prejudice issue in a protest proceeding to make sure they argue lack of prejudice even if the alleged error is found by GAO to exist.

bill@spriggslawgroup.com                www.spriggslawgroup.com

"WHETHER OR NOT CHANGED"

Too many of us are unfamiliar with the words "whether or not changed," where they are found and what they mean.  The standard fixed price changes clause contains the following language:

If any such change causes an increase or decrease in the cost or, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, the Contracting  Officer shall make an equitable adjustment in the contract price, the delivery schedule or both . . . .  (Emphasis added.)

The words, in essence, mean the contractor is entitled to an equitable adjustment which includes the effect of the change on the unchanged work.  This allows the contractor, in effect, to reprice the unchanged work to the extent the change affects that work.

While we're on the subject, the contractor always is entitled to also show entitlement to a schedule adjustment based on changes, if justified.  Too many of us forget this aspect of the changes clause as well.

These rules apply to all changes including constructive changes based on breaches of implied duties under each contract.

This concept has been around forever and is akin to the provision in FAR 49.208 which permits the contractor to reprice unchanged work after a partial termination. That regulation says that after partial termination, "a contractor may request an equitable adjustment in the price or prices of the continued portion of a fixed-price contract."

Changed or partially terminated work may well cause an increase in prices of the unchanged work especially where the change results in delay.  Material and labor costs may increase because of the delay although this is more likely in times of inflation.  The change or partial termination may also change the way in which the remaining work must be performed, making it more expensive.  The point is, these clauses contemplate recovery of a type of consequential damage resulting from the change.

The schedule adjustment aspect of the changes clause comes into play in most termination for default cases.  Every compensable change can become an excusable cause of delay, entitling the contractor to a schedule extension.

bill@spriggslawgroup.com          www.spriggslawgroup.com

A PRIMER ON ORGANIZATIONAL CONFLICTS

The Government Accountability Office (GAO) recently has issued a decision which can be used as a primer on the current state of the law on organizational conflicts. The protester had alleged that the leader of the source selection evaluation team had been the program manager for another contract being performed by the firm selected for award.

The government interviewed agency employees involved in solicitation drafting to determine if the person in question had any influence in its drafting, and concluded he had not.  The agency further determined that the lead had left his position prior to involvement in evaluating proposals.  The agency also investigated the possibility of unequal access to information.  Agency employees took extraordinary precautions to prevent the disclosure of source selection sensitive information.

GAO pointed out that FAR requires that contracting officials avoid, neutralize or mitigate potential significant conflicts of interest.  The responsibility for determining a conflict of interest rests with the agency.  "The situations in which OCI's arise, as described in FAR subpart 9.5 and the decisions of our Office, can be broadly categorized into three groups: biased ground rules, unequal access to information, and impaired objectivity."

GAO reviews the reasonableness of the agency's investigation, however.  But GAO will not substitute its judgment for the agency's, absent clear evidence the agency's conclusion is unreasonable.  (Sound familiar?)  A protester must identify "hard facts" indicating the existence or potential existence of a conflict; mere inference or suspicion of an actual or potential conflict is not enough.  "The identification of conflicts of interest are fact-specific inquiries that require the exercise of considerable discretion."

In its recent decision, GAO said the protester had not identified the necessary hard facts so the protest was denied.

GAO has consistently applied these conflict of interest rules and is in perfect synchronization now with the Court of Federal Claims (COFC).  The guidance is clear, but as GAO says, the cases are fact-specific and there is room for discretion.

Postscript:  We should add that we continue to oppose any changes to the regulations on organization conflicts.  The law is now well settled at GAO and the COFC, the discretion of the contracting officer is well protected and the directions to contractors and grounds for protest are clear.

bill@spriggslawgroup.com               www.spriggslawgroup.com

LOWERING EXPECTATIONS BY EXPANDING LPTA

In the old days, the government drew up detailed specifications and put procurement out to bid.  Advertised procurement, it was called (today's almost never used "sealed bidding" in FAR Part 14).  It was akin to today's lowest price, technically acceptable (LPTA) favorite flavor.  Advertised procurement went out when best value came in.  It was the real value we wanted, not just someone who could agree to perform to the government's specifications for the lowest price.  We raised our expectations.  Government, especially military, readiness and superior performance demanded high quality.

But then came budget austerity.  Then came a dwindling federal acquisition workforce, overworked and under educated.  Then came competition born from the austerity making it too much trouble for the procurement workforce to deal with best value.  (Yes, LPTA is supposedly a form of best value but it is not.)  In its true, purest form, best value is involves analyzing price and technical ingenuity and perhaps paying more to achieve superior performance.  LPTA, like advertised procurement (sealed bidding), fits commodity buying perfectly.  Complex requirements, however, are entirely different.  Best value trade offs are a perfect fit there.

LPTA should not be used for complex solutions.  Greater benefits and long-term results are achieved by decisions based on value.  LPTA has no discriminators for technical superiority.  LPTA is all about adequate and cheap.  Why invest in research and development in the LPTA world?  The technical bar is the lowest competitive common denominator and the award goes to the contractor most willing to buy in.  Yes, that's another problem.  Buying in is back in vogue.

Our friends at the Professional Services Council (PSC) have just published their Services Sector Review which on page 36 contains many of these same thoughts and points and concludes:

Denying bidders credit for the innovations and performance enhancements that drive long-term efficiencies, or other discriminators, offers industry no incentive to be anything beyond mediocre.  As a result of bidders being driven to mediocrity, government contracts could actually cost more in the long run and perform worse than if the government had evaluated bids based on best-value.

Budget austerity does not mean we must lower expectations.  The government acquisition workforce will have to work a little harder, to be sure.  But the reward will be in maintaining our incentives to excellence.  We just don't need to lower our expectations.  We really should do all we can to prevent our expectations being pulled lower by short sighted, easy way out procurement solutions.

bill@spriggslawgroup.com                  www.spriggslawgroup.com

WHAT DOES FAR 49.201 REALLY MEAN?

Too many people overlook one of the most important parts of the procurement regulations:  FAR 49.201.  But an understanding of its importance begins with knowledge of an even more important and even less understood section of FAR Part 49, FAR 49.113, which reads:

The cost principles and procedures in the applicable subpart of Part 31 shall, subject to the general principles in FAR 49.201--(a) Be used in asserting, negotiating, or determining costs relevant to termination settlements under contracts with other than educational institutions, and (b) Be a guide for negotiation of settlements under contracts for experimental, developmental, or research work with educational institutions (but see 31.104).  (Emphasis added.)

Thus, it is mandatory that application of the cost principles is subject to FAR 49.201.

FAR 49.201 is well worth repeating:

(a) A settlement should compensate the contractor fairly for the work done and the preparations made for the terminated portions of the contract, including a reasonable allowance for profit.  Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation.  The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.

Some contracting officers treat this as an invitation to deny recovery of allowable costs.  They have things backwards.  FAR 49.201 is a fairness doctrine.  The contractor is to be treated fairly.  The cost principles are not rigid rules necessarily to be followed if unfairness results.  Various methods may be used to arrive at fair compensation. The regulation is designed to provide flexibility from rigid accounting rules.

In the end, FAR 49.201 is designed to promote settlement.  A settlement, as we all know, is based on judgment and fair dealing.  The government has used a contract clause not found in the commercial world.  It has unilaterally decided to walk away from the contract.  But not with impunity.  It must pay for the privilege.  And with that privilege comes the responsibility to act fairly and give the contractor its due. This does not mean a further penalty.  It means fair compensation even in the face of cost principles which may, in other circumstances, dictate otherwise.

And that's what FAR 49.201 really means.

bill@spriggslawgroup.com                www.spriggslawgroup.com

EXPLAINING THE SOVEREIGN ACT DEFENSE

Senior Judge and former Chief Judge Loren Smith of the Court of Federal Claims (COFC) has just written an opinion explaining the sovereign act defense (which the government can raise in contract disputes) and applying it to a particular fact situation.  He starts by reminding us that when the government acts in its capacity as a contractor, the courts treat the government as a private party.  However, the sovereign acts doctrine shields the government from liability for breach of contract caused by its public and general acts as a sovereign.

The most recent Supreme Court explanation came in the 1996 ruling in United States v. Winstar Corp., 518 U.S. 839 (1996).  There, the Supreme Court held that the sovereign acts defense did not apply because the new minimum capital requirements set by legislation, which abrogated the benefits granted by the government to those financial institutions that had agreed to take over failing thrift institutions, had "the substantial effect of releasing the government from its contractual obligations."

According to the Supreme Court, an act is public and general when its impact upon public contracts is merely incidental to the accomplishment of a broader government objective.  However, the defense does not apply when the government's action is tainted by a governmental object of self-relief.  As Judge Smith points out, the Supreme Court focused on the intent of the government and it found clear evidence in the legislative record that Congress was aware that the legislation would have the effect of releasing the government from its own contractual obligations.

(Judge Smith, by the way,  the applied the defense in a case involving Louisiana's flood control and levy system since the government's conduct was merely incidental to the contract with the private contractor.  The government was shielded by the sovereign act defense.)

So, back to sequestration and whether the government will be successful in asserting the sovereign act defense against claims from contractors.  It's a close call. There is no question but that sequestration has a public and general purpose.  But it also contains a strong element of governmental self-relief from its obligations. The devil is in the legislative history.  If it appears Congress knew and discussed the impact on contracts, the defense probably will fail.  However, we see this issue back at the Supreme Court some years down the road.

bill@spriggslawgroup.com               www.spriggslawgroup.com

CAFC: PAY REA PREP AND NEGOTIATION COSTS

The Court of Appeals for the Federal Circuit (CAFC) has ruled that the government must not only pay the contract administration costs of preparing a request for equitable adjustment (REA) under the changes clause, it also must pay reasonable costs, including attorneys' fees, of negotiating a settlement even if negotiation eventually fails and a Contract Disputes Act (CDA) claim is later submitted.

The government argued that the negotiation costs were not recoverable because the contractor was just trying to "maximize monetary recovery."  As such, the costs were not true costs of contract administration.  The Postal Services Board agreed and so found.  On appeal, the CAFC reversed and remanded, directing the Board to grant the contractor's appeal in its entirety.  The CAFC went on to say "this means" the contractor is entitled to recover its costs, attorney fees, plus interest under the CDA.

The CAFC had been to this dance before.  In a 1995 case called Bill Strong Enterprises, the CAFC had held that REA preparation and negotiation costs were allowable as contract administration costs.  In examining the issue again, the court defined the issue as whether the costs are classified as general contract administration costs or claim preparation costs.  The former are allowable and the latter, not.  (The CAFC, for all practical purposes, is the highest court to hear procurement cases.  The U.S. Supreme Court very rarely gets involved.)

The CAFC said:

Although there is sometimes an air of adversity in the relationship between the CO and the contractor, their efforts to resolve their differences amicably reflect a mutual desire to achieve a result acceptable to both.

The CAFC went on to opine that the courts should examine the objective reason why the contractor incurred the cost.  If a contractor incurred the cost to further negotiation, the cost is allowable.  If, however, the contractor's underlying purpose is "to promote the prosecution of a CDA claim" then the cost is unallowable.  And the court made clear the allowability rule prevails even if negotiation eventually fails and a CDA claim is later submitted.

So, this is as reminder that REA preparation and negotiation costs are recoverable. The bright line distinction is when the contractor converts the REA to a CDA claim. From that date forward, claim costs are not recoverable under FAR 31.205-33.

bill@spriggslawgroup.com            www.spriggslawgroup.com

CONSIDERATION OF PRICE REQUIRED IN TRADEOFF ANALYSIS

The Government Accountability Office (GAO) has just issued a decision reiterating the rule that in a best value tradeoff analysis, meaningful (meaning meaningful) consideration must be given to cost or price.  Even in a competition where price is of lesser importance than technical factors, an agency must meaningfully consider cost or price in making the source selection decision.

In the case, the agency (Veterans Affairs) picked the highest rated technical proposal and compared its prices to its GSA schedule rates.  Not enough, says GAO. The agency focused almost exclusively on the question of price reasonableness as determined by comparison to the awardee's GSA schedule pricing.  GAO determined the lack of any meaningful consideration given to price in the tradeoff decision vitiated the selection.

In a best value procurement, it is the function of the source selection authority (SSA) to perform a price/technical tradeoff analysis meaning the SSA must determine whether a proposal's technical superiority is worth its higher price.  A rule to remember.  So the tradeoff analysis must include an analysis of all the proposals in the competitive range comparing each to the other on both technical and price in order to determine best value.  In this case, neither the evaluated prices of the three proposals in the range, nor the differences between these prices were set forth in the SSA's tradeoff decision.

We've already reported on GAO decisions in which GAO makes it clear that the tradeoff analysis must be made on all proposals within the competitive range.  It is insufficient to pick the highest rated technical proposals and make an award to them.  Price must also be considered and not in the abstract or as part of a price reasonableness analysis.  The heart of best value is finding, by comparison, the very best value considering the tradeoff between technical excellence and price.

Protest sustained.  Reevaluation and new tradeoff analysis with rationale for any tradeoffs, including benefits associated with any price premium, recommended. Costs and attorneys fees awarded.

bill@spriggslawgroup.com           www.spriggslawgroup.com

TEN PROTEST RULES TO REMEMBER

Protests can be filed with the Government Accountability Office (GAO) or in the Court of Federal Claims (COFC).  If filed at GAO and a similar case is filed in the COFC, GAO will dismiss the protest  case at GAO.  If a contractor is unhappy with the result at GAO, it can file a similar protest at the COFC.  Here are some important rules to remember:

1. Protesting is an integral part of the acquisition system.  One of the best ways to illustrate this is by reference to when the U.S. District Courts first decided they had jurisdiction to hear protests (they no longer have this jurisdiction - it was transferred to the COFC).  The courts said disappointed bidders were acting as "private attorneys general" policing the system on behalf of the public.
2. Protests based on any impropriety in the solicitation must be protested prior to the closing time for receipt of proposals.
3. In all other cases, the GAO protest must be filed within 10 calendar days after the basis for the protest is know or should have been known.  Protesters have 10 days to file at GAO after a debriefing.
4. However, for a protester to avail itself of the automatic post award statutory stay of performance of an awarded contract, the protest must be filed at GAO within 10 days after award or 5 days after the debriefing, whichever is longer. Protesting before award stays the award. The agency can override the automatic stay but the override can be challenged in the COFC.  (The agency has a pretty heavy burden to override the stay.)
5. The timeliness rule at the COFC for solicitation protests is the same - the protest must be filed prior to proposal closing time.  However, there are no set timeliness rules at the COFC for other protests except there can be no relief in cases of inordinate delay.
6. Pursuing an agency protest does not extend the time for obtaining an automatic statutory stay.
7. According to GAO statistics, roughly 20 percent of protests are sustained on average over the years.
8. Most protests are won where a protester shows a statute or regulation is violated based on undisputed facts.
9. When an agency engages in "corrective action" after a protest is filed, GAO will dismiss the protest as academic.  However, a disappointed bidder may complain in the COFC or refile at GAO if the corrective action taken is objectionable.
10. At GAO, if the protest is sustained, it is likely GAO will recommend payment of protest costs and attorney fees.  At the COFC, a winning protester may get its bid preparation costs, but it will not get its attorney fees unless it qualifies under the Equal Access to Justice Act (EAJA).

On April 1, 2002, the Administrator of the Office of Procurement Policy (OFPP) admonished all senior procurement executives that the "filing of protests, the filing of claims, or the use of ADR, must not be considered by an agency in either past performance evaluations or source selection decisions."  (Emphasis added.)

In our experience, one should first "protest", probably informally (not through an agency protest) to the contracting officer, before filing at GAO.  Also, don't accuse the contracting officer of bias.  It takes "will nigh irrefragable " proof.  Look it up. It means nearly impossible.  Breach of good faith and fair dealing by failure to cooperate in the context of contract performance only requires proof of the breach. But at GAO, to show bias in the selection process, a protester had better have a smoking gun.

bill@spriggslawgroup.com           www.spriggslawgroup.com