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Sunday, August 24, 2014

Washington D.C. area procurement misses the train

Metro agrees to pay nearly $5 million for role in no-bid contract
Metro has agreed to pay nearly $5 million to settle a whistleblower lawsuit after a former employee alleged that the transit agency violated federal rules by awarding a $14 million contract without seeking competitive bids, government officials and attorneys in the case said Wednesday. Metro also has agreed to pay $390,000 to the former worker to settle his claim that he was fired in retaliation for speaking out about the no-bid contract. Metro also is on the hook for nearly $190,000 in legal fees for the plaintiff, meaning that the settlements will cost the transit authority about $5.6 million, attorneys in the case said.

“The government would not have recovered these funds . . . without Mr. Khwaja stepping forward,” Colapinto said in a statement, calling the settlements a “testament to Mr. Khwaja’s courage . . . in the face of resistance and hostility from his superiors.”

Although Metro officials admitted no wrongdoing in settling the contracting matter and the wrongful-termination claim, the multimillion-dollar payments are another financial black eye for the transit agency — one of several embarrassments in recent years involving allegations of misspending and mismanagement of federal grant money.

“Our office has targeted government contractors who fail to meet their obligations,” Machen declared, “and this settlement shows that we expect agencies that receive federal funding to honor the integrity of the contracting process as well.”

The awarding of that no-bid contract appears symptomatic of a broader problem detailed this year in an FTA-commissioned audit. The report, covering April 2012 to March 2013, paints a troubling picture of Metro’s procurement practices, saying the agency awarded millions of dollars in no-bid contracts and appeared to steer work to preferred vendors even though they lacked adequate qualifications. The report did not name any vendors.

The audit also found other examples of questionable management, including instances in which Metro might have overbilled the federal government and, in at least one case, an employee continuing to be paid after leaving the agency.

As a result, Metro’s use of federal grant money has been restricted until federal transit officials are satisfied that Metro has implemented procedures to ensure that U.S. funds are properly managed. In the meantime, according to an internal Metro report, the agency has been forced to increase borrowing to cover expenses and might have to postpone or scrap some projects.

Metro spokesman Dan Stessel said any improper contracting procedures involving Metaformers resulted from poor financial systems that were in place before General Manager Richard Sarles took charge of the Washington Metropolitan Area Transit Authority in 2010. He added that the agency’s “financial management has been strengthened with an improved procurement manual” and that “hundreds” of employees have been trained in new procedures “to tighten grants management compliance.”

Administrative reviewers and an obligation to substantiate basis of decision in law and fact

Articles in the informative legal website Lexology suggest that, at least in the federal arena, US courts are taking a more careful look at the reasoning offered up by an administrative procurement review authority, both as to its legal underpinnings as well as its factual ones.

In applying any implications this may have for Guam, or your own jurisdiction, it is important to distinguish the standard of review that is applied in your particular situation. For instance, on Guam the standard of administrative review by the Public Auditor (Office of Public Accountability) is de novo, and that decision is final unless judicially appealed (unlike the advisory opinion of the GAO -- the federal government's Government Accountability Office). 

However, on judicial review of the Gaum OPA decision, the court must give "great weight and the benefit of reasonable doubt" to decisions of the Public Auditor, but it is not conclusive on the court, and "any determination of an issue or a finding of fact by the Public Auditor" is not final if it is "arbitrary, capricious, fraudulent, clearly erroneous, or contrary to law". 

It seems to me that, in practice, the result would be the same in the federal regime as under Guam law, as indicated by the last article below in which the Court equates "not rational" with "arbitrary and capricious".

As usual, you must read the source articles because I tend to selectively cut, re-arrange, paraphrase, drop footnotes and citations, and otherwise "edit" to suit myself in the post at hand.

The first case was first seen as perhaps limited to the issue of conflicts of interest, in the 2010 article A retreat from hard line OCI decisions? The COFC overturns a controversial GAO ruling, by attorneys Anne Bluth Perry and Jessica M. Madon of the law firm Sheppard Mullin Richter & Hampton LLP.   I do not address the conflicts issues:
On July 16, 2010, the Court of Federal Claims (“COFC”) determined that a Government Accountability Office (“GAO”) bid protest recommendation that an awardee, Turner Construction Co (“Turner”), be disqualified on the basis of organizational conflicts of interest (“OCI”) under an Army Corps of Engineers (the “Army”) hospital renovation contract was irrational.

In the context of a bid protest, the COFC reviews agency procurement decisions to determine if they are “arbitrary and capricious” or “lack a rational basis.” If the agency procurement action in question is the following of a GAO recommendation, then the agency’s decision will be found to lack a rational basis only if the GAO recommendation “is itself irrational.” This is precisely what COFC found in Turner.

The Court found that GAO had summarily assumed that, during the course of the potential merger discussions, the parties were “effectively aligned” and had a “community of interests” whereas the CO had determined, based on a post-award analysis of the facts, that the parties were merely “potential merger partners, with no community of interests.” Since GAO had not identified any hard facts of a “sufficient alignment of interests,” COFC found that GAO’s assumption of such an alignment was irrational.

GAO’s conclusion that there was a “biased ground rules” OCI (where an offeror skews the competition in its favor) was similarly determined to be irrational because the COFC found that GAO again ignored the CO’s detailed factual findings. Rather, GAO opted to assume that there was the opportunity to skew the competition unfairly and thus ignored all of the actual facts showing that the competition was not skewed.

The same lack of any hard facts was found with respect to GAO’s view that there was an “unequal access OCI.” Again, GAO was held to have improperly relied upon the possibility that the party had inside information. Reiterating the requirement for hard facts, the COFC held that the GAO needed to find “the ‘possession’ of undisclosed, competitively useful information” before finding such an unequal access OCI.
The Federal Claims Court decision was itself appealed, as reported in the next article in 2012, Federal courts overrule GAO and require reinstatement of low bidder, authored by Attorney Bram Hanono from the same Sheppard Mullin firm:
In Turner Construction Co., Inc. v United States, 645 F.3d 1377 (Fed. Cir. 2011) ("Turner II"), the United States Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims' ("COFC") decision in Turner Construction Co., Inc. v. United States, 94 Fed.Cl. 561 (2010) ("Turner I") that a GAO bid protest recommendation was irrational.

In Turner II, the court affirmed the COFC's finding that the GAO irrationally refused to follow the CO's fact-based conclusion that no OCI existed. The court further held that the COFC properly ordered the Army to restore the contract with Turner based on the COFC's broad equitable powers to fashion appropriate remedies.

Turner II is a reminder that the COFC has the independent jurisdiction to review underlying procurement decisions, as well as GAO decisions, even when the GAO recommends that an agency take corrective action. In the Turner cases, the Army was required to restore Turner's contract, even though the Army had previously followed the GAO's recommendation to rescind the contract. The Turner cases may signal a shift in the Federal Courts to give more weight to the CO's decision on a bid protest and less weight to the GAO's recommendations.
Finally (for this post at any rate), there is the recent article Corrective action catch 22: Court of Federal Claims holds agency action must be rational even if GAO protest decision was not, written by attorneys C. Joël Van Over and Alexander B. Ginsberg of the law firm Pillsbury Winthrop Shaw Pittman LLP:
The United States Court of Federal Claims’ July 15, 2014 decision in RUSH Construction, Inc. v. United States, reflects the unusual circumstance in which the court effectively sat in appellate review of an earlier bid protest decision by the Government Accountability Office (GAO) after the U.S. Army Corps of Engineers ("CoE") followed GAO’s recommendation in that decision. The court ultimately overruled GAO when it found that it was arbitrary and capricious for the agency to follow GAO’s irrational recommendation. In so doing, the court cited numerous flaws in GAO’s reasoning and its reliance on inapposite case law.

An unsuccessful bidder protested at GAO, contending that the errors rendered RUSH’s bid ambiguous and non-responsive. GAO agreed, finding that RUSH’s bid contained material deviations from the terms of the solicitation, which could not be waived. In reaching this conclusion, GAO’s legal analysis was succinct—in fact, it was largely confined to one paragraph, wherein GAO stated:

A bid that fails to include a price for every item required by the IFB generally must be rejected as nonresponsive. HH & K Builders . This includes a bidder's failure to provide a responsive bid for optional contract line items, which thus renders the entire bid nonresponsive. Massillon Constr. & Supply, Inc.. This rule reflects the legal principle that a bidder who has failed to submit a price for an item generally cannot be said to be obligated to furnish that item. United Food Servs.. Therefore, where a page in a bidder's schedule does not clearly indicate that the prices apply to an option that the IFB requires to be priced, the bid is ambiguous and thus, nonresponsive. Thompson Metal Fab, Inc.

GAO cited a fifth case, Pro Alarm Co., via footnote for the principle that a bidder’s failure to “acknowledge an amendment may be waived where the amendment results in less stringent obligations on the bidder ... .” In sustaining the protest, GAO recommended that the CoE “reject RUSH’s bid as nonresponsive... .”

The Court of Federal Claims explained: “[a]n inquiry into the rationality of the GAO decision is the same as an inquiry into whether the agency had a rational basis for its decision.” The court then conducted a thorough analysis of each of the cases GAO cited, observing that the cases “fall into one of three lines of analysis—that is, either omitted price cases, unacknowledged solicitation amendment cases, or ambiguous bid cases.” Ultimately, the court concluded that GAO failed with regard to all three of these “lines of analysis.”

The Court said, "GAO has relied on the legal principles set forth in three cases involving the omission of a price. But it has offered no explanation as to how these legal principles support the decision it reached in this case.”

Next, the court stated: “By analyzing the omission of a bid schedule note under Pro Alarm Company, GAO equates such an omission with an unacknowledged solicitation amendment. But GAO offers no explanation for why it made this comparison. There is no obvious parallel between the two fact scenarios, and GAO does not attempt to analogize the facts of Pro Alarm Company to those of RUSH.”

The court also rejected GAO’s case citation on the issue of ambiguity, writing: “GAO then cited to Thompson Metal Fab for the proposition that ‘where a bidder’s schedule does not clearly indicate that the prices apply to an option that the IFB requires to be priced, the bid is ambiguous and thus, nonresponsive.’ ... GAO appears to have concluded summarily that RUSH’s bid schedule was ambiguous, without examining its own case law that sets forth standards for evaluating bid ambiguity.”)
Because the court found that “GAO seems to have premised its decision on inapposite case law,” the court held that “GAO’s decision was not rational” and that the CoE’s corrective action implementing GAO’s recommendation necessarily was “arbitrary and capricious.” Thus, the court granted RUSH’s motion for judgment on the administrative record.





Procurement controversy - Broken Hoboken Housing Authority alleged, contested

HUD review slams Hoboken Housing Authority procurement practices
A review of the procurement practices by the Hoboken Housing Authority under former Executive Director Carmelo Garcia was completed by the federal Department of Housing and Urban Development, which funds and oversees the agency. Copies of the review were released by HHA Board Chairwoman Dana Wefer on Thursday.

The review criticizes the Authority for a lack of required documentation surrounding the eight randomly selected contracts it examined. It also questions the use of emergency solicitations to award large contracts without going to bid.

The most critical section of the report dealt with emergency contracts awarded to Haddad Electrical and All Risk after Superstorm Sandy.

“Even after 18 months later,” the review stated, “HHA have been using these same contractors on an as needed bases [sic] by way of purchase orders. It appears that by issuing these purchase orders, HHA has circumvented the bidding process.”

Overall, the review said, the Authority had engaged in over $3 million of “unjustified non-competitive procurement.”

In a statement released Thursday, Wefer emphasized that “these findings are just for the eight files HUD sampled. Extrapolating this data to the whole of the HHA lays bare how dire the situation is.”

In an email to the Hoboken Reporter, Garcia stridently defended himself, saying that the Authority’s lack of record-keeping resulted in part from the non-cooperation of a board that opposed and ultimately fired him.

“What the Chairwoman fails to admit is that between the two devastating Natural Disasters & the board's lack of support,” wrote Garcia, “their obstructionism for the last two years created these situations.”

As a result of the review, HUD has imposed a zero dollar threshold on the agency, meaning that it must approve every service contract procured by the HHA. HHA must also complete a Corrective Action Plan to address its procurement issues within 30 days.

In addition, HUD's Burgos mentioned that all Commissioners “must complete the state required training courses” required upon beginning their term on the board. She suggested that the board receive extra training in procurement rules in light of its review.
Read the whole story at the link above.

Can we talk?

Guam will likely soon enter the realm of negotiated contracting by re-adoption of the "Competitive Sealed Proposal" source selection method. This method was adopted with the first legislated comprehensive procurement law on Guam in P.L 16-124 in 1983, but was repealed not long thereafter, without any extant legislative history I have found discussing why. 

Senate Bill 32-246, currently before the Guam Legislature, will bring back that method of source selection, modified as informed by the year 2000 amendments to the ABA Model Procurement Code to facilitate Private Public Partnership models for Public Infrastructure Procurement, if adopted in current form.

Under this method, which will be called RFCP on Guam ("Request for Competitive Proposals", to distinguish it from the "RFP" method authorized to acquire professional services), discussions are allowed with the various offerors, a feature not allowed in any other existing method on Guam. Clarifications are allowed in bidding by IFB as well as RFPS, and negotiations are allowed, but only with the "best qualified" offeror, to arrive at a fair and reasonable price under the RFP, and bid conferences are also common features, but the one-on-one discussion between an offeror or bidder with the government purchasing officer are (supposed to be) taboo under the existing regime.

The ABA Model Procurement Code specifically contemplates "discussions" with offerors, but it is a rather open-ended treatment of the subject. We MPC § 3-203(6), and Regulation § R3-203.14.

I suspect, without any evidence to support it, that the RFCP first enacted on Guam was repealed so long ago because the parties, both government and private participants, could not cope with the definition of what is a "discussion", and the discretion, and limitations, required in conducting the discussion contemplated.

And, as the following article just hints at, the topic is still rife with problematic issues for those jurisdictions that have long labored in hope of finding a "business-like" means of contracting that retains ways and means for maintaining the principles of fairness, competition and accountability.

I am happy to read in the foreword to the article that it is intended to be the first of several in a series dealing with this topic. I believe we will all look forward to the education.

This article is written by Attorney Michelle E. Litteken, of the law firm Mayer Brown, and appears on the helpful Mondaq website. Below is a teaser; you ought to read the whole piece at the link. Note that the article discusses discussions in the federal contracting context; Guam's law, and your jurisdictional law, will likely vary in practice if not principle.

When Does an Agency Cross the Line from Clarifications to Discussions?
In a bid protest, the disappointed offeror often alleges that the agency failed to conduct meaningful discussions or engaged in unequal discussions. A threshold inquiry is whether the agency engaged in discussions. The CFC (Court of Federal Claims) and GAO (Government Accounting Office) approach the question of whether agency communications constitute discussions differently, and a protester may want to consider that difference when selecting a protest forum.

FAR 15.306 defines clarifications as "limited exchanges, between the Government and offerors, that may occur when award without discussions is contemplated." The FAR does not expressly define "discussions," but it explains that "discussions" include negotiations that "are undertaken with the intent of allowing the offeror to revise its proposal." The FAR used to limit clarifications to communications about relatively small matters, such as eliminating clerical mistakes or minor irregularities. However, the rules were revised in 1997 to allow a free exchange of information without requiring discussions. Decisions from the GAO and CFC reveal that the two protest forums apply the FAR provisions differently, with the CFC appearing to embrace a more substantial exchange of information that can still be characterized as clarifications.

Both GAO and the CFC recognize that, if an offeror is given an opportunity to revise its proposal, the agency has engaged in discussions. Several GAO and CFC cases refer to this as the "acid test." The tough cases come when either (i) questions (often called "clarifications" by the agency) seek information that is necessary to determine technical acceptability of the proposal, or (2) the agency seeks a substantial amount of "clarify[ing]" information and an offeror's response approaches (or crosses) the line of changing the proposal.

Thursday, August 14, 2014

Fools rush in where planners failed to go

Get a contracting plan in place early
For all the debate about the effectiveness of government contracting, the success or failure of programs involving government contracting is actually determined very early, often unfortunately before the contracting officer’s involvement—that is, during acquisition planning.

FAR’s Part 7 acquisition planning guidance provides a great roadmap to all the many considerations necessary before satisfying a government need via contract. The program office must take non-delegable responsibility to figure out what, why, when, where, and how they will obtain acquired resources to support their goals. This shouldn’t be another paperwork drill, completed by support contractors or the contracting officer and subsequently filed away.

Defending the FAR isn’t always popular, but it does provide clear, understandable guidance on what to consider in an AP, who to include, when key milestones should occur, and how to get there. Just about anything significant and reasonable should be considered and addressed during acquisition planning, along with any alternatives, well before requesting a contractor’s proposal. Later surprises should be few if the homework was completed beforehand. This homework includes open communication with industry to better understand the market, business trends, financing, and available technology; seeking out required expertise within the acquisition team; analyzing affected internal business processes or regulatory/policy mandates; collaborating closely with the requirements community; etc. The FAR even recommends periodically updating the AP to account for inevitable program changes.

So is acquisition planning one of those unnecessary, self-serving, bureaucratic, and burdensome requirements that slows the process and leads to poor outcomes?

The integrity, responsibility, quality, and length of acquisition planning must be part of any discussion to improve acquisition outcomes. Contracting solicitation and award processes (like most business) can go smoothly if planned well. But acquisition planning that only completes the file or occurs after the fact will result in less optimal program results. Good contracting managers are instrumental and must be included in this process, but ultimate responsibility lies with the agency, company executive, or program manager. Let’s develop the game plan before we take the field!
Far Part 7, Outline
7.000 Scope of part.
Subpart 7.1—Acquisition Plans
  7.101 Definitions.
  7.102 Policy.
  7.103 Agency-head responsibilities.
  7.104 General procedures.
  7.105 Contents of written acquisition plans.
  7.106 Additional requirements for major systems.
  7.107 Additional requirements for acquisitions involving bundling.
  7.108 Additional requirements for telecommuting.

Subpart 7.2—Planning for the Purchase of Supplies in Economic Quantities
  7.200 Scope of subpart.
  7.202 Policy.
  7.203 Solicitation provision.
  7.204 Responsibilities of contracting officers.

Subpart 7.3—Contractor Versus Government Performance
   7.301 Definitions.
  7.302 Policy.
  7.305 Solicitation provisions and contract clause.

Subpart 7.4—Equipment Lease or Purchase
  7.400 Scope of subpart.
  7.401 Acquisition considerations.
  7.402 Acquisition methods.
  7.403 General Services Administration assistance.
  7.404 Contract clause.

Subpart 7.5—Inherently Governmental Functions
  7.500 Scope of subpart.
  7.502 Applicability.
  7.503 Policy.

Excerpts:
  7.101 (a) Agencies shall perform acquisition planning and conduct market research (see Part 10) for all acquisitions in order to promote and provide for—
    (1) Acquisition of commercial items or, to the extent that commercial items suitable to meet the agency’s needs are not available, nondevelopmental items, to the maximum extent practicable ; and
    (2) Full and open competition or, when full and open competition is not required, to obtain competition to the maximum extent practicable, with due regard to the nature of the supplies or services to be acquired.

  7.103 The agency head or a designee shall prescribe procedures for—
  (b) Encouraging offerors to supply commercial items, or to the extent that commercial items suitable to meet the agency needs are not available, nondevelopmental items in response to agency solicitations; and
  (c) Ensuring that acquisition planners address the requirement to specify needs, develop specifications, and to solicit offers in such a manner to promote and provide for full and open competition with due regard to the nature of the supplies and services to be acquired.
  (d) Establishing criteria and thresholds at which increasingly greater detail and formality in the planning process is required as the acquisition becomes more complex and costly.
  (f) Ensuring that the principles of this subpart are used, as appropriate, for those acquisitions that do not require a written plan as well as for those that do.
  (l) Assuring that the contracting officer, prior to contracting, reviews:
    (1) The acquisition history of the supplies and services; and
    (2) A description of the supplies, including, when necessary for adequate description, a picture, drawing, diagram, or other graphic representation.
  (r) Ensuring that knowledge gained from prior acquisitions is used to further refine requirements and acquisition strategies. For services, greater use of performance-based acquisition methods should occur for follow-on acquisitions.
  (s) Ensuring that acquisition planners, to the maximum extent practicable—
    (1) Structure contract requirements to facilitate competition by and among small business concerns; and
    (2) Avoid unnecessary and unjustified bundling that precludes small business participation as contractors.

  7.104 (a) Acquisition planning should begin as soon as the agency need is identified, preferably well in advance of the fiscal year in which contract award or order placement is necessary. In developing the plan, the planner shall form a team consisting of all those who will be responsible for significant aspects of the acquisition, such as contracting, fiscal, legal, and technical personnel. If contract performance is to be in a designated operational area or supporting a diplomatic or consular mission, the planner shall also consider inclusion of the combatant commander or chief of mission, as appropriate. The planner should review previous plans for similar acquisitions and discuss them with the key personnel involved in those acquisitions. At key dates specified in the plan or whenever significant changes occur, and no less often than annually, the planner shall review the plan and, if appropriate, revise it.
   (b) Requirements and logistics personnel should avoid issuing requirements on an urgent basis or with unrealistic delivery or performance schedules, since it generally restricts competition and increases prices. Early in the planning process, the planner should consult with requirements and logistics personnel who determine type, quality, quantity, and delivery requirements.

Friday, August 8, 2014

Protest busting solicitation busted on technicallity -- and a short history of bid protesting

The following story is very roughly related to a prior recent post, Open sourcing sole sourced contracts. It is a very readable column, and you should take the short time needed to click the link and read it. I've only provided a taste teaser for the whole piece.

When it comes to GAO bid protests, pay careful attention to the web of procedure

Bid protests, especially at the Government Accountability Office, can involve many procedural, non-substantive issues — the timing of the protest, the content of the protest, and the like. Sometimes, if you are not careful, you can find yourself caught up in this web of procedure and get bounced out of the protest before the GAO can ever consider the merits of the protest. That’s what happened to Harris Corp. in this case.

In this case, Harris proposed to provide a Motorola radio and, during the first protest, Motorola proved that it did not and would not provide Harris with permission to offer its radio on the procurement. The GAO recommended the existing proposals be re-evaluated, which the Army did. The Army found the Harris proposal to be non-compliant and awarded the contract to Motorola. Harris then filed this new protest.

Harris first argued that the RFP requirement to include an explicit agreement with the manufacturer was overly restrictive and not necessary to meet the agency’s needs. Harris also alleged that it believed the Motorola proposal also failed to meet the RFP requirements. The GAO dismissed both protest claims on procedural grounds.

First, the Harris allegation that the RFP is overly restrictive of the needs of the agency relates to the terms of the RFP itself. The GAO rules clearly state that any challenge to the terms of the RFP must be filed prior to the time for proposal submissions. Since the Harris protest was well after that fact, Harris failed to meet the procedural requirement for challenging the terms of the RFP.

The remaining allegation, that Harris thought the Motorola proposal failed to include sufficient agreements to document the parts of the radio system that Motorola did not manufacture, is more interesting and more frustrating for the protester. The GAO dismissed this allegation as mere speculation and not sufficient to meet the requirements of a well-founded protest. In particular, the GAO held that “speculation, without more, does not meet the requirements of our Bid Protest Regulations that a protest include a detailed statement of the legal and factual grounds for protest.”

More interestingly, the GAO noted that Harris, as the awardee, had failed to participate as an intervenor under the GAO rules in the first protest. An awardee is always allowed to participate in a protest against its award, to protect its own interests during the protest. The GAO noted that “while Harris was not required to intervene in the earlier protest, if Harris had participated, it would have had an opportunity to review the Motorola proposal as part of the record, and could have advanced any and all challenges to the acceptability of the Motorola proposal at that time.” In other words, had they participated in the first protest and reviewed the Motorola proposal, they would have had a reasonable basis to raise the issue in the second protest.
You can read the whole GAO opinion here.

The protest procedure was begun less than 100 years ago with an eye to facilitate government expenditure accountability (more on that in a moment). But, the government also has a blind eye. Whether your protest gets the careful, prophylactic gaze of the good eye, or the short shrift of the blind eye, depends on your understanding and compliance with the technicalities required to place your problem before the reviewing agency or court, be that GAO or any other reviewing authority. The represents a balancing of the need to police government expenditures in real time before badly spent money flies out the door, and the need to make sure that the government wheels keep turning however poorly the money has been spent. I would point out that this balance also depends on how well the government back-stops the protest process with critically meaningful audit review and enforcement procedures to make sure that those poorly spent dollars are uncovered and the error of those ways corrected, albeit after the fact.

The history of bid protests is outlined by Daniel I. Gordon, the Associate Dean for Government Procurement Law Studies at The George Washington University Law School and the former Administrator for Federal Procurement Policy, in his paper, "Bid Protests: The Costs are Real, But the Benefits Outweigh Them", published in 42:3 Pub. Contract L.J., Spring 2013, and available through the Faculty Scholarship at Scholarly Commons online here. The history noted below and the paper from which is comes has been noted before on this blawg, but bears repeating. As usual, I selectively cut, rearrange, paraphrase and paste, including deleting footnotes and citations, to suit myself, so read the source.

He explains,
In 1924, a few companies began writing to the then relatively new General Accounting Office (GAO) to complain that agencies had improperly awarded contracts to their competitors. There was hesitation within the GAO about the appropriateness of considering complaints by private firms about the federal procurement process. Ultimately, the GAO decided to consider the complaints as part of its responsibility to ensure that funds appropriated by Congress are lawfully spent, which is also known as the Office’s account settlement function.

Then in 1925, a company wrote to the GAO alleging that Panama Canal officials had issued a solicitation with specifications for a truck that were “wired” to a particular brand name and that thereby unfairly precluded the complaining firm from fair consideration for the contract. The GAO requested the agency’s views on the matter, and, when the Canal authorities admitted that they had used the specifications of one company’s truck in the solicitation, the GAO issued the first published bid protest decision, ruling that the challenged solicitation was unlawful.

For many years, courts did not consider bid protests, so that the GAO (and the contracting agencies themselves) represented the only place to file a protest.14 Then, for three decades U.S. district courts had bid protest jurisdiction, beginning with the U.S. Court of Appeals for the District of Columbia Circuit’s decision in Scanwell Laboratories, Inc. v. Shaffer.

Meanwhile, from the enactment of the Competition in Contracting Act of 1984 (CICA) until its jurisdiction ended pursuant to section 5101 of the Clinger Cohen Act of 1996, there was another administrative forum with jurisdiction over bid protests that pertained to information technology: the General Services Administration’s Board of Contract Appeals. Finally, a statutory change in 1996 resulted in the Court of Federal Claims, which had only pre-award protest jurisdiction for many years, later gaining post-award jurisdiction as well.

Consequently, for more than a decade now, the only places outside the contracting agency where disappointed bidders have been able to file protests have been the GAO and the Court of Federal Claims. From time to time there are differences between the GAO and the Court of Federal Claims, with respect to both process and outcome. The author views occasional differences between the two fora as inevitable. That is particularly the case where, as here, one forum is administrative and the other is judicial. In any event, having two fora hear bid protests may be healthy for the procurement system.

The protest process has received substantial attention around the world in recent years. More than ever, a protest system has come to be seen as a required part of a good public procurement regime. As evidence of this trend, the U.S. includes a bid protest provision in the free trade agreements it negotiates. The World Trade Organization’s (WTO) Agreement on Government Procurement (GPA) likewise includes a provision requiring that WTO members that accede to the GPA have a forum to hear protests (called a domestic review procedure). Finally, there is a protest provision in Chapter VIII of the model procurement law of the United Nations Commission on International Trade Law (UNCITRAL).

Perhaps most interesting is the attention bid protests have received during the past twenty years in the European Union (EU). Not mentioned in the EU’s Public Procurement Directives, protests were first addressed by the European Commission in what is known as the Remedies Directive. Initially issued in 1989, the Remedies Directive was revised in 2007. The Remedies Directive has had an enormous impact, requiring all member states to have a forum that considers protests. Furthermore, the Court of Justice of the European Union has also issued decisions that have reshaped the protest process in the EU. Of particular importance was the Alcatel decision that led to the requirement (codified in Article 2a of the 2007 revision to the Remedies Directive) that there be a “standstill” period (typically ten days) between the announcement of a potential awardee and contract signing to allow a window for filing protests. Bid protest procedures have therefore received important consideration from the international community.
Many posts on this blawg have referred to the EU rules and the interplay of EU and Member State rules of procurement, e.g., here and here and here

As well, this blawg carries many procurement stories from elsewhere around the globe, including Canada, Caribbean nations, Africa, India and Southeast Asia. Procurement is a work in progress, and there is much to be learned from looking around.







Wednesday, August 6, 2014

The pendulum swings along the price to quality spectrum

When it comes to objectively observable source selection criteria, price is somewhat certain; quality is less so. The less objectively certain a factor is, the more discretion comes into play, and the greater the wriggle room to wrangle an angle that masks favoritism. Couple that with the mood swings in the public and holders of the public purse as economies swell and shrink, and attitudes shift. And so, the meme du jour in procurement shifts to getter more "value" for money to getting more cost savings. 

All that said for context to the next article below from blogger and editor John Keller, an easy and instructive review of the procurement pendulum swing.

Pentagon's lowest price technically acceptable (LPTA) guideline is latest attempt to attack costs
The U.S. Department of Defense has a long history of trying to balance the quality and price of the nation's weapon systems. With tight budgets the rule these days -- and the threat of another round of sequestration as early as 2016 -- the scales may be tipping in favor of price over quality.

There was a day many of us remember thirty-some years ago when the goal of military program managers was to procure only the best; money was no object under most circumstances. While this approach secured for the United States the world's mightiest military force, it also bought for us thousand-dollar toilet seats, hundred-dollar hammers, and fifty-dollar electronic diodes.

Among the roots of the problem then was the custom-design nature of military systems. Buying the best required technologies and components tailored specifically for each application; rarely was the economy of scale of the commercial market brought to bear on military procurement challenges.

There also was a bias in those days of buying from the commercial market. There was a belief that buying commodity items at discount-store prices would result in poor quality unacceptable to critical military missions. Better to pay too much than compromise military capability was the prevailing attitude.

Then the Berlin Wall came down, and with it the end of the Cold War -- at least that particular iteration of the Cold War -- that lasted from about the end of World War II until 1990. With a perceived end of the Soviet threat, military planners during the Clinton Administration decided it was time to reap a "peace dividend," and reduce military spending.

One of the first results of the so-called peace dividend was the notion of COTS -- short for commercial off-the-shelf -- brought to us in 1993 by Bill Clinton's secretary of defense, William Perry.

COTS, often incorrectly criticized at the time as a conduit for bringing substandard equipment into the military, was a solid concept, especially as it remains today more than two decades later. COTS wasn't an attack on quality, but instead was an acknowledgement that the military could buy standard off-the-shelf components economically and without compromising quality.

With little doubt, COTS has saved the military millions of dollars -- perhaps a lot more -- and rather than compromising quality actually has enhanced quality in many cases by implementing industry standards and best practices, rather than custom-designing ordinary components. Continuing downward pressure on the Pentagon budget, however, is calling for additional new measures in military procurement.

One of the latest is "lowest price technically acceptable," which the military shortens to LPTA. Like COTS, LPTA is intended to prevent the Pentagon from paying too much for what it buys -- commendable in this day and age -- but also like COTS, the new term LPTA often comes under scrutiny for its perceived threat of compromising quality.

Essentially, LPTA calls on the Pentagon's procurement officers to determine a level of quality that is good enough for the job at hand. Any contractor bid that falls within this "good-enough" guideline becomes a competition finalist, and the one submitting the lowest bid wins the contract.

In theory, LPTA does not leave military buyers with the leeway to pay a little extra for superior quality; it's all about what's good enough at the lowest price. While this emphasis on price over quality does have the potential to compromise quality, there also may be some benefits.

It's not the way all procurements should be run, granted, but for a growing number of components ranging from single-board computers, backplanes, and enclosures, LPTA should do the job for which it's intended.

There may be additional benefits to LPTA -- provided this procurement method is applied to the right kind of purchases -- and that is enhanced industry competition. LPTA, with its emphasis on price, has the potential to bring more companies into the military's supply chain.

The kind of procurement approach that LPTA outlines offers the advantage of a growing number of companies competing for military work on the basis of price as well as quality. If this works out, the military could have a broad selection of technologies and components to find the right hardware for the job, even when budgets are tight.
I like the moral expressed in this story: "It's not the way all procurements should be run, granted, but ... LPTA should do the job for which it's intended."

It is important to remember that there are many methods of source selection. Why? Because they are a reflection that one size does not fit all, as I am always reminded when I go, on those rare occasions, clothes shopping. It is important, when choosing a method of source selection, that the most appropriate method be chosen for the desired outcome. You don't need to spend the money and time on a bespoke suit to wear every day to work. And you don't want to get married in that same suit.

What the US federal government calls LPTA, Guam, and ABA Model Procurement Code, calls a "multi-step bid" method of source selection. It's a variant on the generic competitive sealed bid procedure, where all proposed bids are evaluated for product acceptability and then lowest price is chosen.

Multi-step does not rank proposals, but does categorize proposals as technically "acceptable", "potentially acceptable" and "non-acceptable". Non-acceptable proposals are eliminated in the initial review. If a proposal has the potential to meet specifications with a little tweaking of either the bid specifications or the proposal or both, and that action is taken without prejudice to other technically acceptable proposals, the proposal gets added to the final pool of "technically acceptable" bids. At that point sealed price bids are opened for all technically acceptable bids, and low price wins. See 2 GAR § 3109(r) in Guam procurement regulations for more.

Procurement reform needs to address both necessity and sufficiency of procurement regime

EU members urged to devise strategies for public procurement reform
The European Commission is calling on member states to design comprehensive medium-term strategies to reform their public procurement systems. Joaquim Nunes de Almeida, director of public procurement, DG internal market and services at the European Commission, explained, “In the European Commission we are mature enough to have understood that having transposed correctly a legal framework is certainly a necessary, but certainly not a sufficient, step to achieve a correct desirable functioning of a public procurement system. The work is unfortunately much more complicated than simply to transpose European legislation in a formally correct way.”

There are also plans to develop a policy to promote the “professionalisation of buyers,” Nunes de Almeida announced. “Public procurement is not perceived as a strategic function but as an administrative clerical exercise focused on legal compliance,” he said. “We need market intelligence, business skills and a focus on skills to become the heart of public purchasing.”

The conference heard the Commission is looking into introducing policy to tackle corruption in purchasing too. “Fraud and malpractice is an ongoing threat for governments as they undermine cities and companies trust in public authorities,” said Nunes de Almeida. “We are considering the possibility of developing a more effective and proactive policy on public procurement. Initiatives that may be considered include setting clear rules for the protection of whistleblowers, [and making use of] IT tools and indicators for better monitoring the procurement process.”

He added there is “still a lot to be done to build efficient and pragmatic solutions” for everyone involved in public procurement.

Charter to avoid procurement strictures?

On Guam there has been some confusion, now evidently reconciled, whether a newly legislated charter school is bound to use the procurement law applicable to all other territory instrumentalities. That is not a unique question, as the following article reveals.

State Auditor Announces Potential Violations Of State Law In Charter School Case
(Santa Fe, NM)—Today, State Auditor Hector Balderas announced the results of a “risk review” conducted by the Office of the State Auditor (OSA) related to the financial affairs of two Albuquerque charter schools, which are state-chartered charter schools under the oversight of the New Mexico Public Education Commission (PEC) and the Public Education Department (PED). The review found potential procurement violations, conflicts of interest and increased fraud risks related to substantial payments of public funds to the private business of Dr. Scott Glasrud, who is the charter schools’ Head Administrator.

Auditor Balderas said, “We must take aggressive measures to protect the State’s significant investment in education. In light of these findings, I am recommending that the charter schools’ boards and state education oversight agencies take immediate action to increase accountability and restore public confidence in the schools’ financial operations.”

Not so straight-laced procurement in Victoria, Australia

We begin this post with the following articles. You can and should read the articles in full at the links associated with their headlines. I tend to selectively cut, paste and rearrange them to suit myself in this blawg, and there is a lot of additional information and context that gets left on the cutting room floor.

Office of Living Victoria broke procurement rules, says Ombudsman
Victoria's recently abolished water agency deliberately flouted procurement rules and back-dated documents to award contracts worth millions to consultants in a manner which implied a "jobs for mates" culture, the Ombudsman has found.

In a major setback for Water Minister Peter Walsh, Ombudsman Deborah Glass has found the agency he created, the Office of Living Victoria, to be rife with undeclared perceived conflicts of interest and having lacked respect for "public sector values and accountability for its use of funds". Mr Walsh told the Ombudsman he was not told of the procurement breaches by Mr Fennessy. But Mr Fennessy told the Ombudsman he last year advised Mr Walsh he needed to audit OLV and that more recently he told the minister ''we've got some procurement problems ... this is why I have been saying for the last six months that I need to audit OLV''.

Mr Waller and Mr Want initially reacted strongly to Ms Glass' draft report, rejecting many of the findings. They commissioned legal advice that stated the OLV was not bound by procurement rules because of its status as an administrative agency. Their advice conflicted with other legal opinion held by the government.

The pair later accepted that the OLV should have paid more attention to ensuring compliance with Victoria's purchasing policies. "I accept OLV made some poor decisions," Mr Waller told the Ombudsman. Mr Walsh said on Tuesday that all government departments had to adhere to procurement rules. He said despite allegations against OLV being raised publicly in recent months it was not appropriate for him to interfere.
Victoria's water agency ignored government policies, the ombudsman says.
The underlying attitude at the Office of Living Victoria (OLV) seemed to put procedures and principles second to urgency, Ombudsman Deborah Glass found. "From the earliest days of OLV, the inclination and focus have been on the end, not the means," the report said.

Ms Glass said the prevailing attitude at the office had been that it needed to "crash through" a bureaucracy that would stymie effective and timely change. "Government procedures exist to protect the public purse," Ms Glass said. "Poorly managed conflicts of interest fundamentally undermine the integrity of public policy."
Ombudsman finds water agency, Office of Living Victoria, mishandled conflict-of-interest concerns
The office was established by Water Minister Peter Walsh in May 2012 to manage the change in the way water services are managed in Victoria.

"Conflict of interest was poorly understood and badly managed by OLV."

The ombudsman was also critical of procurement practices in the agency. In one example examined by the ombudsman, three companies provided quotes for events management services. The ombudsman found OLV accepted the most expensive quote without explaining why.

The report found OLV rushed a number of project briefs, quotations and other documents. "In some cases they were prepared after the contract was in place, to give some semblance of credibility to the arrangement," the ombudsman said.

Mr Walsh acknowledged mistakes were made in the management of the water agency but said the OLV had operated effectively. "Good governance and effective and timely policy reform are not mutually exclusive, but having said that, OLV has delivered some significant benefits."
By the way, you can read the whole "Investigation into allegations of improper conduct in the Office of Living Victoria" here, and an earlier 2014 report on "Investigation into allegations of improper procurement of services by the Department of Education and Early Childhood Development" here.

Well now.

First observation, those last comments of Mr. Walsh in the last article above are routine, de rigueur responses typical of government comment when caught with its pants down in procurement.  I call it the "no harm, no foul" defense, even though there is always obvious harm when good governance is given short shrift whilst the means is meant to justify a result.

Second observation, this smacks of a procurement regime that has no real-time procurement police on the beat. It relies on ex post facto reviews, well after the horses have bolted, with the hope that someone will uncover the stuff-up and fix it (or, as is most often the case, with the hope that it will pass unnoticed at all).

I do not believe that ex post facto discovery is any kind of effective prophylactic or deterrent, and is a blunt instrument when error is found that could be corrected. Rather, what we see too often, as in this case, is that the whole baby is thrown out with the bathwater; here, the whole department was shuttered due to failure of its leadership.

For mine, the most effective way to police procurement is to encourage real-time critique and intervention by the people with most real interest in a fair and equitable system, which is commonly called a "protest" procedure. 

Hell hath no fury like a competitor scorned, and that is exactly the cop on the beat you want, provided you have a fair and expeditious procedure for assessing and resolving the protests. It has to be fair or no one will engage the process, which puts you right back where you started from. It has to be expeditious because the government must quickly and effectively address the issue or get sidelined by the controversy.

On Guam, the law requires that all new elected or appointed officials and department heads undertake and every 4 years re-take a one day course in ethics and or administrative safeguards, which includes an introduction to conflicts of interest and procurement. See 4 GCA §§ 15409 and 15410. At least they can't say they weren't told.

That said, consider the following article: Australian government must take ‘great care’ over public procurement rules
The Australian government needs to take “great care” in the policy, practice and operation of public sector procurement rules to work in the interest of the country’s citizens.

That’s the view of senator Kate Lundy, chairman of the Finance and Public Administration References Committee, which has published its conclusions following an inquiry into the operation and effectiveness of the country's procurement rules. Lundy added: “Government procurement decisions may well be a significant determinant of the social and economic health of many Australian communities and regions. As a result, great care needs to be taken in the policy, practice and operation of the Commonwealth Government procurement rules if they are to operate in the interests of the Australian people.”

Recommendations included calling on the Department of Finance to establish an “independent and effective complaints mechanism” for procurement processes. But the department said that it does not support this because there are a “number of opportunities” for people with complaints and there have been a “very low” number of complaints received.





Sunday, August 3, 2014

That's some expensive shtuff

From the Philippines.

Sen. Lito Lapid faces graft charge
On Friday, August 1, the Office of the Ombudsman announced that it has found probable cause to indict Senator Manuel "Lito" Lapid and several others for violation of the Anti-Graft and Corrupt Practices Act in connection with the P728 million fertilizer fund scam.

In a statement, the Ombudsman said a special panel determined that Lapid, Provincial Accountant Benjamin Yuzon and Provincial Treasurer Vergel Yabut committed several violations of the procurement rules after purchasing fertilizer that was "1,000 percent higher than the other fertilizers of the same kind."

The Ombudsman panel cited records showing the provincial government, under Lapid, purchased 3,880 liters of fertilizer at P1,250 per liter from Macro-Micro Fertilizer in 2004. At that time, Lapid was still governor of Pampanga.

Investigation showed the same kind of fertilizer costs only P120 per liter.

"If the Provincial government of Pampanga undertook the purchase through public bidding, it could have purchased a fertilizer of equal or better quality than Macro-Micro Foliar Fertilizer at a lesser or competitive cost, thus allowing the Province of Pampanga to secure the best commercially available fertilizer product at the lowest price possible," the Ombudsman resolution said.

Ex-Gov. Lito Lapid, Pampanga execs charged for graft in fertilizer fund scam
Lapid also issued a certification that "there was no suitable fertilizer substitute with the same quality" and that the mode of procurement would be direct purchase from its exclusive distributor, MPTC.

Also charged were the incorporators of Malayan Pacific Trading Corporation (MPTC) Ma. Victoria Aquino-Abubakar and Leolita Aquino, and Dexter Alexander Vasquez, proprietor of D.A. Vazquez Macro-Micro Fertilizer Resources.

While in the performance of their duties, Lapid, Yabut and Yuzon, in conspiracy with Vasquez, Aquino and Abubakar, committed the act of purchasing the fertilizers in complete disregard of Republic Act No. 9184, or the "Government Procurement Reform Act", and its implementing rules and regulations.

Moreover, the manner and inordinate speed by which the transaction was consummated in a mere 12 days -- manifested the partiality of Lapid, Yabut and Yuzon to D.A. Vazquez and MPTC.

Meanwhile, the criminal cases against Lulu Alingcastre, Leonardo Mendoza, Ramir Flores, Ismael Abubakar, Jr., Alberto Aquino, Arthur Aquino, Paul Albert Aguino, Marites Sto. Domingo, Rolando Dorado and Ade Nasuiton were dismissed for lack of probable cause. In the related administrative case, Ombudsman Conchita Carpio Morales also ordered the dismissal from the service of Pampanga provincial treasurer Vergel Yabut and Pampanga provincial accountant Benjamin Yuzon. On the other hand, the administrative charges against other co-respondents Lulu Alingcastre, Leonardo Mendoza and Ramir Flores were dismissed for lack of merit.
Lapid case shows how public funds were stolen, say farmers