WHEN, WHY AND HOW TO CONVERT THE REA TO A CLAIM

One of our most popular discussions deals with how to prepare a request for equitable adjustment (REA).  In response, we've had a number of questions about when, why and how to convert the REA to a claim.  Again, there is no guidance in the regulations in answer to these questions so we suggest answers based on our experience.

The REA is not defined in FAR Part 2.  A claim is defined there as follows:

"Claim" means a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to the contract.

The regulation goes on to say a routine invoice is not a claim.  It then states:

The [routine request] may be converted to a claim, by written notice to the contracting officer as provided in 33.206(a), if it is disputed either as to liability or amount or is not acted upon in a reasonable time.

We believe it is reasonable to treat the REA as if it were a routine request for payment.  It is a request, not a claim.  The intent is to negotiate a settlement of the matters raised in the submission.  The costs of preparing, presenting, negotiating and settling the request are allowable costs.  The intent behind the request is to reach agreement to modify the contract to provide some or all of the relief requested.

A claim arises when the "submission" (the word used in the above referenced quote for which we substituted "routine request" in brackets) is disputed or is not acted upon in a reasonable time.  FAR Subpart 33.2 covers the initiation and certification of a claim, interest on claims and all the rules relating to the contracting officer's decision on a claim.  The distinguishing characteristics between the REA and a claim are a claim must be certified (if over $100K), interest runs on it from date of receipt and the contracting officer is obliged to render a decision on it from which the contractor can appeal to the tribunal of its choice.


In practice, unless it knows its request will be disputed, the contractor usually submits the REA first.  Then, if the contractor meets resistance, either in the form of delay or denial, the contractor should "convert" the REA to a claim, certify it (probably in any event) and request the contracting officer's final decision.  Most often this is accomplished by simply resubmitting the REA with a cover letter providing the requisite certification and request for decision.

A claim, in any event, must be submitted within 6 years of its accrual.  The REA can be submitted any time before final payment.  The judicial tribunals do not have jurisdiction to hear the claim unless it has been certified (if over $100K) and the contracting officer has either rendered a decision or failed to do so within a reasonable time (60 days for small claims).

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

UNREALISTICALLY LOW PRICE: PROTEST SUSTAINED

The Government Accountability Office (GAO) has just sustained a protest in which the protester argued that the awardee's proposal should have been rejected as unacceptable on the basis that its price was too low.  The solicitation established that the agency would evaluate whether bidders' prices were unrealistically low and the record reflected a failure by the agency to perform a price realism evaluation of the awardee's low price.

The solicitation advised offerors that "unrealistically" low prices "may" serve as a basis for rejection of a proposal.  GAO said: "Implicit in the solicitation's reference to 'unrealistically' low prices is the presumption that the agency would actually consider whether an offeror's price is in fact unrealistic and, as a consequence, unacceptable."

The Air Force in this case argued that the evaluation for price realism was optional because the solicitation said unrealistically low price proposals "may" be found unacceptable.  Wrong, says GAO.  The use of the term "may" refers to the agency's discretion to reject an unrealistically low price, as opposed to reserving to the agency the right to evaluate prices for realism in the first place.

GAO sustained the protest because the agency failed to contemporaneously evaluate whether the awardee's low price, which was 17 percent below the government's estimate, was realistic. 

What is a price realism analysis?  Price analysis is covered in FAR 15.404-1(b),  There are various techniques listed with preference for the first two.  Price realism is covered in FAR 15.404-1(d)(3) where the regulation states cost realism may be used on competitive fixed-price contracts in certain circumstances.  GAO has made it clear that if the solicitation uses the magic words indicating unrealistically low prices may be cause for rejection, the agency must then carry through and perform the analysis.  What is the analysis?  It is to determine whether the proposed price is realistic for the work to be performed, reflects a clear understanding of the contract requirements and is consistent with the contractor's technical proposal.

In our opinion, also implicit in such solicitation language is the requirement to check whether the pricing is unbalanced.  See FAR 15.404-1(g).

bill@spriggslawgroup.com                                www.spriggslawgroup.com

PROCUREMENT TRENDS SO FAR IN 2013

We can only report on what we see.  We don't see everything and report only on what is happening in our corner of experience.  However, there are some noticeable trends so far in 2013 worthy of note.  They involve source selection, protests, sequestration related pullbacks of outsourced work and claims.  Here are some of the things we've noticed.

Protests seem to be trending upward.  GAO publishes its statistics once a year and the last publication does not show what we're seeing now.  More contractors are seriously considering and actually filing protests.  And, the rate of sustained protests, particularly over the last few months, is trending downward.  Frankly, we can't even remember the last protest sustained by GAO.  The grounds for protesting seem to center around allegations of unreasonable evaluations and source selection decisions that don't follow the published evaluation factors.  There is an increase in claims that best value procurements have been turned into lowest price, technically acceptable (LPTA).  One thing is clear:  agencies are finding ways to go to the lowest priced offeror.  Contractors beware.  The lowest price may win no matter what the evaluation factors may say.

Evaluation factors are not clear.  That's often been the case in the past, but it appears there may now be a purpose in lack of clarity.  Contractors need to clear up any ambiguity in how they will be judged before they submit their proposals.  They should especially beware of best value procurements which leave any question as to whether the agency really is looking for the lowest price.  Agencies should be candid and spell out exactly what they mean when they suggest the that as the technical proposals are subjectively judged to be close to equal, price becomes more important.  What does close to equal mean?  How important will price become?

With regard to claims, we also see a trend that they are increasing.  We've seen several examples in which the agency has reduced work on task orders because of sequestration.  The problem is that on fixed priced orders, cutting back is a partial termination which permits the contractor to submit a termination settlement proposal which also reprices the remaining work.  The real problem arises in commercial item contracts where the agency proposes a modification descoping the work.  The changes clause in these contracts says changes can only be made by mutual agreement.  Unilateral changes are a breach of the contract.  And then there is the problem contractors have with the way the commercial item contract termination for convenience clause is written.  It has been interpreted to restrict the type of recovery afforded under the non commercial item clause.

We've also seen a trend in which agencies are treating fixed priced work as if it were time and materials.  In a time and materials contract, contractors have precious little opportunity for relief when hours are reduced.  We are seeing some contractors struggling with the way to reprice the remaining work.

In the case of fixed price commercial contracts, we are seeing some contractors resorting to the old breach of contract claim.  (As we've written, constructive changes were a fiction of the past to make breaches of contract compensable under the changes clause so the Boards of Contract Appeals would have jurisdiction.)  Again, agencies cannot impose unilateral changes in commercial item contracts.  That's a breach.  Unilaterally imposed reductions of work are terminations for convenience.  It remains to be seen whether contractors can successfully argue these reductions are breaches of contract.

So as far as trends go from our little corner of the world, protests and claims trend upward and successful protests trend downward.  Claims are still in their infancy.  The need for careful review of evaluation factors could never be more more important.

bill@spriggsconsultingservices.com                                 www.spriggsconsultingservices.com

A T FOR C MAY BE A BREACH OF CONTRACT

Judge Nancy B. Firestone, of the U. S. Court of Federal Claims COFC), has just handed down an opinion in which she holds that the government's termination for convenience (T for C) may be a breach of a non-commercial item procurement contract for security services in Iraq and Afghanistan.  The Department of Defense (DOD) awarded two contracts to the plaintiff but then terminated each for its convenience.  After reviewing all the relevant Court of Appeals for the Federal Circuit (CAFC) opinions, she concludes:

The court reads these precedents to include liability for breach of contract based on an improper termination for convenience where the government has engaged in some form of improper self-dealing for its own benefit or to the benefit of another contractor.

Her discussion hinges on the linchpin of the duty of good faith and fair dealing.

She begins her discussion pointing out that the government's right to terminate a contract for convenience without giving rise to a breach of contract claim has its roots in military contracts.  The military needed the clause so as to avoid large, unneeded military procurements upon cessation of war and other hostilities.  She then acknowledges that the CAFC has held a T for C may give rise to a breach claim where there is bad faith or an abuse of discretion.  The CAFC also has recognized  a T for C can be a breach when the government "contracts with a party knowing full well it will not honor the contract."

Importantly, a claim for breach of contract based on breach of the implied duty of good faith and fair dealing is different than a claim for breach based on an improper T for C.  The implied duty of good faith and fair dealing is inherent in every contract.  This duty requires each party "do everything that the contract presupposes should be done by a party to accomplish the contract's purpose."  A party must not destroy the reasonable expectations of the other party.

The breach of the obligation to exercise good faith and fair dealing also includes, as we have written many times, the duty to cooperate, communicate with and not interfere in the other party's performance.  Again, and very importantly, proof of bad faith is not required to show a breach of the implied duty of good faith and fair dealing in most cases.  As Judge Firestone notes:  "Evidence of government intent to harm the contractor is not ordinarily required."

Judge Firestone agrees with the government that breach of the covenant of good faith and fair dealing cannot be the basis for a claim of an improper T for C.  However, animus toward the contractor is not required.  The government can abuse its discretion by not intending for the contract to go forward, by terminating for convenience in order to get a better price for itself and by entering into a contract without intending to allow the contractor to perform.  These are breaches of the duty of good faith and fair dealing and are therefore an abuse of discretion.

Judge Firestone concludes with the language quoted above: the government can breach the contract by some form of "improper self-dealing for its own benefit" such as terminating a contract just so it can award it to another contractor (which was the alleged case before the judge).

Can the government breach this duty of good faith and fair dealing by walking away from an awarded contract just so as to take the work in-house due to sequestration or budget limitations?  Perhaps.  Is it "improper self-dealing" or not? 

bill@spriggsconsultingservices.com                          www.spriggslawgroup.com

From Federal Times: As budgets tighten, contract attorneys expect uptick in bid protests

Two weeks after sequestration began, contract lawyer Bill Spriggs got a call from a vendor client upset that a federal contracting official had just ordered it to cut its price by 10 percent for “sequestration-related cuts” without a change in service levels.

Spriggs declined to name the contractor or agency, but said the dispute involved a non-defense civilian agency and a commercial item contract where changes can’t occur unless by mutual agreement.

“It’s the first time I’ve seen something like that,” said Spriggs, who runs the Spriggs Law Group in Virginia.

While lawyers sort out the dispute, the larger question is whether the incident was just an anomaly or perhaps an early sign that the sequester will bring about more contract disputes and bid protests.
For more, click on the link:

http://www.federaltimes.com/article/20130403/ACQUISITION03/304030007/As-budgets-tighten-contract-attorneys-expect-uptick-bid-protests?odyssey=nav%7Chead

SUE THE CONTRACTING OFFICER?

Occasionally, we've been asked if it is possible to sue the contracting officer personally.  For a lot of reasons, we discourage such an action, not the least of which is the questionable motivation for doing it.  Not too long ago, a contractor terminated for default decided to sue the contracting officer in U.S. District Court and the Court of Appeals for the Second Circuit very recently decided the appeal of that suit.  Let's take a look at the facts and briefly review what the circuit court decided.

The contractor sued the procuring contracting officer (PCO), the Chief of Contracting, the administrative contracting officer (ACO) and the Program Manager for the New York District Corps of Engineers.  The suit alleged that the contractor's contracts were terminated in retaliation for the contractor's criticism of the Corps' mismanagement of construction projects, that the terminations negatively impacted the contractor's business and that, as a result, the contractor was deprived of its constitutionally protected rights to free speech and substantive due process.  The contractor had appealed the terminations of its contracts to the Armed Services Board of Contract Appeals (ASBCA) but those appeals were dismissed (for reasons not germane here) without prejudice.

In a case called Bivens, the U. S. Supreme Court ruled in 1971 that a cause of action existed for victims of unreasonable searches and seizures against the government agents conducting the complained of searches and seizures.  The Court said it would infer a private right of action for monetary damages where no other federal remedy is available based on the principle that for every wrong, there must be a remedy.  Three Justices dissented, saying such "legislating" should be left to Congress.  Thus, there was born what became know as a "Bivens action" in court.  (The Second Circuit was reversed in Bivens.)

In revisiting the issue last month, the Second Circuit considered whether the Contract Disputes Act (CDA) of 1978 precluded the contractor's Bivens action.  It noted that other circuit courts had decided just such a preclusion existed.

The court started its discussion noting that precisely because the Bivens action is a judicially created remedy (not based on statute), federal courts have been reluctant to recognize a broad application of such implied judicial relief.  The remedy is an extraordinary thing that should rarely if ever be applied in new contexts.  If there is an alternative remedy available, the implied relief should not be granted.

The court concluded that in the face of the comprehensive CDA scheme of relief, federal courts should decline to infer new substantive legal liability without legislative aid.  Although the CDA does not allow contractors to bring actions against government employees in their individual capacities for alleged violations of constitutional rights, nevertheless, the CDA affords a meaningful and exclusive remedy against the government.  In effect, the CDA remedy is exclusive for all claims arising out of or related to government contracts.  Therefore, contractors cannot sue the government employees in their individual and personal capacities.

So contractors have an exclusive remedy under the CDA and cannot sue the contracting officer personally.  And if contractors still have retribution on their minds, they also should be wary of alleging bad faith.  Government employees are legally presumed to be acting in good faith and successfully overcoming that presumption requires a showing of well-nigh irrefragable proof.

And the obvious question:  can the contractor sue the PCO and others personally for pre-award actions and inactions?  We're looking for a case but it would seem the Competition in Contracting Act CICA) provides what may be described as a meaningful and exclusive remedy through the bid protest procedures.

bill@spriggslawgroup.com                                     www.spriggsconsultingservices.com

ASBCA APPLIES THE SOVEREIGN ACT DEFENSE

The Armed Services Board of Contract Appeals (ASBCA) has just applied the sovereign act defense in a case involving a contract for improving vehicle armor and upgrading and painting vehicles for the Iraqi National Police under a contract awarded by the government.  The government moved for summary judgment on the contractor's claims asserting among other things the sovereign act defense.  The contract contained the standard commercial items clause.  The contractor claimed there were design problems which were later addressed in contract modifications.

As the contractor performed the contract, it encountered delays throughout the performance period.  In one case, the contractor said it could not pick up its steel truck from the convoy area due to blocked roads by the Iraqi Police Forces and the U.S. Army.  The Iraqi police were not able to deliver vehicles due to security reasons and check point issues.  The contractor claimed unabsorbed overhead based on the delays.  The government argued accord and satisfaction based on the bilateral modifications to the contract.  The ASBCA denied the government's motion, saying the modifications did not cover delay costs.

The ASBCA then addressed the sovereign act defense.  With regard to road blockages and border and gate restrictions imposed by the government, the contractor did not allege that such actions were targeted at the contractor or were taken to achieve some sort of financial advantage in connection with the particular contract.  The Board stated the contractor in effect admitted that the requirements complained of were imposed in connection with general government regulations and operations. 

The Board said:  "Such acts, being of a public and general nature, not targeted at a specific contractor, would constitute sovereign acts.  Actions taken by the United States in its sovereign capacity shield the government from liability for financial claims resulting from those acts, although a contractor is allowed additional time to perform."  The Board's opinion does not include a detailed and in depth discussion of the sovereign act defense.

With regard to the road blockages and border and gate restrictions imposed by the government of Iraq, since the U.S. government was not liable in its contractual capacity (not at fault), it could not be held responsible for the delay costs resulting from security actions undertaken by the government of Iraq.

We've written often about the application of the sovereign act defense to claims arising from actions of the government taken as a result of sequestration.  Although this ASBCA case does not involve sequestration, it signals in a general sense how the ASBCA may address the defense if raised by the government with regard to actions undertaken as a result of sequestration.  In many prospective cases there may be no clear causal nexus between sequestration and the action taken by the government.  Nevertheless, expect the government to assert the sovereign act defense. 

It would appear the ASBCA may look to the general nature sequestration and it may recognize the sovereign act defense by rationalizing that sequestration did not target any particular contract or contractor.  In the broader sense, however, as in the Winstar Supreme Court case, it would appear Congress fully intended that its actions would result in changes, cancellations and terminations of procurement contracts, in which case the defense would not apply.  We'll see.  The Supreme Court probably eventually will have to decide the issue.

bill@spriggslawgroup.com                          www.spriggsconsultingservices.com

LPTA IS FAR PART 14

In our opinion, lowest price technically acceptable (LPTA) is not best value.  It is not part of the best value continuum.  It should be removed from FAR Part 15 along with the misnomer "continuum".  LPTA has become the way in which agencies inveigle contractors into the best value game only to change the rules to LPTA in the source selection process.  What the contractor thought was best value becomes LPTA.  But the contractor thought that innovation in the technical proposal would be to its advantage.  No, sorry, we're going with the lowest price.  Time after time, complaint after complaint, we continue down the LPTA path deluding ourselves into thinking that we are reaching the best value decision.

Best value is a term of art reserved for a special process of cost versus technical superiority tradeoffs.  The agency is asked to look at technical superiority to see if that superiority is worth the price premium.  If, indeed, and in honest reality, the technical proposals are equal, then the best value axiomatically is the lowest price.  But how often does that happen?  Equal.  Hardly.  Evaluators have not done their job, most likely.

What's lost on the contemporary crowd is the history of advertised and negotiated procurement.  It's time for a lesson.  In the old days, there was what was known as advertised procurement and there was negotiated procurement.  In advertised, the government specified exactly and in detail what it wanted the the contractor promised to comply in every respect.  If the contractor demonstrated it would meet the requirements, the contract went to the lowest priced bidder.  (That's where the term bidder came from - advertised procurement involved bidders - not offerors.)  The bids were opened in public in front of anyone who wanted to see them, anyone could look at them and the winning price was chalked up (literally).  There even was a dance called the two step which was a kind of qualifying round where the bidders were thoroughly checked out and pronounced qualified before they even submitted their prices.

FAR Part 14 is the lost part of FAR.  The old advertised procurement is now called sealed bidding.  It used to be all the rage and now you hardly ever hear of it.  (I have not see a sealed bidding procurement in years.)  Well, guess what.  LPTA procurements belong in Part 14 where they can be handled properly just as they were in the old advertised procurement days.

The problem with the way LPTA is administered today is that it is used for performance specifications.  We got away from the detailed specifications the government used in advertised procurements because Senator Chiles went on TV with a 4 inch mousetrap specification in his hands.  Well, the government needs to specify exactly what it wants, in detail, if it is to use the likes of LPTA.  We pretty much agree on that.  If we are looking at whether the technical requirements are met, it seems we ought to specify with particularity what we require.  As soon as you go there, you are in Part 14.

We need to rediscover FAR Part 14 and start using it where the government can specify what it wants.  Follow those rules.  Once the contractor is qualified and we have confidence it can do what we want, we should go to the lowest price.  And, we really ought to consider the old two step as well.  Use of LPTA today is entirely misplaced and misleading.  Too many contractors think they are in a best value procurement when they are not.  Let's call it what it is.  If the government wants a performance specification, do a true best value tradeoff analysis.  If it knows what it wants, use FAR Part 14 to find a qualified contractor with the lowest price. 

Come to think of it, this is just another reason we need to hear from the old timers.  How many of you understand what we just said?  Too few, I fear.  But the old timers are applauding and saying let's rediscover the virtues of FAR Part 14 and rid ourselves of the vices of Part 15.

bill@spriggsconsultingservices.com                         www.spriggslawgroup.blogspot.com 

THE TILTED PLAYING FIELD

Sean Stackley called our acquisition system the most "complex, chaotic, over regulated and overseen process in the world."  We may disagree with him.  We are not so sure about the chaotic part.  But it is time to remind ourselves that the federal procurement system is by design a tilted and uneven playing field.  The government writes the rules.  How many of us participate in any way in the rule making process?  The best we can do is join a trade association.  But how many of us actively participate in the efforts to affect the rules?  And with what result?  What influence does industry really have in how the game is played?  We elect our representatives to Congress.  But how many of us sit with the staff members to suggest less micromanagement or changes to the statutes?

It is high time to remind ourselves that federal procurement is based on contracts of adhesion.  What are contracts of adhesion?  In this context, and in the legal sense, they are contracts in which the government dictates the terms and conditions.  Our mentor, Gil Cuneo, was fond of reminding all of the audiences before which he spoke that one must start with the understanding that when you enter the government marketplace, you must be prepared to deal with contracts of adhesion.  The closest commercial counterpart is the insurance contract, to which we all can relate.  The insurance company dictates the terms and conditions.  How many times has each of us negotiated the terms of our insurance policies?

Yes, government contract terms and conditions are dictated by the government.  And if the term or condition is not written in the contract, chances are it will be read into the contract by operation of law.  See our article on the Christian doctrine.  There are no changes or termination for convenience clauses in the commercial marketplace contracts.  Making changes unilaterally and terminating for convenience would be breaches of contract there.  But, like it or not, the government contract will contain these clauses whether they are written in the contract or not.  (Of course, if the contract is for a "commercial item", the unilateral change is eliminated in government contracts.)  Here, we've picked but two of the hundreds of clauses dictated by the government that will be found in government contracts.  In most every case, the contractor has no control over whether the clause is included or not.  And in many instances, it is there even if you can't see it.

So, what do we make of these contracts of adhesion?  Contractors play on a tilted and even uneven playing field.  Tilted in the sense that the government controls the entire system, from clauses to remedies.  Uneven, in the sense that the professional contract administration staff for the government often does not understand the rules and applies them unevenly and even unfairly.  Is it any wonder that in order to invite contractors into its marketplace the government employs ombudsmen?  That's a warning to let the seller beware.

What's the point of all this?  The government owes its contractors a special duty.  It's known as the duty of good faith and fair dealing.  It's known as the obligation to cooperate, communicate, not interfere and disclose information vital to performance.  We've written about these corollary duties over and over again.  Some accuse us of taking sides.  But put all this in the proper perspective.  The contracting party with this unusual control occupies a position of special trust.  And since it is public contracting, that trust is owed to all citizens, all taxpayers, but including all contractors.  That position of trust brings with it certain obligations.  Our trustees should not be driving unreasonably hard bargains and bullying contractors into submission.  They should be assisting contractors to succeed.

bill@spriggsconsultingservices.com                 www.spriggslawgroup.blogspot.com

UNCONSCIONABLE CENSORSHIP BY THE GOVERNMENT

Yesterday, we published one of our brief articles on Unconscionability in Contracting.  Today, we received a comment from a dear reader who pointed out that the Air Force has blocked access to our blog site with its Bluecoat AFNet firewall.  Apparently, this firewall controls all Air Force Internet links and it denies access to our blog site.  The category that Bluecoat blocks is called Government/Legal; Blogs/Personal Pages.

Perhaps this censorship was an unintended mistake.  Perhaps we were just caught up in an understandable attempt to keep employees from spending time reading personal emails.  Or, perhaps the Air Force purposefully seeks to limit access to what we say.  We'd like the Air Force to come forward and tell us this is not censorship.  And, we'd like the Air Force to recognize our purpose is to educate the public.

Our editorial policy is to protect and preserve the integrity of the procurement system and enlighten its practitioners, both in industry and government, on critical policy and legal issues of current interest.  We do not take sides.  Federal procurement is the most highly regulated marketplace in the world.  Everyone needs to know the rules.  We talk about rules.  They are meant to be followed by government and contractor employees alike.  Let the chips fall where they may. 

We do not take censorship lying down.  To the extent any of you, dear readers, have any influence in making sure our words get out, please help.

Finally, we are humbly grateful for your really astonishingly positive reaction to our blog.  We now have over 40,000 page views in less than one year in publication.  We hope we have made a small difference in improving knowledge of the federal procurement system.  Please let us know what we can do to improve both the content and dissemination of our communications.  Thank you.

bill@spriggsconsultingservices.com     www.spriggslawgroup.blogspot.com