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