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Tuesday, October 25, 2011

Overriding the GAO automatic stay override

This post is about the '''best interest" of the government. The vehicle for this discussion is the government's right to override an automatic stay of a contract or award when there is a protest of a US federal government solicitation to the Government Accountability Office (GAO).
The government can choose to override the automatic stay when it is in the government's "best interest" or, alternatively but similarly, there are "urgent and compelling circumstances that significantly affect the [government's] interest".

A body of law is developing from cases reviewing the government's decisions to override the automatic stay. This serves a broader purpose as an analogous approach to analyze other cases in procurement law of actions that can only be taken in the "best interest" of the government. +

For instance, under Guam law, the government can only cancel a bid if there is a written determination, made by the highest procurement authority in the purchasing agency, that such cancellation is in the "best interest of the Territory". Also, comparable to the "significant interest" prong in federal law, Guam law allows, among other requirements, the automatic stay to be lifted upon a showing by the agency or Attorney General of substantial government interest. Though the standards of review may vary, the analysis may be similar in either case.

The following is excerpted from an outstanding review of the developing body of law regarding the override of agency override of the automatic stay in the Air Force Law Review, Vol 66, beginning at page 135, written by highly credentialed authors, Lieutenant Colonel Kevin J. Wilkinson and Captain John M. Page. It is a follow-up work done by them from a previous article in the Air Force Law Review in 2007.

You really need to read the whole article from the linked Volume 66 to fill in the many blanks created by this brief excerpting.
The footnotes in the article are especially helpful.

CICA STAYS REVISITED: KEYS TO SUCCESSFUL OVERRIDES
The Competition in Contracting Act (CICA) of 1984 provides for the automatic stay of a contract award and suspension of performance of a newly awarded contract after the timely filing of a bid protest at the Government Accountability Office (GAO) and notice to the procuring agency. Agencies must withhold contract award when they receive notice of a protest from GAO.

Although the “CICA stay” is automatic, there are narrow ways around it. Under both CICA and the Federal Acquisition Regulation (FAR), agencies may override a CICA stay if they meet certain defined circumstances. If the protest is in the pre-award stage, an agency may only override the stay where “urgent and compelling circumstances that significantly affect interest of the United States will not permit waiting for the decision of the Comptroller General.” If the protest comes post-award, the urgent and compelling circumstances standard still applies, but CICA adds an alternative “best interests” standard as well. Under the “best interests” standard, an agency may override the stay “upon a written finding that performance of the contract is in the best interests of the United States.”

In the original article, we showed how, in the beginning, CICA stay overrides had become so common that it appeared that the exceptions were swallowing the rule.

Agencies commonly justified an override with procurement circumstances that did not present truly urgent, compelling, or sufficiently significant Government interests, as least not as the courts interpreted and applied those standards.

As a result, a protester (frequently the incumbent) often turned to the only avenue of relief available and filed suit in federal court alleging a CICA violation. Faced with obvious examples of Government overreaching in CICA stay overrides, the courts did not hesitate to prevent agencies from awarding or continuing the performance of an awarded contract where the court found the agency’s justification for an override decision to be weak or unsupported.

Since our article was published, seven published opinions addressing CICA stays provide exclamation marks to our existing recommendations and expressly address other areas of emphasis. These recent cases all highlight the need for thorough, objective decision making in the CICA stay override process.

2006 was a watershed year for CICA stay override cases. The U.S. Court of Federal Claims (COFC) overturned four CICA stay overrides. In a fifth override-related case, the court let the agency’s override stand, but only after the agency’s third attempt at demonstrating that the contract at issue involved “interests of national defense and national security.” Before 2006, the history of CICA stay jurisprudence in the federal courts was deferential to the agency, and sustaining agency overrides was the rule more than the exception.

Most notable among the 2006 cases is Reilly’s Wholesale Produce v. United States. In Reilly’s, Judge Allegra distilled from prior COFC cases the “relevant” factors—i.e., factors the agency “must consider” and address when considering an override decision—and those that are “offlimits” —i.e., “irrelevant.” The “must consider” factors include:
(i) whether significant adverse consequences will necessarily occur if the stay is not overridden;
(ii) conversely, whether reasonable alternatives to the override exist that would adequately address the circumstances presented;
(iii) how the potential cost of proceeding with the override, including the costs associated with the potential that the GAO might sustain the protest, compare to the benefits associated with the approach being considered for addressing the agency's needs; and
(iv) the impact of the override on competition and the integrity of the
procurement system, as reflected in the Competition in Contracting Act.
Judge Allegra’s two “irrelevant” factors are
(i) that the new contract would be better than the old one, and
(ii) that the agency would prefer override and continuation of the contract.
As noted, for its override decision to be upheld, the agency must not only sort through relevant and irrelevant factors, addressing the relevant ones; it must also base its decision and findings on the relevant factors that do not “run[] counter to the evidence before the agency.”

The court did note that some of the cases it cited for the factors that are legally relevant and irrelevant were cases in which the agency override decision was based upon the “best interests” standard. However, “in the court’s view, the rationale employed in those cases has, where indicated, application to the review of an override decision based upon urgent and compelling circumstances.”

Over the last three years [2007 - 2010] seven published COFC opinions involved CICA stay overrides. The seven cases show mixed results when the Government attempts to override a CICA stay.

In e-Management Consultants, Superior Helicopter, and Nortel Government Solutions, the court found against the Government, holding in each case that the Government’s decision to override was arbitrary, capricious, and contrary to law. In e-Management, the National Highway Traffic Safety Administration (NHTSA) justified its override by claiming that continuing with the contract was within the Government’s best interests. The court methodically went through each of the Reilly’s factors and found that the Government had not passed the test.

The court in the other cases came to similar conclusions, again relying on a thorough analysis of the Reilly’s factors to determine whether the Government complied with the law. In each case, the court found that the Government had failed to meet all of the factors, noting in Nortel Government Solutions that “[f]ailure by an agency to consider just one of these factors is fatal to an override decision based on urgent and compelling circumstances.”

On the other hand, in three other cases, EOD Technology, PlanetSpace, and Analysis Group, the court sided with the Government and upheld the Government’s decision to override the CICA stay. Contrary to EOD Technology, the PlanetSpace court specifically ignored the Reilly’s factors, saying, “We did not consider the Reilly factors at the hearing because Congress limited the court’s review of an agency’s decision in a CICA override action to the Administrative Procedure Act standards.”

This was followed by the October 2009 Analysis Group case in which the court listed the “four Reilly factors” and stated “while these four additional factors may be helpful in analyzing the agency’s override decision, they are not dispositive.” The court cited PlanetSpace, following its holding that “when considering injunctive relief in override cases, the Court should only apply the APA four-factor test for injunctive relief and not the additional four Reilly factors.”

These cases make clear (whether the override is upheld or not) that the analytical approaches cross the spectrum. They range from the assertion of strict APA review and express rejection of any consideration of the Reilly’s factors, (PlanetSpace and Analysis Group) all the way to considerably heightened scrutiny and the full application of the Reilly’s factors (Superior Helicopter and Nortel Government Solutions).

As we acknowledged in the 2007 article, the outcome seems to rest largely on which judge has been assigned to the case. The lack of unified precedence among COFC cases seems to prompt “luck of the draw” decisions, although there have been no appeals of the COFC decisions and no demand in academic circles for the Court of Appeals for the Federal Circuit to lay the factors to rest.

In light of the 2006 cases, we labeled our advice as “keys to ensuring overrides are reasonable, supportable, and less vulnerable to attack” and heavily footnoted our observations and recommendations with case law. This [article] supplements such advice.

The agency should assert interests of national defense and national security when they are present; however, be sure not to overstate the interest, because the courts are clearly wary when this assertion is made and demand that the record back it up. Also remember that all other issues pertaining to overrides must be addressed as well.

In Nortel Government Solutions, the court recognized that the Drug Enforcement Agency was “essentially asserting a national security argument regarding the necessity of the override.” The court quoted Superior Helicopter, saying, “Ultimately, the public’s interest in a fair, competitive federal procurement system outweighs unsubstantiated claims, even those related to the public safety.”

Again, a word of caution: justifications cited as “interests of national defense and national security” must be legitimate, significant— paramount to the procurement itself—and above all supported by the record. Do not overstate or make bald assertions that the record cannot support.

Some of the recent cases addressed supplementing the administrative record, usually with discouraging results for the Government. The e-Management Consultants court decided that “in an override case ‘the focal point of judicial review should be the administrative record already in existence.’” The court denied the agency’s request to add to the record with Supplemental Declarations, finding that “the information contained in the [administrative record] and [override memorandum] is sufficient for this court to conduct ‘meaningful judicial review.’” The court also found that “the Supplemental Declarations [were] written, intentionally or not, with the perspective obtained through the ‘lens of litigation’” and so should be treated with skepticism.

Our observations and recommendations are to inform decision makers and reviewers that their decisions to override CICA stays must be made judiciously and are subject to intense scrutiny. Gone is the era of extreme deference to the agency.

Access Systems demonstrates a reasonable compromise between competing interests of necessary performance of a contracted service and complying with the letter and spirit of Congressionally mandated CICA stays. Agencies will have to consider the reasonableness of properly tailored bridge contracts as an alternative for each override. As Reilly’s showed, courts are willing to treat bridge contracts as overrides and overturn them. Therefore, just as with overrides themselves, agencies should not abuse the use of bridge contracts.

In terms of general fairness and integrity of the procurement system, bridge contracts are plausible alternatives to overrides provided they are tailored appropriately to bridge gaps in necessary services and not to circumvent federal procurement law.

The Court of Federal Claims jurisprudence in CICA stay override cases remains unsettled. The prudent approach [for an agency] in deciding whether to override a stay would be to:
(1) start with the four APA factors,
(2) because the “Reilly's factors” still linger, agencies must consider them, and,
(3) because the courts are mixed on whether injunctive relief or declaratory relief is necessary, agencies have to consider that the court will apply the four factors for injunctive relief.
Nothing short of such a comprehensive analysis will do.

POST UPDATE October 2014 (posted 9 September 2015):

Court Upholds Bid Protest Stay Override
The U.S. Court of Federal Claims ruled against a bid protester seeking to stop performance on NASA's $6.8 billion commercial space program. The court's ruling upheld NASA's unusual decision to override the automatic stay of contract performance during a GAO bid protest. In addition to highlighting an unusual wrinkle in the normal bid protest process, this case also underscores the importance of venue selection in bid protests. Protests generally may be filed with the GAO, the Court of Federal Claims or the agency itself. Filing at the court usually is slower, more expensive and does not trigger the automatic CICA stay. On the other hand, as part of its bid protest procedure, the court can grant an injunction prohibiting the agency from moving forward. An agency might well face a tougher fight arguing against an injunction than it would in overturning the CICA stay.

While a GAO protest triggers the CICA stay, only a federal court maintains the authority to direct a federal agency to enforce the stay. So, if an agency like NASA decides to override the stay, then the protester's only recourse is to request an injunction from the U.S. Court of Federal Claims. The court could have enjoined NASA from continuing in performance of its contract. Instead, the court sided with NASA and allowed NASA to continue working with Boeing and SpaceX pending the protest decision.


POST UPDATE 16 JUNE 2012:

See, also the ARMY CONTRACTING AGENCY CICA Automatic Stay Override Guide April 2004.

POST UPDATE 6 April 2012:
WIFCON.com has a page devoted to "4 CFR 21.6: Withholding Award, Suspending Contract Performance, Override of Stay, Injunction", which keeps an ongoing review of cases related to the topic in this post above.


Sunday, October 23, 2011

Competing for non-compete business

The discussion point here is this The Washington Post article (excepted: use link for full read), which is a kind of business case analysis presented by a university business professor:

The complexity of bidding for government contracts
The Scenario: A prominent agency of the U.S. federal government issued a Request for Solutions (RFS) for a high-profile, multi-year project in the agency’s historic office building in the District. The agency was seeking the design and installation of an integrated information technology network. Competing bids would be assessed for technical competency and price.

The building, a short walk from the White House, covered three city blocks and housed 4,000 employees. Because the various units of the agency operated independently, computer networks within the building were both physically and technically isolated from one another. With no shared information system, the units were forced to use the Internet to transmit data back and forth. Cabling and networking equipment were scattered throughout the building, snaking across open floors, sitting on desks, stacked in coat closets. Reassigning personnel often meant reinstalling cable at considerable expense.

The RFS sought firm fixed-price bids to address these problems. The RFS specified that contractors would have to take care to preserve the historic nature and character of the 1.8-million-square-foot building (e.g., the roof’s terra cotta tiles) while working around the staff.

The uncertainties surrounding the building and what would be necessary to preserve it cast a long shadow over the bidding process. Dragon’s best estimate was that it would probably cost about $11 million to do the work. It did, however, believe there was the potential for follow-on work that was outside the scope of the currently proposed contract. The exact extent of this work was unclear.

Each year, Dragon submitted anywhere from 50 to 100 competitive bids ranging from $500,000 to millions of dollars. Its win rate approached 30 percent. Most contracts were bid based on cost and generally included a 5 to 15 percent profit.

The Resolution: Dragon Systems bid aggressively. It lost money on the initial contract but made a considerable amount of money on the follow-on work, which was largely completed on a time-and-materials (non-bid) basis. It guessed correctly that once it got into the building, it would uncover a lot of other work that needed to be done and that because of its familiarity with the historic building it would be the preferred supplier.

Having successfully completed more than 60 such contracts, the firm had developed a solid reputation among government officials such as Tom Coolidge, director of a government computers and telecommunications station. Coolidge favored contracts with Dragon because it always provides “us with dependable people at a reasonable cost.”

The Lesson: Bidding on contracts requires an evaluation not only of the costs and margins of the specified work, but also a careful analysis of how it changes the probability that you will get future work. That is not easy to do, but it is necessary in order to make reasonable profits in the world of government contracting.

There are other lessons here as well.

One is the illustration that the more you do well in government contracting, the more you do well at government contracting. It's the incumbency effect, an effect which, if carried far enough, degrades the competitive spirit intended to be part of the US Competition in Contracting Act.

The Washington Post ran an article on this aspect of government contracting a few years ago, with a tone of disparaging aggravation:

Costs Skyrocket As DHS Runs Up No-Bid Contracts
The project started in 2003 with a $2 million contract to help the new Department of Homeland Security quickly get an intelligence operation up and running.

Over the next year, the cost of the no-bid arrangement with consultant Booz Allen Hamilton soared by millions of dollars per month, as the firm provided analysts, administrators and other contract employees to the department's Information Analysis and Infrastructure Protection offices.

By December 2004, payments to Booz Allen had exceeded $30 million -- 15 times the contract's original value. When department lawyers examined the deal, they found it was "grossly beyond the scope" of the original contract, and they said the arrangement violated government procurement rules. The lawyers advised the department to immediately stop making payments through the contract and allow other companies to compete for the work.

But the competition did not take place for more than a year. During that time, the payments to Booz Allen more than doubled again under a second no-bid arrangement, to $73 million, according to internal documents, e-mail and interviews.

When Booz Allen finally faced competition last year, Homeland Security had broken the work into five contracts. In total, those contracts were worth more than $50 million over a year's time.

Booz Allen won them all.

The arrangements with the McLean consulting firm, one of the nation's largest government contractors, illustrate a transformation in the way the federal government often gets its work done: by relying on private, sometimes costly consultants to fill staffing shortfalls in federal agencies.

Contracting specialists said companies are increasingly being called upon to handle duties once considered appropriate only for government workers. And because the number of federal procurement workers responsible for overseeing spending has not kept pace, the spending on such contracts often soars far beyond approved estimates, the specialists said.

Another lesson is that the usual limitation on offering no-bid work beyond the scope of the original contract is facing practical limitations in the new era of primarily service-oriented government contracts. As a practical matter, it is becoming apparent that the scrutiny of the scope of service contracts is not as strict as the scope of supply contracts.

In theory they should be treated the same, but the age-old reticence to second-guess contracting officers is leading to the point where, in practice, the scope of contract rule is being swallowed by a service contract exception. (I hasten to note that the deferential standard of review found in federal cases is not universal. For instance, the Guam Public Auditor has a de novo standard of review. See, also, 5 GCA § 5245 and discussion of that statute in the Guam Procurement Process Primer.)

The traditional use of the scope of contract limitation on so-called flow-on work is illustrated by the recent Court of Federal Claims case, as reported by the Wolter Kluwer website Federal contracts training center:

Order Was Beyond Scope of FSS Contract
An order for mobile medical units was improper, according to the Court of Federal Claims, because the order included items that were outside the scope of the awardee's Federal Supply Schedule contract.

The government issued an FSS request for quotes for mobile operation and procedure room trailers after conducting sole source negotiations with the protester, which did not hold an FSS schedule contract. After the closing date, but prior to award, the government allowed the awardee to add three types of mobile surgical trailers to its FSS contract.

The government maintained the modification involved in-scope changes to trailers already on the awardee's FSS contract. According to the government, so long as an item is on the FSS contract at the time of the order, the award is proper.

The court found this approach would "allow targeted pre-selection of contractors outside the FSS system, which is inconsistent with the FSS system, as well as the general goals of fair and open competition espoused in the [Competition in Contracting Act] ...." At a minimum, the government violated the spirit of CICA.

Further, a comparison of the original and modified trailers showed the modified trailers were new item

s that should have been added to the awardee's schedule before it submitted a quote. Unlike the original trailers, the modified trailers had integrated equipment necessary for performing surgery, taking x-rays, and sterilizing medical equipment. Also, the original trailers did not have air filtration systems, sterile environments, plumbing, or the internal wiring necessary for a surgical room. Further, the modified trailers required 240 days --as opposed to 125 days --of turnaround time, and the awardee's schedule modification request included more than 75 pages of technical specifications and design detail.

The "sheer volume" of the modification request, along with the awardee's concession it was adding a completely "new item" to the schedule, further illustrated the awardee had offered non-FSS items in response to the RFQ.

This case shows how prepared reviewing bodies are to count things, to measure them, to compare them. Other cases illustrate the failure to find bright lines in specifications and scope of work for services contracts.

The traditional statement of the tests use are in the Emergent BioSolutions Inc. GAO Comptroller General's decision, B-402576, June 8, 2010.
The case involved services (R&D)leading to development of a product: The RFP contemplated the award of one or more cost-plus-fixed-fee contracts for the continued advanced development, testing, and production of rPA anthrax vaccine. The RFP included Federal Acquisition Regulation (FAR) clause 52.243-2, Changes–Cost Reimbursement (Alternate V), applicable to research and development contracts. The RFP also stated that the purpose of the procurement was to continue the advanced development and production of an rPA vaccine, suitable for licensure, to protect the general United States population against inhalation anthrax when administered in an immunization series of not more than three doses.

In determining whether a modification triggers the competition requirements under CICA, we look to whether there is a material difference between the modified contract and the contract that was originally awarded. Engineering & Prof'l Servs., supra, at 4; AT&T Commc'ns, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993). Evidence of a material difference between the modification and the original contract is found by examining changes in the type of work, costs, and performance period between the contract as awarded and as modified. Overseas Lease Group, Inc.,
B-402111, Jan. 19, 2010, 2010 CPD para. 34 at 3; Atlantic Coast Contracting, Inc.,
B-288969.2, June 21, 2002, 2002 CPD para. 104 at 4. We also consider whether the solicitation for the original contract adequately advised offerors of the potential for the type of changes found in the modification, and thus whether the modification would have materially changed the field of competition. See DOR Biodefense, Inc.; Emergent BioSolutions, supra; Atlantic Coast Contracting, Inc., supra.

The result in that case was a finding that modifications to the contract were not beyond the scope of the contract.

Other statements regarding the scope of contract rule are in WorldWide Language Resources, Inc., B-299315.7; B-299315.8, August 12, 2010:
MEP’s contract, as initially awarded, included a 5-year ordering period (through September 2012) with a total ordering ceiling of $703 million. At the time of award, the agency estimated that it would need approximately 3,000 linguists to support the military’s operations in Afghanistan.

In the years subsequent to MEP’s award, the military’s need for linguists has exceeded the numbers estimated by INSCOM. Presently, MEP’s contract supports approximately 6,826 linguists at up to 200 locations in Afghanistan. Id. at 3.

The agency identifies two specific events which have spurred the significant growth in the linguist requirement. The first was an August 2009 review of the U.S. Afghanistan strategy directed by the President. Based on this review, the estimated requirement increased to 5,000 linguists per year in anticipation of greater U.S. involvement in Afghanistan. Id. The second event was the “surge” decision of December 2009, which provided for sending an additional 30,000 U.S. forces to Afghanistan by the end of the summer in 2010. This surge of U.S. forces has driven the need for linguists to their current levels since they are an integral component of the expanding U.S. combat operations in Afghanistan.

Prior to the events of August and December 2009, INSCOM, in May 2009, initiated the process of planning for the competitive award of a new contract for the linguist requirements in Afghanistan. In August 2009, it became apparent to INSCOM that the funding needed under MEP’s current contract would exceed the contract ceiling sooner than originally planned due to the increasing need for linguists. INSCOM estimated that the ceiling would be reached in March 2010. Contracting Officer’s (CO) Statement at 2. INSCOM therefore began to plan for the competitive award using a streamlined schedule.

Because MEP’s contract was imminently reaching its $703 million contract dollar ceiling, on March 18, INSCOM modified the contract to increase the ceiling amount by $78.5 million. This modification was supported by a J&A stating that only MEP was in a position to provide the required linguist services in Afghanistan without interruption or degradation.

Upon learning of the agency’s modification of MEP’s contract to increase the contract ceiling by an additional $679 million, WorldWide filed this protest arguing that the modification is contrary to the competition requirements mandated by CICA.

Due to the criticality of the linguist services to U.S. operations in Afghanistan, the agency concluded that it needed to maintain the linguist services without interruption. INSCOM was also advised by the Chief of Intelligence for the International Security Assistance Force in Afghanistan that the method chosen to obtain the services should avoid any additional strain on military resources given the significant build-up of U.S. troops in Afghanistan in connection with the “surge,” which the J&A characterizes as “one of the largest movements of troops and material since World War II.”

Even assuming that there were in fact firms capable of meeting the agency’s needs, and that some form of limited competition could be held, INSCOM concluded that conducting such a competition and transitioning to a new contractor would not be practicable given the limited time until the anticipated March 2011 award. In this regard, INSCOM explained that the process of issuing a solicitation, obtaining proposals, conducting an evaluation, and making an award would take approximately 6 to 8 months. With the projected follow-on contract scheduled for award by March 2011, the bridge contract would have a performance period of only
3 to 5 months and would require a transition period with an estimated cost of
$30 million, if the contract were awarded to a firm other than MEP. INSCOM also indicated that conducting the limited competition would likely delay its implementation of the long-term solution--the award of the follow-on contract based on full and open competition--due to the need to conduct two procurements simultaneously using the same contracting personnel with the requisite expertise. Id. at 6. INSCOM also considered the disruption to the U.S. mission associated with a need for multiple linguist contractor transitions during “a period of high operational stress”--one for the bridge contract award and a separate transition for the March 2011 award--and concluded that the potential need for multiple transitions militated against conducting a limited competition.

WorldWide challenges the modification of MEP’s contract to increase the contract ceiling by $679 million, arguing that the modification was outside the scope of MEP’s underlying contract and therefore constitutes an improper noncompetitive award in contravention of the competition requirements established by CICA, specifically, 10 U.S.C. § 2304(f)(1)(C) (2006).

To the extent the agency has justified its actions based on a finding that only MEP can meet the agency’s interim need for linguists--a conclusion disputed by the protester--WorldWide asserts that the noncompetitive extension of MEP’s existing contract was attributable to a lack of advance procurement planning, which is also precluded by CICA. 10 U.S.C. § 2304(f)(5).

CICA requires that an agency obtain full and open competition in its procurements through the use of competitive procedures. 10 U.S.C. § 2304(a)(1)(A). Exceptions are provided under CICA, however, where (among other specified exceptions) there is only one responsible source able to meet the agency’s requirements, 10 U.S.C.
§ 2304(c)(1).

CICA also provides that noncompetitive procedures may not be used where agency contracting officials failed to perform advance planning. 10 U.S.C.
§ 2304(f)(5); HEROS, Inc., B-292043, June 9, 2003, 2003 CPD ¶ 111 at 6; New Breed Leasing Corp., B-274201, B-274202, Nov. 26, 1996, 96-2 CPD ¶ 202 at 6. Our Office has recognized that the requirement for advance planning does not mean that such planning must be completely error-free, but, as with all actions taken by an agency, the advance planning required under CICA must be reasonable. Barnes Aerospace Group, B-298864, B-298864.2, Dec. 26, 2006, 2006 CPD ¶ 204 at 4-5.

As a general rule, our Office will not consider protests against contract modifications, since they involve matters of contract administration and are beyond the scope of our bid protest function. See 4 C.F.R. § 21.5(a) (2010); DOR Biodefense, Inc.; Emergent BioSolutions, B-296358.3, B-296358.4, Jan. 31, 2006, 2006 CPD ¶ 35 at 6. An exception to this general rule is where a protester alleges that a modification is beyond the scope of the original contract, as WorldWide argues in this case, since, absent a valid sole-source justification, the work covered by the modification would be subject to the competition requirements established under CICA. Engineering & Prof’l Servs., Inc., B-289331, Jan. 28, 2002, 2002 CPD ¶ 24 at 3.

The agency and the intervenor argue that modifying MEP’s contract to increase the contract ceiling by $679 million is not outside the scope of MEP’s underlying contract. In this regard, they principally assert that the increase in the ceiling level does not change the type of work required under the contract and offerors could have reasonably anticipated a modification to increase the contract ceiling. WorldWide maintains that the magnitude of the increase in the dollar ceiling implicitly reflects a change in the nature of the agency’s original requirement and the basis of the original competition, and therefore renders the modification outside the scope of the original award.

As discussed below, we do not need to decide the question of whether the modification is within the scope of MEP’s contract because, even assuming that it was not, the agency properly supported the modification with a reasonably based J&A under 10 U.S.C. § 2304(c)(1).

In the business study presented above, there is a stunning admission (at least a representation) against interest that the contractor is bidding at or below cost, seeking work outside the scope of the original contract. That is undoubtedly a model adopted by many other contractors.

But simply because there is a trend toward eliminating the scope of contract restriction, most particularly emerging in the context of the responses to terrorism at home and in the Middle East, the rule has not be entirely abrogated, as the following Comptroller General decisions note, and as summarized by Wifcon.com:

Poly-Pacific Technologies, Inc., B-296029, June 1, 2005:
the agency states that in the absence of a viable recycling option, it modified the contract to allow for disposal consistent with EPA regulations. The agency argues that the government's ultimate need for plastic media and the obligation to comply with EPA regulations regarding the handling of the SBM have not changed and, thus, the modification was proper.

We disagree with the agency's view that the modification does not materially change the requirements of the contract or result in a fundamental change to the nature of the work. The original solicitation sought proposals that required offerors to both lease plastic media and recycle the resulting SBM in compliance with regulations, and offerors were thus required to propose technical solutions and pricing for both the lease and recycling components of the work. The fact that the agency still requires plastic media for its equipment needs and still requires removal of the SBM from its facilities does not afford the agency unlimited latitude to modify the way in which it contracts to meet those requirements.

An agency may not modify a contract by changing or relaxing requirements where the resulting work is fundamentally different from the work anticipated by the original solicitation. Marvin J. Perry & Assoc. , supra , at 4-5; Avtron Mfg., Inc. , supra , at 4-5.

Evidence suggesting that proposals submitted on the basis of a modified contract's relaxed requirements could result in more competition and lower prices generally weighs in favor of finding that the contract modification was improper. Avtron Mfg., Inc. , supra , at 5.

Saltwater Inc.--Reconsideration and Costs, B-294121.3; B-294121.4, February 8, 2005:
the competitive award to Saltwater was based upon a 1-year contract extending through June 30, 2004 with a 1-year option to June 30, 2005. However, the award to NWO was for a 6-month contract period from July 1, 2004 toDecember 31, 2004, with an option to extend the contract 1 year, i.e. , to December31, 2005, which Commerce has exercised. Because the period of performance under NWO's contract extends beyond June 30, 2005, it is inconsistent with the basis for the competition and therefore improper. See Tennessee Valley Serv. Co. , B188771, Dec. 8, 1977, 77-2 CPD 442. That is, the extension of NWO's contract beyond June30, 2005 constitutes an improper sole-source, since it was not supported by a J&A.

Wifcom.com collects a number of court as well as Comptroller General decisions concerning the scope of contract, and a read of all of them is suggested.

Thursday, October 20, 2011

Looking down the scope of contracts

Grand Prix contractor picks up non-bid work through “extra” orders [Baltimore, Maryland]
Every city expenditure over $5,000 needs prior approval by the Board of Estimates and every contract over $25,000 must be competitively bid.

Yesterday when the spending board handed out $637,741 to P. Flanigan & Sons for paving work that was never put out for competitive bid and never received prior approval by the board.

The mechanism used to skirt the bid rules are “EWOs,” or extra work orders, appended to board-approved contracts. There is no public notice of these extra orders, only notification in board records when the work is paid by the city.

EWOs have been periodically criticized as circumventing the city’s bidding rules, but they regularly pass through the spending board headed by Mayor Stephanie Rawlings-Blake and City Council President Bernard C. “Jack” Young.

In yesterday’s example, Flanigan got paid for extra work under TR 10324, a contract awarded last June to prepare Inner Harbor streets for the Grand Prix race.

The $4.1 million road contract was itself controversial because the Flanigan firm and family are such heavy contributors to local political campaigns. The Brew, for example, disclosed that Rawlings-Blake received $13,500 in Flanigan contributions since 2008.

The reason: because the city realized that repairs were urgently needed on Key Highway. “We needed to get Key Highway done immediately in order to provide a detour before the closure of the Fort Avenue Bridge,” Jamie Kendrick, deputy DOT director, said yesterday.

Putting the work out to bid would have been a waste of taxpayer’s money, Kendrick said.

“Processing a bid costs $50,000-$60,000 when you include advertising, staff costs and overhead. Because time was short and because the contractor [Flanigan] was working in the area, we went ahead. The convergence of these factors – time, availability and proximity – all made sense.”

So DOT submitted two extra work orders to TR 10324, saying in a change-notice-request form: “The scope of work mirrors the infrastructure improvement project” in the Inner Harbor and “the department obtained a cost proposal from the contractor who is already working in the Key Highway area.”

The convergence of these factors – time, availability and proximity – may make sense, but I do not know them to be factors in determining whether new or additional items fall within the analysis of scope of contract rules that require new bids for work outside the scope of contract.

The principles of procurement do not include the excuse of convenience nor corner-cutting nor cost/benefit analysis before deciding to undertake a competitive bidding.

Procurement controversies -- Espanola, New Mexico

City Manager Draws Heat for Stucco Project
A construction company hired to re-stucco Española City Hall in violation of state and city procurement rules allegedly performed work on City Manager James Lujan’s La Mesilla home prior to working for the city, according to two former city finance officials.

Former administrative services director Ron Archuleta, who worked for the city from March 2010 until resigning in May, said Lujan told him Española-based Lebo Construction worked on Lujan’s home.

Lujan later bypassed procurement rules to hire Lebo to re-plaster the west side of City Hall even though the company didn’t provide the lowest price for one of the two phases of the project, city documents show.

Both state and city rules also state a project can’t be artificially divided in order to constitute a small purchase.

City vendor documents show the re-plastering project was split into five parts between two phases. The total cost was $10,357.

Lujan denied having any influence over the award to Lebo Concrete stating he simply told his staff to get the job done.

This explanation conflicts with a letter dated April 7 from Archuleta to Lujan. Archuleta, a former auditor for the federal government and an ally of Lujan’s until his resignation, said he wrote the letter to leave a paper trail.

Black Ridge Construction owner Juan Garcia, who submitted the highest bid for the phase of the re-plastering project in question at $8,477, said he’ll likely stop submitting bids on city projects.

“What’s the point now that we know that (Lujan is) going to pick whoever he wants it to go to?” Garcia said.

Before coming to the city, Lujan was fired from his job as Santa Fe County’s public works director in spring 2010 shortly after the Santa Fe County Sheriff’s Department named Lujan as a suspect in an investigation into several County paving projects he oversaw, many of which involved the company Advantage Asphalt and Seal Coating. Among the allegations were that Lujan’s department had used County equipment and materials to pave a private church parking lot in Nambé at the request of state House Speaker Ben Lujan (D-Nambé), and then billed the County for the materials, according to previous statements from former sheriff Greg Solano.

Emails between James Lujan and former Santa Fe County commissioner Harry Montoya also suggest such construction occurred. “We were asked by House Speaker Lujan to place milling in the parking lot of the church.” James Lujan wrote to Montoya. “You were in agreement so I had the crew schedule it.”

Wednesday, October 19, 2011

Manage spending by following procurement rules

The Deputy Auditor General of South Africa said, "the failure to stick to proper procurement rules almost invariably led to a failure to manage spending." We've seen plenty of instances of exactly that lesson on Guam, too.

AG faults biggest state spenders for poor reporting
[Deputy Auditor General Kimi Madwetu said] "They are doing their accounting properly but failing the test in terms of complying with the system of sourcing goods and services."

This resulted in irregular expenditure of R2.286-billion by national departments, most of which was not identified by the departments themselves but by the AG's office.

Provincial departments, public entities and legislatures racked up another R18.4-billion in irregular expenditure for the past financial year.

"In terms of non-compliance, 92% of national departments are in the red, meaning that they have not complied with whatever applicable laws and regulations they needed to comply with," Makwetu said.

Most "would easily migrate [from in the red] to the green" if they made an effort to account properly on predetermined objectives and to comply with laws and regulations, notably supply chain management rules.

He said the failure to stick to proper procurement rules almost invariably led to a failure to manage spending.

"If procurement and contract management is not complied with the chances are that expenditure is also not going to be complied with. It is very interesting to see the correlation between the two."

A breakdown of the reasons for the adverse findings on supply chain management showed that unfair procurement and award contracts to government officials and their close family members were by far the biggest problems.

The deputy auditor-general on Wednesday lamented the lack of improved accounting in education, health and public works, as most state spending flowed through these departments.

"Since 70% of resources are going in this direction maybe the effort also needs to be directed at these areas."

"There are no clean audits in that area where the bulk of expenditures are being incurred," deputy auditor-general Kimi Makwetu told parliament's Standing Committee on Public Accounts ("Scopa"). Scopa chairman Themba Godi said the auditor-general's findings were disappointing because they reflected the same problems in state departments year after year.