Radio Show Interview: Debriefings, Protests, REA's...

On March 29, William Spriggs was interviewed by Jo Rupprecht on the Blind Justice radio show. Topics covered included: debriefings, protests, REA's, claims and rules of contract interpretation. Click on the link to listen to the show.
http://milehiradio.com/shows.cfm?id=4AAC1544-A962-B762-C706BCA21D7C3CEF

FLAWED EVALUATION; PROTEST SUSTAINED

GAO recently sustained another protest in which the Army failed to evaluate proposals solely on the factors identified in the solicitation.  GAO recommended reevaluation and, if necessary, discussions and revised proposals.  Costs and fees to be paid to the protester.  We continue to report on these GAO decisions to make the point that evaluation criteria must be clearly stated and scrupulously followed in the source selection process.

The protester complained that the Army unreasonably found the successful awardee's proposal satisfied the minimum requirements for key personnel experience at an accredited hospital.  The requirement stated the length of continuous experience at a particular type of accredited hospital.  GAO found the successful awardee's proposed key personnel fell short of the requirement.  Offerors were informed that award would be made on a LPTA basis but listed several evaluation criteria to be judged on a pass/fail basis.

GAO stated agencies are required to evaluate proposals based solely on the factors identified in the solicitation and they must adequately document the bases for their evaluation conclusions.  Agencies may evaluate on a basis not expressly presented in the solicitation but there must be a clear connection between the stated criteria and the unstated considerations.  GAO does not second guess agencies but it will question the agency's conclusions where they are inconsistent with the solicitation criteria, are undocumented or are not reasonably based.

The case also involved an alleged violation of the Procurement Integrity Act (an Army employee leaked documents to an offeror other than the protester), but GAO denied that aspect of the protest.  The Army investigated the matter and determined that the documents involved were publicly available and not procurement sensitive information.  Furthermore, GAO found the protester was not prejudiced by any alleged disclosure of the information.  "Even where a protester shows an actual or potential violation of the PIA, our inquiry does not end there.  Rather, the question becomes whether the alleged PIA violation created an infair competitive advantage."  Competivie prejudice is an essential element of a winning protest.

In addition to these blogs, we also send alerts to our clients and friends in what we call Client Information Bulletins.  No obligation.  If you would like to be on our emailing list for these bulletins, let us know at bill@spriggsconsultingservices.com or bill@spriggslawgroup.com. 

bill@spriggslawgroup.com

PROPER USE OF FIRM FIXED PRICE (FFP) CONTRACTS

In these days of fiscal austerity, the default contract type is firm fixed price. But should it be? What do the regulations say about FFP? As we've said before, budget contraints do not rewrite the regulations. They remain the same as always. So what does FAR say about FFP? FAR 16.202-1 describes FFP and goes on in 16.202-2 to state the proper application of FFP. These shift-the-greatest-risk-to-the-contractor contracts are suitable when the government 1) can write "reasonably definite functional or detailed specifications"; and 2) when "the contracting officer can establish fair and reasonable prices at the outset."

Among the tests of whether fair and reasonable prices can be established at the outset is whether "the contractor is willing to accept a firm fixed price representing the assumption of the risks involved." Since FFP contracts place the maximum risk and full responsibility for all costs and resulting profit or loss on the contractor, you would think the admonition to discover whether the contractor is willing to accept the risks might have some meaning. When was the last time you were asked whether a FFP contract was the right choice? When have you been asked by your government buyer whether you were willing to accept the risk?

Obviously, you've never been asked. These are contracts of adhension where the government dictates the terms and conditions of the sale. There is no negotition (or is there?) over the type of contract. There could be. You could protest the wrong type of contract. But who is willing to do that? So the contract by adhension rule is inviolate? Probably. But that does not prevent us from pointing out that the use of fixed price contracts must be based on an analysis of the facts against the language of FAR 16.202-2. (We've discussed how to level the playing field during performance by reminding everyone in other blogs about the implied government obligations in every government contract.)

The latest problem with the drive to make all contracts fixed priced is the bait and switch tactic we've seen and also discussed in other blogs. The government cannot write a firm fixed price contract and then administer it as if it is time and materials, for example. Or, use some other excuse not to pay the firm fixed price. In such a case, the contractor clearly has a remedy for breach of contract, constructive change or constructive termination. So you may be stuck with the type of contract, but you should not be holding the bag when the government changes the rules of the game.

THE GOVERNMENT'S DUTY OF GOOD FAITH AND FAIR DEALING

Listen to Judge Mary Ellen Coster Williams of the United States Court of Federal Claims:

"In addition to obligations expressly set forth in the text of a contract, every party to a contract owes a common law 'covenant of good faith and fair dealing' to its contracting partner. [Citation omitted.] This implied duty obligates the parties to act 'with good faith and fair dealing in [their] performance and in [their] enforcement' of the contract. [Citation omitted.] A party must refrain from doing anything 'that will hinder or delay the other party in performance of the contract' or that will destroy the other party's reasonable expectations regarding the fruits of the contract. [Citation omitted.] The duty of good faith and fair dealing encompasses the duties to cooperate and not hinder contract performance."

We should hasten to add it also includes the duty to communicate and disclose information vital to contract performance. To which we also should add the duty to clearly state contract requirements and provide specifications free from errors, conflicts and omissions.

Notice in Judge Williams' opinion her reference to the government's obligation to refrain from anything that will destroy the other party's reasonable expectation regarding the fruits of the contract. The Armed Services Board of Contract Appeals says this requires the government to do everything reasonably necessary to enable the contractor to perform.

This rule has been around a long time. But the workforce turns over and changes. Education is improving but experience is the best teacher. It's time we reminded everyone of the legal obligations of the parties to a contract. In practical terms, this means they should work together and communicate. It's the law.

USE LPTA FOR GRASS CUTTING, NOT TECHNICAL SERVICES

We applaud the National Defense Industrial Association (NDIA) for making one of its 2012 issues the proper use of lowest price, technically acceptable (LPTA) acquisitions. NDIA says it is acceptable to use LPTA for janitorial, grass cutting, mail handling and snow removal but not for complex engineering services. Amen. Tradeoffs among technical factors, past performance and price must be made for complex items and services. Technical services, including most engineering projects, do not lend themselves to source selection based on LPTA. NDIA points to the growing concern about DOD's expanded use of LPTA. We believe LPTA should be under attack. Criticisms of its use are warranted. Acquisition leaders and contracting officers alike should heed NDIA's concern and our reminder to pay attention to FAR.

Yes. Pay attention to FAR. As we have pointed out, FAR 15.101 covers the "best value continuum" by saying LPTA may be appropriate "where the requirement is clearly definable and the risk of unsuccessful performance is minimal". Grass cutting should go to the lowest priced bidder. On the other hand, the "less definitive the requirement, the more development work required, or the greater the performance risk" tradeoffs (best value) should be used. FAR 15.101-2 clearly says in the use of LPTA's, "tradeoffs are not permitted".

We need to interject a word about language. Best value procurements are those in which there are tradeoffs among technical factors, past performance and price. LPTA's are not best value procurements because they do not involve tradeoffs. Yet LPTA's are considered part of the "best value continuum" in FAR 15.1. We think the regulation creates some confusion among members of the contracting community because what we commonly call best value (tradeoffs) is discussed with LPTA's as part of a "best value continuum". The two are separate notions. We don't really see a continuum. LPTA is not best value as we understand it.

So, what happens? Contracting officers think the continuum is a sliding scale so that they can slip some procurements from best value tradeoffs to LPTA's. Or, they think LPTA's are perfectly acceptable since they are discussed under the "best value continuum". Wrong. The slip approach violates the law against changing the rules in the middle of the game. And the notion LPTA's are always perfectly acceptable is just plain wrong even under the continuum language in the regulation.

The answer? Get on board with NDIA. LPTA's are acceptable for grass cutting but not for more complex items and services.

THE BEST BOOK ON BEST VALUE YOU WILL EVER READ

We posted our brief comment on a Judge Bush opinion on September 28, 2011. We also referred to it when we wrote about another Judge Bush opinion on January 15, 2012. We now invite you to read the best treatise published to date on best value procurements and it is found at www.uscfc.uscourts.gov/sites/default/files/firstline.pdf. This is the 79 page published opinion of Judge Bush in FirstLine Transportation Security, Inc. v. United States, U.S. Court of Federal Claims No. 11-375 C (September 27,2011). Judge Bush covers everything you need to know about best value tradeoffs, proper source selection evaluations and decisions, proper use of evaluation factors, the impropriety of turning best value tradeoff procurements into lowest price, technically acceptable awards, and how best value decisions must be made and documented.

The price of the successful awardee was 16% lower than the protester FirstLine’s price. FirstLine’s technical ratings included 33 strengths and no weaknesses whereas the successful awardee had 1 strength and 1 weakness. Yet the SSEB concluded that the higher technical merit offered by FirstLine did not justify the price differential because the successful awardee offered “an acceptable level of technical competence". Judge Bush said this “had the effect of converting the best-value procurement contemplated under the RFP into one based on low price and mere technical acceptability.” Essentially, the SSEB converted best value into LPTA. She went on to show that FAR 15.101-1 and 15.101-2(b)(1) contain entirely different procurement methods. Judge Bush then pointed out the SSEB was required under FAR 15.308 to properly document its tradeoff analysis, which it did not do. Although FAR 15.308 applies to the SSA, not the SSEB, since the SSA merely adopted the SSEB’s conclusion, the SSEB was obliged to meet the documentation requirements of FAR 15.308.

In documenting the tradeoff analysis, she said the SSEB report contained nothing more than conclusory assertions based on flawed premises. The report did not compare the competing proposals in any meaningful way. It did not address the relative benefits and disadvantages of the competing proposals and it did not explain why a higher-priced, but technically superior proposal does not merit its higher price. “The government cannot simply declare that a price premium is not justified by a superior technical proposal without some substantive discussion of why that is so.”

“Thus, when selecting a low-price technically inferior proposal in a best-value procurement where non price factors are more important than price, it is not sufficient for the government to simply state that a proposal’s technical superiority is not worth the payment of a price premium. Instead, the government must explain specifically why it does not warrant a premium.”

Judge Bush also noted that, with only one minor exception, there is no evidence the SSEB even considered the relative weight of the evaluation factors which had been stated in descending order of importance with all other factors more important than price. The successful awardee and the government argued the government was free to disregard the evaluation factors as long as the evaluation of the proposals was reasonable. We can almost hear her banging her gavel: “That is not the law.”

Judge Bush then takes on the SSA’s decision. The decision making requirement is in FAR 15.308, which she quotes. First the SSA must reach an independent award decision based on a comparative assessment of the proposals against all of the criteria set forth in the solicitation. Then, the SSA must document an independent award decision. “Here, the SSA’s documentation is limited to her adoption of the SSEB report and her otherwise unsupported statement that [the successful awardee’s] proposal represents the best value to the government.” Again, you can almost hear the gavel. The SSA must document the rationale for any business judgments and tradeoffs made or relied on by the SSA. The express language of FAR requires the SSA to exercise independent judgment and document that judgment. “Here, the SSA should have explained why the FirstLine proposal was not worth its higher price, notwithstanding its substantial technical superiority.”

The remedy? Do it over and do it right. Injunction issued.

The lessons?

· Scrub the evaluation factors. Make sure they comply with FAR 15.304.

· Scrutinize the SSEB’s report to make sure it complies with FAR 15.305

· Scrutinize the SSA’s decision to make sure it complies with FAR 15.308.

· It’s against the law to take a best value tradeoff procurement and turn it into a LPTA.

We urge you to read Judge Bush’s opinion in FirstLine. It will tell you everything you need to know about how best value tradeoff procurements are supposed to work and it will tell you they are a far cry from LPTA’s

NEW DOD REA CERTIFICATION REQUIREMENT

On December 7, 2011, DOD introduced a new clause for contracts estimated to exceed the simplified acquisition threshold. DOD now requires contractors to certify that any request for equitable adjustment (REA) exceeding that threshold in amount is "made in good faith, and that the supporting data are accurate and complete to the best of [the contractor's] knowledge and belief."

Just to review the bidding, contractors may seek REA's for upward adjustments in price and schedule extensions on any government contract containing the standard Changes clause. For commercial item contracts awarded under FAR Part 12, it's a difference story. There, the changes clause says changes may only be made by mutual agreement of the parties. However, REA's can be submitted under breach of contract theories on commercial item contracts. In any event, if you have the new clause in DFARS 252.243-7002, you must certify your REA.

This is not the same certification required under FAR Subpart 33.2. If you desire to convert your REA to a claim, you must use the certification language at FAR 33.207. That certification adds another clause to the certification asserting the contractor's belief the amount accurately reflects what it believes the government must pay and attests to the certifier's eligibility to make the certification. If you want to request the contracting officer's final decision thereby affording yourself the opportunity to appeal that decision and you want to recover interest on your REA, you must certify it with the exact language from FAR 33.207. Although minor informalities in the language can be corrected later, you should use the exact language in the regulation.

REA's are an integral part of the public contracting scheme. One of the major differences between public and private commercial contracts is the use by the government of the Changes clause. Because the government dictates the mandatory use of this clause and thereby maintains total control over the contractor's performance, the law has developed various remedies for the contractor to recover additional costs (and profit on those costs) under various theories called constructive changes. (These constructive changes are actually breaches of the contract given a different name.)

We've written several blogs about breaches of government obligations under every contract. The government's specifications must be free of errors, conflicts and omissions and must permit commercially practicable performance. The government is obligated to cooperate with the contractor, not interfere in the contractor's performance and communicate with the contractor. The govenment is obliged to provide information vital to the contractor's performance. There are other types of constructive changes such as constructive acceleration of performance (where the government unjustifiably denies the contractor's request for a schedule extension). Differing interpretations of contract language give rise to constructive changes.

The take away points are these: (1) you have a right to seek redress for constructive changes; (2) if you submit an REA on a DOD contract, you must certify it under DFARS 252.243-7002; (3) if you want to convert your REA to a claim, you then must recertify it in accordance with FAR 33.207; and (4) call us as we are experts at preparing REA's and claims.

JUDICIAL REMEDY FOR NEGATIVE PERFORMANCE EVALUATIONS

Yes, there is a judicial remedy if you are aggrieved by a negative performance evaluation. The Court of Appeals for the Federal Circuit (CAFC) handed down an opinion today affirming an opinion by the Court of Federal Claims (COFC) that it had jurisdiction to hear a complaint that a contractor had been wronged by a negative performance evaluation. Jurisdiction was based on the Contract Disputes Act (CDA) which also gives jurisdiction for such claims to the Armed Services Board of Contract Appeals (ASBCA) and the Civilian Board of Contract Appeals (CBCA). Thus, you also can go to the Boards for redress.

But be wary. Todd Construction ended up losing the case. It tried to get the court's attention on procedural (due process type) issues but failed because it could not show that it was prejudiced by a significant procedural error. That is, it failed to show that but for the error, it would have taken curative action or that the performance evaluation would have been different. Todd therefore lacked standing to sue with respect to the procedural violations.

Todd then tried to show the government acted arbitrarily and capriciously in assigning an inaccurate and unfair performance evaluation. However, Todd admitted that some of the performance problems were not the government's fault but were instead caused by Todd's subcontractors. Don't forget, the prime contractor is not excused unless the subcontractor also has encountered excusable causes of nonperformance. Todd was just blaming subcontractors. The CAFC said: "To raise a plausible inference that the ratings were arbitrary and capricious, the contractor would, at the very least, need to allege facts indicating that all of the substantial delays were excusable."

The teaching of the case is that you can seek judicial relief from negative performance evaluations. But you had better be sure your failure to perform is excusable. And, don't forget, all compensable changes are excusable causes of delay and failure to perform.

This reaffirmation of the jurisdiction of judicial tribunals under the CDA to grant declaratory relief suggests some creative approaches to contract administration. If you have a dispute of significant importance regarding interpretation of the contract, interpretation of regulations relating to the contract, propriety of termination for default or for that matter nearly any dispute relating to the contract and your contracting officer stonewalls you, consider certifying a claim for declaratory relief and demand a final decision. Avail yourself of the disputes clause mechanism early to provoke a response and if necessary, get the matter before a judge. And, don't forget alternative disputes resolution (ADR). Judges can act as mediators even if the case is not officially before the tribunal.

CHALLENGING DECISIONS TO EXERCISE OPTIONS

We have been asked whether it is possible to challenge an agency decision not to exercise an option under an existing government contract. Conversely, we have been asked whether a disappointed competitor can challenge the propriety of the agency's decision to exercise an option under an existing contract.

First, we address whether a contractor on an existing contract can challenge the government's decision not to exercise its option. Under recent judicial authority, when a contract contains an option to extend its term, unless the contract provides otherwise, the government enjoys broad discretion and is under no obligation to exercise the option. The government's decision can provide a vehicle for relief only if the contractor proves that the decision was made in bad faith or was so arbitrary or capricious as to constitute an abuse of discretion. Bad faith amounts to proof of specific intent to injure the contractor.

Second, is it possible for a disappointed bidder on the contract to challenge the government's exercise of an option under the contract it awarded to another contractor? By challenge, of course, we mean can one go to a board of contract appeals, the Court of Federal Claims (COFC) or the GAO seeking redress? Since the disappointed bidder has no contract, it cannot seek redress at a board of contract appeals or the COFC under the statute affording those tribunals jurisdiction over contract disputes. So, can the contractor challenge the proposed exercise of the option under the bid protest jurisdiction of COFC or GAO?

The rule is you cannot protest matters of contract administration but there are exceptions to the rule.

The Competition in Contracting Act (CICA) affords GAO jurisdiction relating to: (1) solicitations; (2) cancellation of solicitations; (3) award or proposed award of a contract; and (4) termination or cancellation of award if the protest is based on improprieties in the award of the contract. Based on CICA, it would appear GAO will not hear complaints about contract administration. However, we are aware of a 2010 case (citing other GAO cases) in which GAO undertook to review whether exercise of the option was proper. GAO found "no basis to question the agency's exercise of the option . . . ." GAO will not question an agency's decision "as long as it is reasonable". As far as we know, GAO has never granted such a protest.

The COFC has protest jurisdiction relating solely to solicitations and contracts or violations of statutes or regulations relating to procurements or proposed procurements. The COFC specifically declines protest jurisdiction over complaints involving contract administration. However, the COFC also heard a 2010 case in which a disappointed bidder protested the exercise of an option although the facts in that case are very unique and a definite exception to the rule.

So, you may always challenge wording in the solicitation, the nature and type of the procurement, the cancellation of a solicitation, an award under a solicitation and in some cases the termination or cancellation of an award. You may get GAO (or perhaps even the COFC) to hear your complaint about the exercise of an option but GAO will not second guess the agency unless its decision is unreasonable or an abuse of discretion.

Postscript: If the agency issues a solicitation as part of its decision making process on whether to exercise an option and then cancels the solicitation, you could protest. However, the agency has broad discretion in cancellations and, again, it need only show it acted reasonably, rationally and that it did not abuse its discretion.

CHALLENGING INSOURCING IN COURT

Judge Beryl A. Howell, United States District Judge of the United States District Court for the District of Columbia has just held that the Court of Federal Claims (COFC) has exclusive jurisdiction over challenges to the government's decision to insource services.  In the process, Judge Howell spends considerable time explaining the meaning of the word "procurement" as used in the Tucker Act and the Administrative Disputes Resolution Act of 1996.

The District Court holds, consistent with other courts both in and outside DC, the Federal Circuit, and the Court of Federal Claims, that an agency's decision to insource is "in connection with a procurement."  A procurement includes all stages of the process from determining a need to contracting and closeout.  Insourcing involves determining a need for property or services and whether that need can be met through private contractors.  Although insourcing itself does not involve procurement, a decision whether or not to insource involves the process for determining the need.  Consequently, insourcing involves a procurement or proposed procurement regardless of whether it actually happens.

Left unanswered by Judge Howell is the question of standing. 

The Court recognizes that the parties have spilled considerable ink over whether the plaintiff is an 'interested party' and has standing under the Tucker Act.  Nonetheless, the Court need not resolve this issue because the matter is one that is more appropriately addressed by the Court of Federal Claims, which has exclusive jurisdiction to adjudicate the merits of the plaintiff's claims and whether the plaintiff has the ability to pursue them at all.

At least one judge of the COFC says a contractor has standing in the COFC (Judge Firestone) and we are not aware the issue has been resolved by the Court of Appeals for the Federal Circuit (CAFC).

The propriety of insourcing also can be challenged at the GAO.  Generally, GAO will not review decisions to perform work in house.  However, if a solicitation requires a cost comparison of in house to outside, GAO will examine the reasonableness of the decision to go in house.  GAO also will examine an agency's rationale for cancelling a solicitation to see if cancellation is a mere pretext or "flimsy excuse" for going in house.

bill@spriggslawgroup.com

UNENFORCEABLE GOVERNMENT PROMISES

In 1920, Justice Oliver Wendell Holmes, Jr. wrote:  "Men must turn square corners when they deal with the Government."  District Judge David M. Lawson of the United States District Court for the Eastern District of Michigan has just tossed out a GSA contractor's suit over GSA's misrepresentations because GSA was immune from suit under the Federal Tort Claims Act (FTCA) and there was no enforceable contract.  Judge Lawson lamented his powerlessness in the circumstances.  But he said:

On the other hand, citizens dealing with the government are charged with knowledge of the limits imposed on governmental employees' authority and the narrow scope of their accountability.  A contractor is well advised not to rely on promises that an agency makes unless they are in the form of an enforceable contract.  Anything less will leave plaintiffs holding the bag, possibly at great expense to themselves.

Plaintiff in this suit sought to recover the considerable expenses it incurred based on a representation made by a GSA employee that GSA intended to exercise an option to purchase the plaintiff's office building complex.  Julie Hoffman sent a letter saying:  "This project will be built.  There is no speculation.  In short, the Project will be a tremendous success story . . . ."  As it turns out, the GSA fumbled the deal when it failed to bind a developer whose participation was required.  The sale fell through and the plaintiff, who could have sued GSA and its employees if they were private actors, fell victim to the doctrine of sovereign immunity.

All of plaintiff's theories of liability were based on the statements made by Julie Hoffman, which proved to be a misrepresentation for which the government is immune, said Judge Lawson.  Case dismissed.

The plaintiff invoked the FTCA as a basis for jurisdiction and waiver of sovereign immunity.  However, there is an explicit exception.  The waiver of sovereign immunity does not apply to any claim arising out of misrepresentation, deceit, or interference with contract rights.  Plaintiffs also  alleged there was a "quasi contract" which, as a matter of law, compelled GSA to do the deal.  Not so, said Judge Lawson.  The Contract Disputes Act (CDA), said he, is not applicable to contracts for real property and in any event any suit for implied in fact contract (not alleged here) belongs in the Court of Federal Claims (COFC). 

Square corners, indeed.  Know the limits on government employees' authority.  Have an enforceable contract.  Don't be left holding the bag.

bill@spriggslawgroup.com

DEMAND THOROUGH DEBRIEFINGS

It's high time contractors got aggressive about their rights to thorough debriefings.  FAR 15.506 has a fairly detailed rule requiring debriefings which the government often ignores.  (We've blogged about the scourge of terse written debriefings.)  Dan Gordon encouraged open, thorough debriefings in the now famous myth busting memorandum.  What did he mean when he said thorough debriefings discourage protests?  No doubt he was thinking about the far too commonplace situation where a contractor has to protest just to see what the SSEB and SSA did.  That information, in our opinion, should be released in redacted form, to protect the contractor's proprietary information, at the debriefing.  A proper FAR 15.506 debriefing prevents a protest just to find out what happened.

FAR 15.506 lists, as Dan points out, the minimum amount of information that should be disclosed at a debriefing.  Minimum.  One of the requirements is a "summary of the rationale for award".  As we've said before, we've attended one debriefing where the SSEB report and the SSA decision were released (in sparingly expurgated form).  At a minimum, the government should thoroughly explain why it reached its award conclusion.  There is nothing in the law to prevent the release of all the post decision documents provided the contractor's rights in its trade secrets and confidential, proprietary information are protected.  If there is a protest, the deciding tribunal will publish that redacted information.

Contractors should be aggressive in pursuing their rights to thorough debriefings.  The regulation clearly promotes transparency.  OFPP encourages it.  If contractors do not get thorough debriefings, they should protest.  Protesting is a statutory right.  And protesting plays an important part in the taxpayers' procurement process.

When courts first intervened in public procurement awards, they did so on the theory that disappointed bidders were acting on behalf of the taxpayers as "private attorney generals".  So, you could say it not only is your right but it also is your obligation to police the system.  As a practical matter, why would you want to protest?  So you can find out what happened, pure and simple.  So you can find out why you lost the award.  And if the government will not show you the SSEB report and SSA decision at the debriefing, tell the contracting officer you will go to GAO or the Court of Federal Claims (COFC) to get the documents.

When you go to GAO or the COFC, you will not necessarily see the SSEB complete report and the SSA decision but your lawyer will see them under a protective order.  Your outside counsel will see everything once he or she is admitted to the protective order.  Based on advice of counsel, you can then decide whether to proceed with the protest.  If the SSEB report and SSA decision meet the legal tests, you can withdraw or dismiss the protest.  If they don't, you can proceed with the protest.

We do not know how many "blind" protests are filed because of failed debriefings but we suspect there are many.  Dan Gordon certainly was right on this point.  A concerned contractor who is not told why it lost may well be inclined to protest just to find out.  We certainly encourage that reaction.  The rule is that the items listed in the FAR 15,506 debriefing agenda is a minimum requirement.  Please start demanding copies of the SSEB report and SSA decision at your debriefings.  It's the right thing to do.

bill@spriggslawgroup.com

ORGANIZATIONAL CONFLICTS: THE HARD FACTS RULE

GAO has clearly articulated its standard for review of organizational conflicts of interest determinations and made sure it is in sync with the Court of Appeals for the Federal Circuit (CAFC).  The offending company must have had access to information that provided it with an unfair competitive advantage.  And a determination that an organization conflict of interest exists must be based on hard facts.  Having nonpublic information is not enough standing alone.  And mere inference or suspicion of conflict is not enough.  The determination must be based solid evidence.

The protester participated in the preparation of the procurement implementation plan and knew the agency's estimate for the price of the software to be purchased.  But GAO said there is no evidence in the record that this information provided the protester with an unfair competitive advantage.  The agency failed to demonstrate hard facts in support of its determination to exclude the protester.  Protest sustained.

In the decision, GAO said:

The situations in which OCIs arise, as addressed in FAR subpart 9.5 and the decisions of our Office, can be broadly categorized into three groups:  biased ground rules, unequal access to non-public information, and impaired objectivity.  The FAR identifies general rules and cites examples of types of OCIs that may arise, and ways to avoid, neutralize, or mitigate those OCIs.  FAR 9.505.

GAO will review the reasonableness of the contracting officer's investigation and where an agency has given meaningful consideration to whether a conflict of interest exists, GAO will not substitute its judgment for the agency's, absent clear evidence that the agency's conclusion is unreasonable.  In this regard, GAO says it "mirrors" the standard required by the CAFC in Axiom and Turner.

An agency's decision to exclude a contractor from the competition based on a conflict of interest arising from unequal access to information must be based on hard facts, meaning the agency must specifically identify competitively useful, non-public information to which the contractor had access.  And then the agency must demonstrate how this information conferred an unfair competitive advantage.

Lest there be any doubt, GAO and the CAFC seem to be together on this and as we have said before, we wonder why it is necessary to do any more monkeying around with the law on this subject, by regulation change or otherwise.

bill@spriggslawgroup.com

IMPROPER DISCUSSIONS ONLY WITH AWARDEE

GAO just sustained a protest where the Air Force improperly conducted discussions only with the awardee.  The RFQ was issued using the simplified acquisition procedures pursuant to the authority of FAR Subpart 13.5.  The procurement was conducted under the simplified procedures for evaluation of commercial items.  However, although the Air Force was not required to conduct discussions under the simplified acquisition procedures, GAO said where any agency avails itself of negotiated procurement procedures, it must follow the negotiated procurement rules.

Over and over again, we have reminded everyone that FAR Part 15 is implicated in every negotiated procurement even if it is under FAR Parts 12 or 13.  In competitive negotiated buys, contracting officers must pay attention to FAR Part 15.  All procurement professionals needs to read all the GAO decisions to keep track of just what rules apply.  Reading FAR is not enough.  Email me and I will send you a summary of all of GAO's decisions for last year.  Read these blogs and you will keep up with a bunch of them.

FAR 15.306 describes a range of exchanges that may take place when the agency decides to conduct exchanges with offerors during negotiated procurements.  Clarifications are one thing.  See FAR 15.306(a)(2).  Discussions, however, occur when an agency communicates with an offeror for the purpose of obtaining information essential to determine the acceptability of a proposal, or provides the offeror with an opportunity to revise its proposal in a material respect.  When an agency conducts discussions with one offeror, it must conduct discussions with all other offerors within the competitive range.

Where there is a dispute regarding whether communications constitute discussions, the test is whether an offeror has been afforded an opportunity to revise or modify its proposal.  Communications which do not permit an offeror to revise or modify its proposal, but instead request the offeror confirm what it has already committed to do, are clarifications and not discussions.  Consequently, there is no need to conduct these communications with other offerors.

Where improper discussions are held, GAO will resolve any doubts concerning the prejudicial effect of the agency's actions in favor of the protester.  A reasonable possibility of prejudice is a sufficient basis for sustaining the protest.

The relief?  Conduct discussions, reevaluate and make a new selection decision.  Recover attorney fees.

bill@spriggslawgroup.com

MANDATORY MEDIATION

In 1971, we wrote an article entitled The Judicial Role of the Contracting Officer in U.S. Government Contracting in which we emphasized impartiality.  The idea grew out of our testimony in hearings before the Commission on Government Procurement in 1970.  In our Extorting Extra Work blog, we suggested replacing the contracting officer when a dispute over payment, extra work or contracting interpretation occurs.  Today we reported on the Naval Postgraduate School's paper which, among many other excellent observations, focuses on the rather urgent need for ADR, which includes mediation.  We now call on Congress to make mediation of disputes mandatory.

Yes, mandatory.  Both sides need to be forced to the table with an independent mediator.  And it needs to be done promptly as soon as a bona fide dispute arises.  We'll discuss how it should work.  But at the outset, we should observe that mediation can be arranged on 24 hours notice.  It would not be binding, but it should produce some salutary results.

First, what is a "bona fide" dispute and who decides it has occurred?  In our view, either side can claim a bona fide dispute exists and present evidence of its existence to the agency's ADR office (each agency would be required to have one).  The "case" would be immediately assigned to a mediator (each agency would be required to have trained mediators on call) who would first decide that a real dispute exists.  Then the contracting officer and the contractor would be immediately notified to email the mediator with a one page position paper.  The mediation would be held the next day.

Mediators would not be full time.  In fact, they would have other full time jobs in federal procurement.  But they would have to be totally independent with no conflicts of interest, meaning no prior knowledge of the procurement, its history or its participants.  Mediation training would become part of every acquisition course thereby allowing a broad range of acquisition professionals to act as mediators.  The mediators would be allowed to act just as any mediator would act in the judicial system but they would not make binding decisions.

The main point is the requirement must be mandatory and immediate.  If the parties are not forced into a settlement environment promptly and before an independent, trained arbiter, the procedure would not work effectively.  This really is what we were suggesting over 40 years ago.  The dispute must be moved quickly from the procuring contracting officer to someone else who can play a more impartial and, if you will, judicial role. 

Only then can we hope for what Abraham Lincoln wanted when he said of "the people's court" during his 1861 message to Congress:

It is as much the duty of the government to render prompt justice against itself, in favor of citizens, as it is to administer the same between private individuals.

bill@spriggslawgroup.com

 

BEST PRACTICES FOR PREVENTING AND RESOLVING BID PROTESTS

We want to call to your attention an excellent paper written by professors at the Naval Postgraduate School, including a former colleague of mine, Max Kidalov.  Email bill@spriggslawgroup.com for a copy.  Extensive research has shown there are numerous strategies and practices currently being used to minimize the impact of bid protests on the acquisition process such as adhering to clear evaluation criteria, advanced acquisition planning, procedures to prevent OCI violations, providing quality debriefings, thorough market research and some use of ADR procedures.  However, the authors point out the barriers to effective resolution or avoidance of bid protests include, lack of fiscal disincentive for unjustified protests, poor acquisition planning, lack of a trained acquisition workforce, frivolous protest filings and lack of sanctions for filing them.

So the authors recommend 12 "areas for further research" which could well be translated as recommendations for reform.  We'll put these recommendations in our own words:

1. Sanctions for filing frivolous protests should be limited to the Rule 11 sanctions currently enforced at the Court of Federal Claims but they should be extended to GAO as well.
2. The authors suggest the current stay override standards should be "re-balanced" to better protect the interests of the federal agencies, the taxpayers and the troops.
3. Agency level protests must be made trustworthy, transparent and truly effective.
4. Agencies should make better use of ADR procedures.
5. ADR should be the default dispute resolution and Congress should take the FAA ODRA's approach and replicate it for all federal agencies.
6. Agencies should object to frivolous protests by moving to dismiss them.
7. Agencies must provide quality mandatory debriefings to prevent protests.
8. Agencies should not blindly follow GAO recommendations.
9. CICA and GAO rules should require protesters to post bonds for the cost of interruptions from CICA stays.
10. Better training is needed in ADR resolution of protests.
11. Competition must be enhanced by breaking up large consolidated contracts into smaller contracts including multiple-award contracts.
12. FAR should require written justification for not using ADR, not overriding a stay, and not seeking to dismiss frivolous protests.

There can be no serious debate that adhering to clearly defined evaluation factors is the most important item on this list.  The second most important point is the need for quality debriefings.  The expurgated source selection decision documents should be made public, in our opinion.  Finally, we support the mandatory use of mediation of any dispute.  Many courts absolutely require the attempt to mediate in all civil cases. 

We applaud the Naval Postgraduate School for its research and major contribution to our consideration of reforms to the bid protest system.  Our special thanks to our dear friend, Max.

bill@spriggslawgroup.com

EXTORTING EXTRA WORK

One of our dear friends and readers has a small business client who expresses this concern:

His complaint with the system is a real one for small businesses, especially those working on limited resources.  That problem is the real fact that many government agencies withhold payments on a contract when there is a dispute over extra work or perceived failure of a contractor to live up to the terms of the contract's specifications.  Many times the contractor is forced to abandon a claim in order to get paid.  The government forces the contractor to perform additional work and then file a claim; at that point there is no assurance that he will be paid, and even if he is, as you know, it can be a matter of a year or more.

We think this is a form of extorting the extra work.  Or call it taking routine payments hostage.  It's just plain wrong.  Any suggestion, no matter how subtle, that a contractor must abandon any claim for extra work in order to get paid is a material breach of the contract.  Moreover, it is the worst form of contractual abuse to put a small business with limited resources in financial jeopardy by effectively removing its statutory right to relief.  This is the worst form of extortion.  Or call it hostage taking.  But what do you do about it?

If you have the resources, the remedies are effective and can be made economical and efficient with the right expert assistance.  But here we are talking about firms which cannot insist on a modification for extra work or a contracting officer's decision on a contract interpretation issue.  The contracting officer has effectively said do it my way or I'll drive you to bankruptcy.  The government contracting disputes system is not an option if you have been told you will not get paid unless you comply.

We don't like even thinking about situations where we have to put the judicial system aside.  That should not be the case.  We know exactly what to do with the luxury of a little time and money to exercise the rights congress already has given contractors.  In fact, each small business should explore just how expensive and time consuming it would be to solve its particular problem.  The reason we are in business to help contractors is to "pull rabbits out of hats" as Gil Cuneo used to say.

The solution here, however, is with Congress.  Small businesses need help.  Write your congressperson.  There are a spate of bills presently in mark up in the House to aid small businesses.  Several congresspersons have lined up in support.  We need to ask them to do one more thing for small businesses:  make extorting extra work and holding payments hostage to unilateral contract interpretation illegal.  But making such behavior illegal is not enough.  There also have to be penalties imposed through a swift and effective administrative appeal procedure.  Give the power to the SBA and require resolution within 10 working days.  Remedies should include removal of the offending contracting officer from the contract.

Perhaps even better, the (almost) Equal Access to Justice Act needs to be overhauled and expanded.  There needs to be a special inexpensive expedited procedure for handling small business disputes.  And attorney fees should be paid in total if you prevail whether or not the government had a good argument. 

Some will advise SBA may be a good source of help even without this new legislation.  Others may say escalate the problem within the agency and write your congressperson.  But there is precious little time for those approaches, as well.  And, if you are told you will not get paid, you are most likely to give up unless there is a remedy that is swift and effective.  In our opinion, the problem will not be solved unless and until Congress enacts new legislation specifically addressing it.

bill@spriggslawgroup.com  See also our blogs at http://scs.mymediaroom.com/blog/.    

OUR ADVERSARIAL ACQUISITION SYSTEM

On October 28, 2011, I posted a piece on our adversarial acquisition system for my consulting firm's site at http://scs.mymediaroom.com/blog/.  This last week I listened to two distinguished practitioners discussing government contracts on http://www.milehradio.com/ during which Edward Kinberg, Jo Rupprecht's guest opined that contractor's and the government should get tough early on during contract performance, each side making sure the other lived up to the terms of the contract and the appropriate implementing regulations.  Edward's point was the contract might well run more smoothly through completion and close out if the parties stuck strictly to the rules from the beginning.  The rules.

So I want to revisit the rules and the rights.  We as taxpayers demand a system of rules to guide the payment of money for the goods and services our government buys.  We, through Congress, have set up an elaborate and complicated system of rules and regulations we expect the buyers and sellers to follow.  At the same time, we have, again through Congress, established certain rights a contractor has to seek redress if the rules and the contract language are not followed.  Through us, our government dictates the terms of the contracts.  Moreover, we expect that all the hundreds of thousands of rules we've set up be followed.

So, let's not be naive.  We have set up an adversarial acquisition system.  At its best, buyers and sellers are strictly enforcing the rules and the contract provisions.  This results inevitably in protests when the buyers do not follow the source selection rules and claims by buyers or sellers during contract performance when the parties don't follow the contract language and the appropriate regulations implicated by the contract terms.  Disagreements often arise over the meaning and interpretation of these complex and often ambiguous contracts.  As I said last October, let's not stick our heads in the sand.  The rules, regulations and detailed contract terms and conditions of necessity produce an adversarial environment.

But let's also not be concerned or critical.  There is nothing wrong with an adversarial system and it does not have to be contentious.  (Look at our judicial system.)  In government contract protests, contractors actually are acting as private attorneys general in policing the source selection system.  The OFPP reminds all agencies that contractors have rights, yes rights given by Congress, to protest and submit claims.  We should applaud a system, designed to protect us as citizens, which requires the parties to act as adversaries, each making sure its interests under the law are fully served. 

Grant Thornton recently reported that 81% of the surveyed contractors reported the government either frequently or occasionally requests the performance of "out-of-scope" work.  Only 22% of the survey participants reported that contract issues are resolved efficiently.  And only 35% of respondents consider their procedures for identifying extra work were effective.  Neither side is minding the store effectively.  Neither side is taking Edward Kinberg's suggestion to heart.  The system is meant to be adversarial and it's high time both sides paid closer attention to what the contract and the rules and regulations require.

bill@spriggslawgroup.com. 

IMPACT OF CLAIMS ON PAST PERFORMANCE

We've written about how claims are an integral part of the federal procurement process.  But many ask whether a history of claims, or even one claim may adversely affect past performance evaluations.  We want to emphasize why claims are purposely required as part of the process and the filing of claims must not be considered by any agency in either past performance evaluations or source selection decisions.

The federal procurement system is built on a complex and comprehensive set of rules, regulations and case law for the protection of the taxpayers.  These rules and regulations are meant to be enforced.  Government contracts are contracts of adhesion in which the federal government dictates the terms and conditions.  The contracts all contain special clauses permitting claims.  Unlike the commercial world, contractors are meant to act as private attorneys general in policing the source selection process through bid protests.  You are not in Kansas anymore.  The federal procurement system invites you -- encourages you -- to protest and seek relief through claims.  Since the playing field is tilted in the government's direction by law (taxpayer fiat), the procurement system affords contractors a way to even the field by protests and claims.

Therefore, contractors are not to be penalized for their actions in availing themselves of the relief afforded them.  But don't just take my word for it.  Listen carefully to the words written to all agency senior procurement executives (meant to be passed down) from the Administrator of the Office of Procurement Policy:

While many agencies and contractors have successfully resolved contentious contract issues by effectively using a wide range of dispute resolution techniques, concerns have arisen regarding the consideration federal agencies give contractor protests, claims and ADR practices in past performance evaluations and source selection decisions.  For the reasons stated below, 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.)

The memorandum from OFPP goes on to state "contractors should feel free to avail themselves of the rights provided to them by law."  The rights.  Contractors are not to be downgraded for availing themselves of these rights when they file protests or claims and they may not be given positive past performance evaluations for refraining from filing protests or claims.

Government policy recognizes contractors' rights to avail themselves of remedies built into the system.  Moreover, it is the policy of the executive branch of the federal government to not penalize contractors for exercising these rights or rewarding them for not doing so.  The judicial branch certainly recognizes these principles as well, to say nothing of the legislative branch that enacted the very system which creates the rights.  GAO bid protest decisions support this policy.  We can provide you the case citations.

Let me know if this policy is not being practiced at the working level or if you want a copy of the OFPP memorandum (or citation to the GAO decisions).

bill@spriggslawgroup.com; bill@spriggsconsultingservices.com

TERMINATION CLAIM SETTLED FOR 100%

Spriggs Consulting Services recently settled a client's termination for convenience clause claim for 100 cents on the dollar.  The settlement included 100 % recovery of the firm's fees, as well.  The case illustrates how a combination of solid legal and accounting work can produce excellent results. 

One of the lessons learned is the importance of FAR 49.113 which says the cost principles in FAR Part 31 are "subject to the general principles in 49.201."  FAR 49.201 says a settlement of a T for C claim "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."  Business judgment, not strict accounting principles should be used, instructs the regulation.  This is scripture worth reading during any negotiation.

Another lesson learned is that careful analysis of contract provisions often carry the day.  The contract in issue contained a special clause which said that any termination for convenience could be adjusted to require the return of fixed price payments already made under the contract.  A careful reading of the entire contract, however, revealed that the termination clause said in the event of termination for convenience, the contractor could recover the contract price for work accepted and also costs incurred in the performance of work terminated, plus profit and accounting and legal fees. 

The Order of Precedence clause stated that any inconsistency between the "schedule" and the "general provisions" would be resolved by the general provisions taking precedence.  The definitions clause defined schedule to mean all contract terms except the general provisions.  The schedule language which limited recovery under the general provision termination for convenience clause clearly conflicted with the language in the termination clause.  Therefore, the schedule clause would have to be read out of the contract as inconsistent with the controlling termination clause.

The case is peculiar to its facts, as are all cases.  However, these two general lessons apply:  1) know the regulations and 2) read the contract carefully.

Last and certainly not least, the client's strong accounting assistance and attention to the cost presentation detail helped to carry the day.  Although strict accounting principles may not apply to the ultimate settlement, good accounting skills must be used in any professional presentation of a claim.

Spriggs Consulting Services was proud to be part of this excellent result for its client.  And, as music to the ears of any client, 100% of the SCS fees were approved as part of the settlement.  Don't forget, since the termination clause permits recovery of reasonable attorney fees, you should hire an attorney with reasonable fees to assist in the settlement.

bill@spriggslawgroup.com         http://www.spriggsconsultingservices.com/

IDIQ TASK ORDER PROTESTS

Thanks to the National Defense Authorization Act (NDAA) for Fiscal Year 2012, the rule on IDIQ task order bid protests is that protests alleging the order exceeds the scope, period or maximum value of the IDIQ contract are permitted at GAO or the Court of Federal Claims (COFC).  And, not or, protests based on any other grounds are permitted if the value of the order exceeds $10 million, but those protests must be filed at GAO.  This law has a sunset date of September 30, 2016.  The NDAA for FY 2011 contained similar language which then applied only to DOD, NASA and Coast Guard contracts.  If nothing changes and the sunset provision kicks in, it is likely GAO and the COFC will determine the failure to extend the sunset date creates an unrestricted right to protest task orders.

Does any of this apply to size protests?  We are unaware of any small business size protest rules that are implicated by the rules established for bid protests.  So, can one protest the size of a small business at the time of award of a task order under an IDIQ contract?  No, unless the IDIQ contractor was required to recertify its status prior to the award of the task order.  That's because a business that qualifies as a small business at the time it receives "a contract" is considered a small business throughout the life of that contract.  There are exceptions involving mergers, multiple award schedule contracts and BPA's (which are not contracts until a delivery order is issued).  Follow on or renewal contracts are new contracts and therefore require a new certification.

Don't forget, in negotiated procurements, a size protest must be received by the contracting officer prior to the close of business on the 5th day, exclusive of Saturdays, Sundays and legal holidays, after the contracting officer notifies the protester of the identity of the prospective awardee.

A task order under an IDIQ contract is not a new contract.  If the contracting officer did not request a new self-certification for the task order (ask to find out), a size protest under an IDIQ contract can be timely filed only under the 5 day rule for negotiated contracts at the time the original IDIQ contract was awarded.  However, since the time limits do not apply to the contracting officer or the SBA itself, you may always write a letter requesting that size be investigated even after the IDIQ contract is awarded.

The ever more popular BPA's are another matter.  Size is determined at the time of the first delivery order when the contract actually comes into existence.

bill@spriggslawgroup.com.

CONSTRUCTIVE TERMINATION FOR CONVENIENCE

Everyone in the government contracting community is familiar with "constructive changes" under the government contract changes clause.  We've written often in these blogs about how breaches of the government's implied duties under a contract amount to constructive changes.  The doctrine of constructive changes arose well over half a century ago as a fiction to afford the boards of contract appeals jurisdiction over ordinary breaches of contracts.  My mentor, Gil Cuneo, was one of its chief architects.  Under the doctrine, ordinary (and some extraordinary) contract breaches are treated as changes subject to equitable adjustments under the changes clause.

Similary, some breaches can be treated as constructive terminations for convenience.  The government can simply walk away from the contract, issue a "directive" to end performance, issue what it calls a "cancellation" or it can simply prevent the contractor from continuing performance.  Read that sentence again.  Has that happened to you?

If you have a commercial item contract under FAR Part 12, you might be well advised to call performance interruption or prevention a breach and calculate your damages accordingly.  However, as a practical matter, your recovery in all other cases may well be limited to rules for calculating recovery under the termination for convenience clause.  Most likely, the government's breach will be treated as a constructive termination, thereby insulating the government from ordinary breach damages such as recovery of lost profits.

In the commercial item FAR Part 12 breach by prevention of performance situation, it is unclear just how damages will be calculated.  First, there is the issue of whether the appropriate measure is ordinary common law breach damages or termination for convenience clause recovery.  Then, there is the issue of just what the termination for convenience recovery amounts to under the Red River case.  (If you want to hear more about that controversy, let me know.)  Since more and more contracts implicate FAR Part 12, we will see important judicial opinions coming down answering these questions in the coming months.

But in the more common current contracting environment involving non commercial item type contracts, a government breach by walking away, "cancelling", or otherwise preventing the completion of performance will be treated as if the contract were terminated for convenience.  And do not forget that in a termination for default situation (the government often terminates for default when it should terminate for convenience), you always should submit your pro forma termination for convenience settlement proposal as part of your defense to the default termination. 

We have a comprehensive termination (default and convenience) webinar/seminar available if you are interested.  Where two or more are gathered together . . . .

You can catch up on all our blogs both at this site and at http://scs.mymediaroom.com/blog/.

bill@spriggslawgroup.com

UNLIMITED DATA RIGHTS ARE NOT EXCLUSIVE

How many times has someone in the government told you that when it gets unlimited rights to data, it owns the data and has exclusive rights to use it?  If the government paid directly (as a direct cost under a contract) for the development of the data, it gets unlimited rights to use the data.  But these rights are not exclusive.  The contractor retains the capability to license the data or software to others.  The unlimited rights the government gets in technical data or software gives the government the ability to do just about anything it wants with the data.  But unlimited rights do not transfer ownership.  The contractor can still license to others.

But, you ask, can I really get another contractor to pay for the license.  The answer is yes.  However, the other contractor cannot charge the government for the use of the data since the government has already paid for its unlimited rights.

Do you still have a trade secret after you give the government unlimited rights?  Maybe.  Giving the government unlimited rights does not extinguish your trade secret claim.  The government must actually get and use the information or software.  The fact the government gets the rights does not mean your trade secret claim goes away.

While we are on the subject of trade secrets, we remind you of other blogs we've written about protection of your trade secrets.  Marking with proprietary legends does not make the data a trade secret.  Marking is necessary but not enough.  You also must protect the data as if it were a trade secret.  That means, of course, controlling access to it.  Treat it as if it were a top secret military document.  Limit access on a need to know basis and go out of your way to keep it close.  Release it only under a carefully worded nondisclosure agreement.

Finally, remember the rules on unlimited government rights.  Developed at private expense includes not only your direct funding but also indirect funding by the government through a properly allocated overhead account to which the government contributes by paying your overhead.

bill@spriggslawgroup.com