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Tuesday, April 15, 2014

Price realism vs price reasonableness vs bidder responsibility: a few case snatches

Several recent GAO decisions have involved issues of price realism. This is not an exhaustive look at the nuances or paramenters of the notion of price realism, but simply some brief snatches of decisions that may help point you to further research material. (I confess to using this blog as a card index of cases and issues.)

These snatches are not precise quotes from the decisions and should not be relied on for citation. Read each decision at the appropriate link.


Matter of Tetra Tech, Inc., File B-409095; B-409095.2, January 17, 2014
Award was to be made to the offeror whose proposal represented the best value to the government based on price and the following non-price evaluation factors listed in descending order of importance: (1) technical approach; (2) key project team members/management approach; (3) previous corporate experience; (4) past performance, including small business subcontracting compliance past performance; (5) small business participation plan; and (6) small business subcontracting plan.

The source selection evaluation board (SSEB) evaluated the technical proposals and the price team, comprised of a price analyst and a cost engineer, evaluated price proposals. The price team prepared a report, for the SSEB, which then provided its own report, along with the price/cost report, to the source selection authority (SSA). With regard to price, the price team prepared a 112-page report reviewing each offeror's price for each of 84 contract line item numbers (CLINs).

Tetra Tech contends that the agency failed to conduct and document a proper "price reasonableness analysis of the URS Group's very low price." As our decisions make clear, price reasonableness and price realism are distinct concepts. The purpose of a price reasonableness review is to determine whether the prices offered are too high, as opposed to too low. Arguments that an agency did not perform an appropriate analysis to determine whether prices are too low, such that there may be a risk of poor performance, concern price realism, not price reasonableness.

Here, we view Tetra Tech's argument as going to the realism of URS's pricing. In this regard, the price team evaluated the reasonableness and realism of each of the offerors' proposed prices under each of the 84 CLINs and noted instances in which an offeror's price was considered to be high or low, considering its proposed technical approach. For 8 CLINs, accounting for approximately 1.6% of URS's overall price, the price team found that URS's price appeared to be low, and for 1 CLIN, the price team found that the price appeared to be high.

The agency determined that URS's lower prices generally reflected its use of an innovative, advantageous, and less costly technology, and that the risk associated with using the technology was sufficiently mitigated by URS's approach in this regard. We find nothing in Tetra Tech's protest that calls into question the resulting agency determination that URS's overall pricing was realistic for its technical approach.
Matter of: Delaware Resource Group of Oklahoma, LLC, File B-408962.3; B-408962.4, March 24, 2014
Protest alleging that the agency failed to conduct a reasonable price realism analysis is denied where the record shows the agency’s analysis was reasonable and adequately documented.

With regard to price, the RFP established that the agency would rank all technically-acceptable proposals by their total evaluated price, and conduct a price evaluation to determine if the prices were fair, reasonable, and complete. The RFP advised that the agency “reserves the right to conduct a price realism review to determine whether the price proposed is feasible in relation to the technical proposal and the requirements of the [PWS].” Price proposals that were unreasonably high or unrealistically low when compared to the independent government estimate and the offeror’s proposed technical approach could be found to have an inherent lack of understanding of the solicitation requirements, and the proposal could be rejected.

Where, as here, an RFP contemplates the award of a fixed-price contract, or a fixed-price portion of a contract, an agency may provide in the solicitation for the use of a price realism analysis for the limited purpose of measuring an offeror’s understanding of the requirements or to assess the risk inherent in an offeror’s proposal. Our review of a price realism analysis is limited to determining whether it was reasonable and consistent with the terms of the solicitation. The nature and extent of an agency’s price realism analysis are matters within the agency’s discretion.

On this record, we conclude that the Air Force conducted a reasonable evaluation of Chenega’s price consistent with the RFP criteria. To the extent that DRG believes that Chenega cannot perform the contract at its proposed price, DRG’s disagreement with the agency’s judgment provides no basis to sustain the protest.
Matter of: JCMCS File B-409407, April 8, 2014
JCMCS, of Washington, DC, protests the Department of the Army’s award of a contract to M&F Concrete, of Manassas, Virginia, under invitation for bids (IFB) No. W91QV1-13-B-0010, for general concrete services at facilities in Virginia and the District of Columbia. The protester argues that M&F’s bid price is so low that the agency should have concluded that M&F is not a responsible bidder. Award was to be made to the low-priced, responsible bidder whose bid was responsive to the terms of the IFB.

M&F had the lowest bid price of $20,514,321.50, significantly lower than JCMCS’s bid, which was the second lowest ($36,374,996).

Below-cost prices on fixed-price contracts are not prohibited, and whether a bidder can perform at its bid price is a matter of bidder responsibility, which is not reviewable by our Office absent circumstances not present here. See Bid Protest Regulations, 4 C.F.R. § 21.5(c) (2013).

First, the protester argues that the agency failed to use any of the price analysis techniques set out in Federal Acquisition Regulations. There is no requirement, however, for the use of price analysis techniques in assessing bid prices.

JCMCS also asserts that, given M&F’s unrealistically low prices, the awardee cannot meet the solicitation requirement to pay labor rates compliant with the applicable Davis Bacon Act wage rates. A bidder may remain eligible for award even if lower wage rates than those required by a prevailing wage rate determination are offered by the firm, where the firm accepts (and is therefore obliged to meet) a requirement to compensate employees at prevailing rates, and the firm is otherwise determined to be responsible.

JCMCS next argues that M&F’s bid is so low that the bid must be unbalanced. This argument, by itself, fails to state a basis for protest. Unbalanced pricing exists where the prices of one or more items are significantly overstated, despite an acceptable total evaluated price (typically achieved through underpricing one or more of the other line items). Low prices, by themselves, are not improper and do not themselves establish (or create the risk inherent in) unbalanced pricing. Where an unbalanced offer is received, agencies are not required to reject it, but should consider the risk to the government of unreasonably high prices for contract performance.
Matter of Kilda Group, LLC, File B-409144; B-409144.2, January 29, 2014
The RFP was issued as a total small business set-aside, seeking proposals to design a strategy for delivering a core curriculum of training programs for agency leaders at the supervisory, management, and executive levels. As amended, the RFP described a broad range of requirements, identifying a number of mandatory tasks such as, project management, on-demand training, executive development, and blended learning.

The RFP provided for the award of a fixed-price contract with definitive and indefinite-delivery/indefinite-quantity contract line items (CLINs) for a four-month base period and three 1-year options. Award was to be made on a best-value basis considering the following factors listed in descending order of importance: (1) technical approach; (2) past performance; (3) socioeconomic considerations; and (4) price. The non-price factors, when combined, were significantly more important than price. Kilda contends that the agency failed to adequately evaluate the awardee’s prices for realism.

The Federal Acquisition Regulation (FAR) recognizes a number of price analysis techniques that may be used to determine whether prices are reasonable and realistic, including a comparison of proposed prices with each other and comparison of proposed prices with an independent government estimate (IGE).

Here, the VA compared ALIS’ total price to the median total price of $28,340,513, calculated based on the total prices of eight offerors. Kilda insists that the VA should have considered whether ALIS’ proposed labor rates and proposed unit prices were realistic, rather than simply comparing ALIS’ total proposed price to the median of the offered prices. Although Kilda ultimately believes that a more detailed realism assessment was necessary, as noted above, the extent of a price realism analysis is within the sound exercise of the agency’s discretion and agencies are free to use a number of techniques in assessing price realism. Indeed, we have found that a comparison of prices received is among the proposal analysis techniques that may be used under FAR § 15.404-1, and also “can be appropriate in a price realism analysis.”

Kilda also argues that the realism assessment was unreasonable since it was based on an unreasonably calculated median price. In this regard, the protester highlights the fact that the agency calculated the median using the prices of two proposals that had been rated as unsatisfactory under the technical approach factor, in part, because they did not have an acceptable understanding of the agency’s needs. We agree with the protester that the agency should not have included the prices for these two firms in calculating the median. Nevertheless, when these firms’ prices are excluded, the median does not change significantly--it goes up from $28,340,513.00 to $29,802,909.98 (a change of approximately 5%).

Our Office will not sustain a protest absent a showing of prejudice to the protester; that is, unless the protester demonstrates that, but for the agency’s actions, it would have had a substantial chance of receiving the award. In our view, given the minimal impact on the calculated median, we have no basis to conclude that the protester was prejudiced by the alleged error.



Settlement agreements do not abrogate procurement mandates

This GAO decision is interesting, not least of all because it sustained a protest (not the norm in GAO experience). 

 It is interesting because it indicates the type of critical analysis that should occur before a sole source contract is given out, but more interesting because it shows that when an agency proposes to give a sole source contract to settle a protest dispute, that decision is not binding; settlement agreements cannot vitiate procurement mandates. It gets fascinating with its description of the internal wrangling within the government and the influence of connections.   Finally, the case indicates the need to verify the claims of contractors pleading poverty and to justify exceptions to competition with valid facts and rationale; conclusory statements do not suffice for reasoned analysis.

As usual, I've excerpted, rearranged, paraphrased and left out citations to suit myself; read the decision at the link for a proper and independent recitation of the decision.

Matter of: Coulson Aviation (USA) Inc., File: B-409356.2, March 31, 2014
NextGen large airtankers are intended to replace the Forest Service’s use of “Legacy” large airtankers, which are generally much older, slower, and less reliable aircraft. The NextGen solicitation was intended to be the primary, but not the only, means by which the Forest Service met its modernization strategy goal of 18-28 modern large airtankers. The Forest Service’s procurement of NextGen airtanker services has a long and contentious history.

The NextGen RFP, issued as a small business set-aside, contemplated the award of multiple fixed-price contracts under seven contract line items (CLIN) for airtanker firefighting services on an exclusive-use basis. The CLINs, each of which had a 5‑year base period and five 1-year options, contained sub-CLINs providing the Forest Service with the option to add up to 2 additional airtankers in the second contract year and 2 more airtankers in the third through tenth contract years, for a possible total of 5 aircraft and 44 aircraft-years per line item.

Offerors were permitted to submit proposals for award of any or all of the CLINs, and were informed that awards would be made on a best value basis, considering price, structural integrity, maintenance, equipment, past performance, and organizational experience factors.

Nine offerors, including Neptune, Coulson, 10 Tanker, and Minden, submitted proposals. Coulson and 10 Tanker protested to our Office, challenging the agency’s price and technical evaluations, communications with offerors, and source selection decision; the GAO hearing official noted that the testimony thus far appeared to support the protesters’ arguments that the communications between the agency and various offerors were discussions rather than clarifications. Thereafter, the agency decided to take corrective action by reopening the competition.

While it was conducting the NextGen large airtanker procurement, the Forest Service also awarded a number of Legacy contracts for large airtanker services. The Forest Service awarded Neptune a Legacy contract for five P2V aircraft for 5-years, and for one P2V and one BAe-146[7] aircraft for a base year with four option years, at a total estimated price of $180,252,600. Shortly thereafter the Forest Service modified Neptune’s Legacy contract and added an additional BAe-146 aircraft for the 2013 fire season at a total estimated price of $4,960,200.

Neptune failed to win any NexGen award. Shortly after learning that it would not receive a NextGen contract award, Neptune informed the contracting officer of its intent to protest to our Office unless an “acceptable solution” could be worked out. Neptune’s protest triggered a stay of the NextGen contract awards pending our resolution of the protest.

Following a meeting between Neptune’s CEO, Forest Service FAM and AQM Directors and staffs, and USDA counsel, the parties engaged in a series of settlement discussions concerning the Forest Service’s noncompetitive award of a NextGen contract to Neptune pursuant to FAR § 6.302-3 (industrial mobilization) in exchange for Neptune withdrawing its protest.

Neptune’s CEO was quite familiar with the FAM Director and other agency officials, as the CEO had been the Forest Service’s AQM Director until his retirement. The record contains many letters and emails between Neptune and the Forest Service during this period, and reflects a number of conversations between Neptune’s Chief Executive Officer (CEO) and the Forest Service’s Director of Fire and Aviation Management (FAM) and Director of Acquisition Management (AQM). Neptune and the Forest Service had significant communications during the period between when Neptune learned it would not receive a NextGen contract and Neptune’s receipt of a sole-source contract.

The record indicates that the verbal representations of Neptune’s CEO concerning the firm’s financial viability were relied upon by the Forest Service when determining the agency’s actions. For example, shortly before or after filing its protest, Neptune’s CEO told the FAM Director that the company had made a significant investment in modern large airtankers and would go out of business without a NextGen contract award. At the Forest Service’s request, Neptune provided the agency with the firm’s financial projections. The Forest Service had USDA’s Rural Utilities Service (RUS) analyze Neptune’s continued financial viability based on the information provided by Neptune.

RUS provided USDA with its financial viability review of Neptune. The RUS noted that the information provided by Neptune did not include detailed expense projections or a balance sheet and cash flow projections for the next 5-year period. Id. The RUS also questioned whether Neptune had the ability to modify the payment terms of any of its existing long terms debts. Accepting the projected revenues and expenses as provided by Neptune on their face, RUS ultimately concluded that the only scenario in which the company could obtain a positive net income over the next 5 years was where Neptune received two NextGen contract awards in addition to its current Legacy contract.

The Forest Service and Neptune then entered into a written settlement agreement, under which the agency agreed to award Neptune a sole-source contract for two NextGen large airtankers in exchange for Neptune withdrawing its protest (and thereby ending the CICA stay of the NextGen contract awards). Our Office confirmed the withdrawal of Neptune’s protest and closed the file without rendering a decision on the protest’s merits.

Subsequently, the Forest Service realized that the sole-source contract promised to Neptune would require the approval of USDA’s senior procurement executive (SPE). Accordingly, the Forest Service informed the SPE of the settlement agreement that the agency had entered with Neptune, and requested that she execute a justification and approval (J&A) for the sole-source award.

The SPE did several things before taking any action on the Forest Service’s request. First, the SPE and her staff familiarized themselves with the NextGen procurement and the Forest Service’s requirements for large airtankers generally. The SPE made a series of requests of the Forest Service for additional information, including Neptune’s financial statements and balance sheets, Neptune’s Legacy contract, and documents related to the NextGen procurement. The SPE also engaged FI Consulting, an external auditing firm, to perform an independent financial viability analysis of Neptune.

FI found that Neptune had based its revenue projections for years 2-5 of the Legacy contract on the base-year rates instead of the higher, option-year rates set forth in the contract. FI also found that Neptune had based its revenue projections for the same period on the use of seven P2V aircraft, rather than six P2V and one BAe-146 aircraft (and the higher BAe-146 rates) as specified by the terms of the Legacy contract. After also finding Neptune’s expected costs to be lower than the company’s projections, FI concluded that Neptune would have the financial capacity to operate and continue performing on its in-place Legacy contract with the Forest Service through, at a minimum, calendar year 2016, without any further contract awards.

The SPE then asked FI to perform a comparison of its conclusions with those of RUS. FI found that the fundamental difference was that RUS had solely relied on Neptune-provided financial projections while FI had had access to a wider range of information that allowed it to develop its own projections. One such example was the difference in Neptune’s revenue projections detailed above. Similarly, the cost projections developed by FI assumed, per the terms of the Legacy contract, that Neptune would be reimbursed its fuel costs in addition to aircraft flight rates. By contrast, “Neptune did not provide any detail with its cost projections to RUS, so it is unclear if fuel is included, or if government reimbursement is considered.” In a subsequent meeting conducted by the SPE, RUS employees generally agreed with the FI findings and conclusions.

Based on her review of all information, including the FI financial analysis, the SPE concluded that the planned sole-source contract award to Neptune for industrial mobilization reasons was not presently justified (“Neptune didn’t need a contract”). Consequently, the SPE refused to approve the sole-source award to Neptune. the Forest Service informed Neptune that the SPE would not approve the sole-source contract contemplated by the parties’ settlement agreement, insofar as the financial analysis of the additional documents provided by Neptune indicated that the company was financially viable without such a contract.

For the next three months the Forest Service tried to reach an alternative settlement agreement; Neptune, however, rejected all offers that differed materially from the terms of the parties’ settlement agreement. Moreover, Neptune repeatedly informed the Forest Service that Neptune would file a lawsuit against the agency if the agency did not satisfy the terms of the parties’ settlement agreement.

Various internal meetings also took place among senior Forest Service and USDA officials, including USDA’s Undersecretary for Natural Resources and Environment (NRE Undersecretary) and the Assistant Secretary for Administration (ASA), in an attempt to resolve the Neptune matter.] The SPE testified that, in the meetings she attended, she heard no rationale advanced for a sole-source award to Neptune that she had not previously considered, and no rationale that she believed properly justified such an award.

At that time, the request for approval of the J&A was elevated to the ASA, a level above the SPE within the agency’s hierarchy. The SPE had several conversations with the ASA in which she recommended that he not approve the J&A as there was not a valid justification for doing so. Specifically, in making her recommendation the SPE stated as follows:
General – Public policy, the Competition in Contracting Act, and the FAR promote competition to ensure a fair playing field for firms interested in doing business with the Federal government. Competition encourages innovation and lower prices. Noncompetitive awards should be limited to only what is needed to achieve the objective, in this case to maintain a vital source of supply . . . . In this case, we have a competitive field and recently awarded multiple contracts on a competitive basis to five firms from a pool of eight firms that submitted proposals on the solicitation.

Rationale – The rules do not support the issuance of a sole source award based on the fact that a firm did not win a competitive procurement or in exchange for a particular action, such as the withdrawal of a protest or [Freedom of Information Act] request.

Neptune’s Financial Stability - . . . [A]n independent financial review revealed that Neptune has the financial capacity to operate and continue to supply planes under the current contract with no further contract awards. There’s no evidence to support the assertion that Neptune would not be able to meet an emergency need for aircraft.

Maintain Capacity and Employee Skills - The [Forest Service] currently has a supplier base of five firms on the Next Gen contract. These firms are building both capacity and employees skills. [Forest Service] also has two firms on the legacy contract that can supply planes. Neptune has supplied Next Gen type planes on the existing legacy contract and others could be added provided it is within the scope of that contract.

Balanced Supply Source – It is not clear how a noncompetitive award to Neptune would create a balanced source of supply . . . . It seems like if we’re interested in creating a balanced source of supply we would award more air tankers to the other legacy contractor, Minden, or add more air tankers to the current Next Gen contractors versus issuing a noncompetitive award to an unsuccessful offeror.
The SPE was not the only agency official providing advice to the ASA. The NRE Undersecretary recommended the award of a sole-source contract to Neptune. AR, Tab 43, NRE Undersecretary Memo to ASA, Nov. 26, 2013, at 1-2. The NRE Undersecretary emphasized the importance of large airtankers for wildland firefighting and the Forest Service’s need for additional airtankers, particularly with regard to the 2014 fire season. Id. at 1. The NRE Undersecretary also stated that, insofar as USDA counsel had determined that awarding a sole-source contract here was permitted and Neptune had airtankers available, he strongly recommended the award of two NextGen aircraft to Neptune for up to 10 years.

On December 9, the ASA executed a J&A for the sole-source award to Neptune for two NextGen aircraft. The J&A stated the following justification for the sole-source award to Neptune:
Pursuant to FAR 6.302-3(b) [sic] (i),(ii),(iii) and (vi) [sic], the use of the industrial mobilization exception to the requirement to use full and open competition is appropriate when it is necessary to--(i) [k]eep vital facilities or suppliers in business or make them available in the event of a national emergency; (ii) prevent the loss of a supplier’s ability and employees’ skills; (iii) maintain an acceptable balance of sources; and (vi) [sic] provide for an adequate industrial base by dividing the supply among two or more contractors. The Forest Service has determined that based on all the above reasons, it has become necessary to invoke this authority with respect to Neptune Aviation, whose resources and equipment must be available to provide key services if the Forest Service is to successfully fulfill its mission.
Although factual assertions were given in support of the justification, absent from the J&A was any discussion regarding Neptune’s need for a sole-source contract to remain a source of supply.

A noncompetitive contract was awarded to Neptune on December 12. Although the J&A supported an award of two NextGen large airtankers, the contract actually awarded to Neptune permitted (by mutual agreement) the addition of two more airtankers to the first CLIN and three more airtankers to the second CLIN in each contract year. These protests followed publication of the sole-source award to Neptune in FedBizOpps.

Our review of an agency’s decision to conduct a noncompetitive procurement focuses on the adequacy of the rationale and conclusions set forth in the J&A. Where a federal agency makes a sole-source award for purposes of maintaining a particular source for an item or service, concern for maximizing competition is secondary to the agency’s industrial mobilization needs. Decisions as to which suppliers should be included in a mobilization base, and which restrictions are required to meet the needs of industrial mobilization, involve complex judgments that are generally left to the discretion of the federal agencies. We will question those decisions only if the evidence shows that the agency has abused its discretion. We will sustain a protest, however, where an agency’s J&A fails to demonstrate that it is in fact necessary to award a contract to a particular source for industrial mobilization purposes.

As explained below, the record does not support the USDA’s decision to award a sole-source contract to Neptune for industrial mobilization purposes. Rather, the record demonstrates that the sole-source contract--promised by the Forest Service in exchange for Neptune’s withdrawal of an earlier bid protest--was without a reasonable basis.

The protesters contend that the sole-source award to Neptune was improper, insofar as the agency promised to enter into the contract in exchange for Neptune withdrawing its protests of the NextGen contract awards. In this regard, the protesters claim that the agency’s actions have been motivated by the desire to fulfill the terms of a settlement agreement and to avoid a lawsuit by Neptune for allegedly breaching that agreement. The protesters argue that the agency “put the cart before the horse,” and agreed to settle Neptune’s protest before properly determining that the promised sole-source award complied with CICA. The USDA does not dispute that its consideration of a noncompetitive award to Neptune was motivated by its promise of a sole-source contract in exchange for Neptune withdrawing its bid protest and thereby ending the CICA stay that then precluded the Forest Service from fielding NextGen large airtankers for the 2013 fire season.

A settlement agreement promising award of a contract on a sole-source basis in exchange for abandoning ongoing litigation, such as a bid protest, is not a permissible basis for restricting competition and excluding potential offerors. Quite simply, the existence of a settlement agreement does not permit a contracting agency to act in ways not otherwise permitted by applicable statutes and regulations.

Nevertheless, USDA argues that it did not act improperly because the sole-source award complied with all applicable procurement statutes and regulations. The Forest Service entered into a settlement agreement with Neptune on the basis that the award of a sole-source, NextGen-type contract was necessary to maintain Neptune as a vital source of large airtankers. The independent financial analysis subsequently performed by FI on behalf of USDA concluded that Neptune did not require the award of a sole-source contract to remain financially viable. Nothing in the record refutes FI’s conclusions, nor is there any evidence to suggest that Neptune intends to go out of business now merely because its future prospects appear uncertain. In sum, while the agency may not have entered into a settlement agreement promising to disregard applicable procurement statutes and regulations, the agency’s subsequent decision to award a sole-source contract to Neptune so as to comply with the terms of the settlement agreement and avoid a Neptune-threatened lawsuit was without a reasonable basis.

The agency has acknowledged that it was initially concerned that Neptune would “immediately go out of business during the 2013 fire season, leaving the Forest Service without any of the Legacy air tankers Neptune supplied under the contract awarded March 27, 2013.” The agency admits, however, that ultimately it concluded there was no concern with Neptune’s present viability, but only with its viability after 2017. Consequently, the agency argues, the J&A was not grounded on the agency’s belief that Neptune would immediately go out of business without a NextGen contract, but was based on its concern with Neptune’s continued availability as a large airtanker supplier after 2017 when its Legacy contract expired. However, changing its focus during the course of the protests, the agency has also argued that its actual concern is whether it could obtain sufficient NextGen airtankers for the 2014 fire season. In this regard, the agency maintains that it cannot tolerate any further delay in acquiring additional NextGen airtankers for the 2014 fire season. The Forest Service contends that this immediate need for additional NextGen airtankers provided it with “an industrial mobilization need in December 2013” when it decided to award Neptune a sole‑source, 9-year contract for NextGen airtanker services.

Based upon on our review of the record, including the J&A, its supporting documentation, the agency’s submissions in response to these protests, and the testimony of the agency’s representatives at the hearing held at our Office, the agency has failed to demonstrate that Neptune requires a sole-source contract to remain a source of large airtanker services for the Forest Service. Although the J&A documents the agency’s belief that Neptune is, presently, a vital supplier of large airtanker services under Neptune’s Legacy contract, the J&A is devoid of evidence or analysis supporting the need to provide Neptune with a sole-source award for the firm to remain a viable source of supply. Rather, the record demonstrates, as acknowledged by the agency, that Neptune is presently financially viable and is expected to remain financially viable through the term of its Legacy airtanker contract (2017). Moreover, apart from Neptune’s own unsupported statements and the anecdotal views of various agency officials, the record contains no analysis or evidence of Neptune’s financial condition after 2017. While the agency contends that the J&A did not rely on the FI financial analysis to assess Neptune’s long-term viability, neither did the agency rely on any other information when making such an assessment. In fact, there is simply no record--in the J&A or otherwise--of any assessment by the agency of Neptune’s long-term viability.

Additionally, the agency’s apparent belief that an immediate need for NextGen airtankers in 2014 justified the award of a sole-source, 9-year contract on the basis of industrial mobilization is not supported and has no rational basis. The industrial mobilization exception to competition requirements may be used where an agency determines that “it is necessary to award the contract to a particular source . . . in order . . . [t]o maintain a . . . [vital] supplier . . . .” FAR § 6.302-3(a)(2)(i). As noted above, no reasoned analysis has been presented to support a determination that a 9-year, sole-source contract was required to maintain Neptune as a source. To the extent the agency believed an urgent need for large airtanker services would justify a noncompetitive 9-year contract, there is no analysis or explanation in the record demonstrating that this is so.

Moreover, given the contract options available to the Forest Service under the competitively-awarded NextGen contracts, Neptune may no longer represent a vital source that must be maintained by the Forest Service after 2017. While agencies have authority to make noncompetitive awards when necessary to maintain vital sources, they do not have authority to make noncompetitive awards merely because an offeror is unsuccessful in a competitively-conducted procurement, or because such action was promised in a settlement agreement. Neptune would undoubtedly prefer the financial security that would accompany a long-term NextGen contract, but this is simply not the standard by which an agency is permitted to make a noncompetitive award for industrial mobilization purposes.

As a final matter, in addition to the fundamental lack of support for the J&A’s premise that Neptune now requires a 9-year sole-source contract in order to maintain the firm in the future as a vital supplier of aircraft, the record reflects that the J&A was premised on materially inaccurate information. As stated above, our review of an agency’s decision to conduct a noncompetitive procurement focuses on the adequacy of the rationale and conclusions set forth in the J&A. The adequacy of the rationale and conclusions set forth in the J&A is dependent on the completeness and accuracy of the information included in the J&A. We find the J&A to be incomplete and inaccurate in certain key regards. Alternatively, if the J&A was accurate here, then the contract awarded to Neptune impermissibly exceeded what the ASA had approved. This is significant because where, as here, an agency proposes to award a sole-source contract under the industrial mobilization exception to the general competition requirements, the amount being ordered must meet--not exceed--the objectives of this authority.

Similarly, when considering alternative sources and the market research regarding such sources, the J&A states that “[t]here are no certified [large airtankers] currently available that aren’t already under contract with the Forest Service. Aircraft capable of meeting these standards and requirements are not readily available and would take a considerable amount of time to be developed and operationally ready for service.” This statement is also factually inaccurate.

The fact that the J&A was inaccurate with regard to alternative sources is also important because where, as here, an agency proposes to award a sole-source contract premised on the vital nature of a supplier, it must accurately consider whether the industrial base can be maintained without resorting to noncompetitive procurements. While the agency argues the fact that other contractors may have airtankers available to perform Neptune’s contract to be irrelevant here, we fail to see how the agency can reasonably find Neptune to be a vital source without accurately considering all sources.




Tuesday, April 1, 2014

Bundle bungle leads to huge up front cost savings

Being an incumbent can have its advantages, amongst them knowledge of how the contract administration process runs after the contract performance begins. This knowledge can at times give the incumbent a price advantage at bid opening, but the onus then is great on the government to contain performance cost increases.

On Guam, the government had lapsed into the habit of awarding, often without any competition, and usually with unduly specifications, copier contracts to one of a couple of competitors. 

When after at least a decade of such behavior, one large agency was forced to open the work to competitive bids, the incumbent shocked the competition with a bid roughly 50% lower than it had been getting under prior contracts.  But, in a review of the contract performance under the new award, the OPA found that the running costs under the new contract had shot up so much that those costs dwarfed the bid price.

This case concerns the competition, if it can be called that, between Motorola and Raytheon for emergency communications equipment. Read the whole article at the link, as usual, because I truncate and often rearrange the excerpts, and leave out some really good stuff; the related and linked stories mentioned in the article add valuable context, too.

How Motorola bested Raytheon and captured L.A. County’s emergency radio contract
Rather than signaling a new burst of competition in a taxpayer-financed market, the outcome is another reminder of how difficult it’s been for competitors to overcome Motorola’s dominance.

It looked in the summer of 2011 as if electronics giant Raytheon Corp. had gained a major foothold in the U.S. emergency communications market long dominated by one company: Motorola. Raytheon had been selected as the prime contractor for a sprawling, $600 million communications system connecting Los Angeles County’s public safety agencies with those of Los Angeles and more than 80 other cities in the county, two school districts and UCLA via the latest in two-way radio and high-speed broadband technology.

Like large urban areas across the country, Los Angeles County spent years working to meet a drumbeat of interoperability edicts from Washington. The goal was to unite local first responders in a seamless communication system that could withstand a terrorist strike, an earthquake, a wildfire or some other disaster.

In 2010, the newly formed Los Angeles Regional Interoperable Communications System, or LA-RICS, solicited bid proposals for a two-way radio system and a new broadband network. Raytheon’s negotiating team only needed to work out the design details with a joint government authority. Raytheon and the joint powers authority were in a final exclusive bargaining period when things got tangled.

A Los Angeles County attorney declared that the procurement violated an arcane state law because it bundled the radio and broadband systems with the construction of towers in a single “turn-key” contract. Under the law, construction projects had to be bid separately, the attorney reported. Motorola, however, had for years built turn-key projects in California that mingled tower construction and radio electronics.

Patrick Mallon, the executive director of LA-RICS, said in a phone interview that if the authority had proceeded, construction bids would have had to have been taken for each of 300 towers, posing “astronomical risks” if anything went wrong. The state legislature rushed a legislative fix into law, but LA-RICS started the process anew anyway, breaking the radio and broadband networks into separate contracts.

In the final round, the radio system was revised to end Los Angeles’ use of a commercial television band width and shift to a 700-megahertz band set aside for emergency communications. Motorola’s winning bid was a jaw-dropper: $280 million, or about half of its first-round bid and $135 million below Raytheon’s price of $415 million.

The question is, will contract modifications raise Motorola’s price?

For example, public records show that LA-RICS’ subject matter experts concluded that many of Motorola’s towers exceeded government height limits, a characterization that Mallon disputed. If shorter towers must be built, more towers costing up to $1 million each will be required, because their signals don’t extend as far. The authority has agreed to hold Motorola responsible for no more than $2 million of any additional tower costs.

Raytheon also announced that it was dropping out of the broadband competition and left empty handed.