Federal Construction Contracting Lawyer & Attorney : Payne Hackenbracht & Sullivan : Construction Law, Dredging and Claims

In a decision issued on April 21, 2008,  Bell BCI Company v, United States, the United States Court of Federal Claims issued a decision that can only be described as a “slam dunk” for the contractor. The case arose from the construction of a laboratory building at the National Institutes of Health (“NIH”) in Bethesda, Maryland.  Approximately nine months into construction, NIH decided to add a new floor to the building. NIH issued more than 200 contract modifications that delayed the completion of the project by 19-1/2 months, and increased the contract price by $21.4 million, or 34 percent.  The prime contractor, Bell BCI Company (“Bell”), received payment for performing most of the changed work, but asserted an impact claim for the cumulative effect of the changes on Bell’s overall performance.  The decision includes a number of conclusions of law that will be very interesting to contractors who face unwarranted denials of cumulative impact claims, or the unfair application of leverage by the Government. The description below is based upon excerpts from the decision, but a reading of the entire decision is strongly recommended.

The Court found in favor of the contractor, and awarded damages of $6,200,672, the full amount of its claim, plus Contract Disputes Act interest measured from April 5, 2002. The record demonstrated that NIH, despite its best intentions, lost control of the project beginning in September 2000, and could not prevent the scientists who would occupy the building from demanding changes. The addition of a new floor after construction had begun proved to be a disastrous idea, particularly in causing many mechanical and electrical changes after the work already had been installed.  As changes and delays mounted, NIH and its quality management firm only made matters worse by directing Bell to perform extra work without time extensions, or authorizing Bell to accelerate performance. In issuing 200-plus contract modifications, NIH actually addressed more than 730 Extra Work Orders (“EWOs”).

The Court found that there was evidence that NIH failed to satisfy its implied duty of good faith and fair dealing in the administration of the project. NIH asserted a liquidated damages claim against Bell knowing that such a claim lacked a factual basis. NIH lodged this claim only to gain negotiating leverage after Bell submitted a request for equitable adjustment.  Further, NIH’s quality construction manager recanted the Contracting Officer’s approval of various extra work items after Bell had completed the extra work.  The Court noted “a contracting officer’s review of certified claims submitted in good faith is not intended to be a negotiating game where the agency may deny meritorious claims to gain leverage over the contractor.” Moreland Corp. v. United States, 76 Fed. Cl. 268, 292 (2007). The same principle applies where the agency asserts an unfounded liquidated damages claim solely to gain negotiating leverage.

The Court stated that Bell’s claim for damages from delay and cumulative impact on the NIH project sometimes is called a “delay and disruption” claim. There is a distinction in the law between: (1) a “delay” claim; and (2) a “disruption” or “cumulative impact” claim. Although the two claim types often arise together in the same project, a “delay” claim captures the time and cost of not being able to work, while a “disruption” claim captures the cost of working less efficiently than planned. Bell BCI Co. v. United States, 72 Fed. Cl. 164, 168 (2006); see also U.S. Indus., Inc. v. Blake Constr. Co., Inc., 671 F.2d 539, 546 (D.C. Cir. 1982) (holding that, unlike a delay claim that provides redress from not being able to work, a disruption claim compensates for damages when the work is more difficult and expensive than anticipated).

The contractor must prove for either claim the elements of liability, causation, and resultant injury. When the contractor is asserting a delay claim, the contractor has the burden of showing the extent of the delay, that the delay was proximately caused by government action, and that the delay caused damage to the contractor. While the law requires “reasonable certainty” to support a damages award, damages do not need to proven with mathematical exactness. Rather, “[i]t is sufficient if a claimant furnishes the court with a reasonable basis for computation, even though the result is only approximate.”  Ace Constructors, Inc. v. United States, 70 Fed. Cl. 253, 274 (2006)

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The requirement found at FAR 52.203-13 was implemented on December 24, 2007 and requires any contractor who is awarded a contract in excess of $5 million to have a written Code of Business Ethics and Conduct within thirty days after award.  Large business firms must also implement a training and compliance program within ninety days (see our earlier blog article for additional information). The requirements, however, did not apply to contracts that were to be performed outside of the United States. This “exemption” for foreign projects has now received the attention of the U.S. House of representatives.

As reported today by the Associated Press, the House has voted to close a multibillion-dollar loophole in a crackdown on contract fraud, approving plans to force the Bush administration to act within six months. At issue is a Bush administration rule requiring government contractors to report misuse of taxpayer dollars to the Justice Department. The rule, as originally published last November, included a loophole to exempt contracts performed overseas. Administration officials told lawmakers at a House Oversight and Government Reform hearing earlier this month that the loophole was a "drafting error" and likely would be removed. The administration since has stripped the loophole from the proposed rule, which likely will be finalized later this year. At the House hearing, a top official for the White House Office of Management and Budget predicted the exemption would not be included in the final rule. The Justice Department said has charged at least 46 people in investigations over the past several years into kickbacks, bribes and other abuses of government-funded contracts in Iraq, Afghanistan and Kuwait. It opposed the loophole.  (Excerpted from "House moves to close contract fraud loophole" as published by the Associated Press).

We agree that there is no reason to treat projects performed overseas any differently than projects performed in the United States. After all, it was the Justice Department’s concern about the millions of dollars of fraud, waste, and abuse in Iraq, Afghanistan, and Kuwait that give rise to the rule in the first place.

© 2008 Associated Press. All rights reserved

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An important decision, Serco, Inc. v. United States was issued by the United States Court of Claims last week in a case involving a government-wide acquisition contract (“GWAC”) awarded by the General Services Administration (GSA) to provide technology products and services to the entire federal government.  Sixty-two offerors competed for a chance to perform task orders under this GWAC.  In ranking the technical proposals of these offerors, GSA teams assigned adjectival ratings to various subfactors and then converted them into whole numbers ( e.g., 3, 4, 5). Combining, averaging and weighting these figures, the agency ended up with technical scores that were carried out to three decimal points ( e.g., 3.817), and it made critical distinctions among the sixty-two offerors based upon the thousandths of a point.  Based upon these technical scores, twenty-eight contractors were designated by the agency as “presumptive awardees.”  GSA then purported to conduct price reasonableness and tradeoff analyses to take into account price-but, conspicuously, none of these comparisons resulted in any of the “presumptive awardees” being displaced by a lower-priced offeror.  Indeed, GSA ultimately made awards to offerors whose prices were 59th, 60th and 61st out of the sixty-two offers-prices that the agency claims were “fair and reasonable” despite being twice as high as the lowest winning offer, as much as thirty percent higher than the independent government cost estimate, and more than two standard deviations to the mean of the evaluated prices for all the offerors.

The so-called “Alliant” GWAC is to be administered by GSA pursuant to section 5112(e) of the Clinger-Cohen Act.  Alliant is designed to provide federal agencies with a broad range of information technology (IT) products and services, including computers, ancillary equipment, software, firmware and similar applications, network design, support services, and related resources such as telecommunication and security.  Alliant contemplates the multiple-award of indefinite delivery, indefinite quantity (MA/IDIQ) contracts, with a ceiling of $50 billion, to be performed, on a task order basis, during a five-year base period and one, five-year option period.  Under the Alliant Solicitation No. TQ2006MCB0001 (the Solicitation), individual task orders could range as high as $1 billion in value; successful offerors, however, are guaranteed a minimum take of only $2,500.  Alliant offers a wide range of contract types, including fixed-price, cost reimbursement, labor-hour and time and material.

On September 26, 2007, Serco, Inc. (Serco) filed a complaint in this court challenging the award decisions and seeking a variety of injunctive relief.  Subsequently eight other unsuccessful offerors filed protests and were joined in the Serco protest. GSA issued the Solicitation on September 29, 2006. The Solicitation advised that GSA “contemplate[d making] approximately 25 to 30 awards ... but reserves the right to place fewer or more awards, depending upon the quality of the proposals received.” Those receiving awards under the Solicitation are eligible to perform task orders under the contract. The Solicitation indicated that “[a]ward will be made to responsible Offerors whose proposals are determined to provide the ‘best value’ to the Government.”

In a scholarly opinion, by Judge Francis M. Allegra, the Court concluded that GSA, “in attaching ”talismanic significance to technical calculations that suffer from false precision, made distinctions that, in their own right, likely were arbitrary, capricious and contrary to law, but certainly became so when the agency failed adequately to account for price and to make appropriate tradeoff decisions. Those compounding errors prejudiced the plaintiffs and oblige this court to set aside the awards in question and order appropriate injunctive relief.”  The Court did not agree that there was a rational basis to make distinctions between offerors on the basis of thousandths of a point. Judge Allegra ruled that “Precision of thought is not always reflected in the number of digits found to the right of a decimal point – indeed, as with other constructs, there can be, to paraphrase Holmes, a “kind of precision that obscures.”  Ultimately, Court ruled that the agency made award decisions that were “arbitrary, capricious and otherwise contrary to law.”

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Effective May 23, 2008, there will be important changes that pertain to a contractor’s ability to protest task and delivery orders.  These changes are embodied in Section 843 of the 2008 Defense Authorization Act, "Enhanced Competition Requirements for Task and Delivery Order Contracts," and legislators expect the new provisions to increase competition for task and delivery order contracts.  Most notably, the new law allows a contractor to protest a task order in excess of $10 million to the GAO.  Previously, the Federal Acquisition Streamlining Act of 1994 (“FASA”) prohibited task order protests, except in very limited circumstances.  In addition, the new law requires that DOD task or delivery order contracts in excess of $100 million be awarded to multiple contractors, with certain exceptions, and the establishment of enhanced competition requirements, such as a requirement for debriefings on task or delivery orders in excess of $5 million under such multiple award contracts.  The GAO is currently revising its bid protest rules to address the newly acquired jurisdiction over task order protests. (The new rules will be posted on this blog as soon as they are issued).

At the April 19, 2007 hearing of the Senate Committee on Armed Services regarding the DOD’s management of costs under the Logistics Civil Augmentation Program (“LOGCAP”) contract in Iraq, Senator Carl Levin (D-MI) asked why ithe Army waited five years to split the contract among multiple contractors, allowing for competition of individual task orders.  The response from the Assistant Secretary of the Army for Acquisition, Technology, and Logistics was: "I don't have a good answer for you."  The provisions of Section 843 ensure that, absent compelling reasons not to, there will be competition in the award of task and delivery orders on future contracts of this type.  As far as we are concerned, however, there is an open question as to whether Multiple Award Task Order Contracts (‘MATOC”) are legally authorized under the Federal Acquisition Regulation for the procurement of construction. A protest raising that issue was filed by our firm and is pending before the United States Court of Federal Claims.

Section 843 of the Defense Authorization Act lifts the ban imposed by the Federal Acquisition Streamlining Act on protests to the Government Accountability Office (GAO) of task or delivery orders valued over $10 million.  This provision may be short-lived though: it contains a “sunset” provision and expires three years after it becomes effective. Congress enacted Section 843 in response to the need for enhanced competition requirements, and apparently believed that federal agencies had too little oversight when permitted to issue task order procurements that were not subject to protest.   After the FASA was enacted, federal agencies increasingly employed the indefinite delivery, indefinite quantity (“IDIQ”) contracts for expensive projects, purportedly to utilize “streamlining” but, in part, to circumvent the bid protest process.  It will be interesting to see whether the newly enacted right to file bid protests will have a “chilling” effect on agency plans to issue IDIQ contracts in the future.

The exclusive jurisdiction granted to the GAO means that the Court of Federal Claims (CFC) will not adjudicate these protests.  Under the current protest regime, both the GAO and the CFC are authorized to hear bid protests, and we would have preferred for that dual jurisdiction to have continued on task order protests, as well.  An advantage of the current system for contractors is that if they are unhappy with the outcome of a GAO protest, they can obtain de novo review of that same protest at the CFC.  Under Section 843, this second chance will not be available for task or delivery order protests. This has serious implications for contractors because only a small fraction of protests heard by the GAO are sustained.  

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The Commander of the Air Force Material Command, General Bruce Carlson, recently told reporters at a forum sponsored by Aviation Week that there should be some sort of penalty for protests that are found to be unwarranted.   It was reported that the General said “that some losing bidders file protests with 20 or 30 elements when perhaps only one part has any foundation.  In recent years, nearly every significant defense contract has been protested by the losers to the Government Accountability Office.”  The comments, which were reported by GovernmentExecutive.com and the Congress Daily, demonstrate a total lack of understanding about the vital need for accountability on the part of federal agencies, contracting officers, and source selection authorities. 

I disagree with the General’s observations.  Government contractors, and the taxpayers, are entitled to a procurement process that is fair and reasonably transparent, and they are entitled to take advantage of the Constitutional right to petition Congress for redress of grievances.  They are also entitled to take advantage of statutory and regulatory procedures authorizing protests against unfair or illegal procurement actions without intimidation or fear of having to pay some sort of “penalty” to the government.   It is interesting that one of the protests that apparently triggered the General’s comments was a challenge by the Sikorsky Aircraft Company and Lockheed Martin Systems to what they contended was an unfair source selection process in the award of a large dollar value contract to The Boeing Company for the Combat Search and Rescue Replacement Vehicle (CSAR-X).  The GAO sustained the protest and found that the Air Force had ignored differences among the proposed aircraft that could have had a material impact on likely O & S costs, and that the Air Force had departed from its stated evaluation approach. (See the attached GAO decision). 

This is not the first time that the Air Force has not followed the procurement regulations and has lost a protest. The General, rather than focusing on the improvement of source selection procedures by his agency, would seek to reduce the number of challenges to Air Force procurements by penalizing unsuccessful protesters.  This, of course, would have the unavoidable effect of reducing the number of successful protests, as well, and would give the Air Force even greater latitude to run roughshod over the procurement regulations.

It is not easy to win a protest before the GAO or the United States Court of Federal Claims. The protester must demonstrate a clear violation of procurement laws or regulations, an abuse of discretion, or a decision by the Contracting Officer that lacked a rational basis. In fact, given the rapidly expanding use of multiple award task order contracting (“MATOC”), where the law prohibits protests against task orders (except in very limited circumstances), government contractors are already precluded from protesting task order solicitations and source selections that they believe are unfair. In addition, great deference is afforded to contracting officers by the GAO and the Court and when protests are sustained there generally is something very wrong in the procurement process. In other words, there are plenty of things built into the system to discourage frivolous protests, including the cost of legal representation, without seeking to impose additional “penalties.”

It must be recognized that there is a statutory and a regulatory right to file a protest, and these rights cannot be denied by agency action alone. The statutory basis for bid protests is found in 28 USC 1491(b)(1), granting the Court of Federal Claims Protest Jurisdiction.  For the GAO the statutory basis is found in 31 USC 3526, the authority to settle accounts.  As provided in Pichel Air Service, 84-1 CPD  108, the basis for the GAO to decide protests is based upon the authority to adjust and settle accounts and to certify balances in the accounts of accountable officers under Pub. L. No. 97-258, § 3526, 96 Stat. 964 (1982) (codified at 31 U.S.C. § 3526).  With account settlement authority, the Comptroller General can take exception to an improper transaction and hold the certifying officer or relevant official personally liable for the amount of money improperly expended. Moreover, his decisions on the expenditures of appropriated funds are binding on the executive branch.” The regulatory basis is found in FAR 33.1, Protests (Agency and GAO protests)  and 4 CFR Part 21 (GAO Bid Protest Regulations) which states that protests may be filed with the GAO.

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The Federal Acquisition Regulation, at FAR 36.201, requires government personnel to be fair and accurate in the evaluation of a construction contractor’s performance, but there is the inherent potential for an unfair and overreaching evaluation. Government personnel are required to use DD Form 2626 for performance evaluations. This form lists five major factors to be evaluated: quality control, effectiveness of management, timely performance, compliance with labor standards and compliance with safety standards.  If, for example, a contractor’s employee has an accident and sustains an injury, a government evaluator could rate the contractor as unsatisfactory for violation of the safety standards, marginal in effectiveness of management (jobsite supervision, compliance with regulations (safety), and marginal in the implementation of its quality control plan. All of this would stem from a single incident. 

     In prosecutorial circles, this is known as “stacking the charges,” meaning that every possible charge is listed so that the prosecutor may plea bargain a deal on a lesser included charge.  However, in the case of a performance evaluation, there is little, if any, “bargaining” with the evaluator. The potential exists for the government evaluator to magnify a single incident into three deficiencies on the contractor’s part, as shown by the real life example above. 

     The consequences of this approach are serious for a government contractor. The regulations permit a contracting officer to review a contractor’s past performance evaluations in making a responsibility determination in a pending contract award. Therefore, it is important for contractors to insure that their performance evaluations are fair and accurate, particularly since the government is required to retain these evaluations for six years. One of the ways that a contractor may address its performance evaluation is by the submission of written comments to the evaluator. The evaluator must review these written comments, include them with the evaluation, and revise the evaluation, if the evaluator believes such a revision is necessary. However, this process is only available to those contractors who receive an overall “Unsatisfactory” performance rating. According to the regulations, the government is not under any obligation to advise a contractor of a “marginal” performance rating.

Because of the retention and use of the performance evaluations, we recommend that every contractor obtain a copy of its performance evaluation when it completes a project over $550,000.00. If the overall evaluation is either marginal or unsatisfactory, the contractor should submit a written rebuttal within thirty days of receipt and request that the evaluating official review and include these written comments with the performance evaluation. The goal, obviously, is to present a fair and accurate representation of the contractor’s performance and to lessen, if not eliminate, the impact of “stacking the charges” in the evaluation.

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A decision has been issued in the United States District Court for the Eastern District of Louisiana, by Judge Stanwood R. Duval, Jr., dismissing the consolidated class action lawsuit against the United States Army Corps of Engineers for the failure of the Orleans Parish outfall canals and, in particular, the 17th Street Canal that allegedly accounted for approximately 80% of the flooding of downtown New Orleans in the wake of Hurricane Katrina (“In Re: Katrina Canal Breaches Consolidated Litigation, No. 05-4182 E.D. La.).  The only remaining defendants are the Orleans Parish Levee Board and the New Orleans Sewerage and Water Board.

Judge Duval ruled that the 17th Street, London and Orleans Avenue outfall canals were federal flood control projects and therefore statutorily immune from suit under the Flood Control Act of 1928.  In an opinion that was very critical of the Corps of Engineers, Judge Duval stated the following:

“While the United States government is immune for legal liability for the defalcations alleged herein, it is not free, nor should it be, from posterity’s judgment concerning its failure to accomplish what was its task. The citizens of each and every city in this great nation have come to depend on their government and its agencies to perform certain tasks which have been assigned to federal agencies by laws passed by Congress and overseen by the Executive Branch.

It should not be unreasonable for those citizens to rely on their agents, whom they pay through their taxes, to perform the tasks assigned in a timely and competent way. However, because of § 702c, there is neither incentive, nor punishment to insure that our own government performs these tasks correctly. There is no provision in the law which allows this Court to avoid the immunity provided by § 702c; gross incompetence receives the same treatment as simple mistake.

This story–fifty years in the making–is heart-wrenching. Millions of dollars were squandered in building a levee system with respect to these outfall canals which was known to be inadequate by the Corps’ own calculations. The byzantine funding and appropriation methods for this undertaking were in large part a cause of this failure. In addition, the failure of Congress to oversee the building of the LPV and the failure to recognize that it was flawed from practically the outset–using the wrong calculations for storm surge, failing to take into account subsidence, failing to take into account issues of the strength of canal walls at the 17th Street Canal while allowing the scouring out of the canal–rest with those who are charged with oversight.

The cruel irony here is that the Corps cast a blind eye, either as a result of executive directives or bureaucratic parsimony, to flooding caused by drainage needs and until otherwise directed by Congress, solely focused on flooding caused by storm surge. Nonetheless, damage caused by either type of flooding is ultimately borne by the same public fisc. Such egregious myopia is a caricature of bureaucratic inefficiency.

It is not within this Court’s power to address the wrongs committed. It is hopefully within the citizens of the United States’ power to address the failures of our laws and agencies. If not, it is certain that another tragedy such as this will occur again.”

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We published an article on March 5, 2007, reporting a proposed amendment to the FAR that would require government contractors to prepare a Code of Business Ethics and Conduct.  On November 23, 2007, a final rule was published in the Federal Register and two new FAR clauses became effective on December 24, 2007. These new clauses are very important to all federal government contractors and they mandate the preparation of a Contractor Code of Business Ethics and Conduct (FAR 52.203-13) and the Display of Hotline Poster(s) (FAR 52.203-14) if a contractor receives an award in excess of $5 million with a period of performance of at least 120 days.  This is yet another example of the unending criminalization of the federal procurement process that makes it very risky for any contractor to do business with the federal government unless the contractor keeps up-to-date on the rules.  It is anticipated that suspension and debarment will be among the potential consequences of a failure to comply with these new rules, and a contractor’s record of integrity and business ethics may now become part of the contractor’s performance record that is evaluated as part of the contract award process.

FAR 9.104-1(d) provides that contractors must have “a satisfactory record of integrity and business ethics.” In furtherance of that requirement, the new policy explained in FAR 3.10, provides that “Government contractors must conduct themselves with the highest degree of integrity and honesty” and that “Contractors should have a written code of business ethics and conduct.”  To promote compliance with the code of business ethics and conduct, contractors should have an employee business ethics and compliance training program and an internal control system that—

(1) Are suitable to the size of the company and extent of its involvement in Government contracting;

(2) Facilitate timely discovery and disclosure of improper conduct in connection with Government contracts; and

(3) Ensure corrective measures are promptly instituted and carried out. (See FAR 3.1002).

Specifically, the bew FAR requirements for the code of business ethics and conduct require that it be:

1. in writing;

2. issued within 30 days of the contract award (unless the contracting officer allows a longer time period);

3. furnished to each employee engaged in performance of the contract; and

4. that the contractor "promote" compliance with its code of business ethics and conduct.

Although the policy expressed in FAR 3.1002 applies as guidance to all government contractors, the mandatory requirements are explained in the new clauses found at FAR 52.203-13 and FAR 52.203-14.  All contractors receiving awards in excess of $5 million where the period of performance is 120 days or more must have a code of business ethics and conduct, but the requirements for a training program, awareness and compliance program, and internal controls, do not apply to small business concerns.  All contractors who expect to receive awards, or subcontracts, in excess of $5 million, with periods of performance of 120 days, would be well advised to consult with legal counsel to obtain advice as to what must be done to comply.  There is nothing to be gained by waiting for a contract to be awarded, given the thirty day time period to prepare the code of business ethics and conduct (unless extended by the contracting officer), and the document should be prepared and distributed as soon as possible.

It is important to understand that these new rules are being implemented because the Federal Government has found that voluntary disclosure has not worked and has concluded that mandatory requirements are needed.  We will be advising our clients to provide ethics training, even if they are small business concerns, to make it clear that they take these new requirements seriously.  If a company principal or an employee commits a criminal act in the performance of a government contract, the company will be viewed in a more favorable light if it demonstrates that it has already implemented the requirements of the new regulation.  Just as it does little good to repair a cracked sidewalk after someone has tripped and broken a leg, it does little good to implement ethics requirements and training after a violation has occurred.

A summary of the mandatory requirements are as follows:

A contractor must have a written code of business ethics and conduct in place within thirty days of the award of any contract in excess of $5 million.  The time may be extended by the contacting officer and the requirement does not apply to existing contracts that were awarded before December 24, 2007, or to task orders awarded under those contracts.

A copy of the code of business ethics and conduct must be furnished to each employee involved in the performance of the contract. In addition, the contractor is required to promote compliance with its code.

Unless the company is a small business concern, and has so certified in the bid or offer submitted in response to the solicitation, the contractor must establish an ongoing business ethics and business conduct awareness program, and an internal control system, within ninety days after award of the contract.  This time period may also be extended by the contracting officer.

The internal control system is intended to facilitate timely discovery of improper conduct in connection with Government contracts, and to ensure that corrective measures are promptly instituted and carried out.  Although the regulation is not very explicit about the structure of the required internal control system, examples of what is required include (1) Periodic reviews of company business practices, procedures, policies, and internal controls for compliance with the Contractor’s code of business ethics and conduct and the special requirements of Government contracting; (2) An internal reporting mechanism, such as a hotline, by which employees may report suspected instances of improper conduct, and instructions that encourage employees to make such reports; (3) Internal and/or external audits, as appropriate; and (4) Disciplinary action for improper conduct.

The contractor is required to include the substance of the clause found at FAR 52-203-13 in subcontracts that have a value in excess of $5 million and a performance period of more than 120 days, unless the subcontract is for a commercial item or is for work entirely performed outside of the United States. (Author’s Note: Contractors should be aware that a “purchase order” qualifies as a “subcontract” for purposes of this clause, subject the exceptions noted in the preceding sentence).

The second clause, found at FAR 52.203-14, requires the Contractor to prominently display hotline posters in common work areas within business segments performing work under this contract and at contract work sites, (i) any agency fraud hotline poster or Department of Homeland Security (DHS) fraud hotline poster identified in paragraph (b)(3) of this clause; and (ii) any DHS fraud hotline poster subsequently identified by the Contracting Officer. In addition, if the Contractor maintains a company website as a method of providing information to employees, the Contractor is required display an electronic version of the poster(s) at the website. As in the case of FAR 52.203-13 discussed above, the substance of this clause must be included in subcontracts that have a value in excess of $5 million and a performance period of more than 120 days, unless the subcontract is for a commercial item or is for work entirely performed outside of the United States. (Author’s Note: If the Contractor has implemented a business ethics and conduct awareness program, including a reporting mechanism, such as a hotline, then the Contractor need not display any agency fraud hotline posters as required in paragraph (b) of this clause, other than any required DHS posters).

A supplement to the new requirement for a Code of Business Ethics and Conduct is also under consideration at the request of the Department of Justice. The proposed additional rule was published on November 14, 2007 and comments must be submitted by January 14, 2008. This Proposed Rule imposes additional requirements regarding codes of business ethics and conduct, including notification requirements for contractors upon becoming aware of violations of federal law.  The following additional requirements will be imposed on those contractors subject to the requirements of FAR 3.10, as implemented by FAR 52.203-13 and FAR 52-203-14, if the proposed rule becomes effective:

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A protest was filed recently in the United Stated Court of Federal Claims by our firm on behalf of a small business construction contractor challenging a solicitation issued by the Fort Worth District of the U.S. Army Corps of Engineers. The solicitation, No. W9126G-07-R-0123, is one of four similar solicitations for the construction of military projects described as Advanced Individual Training (AIT), Basic Training (BT) Barracks, and Warrior in Transition (WIT) facilities. The construction is being solicited through the use of a negotiated Indefinite Delivery/Indefinite Quantity (“IDIQ”) procurement on a Single Award Task Order (“SATOC”) basis.  Under the terms of the solicitation a single contractor will be selected to perform task orders, without competition, amounting to as much as $330 million over the next three years in an eight state area. The other three similar solicitations contain similar dollar values and apply to similarly extensive geographic areas.

The protest seeks an injunction to prevent the Corps of Engineers from proceeding with the solicitation because of our contention that it is unduly restrictive of competition; it violates the laws prohibiting “bundling” by unlawfully consolidating smaller projects that would have been suitable for small business prime contracting; and, it illegally employs supplies and services indefinite delivery contracting methods under FAR 16.5 to procure large military complexes. There has been a growing outcry from both the small and large business construction communities in recent months regarding the expanded use by the Department of Defense of Indefinite Delivery/Indefinite Quantity solicitations to procure construction, seemingly ignoring the fact that indefinite delivery contracts are typically used to acquire supplies and services on a much smaller scale. It is our opinion that Single Award Task Order Contracts and Multiple Award Task Order Contracts are illegally limiting competition and that they may not be appropriately applied to the procurement of major construction projects. 

It is also disturbing that the amount of construction work that is available for sealed bidding is declining to the point that many construction contractors are being closed out of the federal market. (See our earlier article).  The use of sealed bidding provides the greatest opportunity for competition and ultimately results in the lowest prices to the government. This was confirmed by a recent decision of the Court of Federal Claims that held that sealed bidding was the preferred method for the procurement of maintenance dredging and shore protection work.

Although we cannot predict the outcome of the pending protest, we believe that it is important for the Court to review whether there is legal and rational basis for the use of the IDIQ format to procure major construction. The Corps of Engineers has indefinitely postponed the date for receipt of proposals while this matter is under consideration.

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