Federal Construction Contracting Blog

Department of Justice Adds Teeth to Current Contractor Ethics Rules

ecarlin@phslegal.com (Elise M. Carlin) — Fri, 14 Nov 2008 17:51:32 -0500

This has been a banner year for ethics in government contracting. This intense focus on integrity and honesty in business is evident in the evolution of the rules of the game-the Federal Acquisition Regulation. Just last December, changes to the FAR mandated contractors to “conduct themselves with the highest degree of integrity and honesty” and to document how they planned to achieve this standard in a Code of Business Ethics and Conduct (see our January 2008 blog article). In addition, the requirements for contractors were stepped up to include prominently displayed hotline posters to facilitate the reporting of violations.

Before the initial changes were passed, public comments were sought regarding the proposed legislation. Review of these comments revealed two paramount concerns: the exemption of foreign contracts, and the exemption of contracts for the acquisition of commercial goods. The first of these was addressed in April when the House voted to close a loophole in the original ethics provisions (see our April 2008 blog article). Initially, contracts performed outside of the United States were exempt from the requirements-an odd exception considering that the new rules were initially drafted in response to the flagrant abuses of the federal procurement system abroad. The second concern regarding commercial contracts was addressed shortly thereafter.

Early this summer, the Department of Justice demonstrated its continued commitment to cracking down on ethics in contracting when they went a step further and proposed additional modifications to the FAR. These proposals gave teeth to the earlier provisions by including the foreign and commercial contracts mentioned above under the business ethics umbrella. Additionally, they imposed new requirements on contractors such as reporting violations of the civil False Claims Act, while adding knowing failure to timely report such violations as an additional cause for debarment or suspension under FAR subpart 9.4. As in the original ethics rules, small business were still not required to have a formal awareness/training program and internal control system, but the requirement to report violations of the civil False Claims Act did apply to them, along with the inclusion of foreign contracts and contracts for the acquisition of commercial goods to the ethics rules.

These new ethics rules were enacted on June 30, 2008, when President Bush signed the supplemental appropriations bill, H.R. 2642 . While this bill required contractors to report violations of federal law and overpayments received, many questions remained, such as to whom contractors would report. These ambiguities and were left to the FAR Council to iron out.

Just two days ago, on November 12, 2008, the FAR Council revealed its final rule regarding the “Contractor Business Ethics Compliance Program,” clarifying the murky details of the newly-enacted fraud-busting proposals. These more stringent requirements become effective on December 12, 2008, and will require federal government contractors to establish and maintain specific internal controls to detect and prevent improper conduct in connection the award or performance of any government contract; and timely disclose to the agency Office of the Inspector General, with a copy to the contracting officer, whenever, in connection with the award, performance or closeout of a government contract performed by the contractor or a subcontract awarded thereunder, the contractor has credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code; or a violation of the civil False Claims Act (31 U.S.C. §§ 3729-3733).

The new rules also make a cause for suspension or debarment the knowing failure by a principal, until three years after final payment on any government contract awarded to the contractor, to timely disclose to the government, credible evidence of any of the following in connection with the award, performance or closeout of the contract or a subcontractor thereunder: violation of federal criminal law involving fraud, conflict of interest, bribery or gratuity violations found in Title 18 of the United States Code; violation of the civil False Claims Act; or significant overpayment(s) on the contract, other than overpayments resulting from contract financing payments as defined in FAR 32.001, Definitions. Lastly, these augmented ethics requirements will apply to contracts (and subcontracts) outside of the United States as well as to contracts (and subcontracts) for the acquisition of commercial items.

It is now crucial for government contractors to be vigilant in their adherence to all laws and regulations, and for them to implement and maintain a visible program demonstrating their commitment to doing everything possible to inform their employees. Our firm is available to assist contractors to assure prompt compliance with these heightened ethics requirements.

GAO Sustains Boeing's Aerial Refueling Tanker Protest and Cites Significant Errors in the Procurement Process

ecarlin@phslegal.com (Elise M. Carlin) — Thu, 19 Jun 2008 09:25:41 -0500

The GAO announced yesterday that it had decided to sustain Boeing’s protest of the Air Force’s selection of Northrop Grumman (who included the European company Airbus on its team) over Boeing for the $40 billion aerial tanker contract - a contract that could ultimately be worth $100 billion. Considering the GAO’s history of denying most of the protests that come before it, today’s outcome is likely a surprise to the many who expected the Office to stand behind the Air Force’s source selection. The much-discussed dispute has been waging since March 11, 2008 when Boeing filed its protest. Prior to this award, Boeing had been the Air Force’s only supplier of this type of aircraft for fifty years. The actual sixty-nine page decision was filed under a protective order and has not yet been released. A public version will be made available once all interested parties review it and identify all sensitive information that must remain confidential.

The GAO reached its decision after extensively reviewing voluminous documents produced by the Air Force and hearing testimony from Air Force witnesses. In its press release today, the GAO made it clear that it did not consider the merits of either company’s proposal and that it examined only whether the Air Force complied with the standards established in the statutory and regulatory schemes governing the federal procurement process. “Our decision should not be read to reflect a view as to the merits of the firms’ respective aircraft. Judgments about which offeror will most successfully meet the governmental needs are largely reserved for the procuring agencies…” In their evaluation they concluded that the Air Force made “significant errors that could have affected the outcome of what was a close competition between Boeing and Northrop Grumman.” Senator Richard C. Shelby (R-Ala.) commented that “I cannot believe that in the most highly scrutinized procurement in the history of the United States, the GAO found so many errors.”

The GAO sustained Boeing’s protest for seven specific reasons, including: failure to review the proposals in lights of the solicitation criteria; violating the evaluation provisions of the solicitation, specifically the provision that, “no consideration will be provided for exceeding [key performance parameter] objectives; failure to demonstrate that the Air Force’s determination that Northrop Grumman’s tanker could refuel all current tanker-compatible receiver aircraft in accordance with current Air Force procedures, as required by the solicitation”; conducting misleading discussions with Boeing; “administrative oversight” in making an award despite “clear exception to a material solicitation requirement” in one of the requirements; unreasonable evaluation of military construction costs in “calculating the offerors’ most probably life cycle costs for their proposed aircraft,” an evaluation that if done properly would have resulted in Boeing having the lowest probable life cycle cost; and the improper increase of Boeing’s estimated non-recurring engineering costs in calculating, as well as the improper use of a simulation model in determining those costs.

The Office recommended that the Air Force “reopen discussions with the offerors, obtain revised proposals, re-evaluate the revised proposals, and make a new source selection decision, consistent with our decision.” It also recommended that the Air Force amend its solicitation if it does not “adequately state its needs” before conducting further discussions with the companies. Additionally, if the Air Force chooses to award the contract to Boeing, the GAO recommends that it terminate the contract with Northrop Grumman, reimburse Boeing’s protest costs, including attorneys’ fees. By law, the Air Force has sixty days to inform the GAO of its response. As Tom Schatz, president of the Citizens Against Economic Waste put it, “Air Force Officials didn’t miss it by a little, they apparently missed it by a mile.”

Cumulative Impact Claim Allowed by the United States Court of Federal Claims

MPayne@phslegal.com (Michael Payne) — Wed, 30 Apr 2008 07:47:50 -0500

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)

The preferred method for proving costs is through the submission of actual cost data. Delco, 17 Cl. Ct. at 321 (citing Cen-Vi-Ro of Texas, Inc. v. United States, 210 Ct. Cl. 684, 538 F.2d 348 (1976)). However, where actual cost data is not available, estimates of the costs may be used. Estimates of costs “should be prepared by competent individuals with adequate knowledge of the facts and circumstances,” and should be “supported with detailed substantiating data.” Delco, 17 Cl. Ct. at 321 (citations omitted). The Court also must be alert to cases where the Government has caused the circumstances making the ascertainment of damages difficult. As the Court of Claims previously noted “The constant tendency of the courts is to find some way in which damages can be awarded where a wrong has been done. Difficulty of ascertainment is not to be confused with right or recovery. Nor does it exonerate the defendant that his misconduct, which has made necessary the inquiry into the question of harm, renders that inquiry difficult. The defendant who has wrongfully broken a contract should not be permitted to reap advantage from his own wrong by insisting on proof which by reason of his breach is unobtainable. (Citations omitted).

Government change orders on building projects such as NIH Building 50 may add or subtract to the contractor’s cost of performance, and may affect the time required to complete the work. Bilateral modifications agreed to by the parties generally cover the costs and time of performing the changed work. On a project where the Government issues many change orders, bilateral modifications will compensate the contractor for the cost of performing the changed work, but the cumulative effect of the changes may add to the contractor’s time and effort in performing the unchanged work as well. Unless provided otherwise, the bilateral modifications will compensate the contractor for performing the changed work, but not for the impact of multiple change orders on the unchanged work.

Multiple change orders on a construction project potentially can be accommodated if the owner acknowledges that additional time and money will be required, and if the parties carefully plan the sequencing of the changed work. However, if the owner as here denies the additional time or money to perform changed work, but nevertheless continues the flow of change orders to the contractor, a chaotic project inevitably will result. In this case, there were 279 EWOs and 113 contract modifications issued after August 30, 2000, while NIH project personnel were maintaining that no further changes would be issued. The project environment was contentious, as NIH representatives bordered on bad faith in denying payment to Bell for extra work performed. Based upon the evidence presented, the Court was satisfied that Bell had established a reasonable basis for its cumulative impact claim, and Defendant, NIH, has failed to show that the claim should be denied or reduced in any respect.

Significantly, the Court was not willing to accept NIH’s argument that release language in one of the principal contract modifications prevented the contractor from recovering its damages. None of the 206 contract modifications issued on the project included any NIH payment or other consideration to Bell for a disruption, cumulative impact, or labor inefficiency claim. Similarly, none of the modifications contained any language explicitly waiving or releasing such a claim. While language sporadically appeared in some modifications purporting to reserve rights, the Court concluded that no meeting of the minds between the parties ever occurred. The Court found that there was no evidence that NIH ever provided any consideration to Bell to settle a cumulative impact claim and that many of the events relevant to the cumulative impact claim did not even arise until after the parties signed Modification 093.

House Votes to Close Code of Ethics Loophole on Contracts Performed Outside the United States

MPayne@phslegal.com (Michael Payne) — Wed, 23 Apr 2008 21:38:54 -0500

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.

Court Enjoins Awards of Government-wide Task Order Contracts Because of "False Precision" in the Numerical Ratings of the Offerors

MPayne@phslegal.com (Michael Payne) — Thu, 13 Mar 2008 11:25:34 -0500

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.”

The Government intimated that the court should afford the agency more slack than usual, on account of the size of this procurement and the number of offerors to be evaluated. But, the Court found that “given the extraordinary breadth of discretion already afforded to agencies in government procurements, it is hard to fathom what form a still more relaxed rule of deference might take. Would such a rule permit the adoption of procedures that would allow the agency to rely on performance information that is unverified and unresponsive to its stated evaluation criteria? Not, it would seem, without a wholesale revision of the fairness principle embodied in CICA and the FAR - ‘a cornerstone of effective competition.’ Cibinic & Nash, supra, at 899. Would such a rule allow the agency to treat demonstrably imprecise statistics as being precise? Not unless deference somehow magically makes insignificant digits significant. And would this heightened deference permit the agency to dispense with any reasonable consideration of price, leaving that question for a later day? Certainly not, again, without some substantial modification of CICA and FASA-and with Congress heading the opposite direction in tending, in recent years, toward enhancing, rather than diminishing, the importance of price. But whatever the reach or meaning of the salvific rule defendant would have this court apply, one thing is certain-it has no foundation in the Solicitation, the FAR or the governing procurement statutes. Per contra. While an agency certainly may choose to pursue a GWAC pursuant to its mandate to ‘efficiently fulfill the Government's requirements,’ it may not obtain efficiencies in derogation of the FAR and other governing statutes. Nor, as should be obvious, does the raw size of a procurement afford an agency the license to engage in what otherwise would be arbitrary and capricious conduct.”

Bid Protests to GAO to be Allowed on Task Orders in Excess of $10 Million

ecarlin@phslegal.com (Elise M. Carlin) — Sat, 08 Mar 2008 14:41:42 -0500

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.

Additional means of enhancing competition are also set forth by Section 843. For task or delivery orders in excess of $5 million, the government agency is required to provide a fair opportunity to be considered. This means that at the very least, the following must be provided to all contractors: 1) a notice of the task or delivery order that includes a clear statement of the agency’s requirements; 2) a reasonable period of time to provide a proposal in response to the notice; 3) disclosure of the significant factors and subfactors, including cost or price, that the agency expects to consider in evaluating such proposals, and their relative importance; 4) in the case of an award that is to be made on a best-value basis, a written statement documenting the basis for the award and the relative importance of quality and price or cost factors; and 5) an opportunity for a post-award debriefing. Unless certain exceptions apply, the current law requires the agency to give all multiple-award IDIQ contract holders a fair opportunity to be considered for each order in excess of $2,500.

Section 843 targets sole source awards. The new rules establish further requirements for agencies awarding IDIQ contracts valued over $100 million to a single awardee, as opposed to multiple sources. In order for this to happen, the head of the agency must make a written determination that (i) all task orders under the contract are so integrally related that only a single contractor can reasonably perform the work; (ii) the contract provides only for firm, fixed-price task or delivery orders at specified unit prices; (iii) only one source is qualified and capable of performing the work at a reasonable price; or (iv) it is necessary in the public interest to award the contract to a single source. Additionally, Congress must be notified within 30 days of the determination to award an IDIQ contract to a single source. These new requirements are similar to those of the Federal Acquisition Regulation (FAR) Part 6.3 which justify awarding a contract to a single source.

The most potentially controversial provision of the enhanced competition framework of Section 843 is the authorization of task or delivery order protests. In 2003, the Services Reform Act (SARA) authorized the Acquisition Advisory Panel (the "Panel") to review and recommend any necessary changes to acquisition laws and regulations and government-wide acquisition policies. Included in the Panel’s draft report of 2006, was a similar provision, which was met with opposition from interest groups who feared that an increased number of bid protests would raise costs for federal contracts and impede the procurement process. The final legislation gives exclusive jurisdiction to the GAO over task or delivery award contract protests, and is likely a compromise between the recommendations of the Panel and the concerns of the interest groups.

Section 843 is silent on some procedural matters regarding task or delivery order protests. For instance, the automatic stay requirement of the Competition in Contracting Act is not mentioned. Under the CICA, the contracting agency is required to stay the award or suspend performance of a protested contract upon the commencement of a timely protest to the GAO. Further questions are raised by the silence of Section 843 regarding time limitations for filing task or delivery order protests at GAO. It would seem that current rules for protests where debriefings were requested would stand. This means that the deadline for filing a task or delivery order protest will likely be 10 days from the date of the debriefing (five days to obtain the automatic CICA stay) in post-award protests-regardless of when the protester learned the basis of the protest. However, the new GAO rules must be reviewed after they are issued to determine whether there are any new or unusual requirements that affect the filing of task order protests.

Congress’ grant of exclusive jurisdiction to the GAO for task and delivery award protests also precludes agency level protests. This seemingly creates a conflict with current federal acquisition policy, which encourages parties to resolve controversies over procurement at the agency level whenever possible. The NDA, however, does not alter the existing statutory requirement, first implemented in the FASA, that each federal agency appoint a task and delivery order ombudsman to review complaints from contractors claiming they were not afforded a fair opportunity to be considered for task or delivery orders.

For task orders valued below $10 million, the ombudsman remains the only reviewing authority for disappointed contractors. Under Section 843 task order procurements between $5 million and $10 million are subject to the new procedural requirements but still exempt from GAO’s protest jurisdiction. This implies that contractors can still seek to enforce compliance with the new procedures for procurements in this dollar range by submitting a complaint to the ombudsman.

Air Force General Suggests That "Unwarranted" Protesters Should Be Penalized

MPayne@phslegal.com (Michael Payne) — Sun, 17 Feb 2008 13:03:37 -0500

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.

Unfair Contractor Performance Evaluations: "Stacking the Charges"

tas@phslegal.com (Timothy Sullivan) — Wed, 13 Feb 2008 23:43:54 -0500

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.

Federal Court Issues Decision Critical of the Corps of Engineers While Granting the Corps Immunity Related to Hurricane Katrina

MPayne@phslegal.com (Michael Payne) — Thu, 31 Jan 2008 10:53:47 -0500

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.”

Contractors Now Required to Prepare a Code of Business Ethics and Conduct and to Implement Internal Controls and Ethics Training

MPayne@phslegal.com (Michael Payne) — Mon, 07 Jan 2008 08:00:42 -0500

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:

The contractor will be required to assign responsibility to a person of sufficiently high level within the organization and adequate resources to ensure effectiveness of the business ethics awareness and compliance program and internal control system.

There must be a reasonable effort to exclude principals in the organization who due diligence would have exposed as having engaged in conduct that is illegal or otherwise in conflict with the contractor’s code of business ethics and conduct.

There is to be a requirement for periodic reviews of the company’s business practices, procedures, policies, and internal controls, to include monitoring and auditing to detect criminal conduct.

There is to be a periodic assessment of the risk of criminal conduct, with appropriate steps to design, implement, or modify the business ethics awareness and compliance program and the internal control system as necessary to reduce the risk of criminal conduct identified through the process.

There is to be an internal reporting mechanism, such as a hotline, which allows for anonymity, or confidentiality, by which employees may report suspected instances of improper conduct, and instructions that encourage employees to make such reports.

The contractor is to provide disciplinary action for improper conduct or for failing to take reasonable steps to prevent or detect improper conduct.

There is to be timely reporting, in writing, to the agency Office of the Inspector General, with a copy to the Contracting Officer, whenever the contractor has reasonable grounds to be believe that a principal, employee, agent, or subcontractor has committed a violation of federal criminal law in connection with the award or performance of any government contract performed by a contractor or a subcontract thereunder.

Finally, there is to be full cooperation with any government agencies responsible for audit, investigation, or corrective actions.

It is apparent that the Proposed Rule appears to be consistent with the contractor compliance requirements in U.S. Sentencing Commission Guidelines Manual, which provides specific guidance on what the FAR Councils consider to be an effective ethics and compliance program.

We believe that these proposed additional requirements will be approved and will supplement the newly issued requirements of FAR 3.10. It goes without saying that government contractors should be vigilant in their adherence to all laws and regulations, but now there must also be a visible program in place to demonstrate that contractors are committed to doing everything possible to inform their employees. Our firm is available to assist contractors to assure prompt compliance.

Protest Challenges Solicitation for Single Award Task Order Contract (SATOC) Involving Military Construction

MPayne@phslegal.com (Michael Payne) — Wed, 05 Dec 2007 15:46:58 -0500

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.

Federal Appeals Court Upholds Ruling that Contractor was Entitled to Damages Resulting from Defective Specifications and Differing Site Conditions

MPayne@phslegal.com (Michael Payne) — Wed, 28 Nov 2007 23:28:16 -0500

In a case captioned as Ace Constructors, Inc. v. United States concerning a contract with the Corps of Engineers for the construction of a structure at Biggs Army Airfield, the Federal Circuit upheld a Court of Federal Claims ruling awarding an equitable adjustment to ACE Constructors (“ACE”) and the return of liquidated delay damages. The Court had ruled that, due to unforeseen conditions and defective specifications that were incorporated into the contract, ACE was entitled to additional relief beyond that which was provided by the contracting officer. In particular, the Court awarded ACE its additional costs for: 1) being required to use a more expensive concrete testing methodology than was required by the contract; 2) being required to use a more expensive method of concrete paving than was required by the contract; and, 3) a Type I differing site condition that required 129,000 additional cubic yards of fill dirt.

On appeal, the government argued that the award for concrete testing was erroneous because: 1) ACE had failed to exhaust its administrative remedies and, therefore, the Court did not have jurisdiction over the claim; 2) the contract required the more expensive testing method; and 3) ACE did not demonstrate that its bid was based on the less expensive method of testing. The Federal Circuit held that the Court of Federal claims had jurisdiction because the claim presented to the contracting officer and the claim before the Court did not differ significantly. The Circuit Court also upheld the lower court’s ruling that the specifications were defective and that ACE reasonably concluded that the more expensive testing was not required by the contract (a fact which the government had acknowledged during the course of performance of the contract). Finally, the Circuit Court upheld the lower court’s ruling that ACE reasonably based its bid on the less expensive method of testing. Regarding the method of concrete paving required by the contract, the government again argued that the Court lacked jurisdiction to entertain the claim and additionally argued that ACE unreasonably relied on the defective contract specification when it calculated its bid based on the less expensive method of paving. The Federal Circuit again found that the Court of Federal Claims had jurisdiction over the claim and upheld the Court’s ruling that when the government provides a contractor with defective specifications, it is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications. ACE’s reliance on the specifications was reasonable.

On the Type I differing site condition claim, the government contested the quantum on appeal, arguing that ACE should have foreseen the error in the specifications and that the government should be credited for the (unrealized) savings that ACE anticipated from not having to bring in additional fill dirt when it bid the project. The Federal Circuit upheld the Court’s determination that ACE, and the expert consultant it used in the bidding process, reasonably concluded from the plans provided by the government that significant amounts of additional fill dirt would not be needed. As for the government’s second argument concerning a credit for unrealized savings, the Federal Circuit ruled that “[t]his argument was not presented to the contracting officer, was not discussed in the decision of the [CoFC], and is devoid of merit.”

This synopsis of the case was furnished by Case Digest, a publication of the Federal Circuit Bar association.

Corps of Engineers Conduct Found to be an "End Run" to a Judicial Order and Injunction on MATOC Solicitation

MPayne@phslegal.com (Michael Payne) — Tue, 27 Nov 2007 16:30:41 -0500

The Corps of Engineers responded to the recent Order of the United States Court of Federal Claims dated November 1, 2007, granting a permanent injunction against the issuance of a MATOC solicitation for dredging, by taking four proposed task orders included in the MATOC solicitation and reissuing them as separate negotiated procurements. (See the article posted on November 5, 2007). The Plaintiff, Weeks Marine, Inc., filed a motion asking the Court to find that the Corps of Engineers had violated the November 1 Order. Weeks argued that the injunction of the MATOC solicitation was based upon a finding that there was no legal or rational basis for the Corps to employ contracting by negotiation instead of sealed bidding. The re-issuance of those same projects as individual RFPs violated the spirit, intent, and the letter of the Court’s Order.

Weeks requested that the Court amend its November 1, 2007 Order to make it clear that the projects addressed by the task orders could only be procured by sealed bidding. Judge Thomas C. Wheeler of the United States Court of Federal Claims responded by issuing a new Order on November 16, 2007, stating that “. . . the Court must fashion a remedy to address an agency’s conduct that the Court regards as an ‘end run’ to a judicial order and injunction.” The Court decided to allow one of the four projects to proceed as an RFP because it involved dredging of the entrance channel to the Naval Submarine Base at Kings Bay, Georgia, and was considered to be urgent. The other three RFPs were not allowed to proceed as RFPs, however, because the agency “did not provide any legal or factual justification to use negotiated procurement methods.” The Court was also concerned about the Corps’ unilateral decision to attempt to circumvent the earlier injunction and stated that “the prudent approach would have been for Defendant to seek relief from the injunction to issue this solicitation, rather than for the agency to decide unilaterally that the injunction did not cover the proposed action.”

In the hearing that was conducted on November 15, 2007, the Judge reiterated that “if sealed bidding is not used for dredging contracts, you may as well read FAR Part 14 right out of the regulation. I mean, when else is it going to apply if not to dredging contracts?” The decision is a welcome recognition by the Court that sealed bidding is still the preferred method for procuring federal construction contracting, and the decision will hopefully help to stem the continuing move by the Corps of Engineers to unnecessarily employ IDIQ, MATOC, and contracting by negotiation in more of its construction procurements.

Federal Court Rules that Negotiated IDIQ/MATOC Contracting Cannot be Used Instead of Sealed Bidding Without a Lawful and Rational Basis

MPayne@phslegal.com (Michael Payne) — Mon, 05 Nov 2007 13:53:36 -0500

In a recent prebid protest presented by our firm, Payne Hackenbracht & Sullivan, the United States Court of Federal Claims considered the protest of Weeks Marine, Inc. v. The United States (“Weeks”) challenging the decision of the United States Army Corps of Engineers, South Atlantic Division (“SAD”), to solicit proposals for maintenance dredging and shore protection projects using negotiated indefinite delivery indefinite quantity (“IDIQ”) multiple-award task order contracts (“MATOC”). The Court noted that the contemplated change to negotiated IDIQ task order contracting represented a significant departure from SAD’s prior practice of using sealed bidding, and further noted that the policy change had caused widespread industry criticism.

As grounds for its protest, Weeks asserted that SAD’s proposed change to negotiated IDIQ/MATOC task order contracting was contrary to law, and was without any rational basis. Weeks relied upon 10 U.S.C. § 2304(a) and Federal Acquisition Regulation (“FAR”) ¶ 6.401(a), mandating that an agency shall use sealed bidding procedures when (1) time permits, (2) awards will be made solely based on price, (3) discussions are not necessary, and (4) the agency reasonably expects to receive more than one bid. Weeks contended that each of these four conditions was met for SAD’s dredging contracts, and that no legal basis existed to use negotiation procedures.

The Corps of Engineers argued in opposition that SAD’s proposed IDIQ task order contracting was lawful, that the agency had wide discretion in selecting an appropriate procurement method, and that SAD’s justification for the change was reasonable under current circumstances. The Court disagreed and ruled that an agency’s discretion “does not empower an agency to employ a procurement method in violation of applicable law.” The Court ruled that SAD had not pointed to any significant changes in its procurement environment that would warrant a change to IDIQ task order contracting. The Acquisition Plan confirmed that SAD had “excelled in program execution” during the last two years and “the Court does not see any reasons or developments for moving away from the sealed bid process. Without any analysis of the applicable statutes and regulations, and without citing any significant reasons or developments, the Court held that SAD would violate 10 U.S.C. § 2304(a), FAR ¶ 6.401(a), FAR ¶ 14.103-1(a), and FAR ¶ 36.103(a) by employing IDIQ task order contracting methods.“

This is an important judicial opinion that will hopefully cause government agencies to revisit decisions to utilize contracting by negotiation in either single procurements or IDIQ contracting. When the sole justification for negotiated contracting boils down to nothing more than a desire to introduce unnecessary subjectivity into the source selection process, RFPs should not be used and sealed bidding should continue to be the preferred method. In dredging, as in many other areas of construction contracting, sealed bidding has been a successful procurement method for many years. It is a system that provides the greatest risk coupled with the greatest opportunity for reward and it is an integral part of the free enterprise system.

Of great concern to the Court was the fact that under SAD’s “new” procurement method approximately $2 billion in task order awards during the next five years would become virtually immune from any judicial or administrative bid protest review. The Federal Acquisition Streamlining Act of 1994 (“FASA”) provides that “[a] protest is not authorized in connection with the issuance of a task order or delivery order except for a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued.” While SAD’s current sealed bid awards routinely are subject to bid protest review by the Government Accountability Office (“GAO”) or the Court, SAD’s task order awards would be insulated from review except in very limited circumstances. Thus, while purporting to use highly discretionary “best value” evaluation procedures in awarding task orders, SAD effectively would remove itself from any bid protest oversight. Although the Corps argued that the Court must apply the FASA provision that Congress created, the Court ruled that this provision did not authorize SAD to convert all of its procurements into task orders.

In asserting a need for a change from sealed bidding to contracting by negotiation, the Corps contradicted its own position by stating that its sealed bid approach had “excelled in program execution” during the last two years. As a result, the Court concluded that “The agency has provided no evidence that the current system is failing or in need of revision. In fact, the Court would be hard-pressed to identify any contracts better suited to sealed bid procurement than dredging. If not appropriate for dredging work, it is difficult to imagine when sealed bidding ought to be used.” (Emphasis added).

After carefully considering the Administrative Record and the parties’ arguments, the Court found that the solicitation violated applicable statutes and regulations, and that SAD’s attempted justification for the new procurement approach was without a rational basis. The Court also found that the agency’s stated desire to consider evaluation factors other than price, in the dredging industry, “is a weak justification to abandon sealed bidding.” The Court also noted that “The dredging industry consists of a small group of highly specialized contractors who are well known to SAD and some of the dredging contractors are family-owned companies with small management organizations. The major barrier to entry is the expensive excavating equipment that a contractor must acquire. Much of the dredging industry’s work is performed for the Corps of Engineers. Under these circumstances, where new entries to the business are rare, and where the contractors are well known to the agency, a responsibility determination under FAR ¶ 9.104 should suffice.”

In another important ruling the Court stated that it “does not regard a Corps of Engineers 'ombudsman' procedure included in the solicitation as a viable substitute for the judicial or administrative bid protest review that currently exists for sealed bidding.” Under the “ombudsman” procedure, the review is confined to the Corps of Engineers, at either the Contracting Officer or the ombudsman level, and that is not the same as judicial review or review by the GAO.

Consulting Fees Deemed Excessive and Severely Limited by Armed Services Board of Contract Appeals Decision

jah@phslegal.com (Joseph Hackenbracht) — Fri, 02 Nov 2007 09:19:57 -0500

The Armed Services Board of Contract Appeals (“ASBCA”) recently decided a case involving the issue of whether a contractor could recover the fees charged by a consulting firm as a contract administration cost. Fru-Con Construction Corporation. Although the cost principles in the FAR, at 31.205-47(f), provide that "costs are unallowable if incurred in connection with the prosecution of claims or appeals against the Federal Government," FAR 31.205-33 provides that "professional and consultant services" are allowable in certain circumstances. One of those circumstances occurs when a consultant's preparation of a request for equitable adjustment was for the purposes of seeking a negotiated settlement of pending issues with the government. In such a case, a consultant’s costs may be allowable if otherwise found to be reasonable.

The ASBCA addressed the issue of whether the consultant's fee of $612,000 was reasonable. Troubled by the lack of specificity in the consultant's contract, the summary nature of the consultant's bills, and the apparent lack of oversight by the contractor, the Board decided that it was almost as if the contractor had given the consultant a blank check. The Board concluded that a prudent business person in the conduct of a competitive business would not have reasonably incurred the expenses in an effort to negotiate with the government. The Board concluded that the contractor was entitled to recover a reasonable amount for its consulting fees and, in a jury verdict, decided that $65,000, not $612,000, was allowable as a reasonable contract administration cost.

When contracting for professional services on a Federal government contract, it is important to clearly define what the professional will do, to obtain itemized bills that include sufficient detail regarding the nature of the services provided, and to oversee the consultant's activity. In addition, obtaining the consultant's work product, including trip reports, minutes of meetings, memoranda and reports will go a long way in helping a contractor avoid a later determination that the consultant’s costs were unreasonable and, therefore, not recoverable.

Method of Calculating Recovery Of Extended Home Office Overhead

jah@phslegal.com (Joseph Hackenbracht) — Tue, 30 Oct 2007 10:51:38 -0500

In a decision earlier this month, the Armed Services Board of Contract Appeals reiterated that the recovery of unabsorbed home office overhead, based on the Eichleay formula, is for "a stand-by of an uncertain duration." The Board held that where a contractor is entitled to a compensable contract time extension for additional work, the contractor is entitled to recover extended home office overhead. Extended home office overhead is calculated as a fixed percentage markup of costs incurred during the contract time extension. Fru-Con construction Corporation, ASBCA No. 55197, 55248, October 4, 2007. For a discussion on the Eichleay formula and the recovery of unabsorbed home office overhead, see our earlier article.