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Monday, September 29, 2014

Girl talk

No offense intended to anyone, but this post is about confidential discussions, which immediately leads me to recall one of my favorite songs, called Girl Talk (get a taste of it here), by a sweet Hawaiian duet team that call themselves Hula Honeys.

It also happens that the articles cited here are written, in some cases co-written, by Attorney Michelle E. Litteken of the law firm Mayer Brown LLP, and collected on the Lexology website.  Attorney Litteken has produced a very informative collection of articles on the "problems" of engaging in discussions in the solicitation process of negotiated contract formation. I have already posted one such article here, and just came across these others, which add texture and color to this confusing and complex subject. Taken together, they provide a welcome tonic to the headache that comes from trying to sort out the ins and outs of permissible discussion.

Again, the caveat: read the whole article at the link. I cut, paste, leave out important stuff, paraphrase, rearrange and otherwise use great license to present articles on this post, doing them no justice, I am sure, but I do so with the best intention of bringing the subject to you, for you to discover and discern. Here, I have left out all discussions of cited cases, and that must be read to appreciate the nuances the cases deal with.

When does an agency cross the line from clarifications to discussions?
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.
Don’t be misled: what contractors should know about misleading discussions
Discussions can be useful to contractors because the questions asked and issues raised can direct an offeror to areas of its proposal needing improvement. In some situations, discussions can help a contractor turn an unacceptable proposal into a successful offer. However, information provided by an agency during discussions can also lead an offeror in the wrong direction. If the agency selects another proposal, the disappointed offeror may file a protest and argue that the discussions were misleading. But what qualifies as misleading discussions? How specific does an agency need to be when it engages in discussions? These are issues that contractors should be mindful of as they engage in discussions—and that they must understand to frame potential protest issues when they are not the prevailing offeror.

Although the FAR does not define misleading discussions, decisions from GAO and CFC provide guidance on when discussions are misleading. Both forums have stated: “An agency may not inadvertently mislead an offeror, through the framing of a discussion question, into responding in a manner that does not address the agency’s concerns; or that misinforms the offeror concerning its proposal weaknesses or deficiencies; or the government’s requirements.”

To succeed in a misleading discussions protest, the protester must show that the allegedly misleading discussions were prejudicial, i.e., made its proposal less competitive. For example, in Tech Systems, Inc., the protester claimed that the agency misled it by focusing on its proposed technical approach, which led the protester to overemphasize management, but refused to discuss pricing, which proved to be the determinative factor in source selection. The court rejected the protester’s argument that the discussions misled it into proposing a high-cost approach because the protester did not show that is costs were higher because of the management-centric approach the agency purportedly encouraged it to propose.

As is the case in challenges to the meaningfulness of discussions, the amount of specificity required to avoid misleading an offeror is highly fact dependent. Contractors should be aware of an agency’s obligation to refrain from misleading offerors as they engage in discussions and litigate bid protests.
What is required for discussions to be meaningful?
It’s basic procurement law that, when an agency engages in discussions with offerors under FAR Part 15, the discussions must be meaningful. FAR 15.306, which provides for exchanges with offerors after receipt of proposals, does not specifically define “meaningful” in the context of discussions. Instead, the FAR states that an agency must discuss “deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond.” GAO and the CFC have based their analyses of what discussions qualify as meaningful on this FAR provision. Issues that arise with respect to whether discussions were sufficiently meaningful include:

• When is a weakness significant?
• Do weaknesses that are discriminators have to be discussed?
• How specific does the agency need to be?
• Does an agency need to discuss a weakness if it first appears in an offeror’s FPR?

Since the FAR only requires that deficiencies and significant weaknesses be discussed, and because there is no obligation to discuss garden-variety weaknesses within a proposal, a protest ground regarding the failure to discuss such issues (absent an unequal discussions issue) would be dead on arrival.

The FAR (15.001) defines a “weakness” as “a flaw in the proposal that increases the risk of unsuccessful contract performance.” A weakness is “significant” when the concern “in the proposal is a flaw that appreciably increases the risk of unsuccessful contract performance.” So the distinction between a weakness and a significant weakness turns on the judgment of whether there is an “appreciable” effect on the risk of unsuccessful contract performance.

There are numerous bid protests in which offerors’ proposals are closely matched and a weakness that was not discussed (or group of such weaknesses) becomes the discriminator. Substantial precedent makes clear that the fact that a weakness eventually becomes the deciding factor does not create an obligation to conduct discussions.

In cases in which there is no dispute about the significance of a weakness, the parties may disagree over whether the discussions directed the offeror to the area of its proposal needing improvement. The boilerplate legal concepts applied by the CFC and GAO are clear. An agency is not required to “spoon feed” offerors during discussions; instead, the agency is merely required to lead offerors into the areas of their proposals requiring amplification or correction. Consistent application of these rules can be tricky.

In sum, although the failure to engage in meaningful discussions is a common protest ground, there are nuances in the law that may add complexity to what seems like a familiar argument.
“That wasn’t fair!”—protests based on unequal discussions
The principles of fair and equal competition drive many aspects of procurement law and policy. These principles are evident in the FAR’s requirement that when an agency engages in discussions with offerors, the agency cannot “engage in conduct that [f]avors one offeror over another.” Discussions often occur as part of the procurement process, and can be beneficial to the agency and offerors. However, discussions have their drawbacks. If an unsuccessful offeror believes that other offerors were given better direction or provided with more information, discussions can provide the basis for a protest based on purportedly unequal discussions.

At first glance, the rule that discussions between the Government and offerors must be equal and not favor one offeror over another seems clear. However, application of the rule can be complicated because agencies are not required to conduct identical discussions with offerors, and because discussions must be tailored to offerors’ different proposals. As such, when GAO or the CFC is faced with a protest alleging unequal discussions, it is not a simple matter of determining how many questions were asked, how long discussions were conducted, or the type and number of issues that were addressed. Instead, the question is whether the agency’s questions or statements made during discussions gave an offeror an unfair advantage.

One difficult aspect of unequal discussions issues is that in most cases, the issues can only be understood by bid protest counsel examining an administrative record released under a protective order (PO), and the issues usually cannot be discussed in any detail with the client (as doing so would be inconsistent with the PO).

When considering pursuing a protest, contractors should be mindful of an agency’s obligation to conduct equal discussions. It is important to remember that the number of questions raised or issues addressed is not decisive regarding whether discussions were unequal. Instead, contractors must consider the substance of the discussions—and whether they have any basis to believe the agency provided another offeror with an unfair advantage.
Finishing off her series is this reported on Mondaq: Discussions Round-up: Recent Protests Challenging Discussions
As this series has shown, disappointed offerors often raise protest allegations related to discussions. Although protesters frequently allege that discussions were unequal, misleading, or not meaningful, challenges based on these allegations can be difficult to win. In researching decisions to include in this round-up, I found only two decisions issued in 2014 sustaining a protest based on a discussions issue: Kardex Remstar LLC, which was discussed in the series' first post, and Marathon Medical Corp.). Of course, although many of the protests discussed didn't result in sustained protests based on the facts presented, they often provide useful insights for contractors in developing new claims and are worth close study.

When Does an Agency Cross the Line from Clarifications into Discussions?

The 2014 Windstream Communications protest followed a 2013 protest in which Windstream challenged the exclusion of its proposal from the competitive range. The agency took corrective action, and during the reevaluation, the agency contacted Windstream about its pricing. After reevaluating Windstream's proposal, the agency assessed two deficiencies under the "technical and management approach" subfactor and determined that Windstream's proposal was unacceptable. Windstream argued that the agency failed to engage in meaningful discussions because it raised concerns about Windtsream's prices but not the technical and management approach deficiencies. The Agency argued that it was not required to address the deficiencies with Windstream because it did not engage in discussions – the exchanges were clarifications. Windstream attempted to bolster its claims that the exchanges were discussions by pointing to the fact that it had submitted new detailed pricing information in response to the agency's questions – thereby revising its proposal – the "acid test" for discussions. However, in its submission to the agency, Windstream wrote: "We did not change any of our prices.". GAO denied the protest, finding that although the format of the pricing information was different, the elements and its proposed price were the same. As such, the exchanges were clarifications – not discussions – and the agency was not required to address the proposal's deficiencies.

What Does It Take for Discussions to Be Meaningful?

In our What Is Required for Discussions to Be Meaningful? post, we discussed Sentrillion Corp., a decision in which GAO sustained the protest because the agency failed to raise its concerns about the completeness of some of Sentrillion's business license applications. Based on GAO's recommendation, the agency reopened the competition and issued discussion letters. In its letter to Sentrillion, the agency stated that if Sentrillion was proposing to partner with other companies to perform the work, it must submit evidence of a partnership agreement along with any business licenses or applications. During the reevaluation, the agency deemed Sentrillion's proposal technically unacceptable because the teaming agreements it had submitted—which provided that the parties would negotiate a subcontract if Sentrillion was awarded the contract—were not binding partnership agreements. Sentrillion protested at the CFC, asserting (among other protest grounds) that the discussions were not meaningful because the agency never told Sentrillion to submit binding subcontract agreements or that teaming agreements were unacceptable. The court denied the protest, finding that the discussion letter adequately conveyed the need for finalized agreements.

What Constitutes Unequal Discussions?

In Bannum Inc., the agency determined that because the awardee was rated slightly better for past performance and technical/management, the benefits of its proposal justified paying a three percent price premium. During discussions, the agency had told the awardee that its proposed price was high but did not comment on the protester's pricing, and the protester asserted that discussions were unequal. GAO denied the protest, stating: "unless an offeror's proposed price is so high as to be unreasonable or unacceptable, an agency is not required to inform an offeror during discussions that its proposed price is high in comparison to a competitor's proposed price, even where price is the determinative factor for award." GAO stated that the requirement to conduct discussions does not depend on how an offeror's proposed price compares to the Independent Government Estimate (IGE). However, in support of its decision, GAO noted that the protester's price was the lowest received and less than the IGE–and the awardee's initial proposed price had been above the IGE.

No Matter What, a Protester Must Show Prejudice

As is the case in all bid protests, prejudice is a central requirement in challenging the way in which an agency conducted discussions. In some instances, GAO or the CFC may not address whether the agency violated the FAR provisions governing discussions because the protester failed to demonstrate how it was prejudiced by the alleged violation. For example, in Inchape Shipping Services, the protester argued that the agency engaged in unequal discussions because it allowed the awardee to revise its proposal by replacing the individual proposed for a key personnel role with another employee after the individual it initially proposed was placed on leave. GAO determined that it need not decide whether the change in key personnel constituted discussions because the protester had not demonstrated competitive prejudice.
On that last sentence about no competitive prejudice, I note that the notion of competitive prejudice is hard in the first instance to get hands around.  But it is easier once the concept is grasped. 

In this case, for instance, the protestor's competitor was allowed to change the name of a person with a key role to play in the performance of the contract. Whether a bidder or offeror has the capability to perform is an issue of "responsibility". In the framework of ABA Model Procurement Code law, such as is Guam's, "capability" is one of the standards of responsibility and need not be finally determined until just before award.

Bidder or offeror capability is not an issue that determines whether the bid or offer is responsive. Only issues concerning responsiveness affect bidder prejudice, and only if the matter is material. As the Guam regulations state, "Minor informalities are matters of form ... or insignificant mistakes that can be waived or corrected without prejudice to other bidders; that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible." (2 GAR § 3109(m)(4)(B).) 

Thus, when the government determines responsibility, it is given great deference to make that judgment call about the person it wants to do business with; but, when it is determining whether a bid or offer proposes to provide the very thing or performance specified, to make sure everyone is proposing, say, apples if it is apples the government wants, the government must reject a bid or offer that proposes oranges, and it prejudices the other bidders if the government goes ahead and chooses an orange 

Matters of responsiveness are scrutinized more carefully and early in the game, by the time bids and offers are opened or considered, and cannot be waived or altered unless the matter is immaterial or negligible.

Issues dealing with whether the government wants to or should deal with a particular bidder or offeror relate to responsibility.  Issues dealing with price, quantity, quality, delivery or contractual terms or other specifications describing the product or service required to be delivered are issues of responsiveness.  Prospective contractor responsibility must be distinguished from product or service accepetability and responsiveness.

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