TINA: AGENCY MUST SHOW DAMAGES

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.

bill@spriggslawgroup.com          www.spriggslawgroup.com

VIOLATIONS OF SOLE SOURCE RULES

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.

bill@spriggslawgroup.com          www.spriggslawgroup.com

COST REALISM RULES

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.

bill@spriggslawgroup.com            www.spriggslawgroup.com

VOLUNTEER CORPS AND HELP HOT LINE

On December 27, 2012, we wrote about antidotes for the "unabated crisis" raised by the Professional Services Counsel (PSC) and Grant Thornton LLP in their recent study report.  In that piece, we suggested more myth busting memos from the Office of Procurement Policy (OFPP), instituting a help hot line, fixing the debriefing and LPTA debacles, educating the lawyers and training by the case study method.  We believe we should establish a corps of experienced volunteers who are willing to spend time on the phone with less experienced professionals on the acquisition team (as defined in FAR 1.102(d)) advising them on areas within the experience and expertise of the volunteers.

We remember when a government investigator called us out of the blue and asked us questions about the Anti-deficiency Act.  The investigator had read that we had written a case history about a violation of the Act occurring some time ago.  We were more than happy to explain our understanding of that Act.

Our suggestion that the government rehire the retirees is impracticable and unworkable.  It can and will never happen.  We need not belabor the point. However, many of us are willing to reply to a request that we volunteer our time and supply answers to questions about our experience and expertise.  The government could set up a help hot line which monitors could use to match the questioner with the appropriate experienced volunteer.  This advice would be case specific answers to real time questions with the explicit disclaimer that the volunteer would not be speaking for the government but would instead be offering counsel and suggested solutions.

The big questions are whether any of the experienced people are interested in joining the corps, whether the government would accept the idea and whether anyone would actually use the help hot line.  Big questions.  And, Congress would have to approve this (because of the Anti-Deficiency Act) and provide a liability shield.  The purpose of this piece is to elicit your reaction to see if it is appropriate to seriously suggest and promote this approach with the appropriate government acquisition executives.

So let us hear from you.  We have thick skins so go ahead and tell us if you think this notion stinks.

bill@spriggsconsultingservices.com

FAR'S GUIDING PRINCIPLES

Today, we heard Joe Jordan, Administrator of the Office of Procurement Policy (OFPP), at a meeting of the Government Affairs Committee of the Professional Services Council (PSC), allude to the statement of guiding principles for the federal acquisition system set forth in FAR 1.102(d).  Essentially, he said that if your proposed action is not proscribed by FAR you probably can take it provided it is in accordance with sound business judgment.  Let's remind ourselves what the regulation says:

The role of each member of the Acquisition Team is to exercise personal initiative and sound business judgment in providing the best value product or service to meet the customer's needs.  In exercising initiative, Government members of the Acquisition Team may assume if a specific strategy, practice, policy or procedure is in the best interests of the Government and is not addressed in FAR, nor prohibited by law (statute or case law), Executive order or other regulation, that the strategy, practice, policy or procedure is a permissible exercise of authority.

Notice the word "initiative" is used twice as if to suggest the entire statement is designed to engender such behavior.  Also noteworthy is the reference to the Acquisition Team, which Mr. Jordan described in other remarks as including program management and all people supporting the contracting officer.

So if the strategy, practice, policy or procedure "is not addressed in the FAR", you can do it, provided it is not prohibited by a statute or case law, executive order or other regulation.  (In these articles we are constantly calling attention to the case law which teaches both what to do and what not to do.)  Joe Jordan's emphasis is on taking the initiative to try something new unless the law just flat out says you can't do it.

In our comments on what needs to be done to fix the procurement system, we have emphasized that senior leadership needs to pass down best practices and see to it they are followed in the field.  But we also have criticized people at the working level for lack of initiative.  We hope to hear more from Mr. Jordan about exercising initiative.  Giving us some exemplary case histories of success stories would help.

But he also made a solid point that the acquisition team needs to increase its tolerance for taking risks.  Initiative may lead to mistakes.  They are to be expected. Our philosophy is that if you are not making mistakes, you are not improving the process.

bill@spriggsconsultingservices.com

COURT PROTESTS: ILLEGAL VS. ARBITRARY

Judge Susan Braden of the Court of Federal Claims (COFC) reminds us in a recent opinion of the difference between protests in that court based on a regulatory or procedural violation and award decisions challenged on the grounds that an agency acted in an arbitrary or capricious manner.  The protest before her involved a design-build contract for medical facilities for the Army.  After a lengthy opinion, she granted a preliminary injunction against the Army.

In the process of reaching her decision, she noted that the Court of Appeals for the Federal Circuit (CAFC) has emphasized that "best value" solicitations afford the contracting officer a great deal of discretion so that relative merit is primarily a matter of administrative discretion not to be interfered with by the court.  However, that discretion does not allow the procuring agency the liberty to deviate from the requirements of the solicitation and ignore rules in the Federal Acquisition Regulation (FAR).  Moreover, the agency must not ascertain best value in a manner that is arbitrary.  Finally, discretion does not allow the court to overlook the fact that the administrative record does not contain sufficient information on which an agency could even make a rational decision.

When a bid protest is based on a regulation violation or deviation from the solicitation (illegality), the protester must show a clear and prejudicial violation of the regulation or solicitation provision.  The burden is even greater when the procurement is best value.  In deciding whether an agency has complied with the regulation on best value, the court may overturn the agency's decision if it is not grounded in reason.  The inquiry becomes whether the agency provided a coherent and reasonable explanation of its exercise of discretion.

Alternatively, if the award decision is challenged on the grounds that an agency has acted arbitrarily or capriciously, the court intervenes only in very limited circumstances.  An agency must entirely fail to consider an important aspect of the procurement.  Or, it must offer an explanation for its decision that runs counter to the evidence before the agency or render an implausible explanation for its decision.

In the case before her, Judge Braden sided with the protester because the administrative record evidenced violations of the Competition in Contracting Act (CICA) and FAR.  The agency decision contained no documents showing that the Army even considered the protester's "betterments" and omitted any discussion of their merits.  This, she found, was arbitrary. and prejudicial to the protester.  She also was completely put off by the paucity of the administrative record which failed to contain worksheets evidencing whether and how the Army evaluated the offerors.

In granting injunctive relief, Judge Braden was not persuaded by the Army's argument that an injunctive would imperil the Army's mission.  The harm to the Army was self-inflicted.

A word to the wise.  Follow FAR.  Follow the solicitation.  Document, document, document.  Government lawyers:  keep looking over the contracting officer's shoulder and put your foot down.  Promptly redo things before there is protracted litigation which threatens the mission.

bill@spriggslawgroup.com           www.spriggslawgroup.com

PAST PERFORMANCE NEED NOT BE CONSIDERED

Judge Victor Wolski of the Court of Federal Claims (COFC) observes that past performance of all offerors need not be considered under FAR 15.304(c)(3) and that consideration of past performance in commercial buys is not mandated.  He specifically holds that a bidder can waive consideration of its past performance if the solicitation language alerts bidders that unacceptable technical proposals will not be further considered and a protesting contractor fails to raise objection prior to the close of the bidding process.

The case arose when the protester's proposal was rejected as ineligible based on the technical evaluation factor.  The protester argued that if the agency considered past performance, it would have seen that all of the deficiencies in the technical proposal were addressed.  But the solicitation clearly stated that an unacceptable technical proposal "will not be further evaluated."  Based on court precedent, Judge Wolski rejected the protester's argument because the protester failed to object to the terms of the solicitation prior to the close of the bidding process.

But Judge Wolski went on to address the question of whether every offeror is entitled to a past performance evaluation.  No, he says.  Under commercial item buys, past performance should be evaluated but should is not mandatory.  More broadly, FAR 15.304(c)(3) which makes evaluation of past performance mandatory (by using the word "shall"), does not refer to "all offerors" and "nothing in this provision precludes federal agencies from using an approach that weeds out offerors under other non-cost factors before past performance is considered."

To support his conclusion, Judge Wolski notes that price must be considered without exception when an award is made.  However, it need not be considered for proposals that are technically unacceptable.  "It is difficult to see how the less mandatory language of section 15.304(c)(3) could impose a greater obligation on agencies that is imposed for evaluation of price."

In conclusion, Judge Wolski opines:

The FAR does not appear to contain any impediment to an agency's restricting past performance evaluations to offerors who have met some other non-cost factor threshold, such as suitably explaining how the requirements of a contract would be met.

So this case if a reminder that objections to language in the solicitation must be raised prior to the closing of the bidding process.  The case also is a lesson in shall vs. should and a clear indication that an agency can reject a proposal without consideration of past performance data.

bill@spriggslawgroup.com       www.spriggslawgroup.com

THE MOST IMPORTANT PART BY (IN) FAR

This will be short and sweet.  By far the most important section in the Federal Acquisition Regulation (FAR), for these trying times in particular, is FAR 15.201.  We need to keep reminding ourselves and everyone in the procurement community about it.  Following it is the cornerstone of any successful acquisition.

15.201 Exchanges with industry before receipt of proposals

(a)  Exchanges of information among all interested parties, from the earliest identification of a requirement through receipt of proposals, are encouraged.  Any exchange of information must be consistent with procurement integrity requirements (see 3.104).  Interested parties include potential offerors, end users, Government acquisition and supporting personnel, and others involved in the conduct or outcome of the acquisition.  

Agencies are encouraged by the regulation to promote early exchanges of information.  Among the techniques encouraged are:  industry conferences, one-on-one meetings and draft solicitations.

Language in the myth busting memos lends further support to this basic admonition.

Nearly all the problems we've seen with procurements could have been avoided or ameliorated by following the clear and simple encouragement in FAR 15.201 to communicate.  And, as we've pointed out, once the contract is inked, there is an obligation read into all contracts, as a matter of law, that the parties communicate with each other.

bill@spriggsconsultingservices.com

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

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