Sunday, December 30, 2012

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


Thursday, December 27, 2012

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
 

Wednesday, December 26, 2012

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


Monday, December 24, 2012

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

Tuesday, December 18, 2012

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.  So, guess what.  It's in the eye of the beholder.

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.  The problem is just what particular set of facts meet the legal test.  It can be expensive to be wrong.

bill@spriggsconsultingservices.com

Saturday, December 8, 2012

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

Friday, December 7, 2012

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

Tuesday, December 4, 2012

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