Saturday, February 9, 2013


Judge Peacock of the Armed Services Board of Contract Appeals (ASBCA) has sustained the appeal of Lockheed Martin in a Truth in Negotiations Act (TINA) claim made by the Air Force.  After a thorough discussion of the many faults in the Air Force's argument in favor of its claim, Judge Peacock simply points out that for an agency to prevail on such a claim, it must show damages or prejudice.  Having failed in the attempt, the ASBCA denies the Air Force's claim for $14+ million.

TINA was first passed in 1962 to put the government on an equal footing with contractors in contract negotiations where submission of cost or pricing data is required.  TINA now applies to any negotiated contract expected to exceed $700,000, a modification of a contract exceeding $700,000 and in certain cases a subcontract exceeding that same amount.  Of course, there are exceptions not relevant here.  And there are other arguments a contractor can make in defending the government's defective pricing claim.

In the Lockheed Martin case, the Air Force claimed that Lockheed's failure to disclose date resulted in overstatement of the prices the Air Force paid.  And the Air Force grounded its argument on the rule of law that there is a presumption that the non-disclosure of data resulted in an overstatement of the price.  Fair enough. There is such a rule.  But Judge Peacock pointed out that the ASBCA analyzes the evidence carefully in applying the presumption.  And, he pointed out, the presumption can be rebutted and is not a substitute for specific proof establishing the amount of damages.

The government has the ultimate burden of showing a causal relationship between incomplete or inaccurate data and an overstated contract price.  "In this case, the government not only has failed to prove the amount of any increase, appellant has rebutted the presumption that an overstated CCIP contract price resulted from the alleged nondisclosure of the data in question."  Judge Peacock concluded that it was not necessary for him to address the other issues and defenses raised by Lockheed Martin.  Even whether the data were timely disclosed was something he did not need to address.

"To establish defective pricing, it is axiomatic that the allegedly undisclosed data lead to a higher negotiated price.  Here, the evidence establishes that any nondisclosure of the Bridge prices did not contribute to an overstatement of the CCIP contract prices.  Even if all the other elements of the government's claim were established, its damages are zero."  Repeat, even if all the other elements of the government's claim were established, its damages are zero.

The lesson?  Cut to the chase.  What were the damages, if any.  If none, there is no claim.

Wednesday, February 6, 2013


Judge Lynn Bush of the Court of Federal Claims (COFC) recently entered judgment for the protester in a sole source procurement of a bridge contract by the Air Force. "The violations of procurement regulations in the sole-source award to Harris are numerous, troubling and prejudicial to IDEA," she said.  "These were not technical errors."  Although there was no indication of bad faith, regulatory mandates were needlessly sacrificed, she concluded.  She then went through a litany of transgressions of which the Air Force was guilty, reminding all of us that the violation of rules has consequences.

The Air Force relied on FAR 6.302-1 and 6.302-2 which Judge Bush noted was misplaced since FAR 6.302-1(b) forbids reliance on FAR 6.302-1 when 6.302-2 is applicable.  She noted the court is unaware of any prior attempt to rely on both of these authorities for the same sole source award.  If a contracting officer is faced with a situation where unusual and compelling circumstances exist, it is impermissible to rely on the only one responsible source provision to justify a sole source award.  FAR 6.302-1(b) "forces the agency to solicit offers from as many sources as is practicable, in situations of unusual and compelling urgency, before resorting to soliciting offers from only a single source, in circumstances which may also present unusual and compelling urgency.  The goal is to obtain maximum competition.

Judge Bush went on to find the Air Force violated FAR Part 10 in that the Air Force did not conduct any significant market research.  She characterized this violation as serious.  Moreover, no contract synopsis was posted as required by FAR 5.207(c)(15)(ii) and FAR 6.302-1(d)(2).  Here there was no posting, no statement encouraging potential sources to submit proposals and no consideration by the Air Force of information received in response.  In addition, there was no explanation in the justification and approval (J&A) for the failure to post a synopsis and no citation to authority justifying such a failure as required by FAR 6.303-2(a)(6).

Finally, there was no mention of the protester's interest as required by FAR 6.303-2(a)(10).  A sole source justification requires a listing of contractors that have expressed an interest in the contract requirement.  The protester had repeatedly expressed an interest, in writing.  And the Air Force violated FAR 6.302-2(c)(2) by not making the required effort to solicit offers from as many sources as practicable. Judge Bush pointed out that GAO has repeatedly sustained protests where an agency has made only minimal efforts to expand its consideration of potential sources beyond an incumbent contractor.  The Air Force "neglected to look in its own files" to find the protester's interest.

The Air Force suggested the protester was not qualified.  Nonsense says Judge Bush.  Yes, there was one superior contractor.  "Superiority, however, is not adequate justification for a sole-source award."

Rule, rules, rules.  They are there for a purpose (taxpayers).  They will be enforced. They must be learned and followed.

Saturday, February 2, 2013


Cost estimates on cost reimbursement contracts are not to be taken at face value. FAR 15.404-1(d) says a cost realism analysis is the process of independently reviewing and evaluating specific elements of proposed cost estimates to determine if they are realistic for the work to be performed, reflect an understanding of what's required and are consistent with the contractor's technical proposal.  The analysis is mandatory on cost reimbursement contracts. The purpose is to determine probable costs.  The probable (not face value) costs are then used to determine best value.  That's the regulation.

What does GAO say?  In a recent decision, GAO said that when an agency evaluates proposals, the offeror's proposed estimated costs are not controlling because the government is bound (in cost reimbursement contracts) to pay actual allowable costs.  Based on the cost realism analysis, proposed costs should be adjusted.  FAR 15.404-1(d)(2)(ii).  Government agencies are obliged to employ analysis methods which provide a "measure of confidence" that the "most probable costs" are "reasonable and realistic" in view of the information available at the time of evaluation.

In another decision within the last year, GAO sustained a protest where the agency failed to conduct a meaningful analysis of why it accepted the contractor's proposed costs at face value.  GAO said: "When an agency evaluates proposals for the award of a cost-reimbursement contract, an offeror's proposed costs are not controlling since such costs may not accurately reflect the actual costs the government will incur."  It's really a "should cost" exercise.  GAO will test the agency evaluation to see if it is "reasonable, not arbitrary, and adequately documented."  GAO will sustain a protest where the cost realism analysis is not adequately documented.

The government is not required to conduct an in-depth cost analysis or to verify each and every cost item.  Determination of the probable cost is, after all, a matter of informed judgment.  But the judgment must be rational.  The cost realism analysis must be performed with an eye to what the contractor proposes in its technical proposal.  It is not rational for an agency to apply the same mechanical test and analysis to all contractors without reference to their specific technical approaches.  And even where the contractor puts a cap on its costs, an agency must still consider whether capping costs may so constrain the contractor that its ability to perform the work may be impaired.

Perhaps the biggest area of costs open to question is the estimated number of labor hours required to perform the work.  Proposed staffing levels may be unrealistic according to any number of measurements (the technical proposal itself and prior staffing levels for similar work).  Whether labor rates are realistic also is often challenged.

In the end, the cost analysis should be used to test the contractor's risk of nonperformance.  Performance risk in today's world is of the highest concern.  A proper cost analysis should inform the government's assessment of the performance risks.