Open sourcing sole sourced contracts

Note:  See new updates below.

Protest delays FBI's huge sole-source deal with Motorola (this McClatchy article is available here and here.)

FBI contracting officials contend that proprietary features embedded in their emergency communications contract with its existing Motorola network preclude its interaction with non-Motorola products. Citing a 15-year-old estimate that replacing the entire system from another vendor's product would cost $1.2 billion, they said in a formal notice this month that they can save $300 million in equipment by continuing an exclusive relationship with Motorola.

The bureau circulated the proposal two weeks ago, just as three senior House Democrats asked the Department of Homeland Security's internal watchdog to investigate whether Motorola's contracting tactics have led state and local governments to squander millions of taxpayer dollars on its pricey equipment.

On July 15, Reps. Henry Waxman and Anna Eshoo of California, along with Colorado Rep. Diana DeGette, asked Homeland Security Inspector General John Roth to investigate findings in a recent McClatchy series delving into Motorola's dominance.

The series detailed how Motorola, with help from state and local officials, has outmaneuvered competitors in nearly all of the nation's 20 biggest cities, in many cases through noncompetitive contracts, slanted bid specifications and proprietary features in existing systems.

The company has cashed in on a gusher of grants from Washington aimed at avoiding a recurrence of communications breakdowns that cost lives after the terrorist attacks of Sept. 11, 2001, and Hurricane Katrina's battering of the Gulf Coast in 2005.

The quality of Motorola's radio equipment, widely recognized for its durability and reliability, is not in question. Rather, it's the price of its products cities have paid as much as $7,500 for a single handset and the stunted competition that have drawn consternation.

RELM Wireless Corp., a Florida-based radio manufacturer with $30 million in annual revenues, promptly challenged the FBI proposal on grounds that it "unjustly bars competition" for the sale of radios. The firm sells walkie-talkies with the same functions specified by the FBI for about $1,700, compared with Motorola's average price of $4,200, said Ken Klyberg, RELM's vice president for sales. He said in a telephone interview that RELM is preparing to file a formal protest with the Government Accountability Office.

Bureau spokesman Chris Allen said that "the FBI is reviewing the sole-source" proposal to determine whether it's warranted.

The FBI proposal is the latest development showing that Motorola still maintains an advantage with many public safety agencies, despite efforts to standardize manufacturers' equipment designs so that every first responder's radio can interact with all others.

While standardization has invited increasing competition, Motorola has found ways to hold onto its estimated 80 percent share of the U.S. market.

Besides financing a nationwide system upgrade, the FBI's proposal would allot up to about $170 million to agencies within the Homeland Security and Justice departments for purchase of Motorola equipment, as needed, over the next five years.

Other vendors also voiced strong objections to the decision to keep them from bidding on the FBI upgrade, saying that technology exists to connect Motorola's older system with their own equipment if Motorola cooperates.

"This seems like a bunch of baloney," Larry Emmett, director of bids and proposals for Texas-based EF Johnson Technologies, said after reading the FBI's five-page "Justification for Brand Name Only Acquisition."

"Just saying there is no other option and going down the sole-source path is not justifiable," said Karthik Rangarajan, the company's vice president for sales.

Motorola's largest competitor, Florida-based Harris Corp., has "advanced technologies to interconnect legacy, current and next-generation solutions across multiple vendor systems," even those with proprietary software, said company spokeswoman Victoria Dillon.

Steve Koman, who served as an emergency communications consultant for the city of Charlotte, N.C., called the FBI proposal "half-baked" and said it adds to "the risk to the public that they will continue to overpay for public safety radio communications equipment."

In contrast to the FBI, the U.S. Secret Service took a much different approach in administering the procurement of tactical communications upgrades for its agents and more than a dozen other Homeland Security agencies beginning in 2012. It qualified 30 vendors to compete for a series of contracts for up to $3 billion in "mission critical" radio equipment.

While McClatchy's stories focused on Motorola's state and local contracts, the company is also king of the federal walkie-talkie market, where rival vendors accuse the firm of similar marketing tactics even since the new design standards, known as P25, to improve communications between disparate radio equipment took hold around 2005. One of the P25 standards requires each manufacturer to develop electronic gateways that can overcome proprietary features and connect their systems with other P25-compliant systems.

Anytime that FBI agents make "wideband" transmissions that interfere with another agency's "narrowband" communications, the FBI said, the bureau could be directed to end use of that frequency within 180 days. "Therefore, every location where the FBI continues to operate wideband communications is at risk," the procurement team wrote.

The proposed contract, they said, gradually will eliminate wideband transmissions and employ Motorola equipment that can interface with the bureau's current blend of a 1980s-era Motorola SmartNet network with newer, P25 equipment. Switching to a different contractor, they said, would cause "significant disruption" to communications, risk emergency failures and require the bureau's "over-tasked" staff of technicians to maintain two systems until the new one is ready.

But staying with Motorola, they said, would save $300 million in equipment and extend the system's life by 10 to 15 years. They did not explain how they derived their equipment valuation.

Further, the FBI officials said, such a change would mean that the bureau's 420 electronics technicians would each have to undergo 200 hours of training on the new system.

"After 32 years procuring radios from only one primary vendor," they wrote, "changing that business model would create significant funding, logistical and training challenges."

Both Emmett and RELM's Klyberg scoffed at the bureau's estimates of how long it would take to retrain the FBI's technicians on another vendor's system.

Klyberg said "they didn't blink an eye" when they had to train agents on use of Motorola's latest radio models.

On its face, the bureau's justification "sounds reasonable," said Joe Boucher, chief technology officer for Connecticut-based Mutualink, a firm that uses software gateways to interconnect two-way radio networks. "But it's impossible to tell without knowing the supporting details."

Boucher said that Motorola is well known in the industry for making it "prohibitively expensive" for a customer to acquire software that can join its Motorola system with another vendor's. Providing such a hookup "would be inviting competition," he said. Boucher said, one feature in the FBI system may be "difficult to overcome": Motorola's SmartNet software version that enables special agents to periodically change, over the air, the codes for their encryption programs that ensure secure communication.

If Motorola provided such gateways to the FBI's system, "pretty much anybody on the planet can sell them radios for that," said EF Johnson's Emmett.

The bureau seems to be basing its decision on the need to buy Motorola "to keep continuity," according to RELM's Klyberg. "The federal government's not supposed to be allowed to do that," he said. "They're supposed to get best value for the taxpayer dollars."

On Guam, in 2006, the local Department of Homeland Security sought to acquire an emergency telecommunications system by sole source, with the "justification for sole source procurement based on interoperability and standardization of the existing equipment". The Guam Public Auditor years disallowed the sole source procurement in a Decision on a protest of the solicitation, in the Appeal of L. P. Ganacias Enterprises, Inc. dba RadioCom, OPA-PA-06-003.

In 2007, Guam was awarded a Public Safety Interoperable Communications Grant in the amount of $2.6 Million, about 10% of which was allocated for "Emergency Project 25 (P25) Radio Cache to Support Island wide response to Natural or Man-made Disasters".

The last I remember, the controversy over the acquisition of communications equipment was still evolving and winding its way through the courts.

UPDATES: MORE ON THIS STORY...

August 8, 2014
Second contractor protests FBI’s no-bid, $500 million deal with Motorola 

The Harris Corp. has become the second contractor to formally protest the FBI’s plans to award a no-bid contract worth up to $500 million to Motorola Solutions Inc., calling the bureau’s proposal to forgo competitive bidding “factually unsound, legally unwarranted and wholly unnecessary.” The FBI gave other vendors only a couple of weeks’ notice late last month that it planned to hand the contract to Illinois-based Motorola Solutions.

“Harris’ infrastructure and portable radio equipment can work with legacy Motorola equipment until such legacy equipment is replaced,” they wrote. Indeed, the FBI already owns two Harris “cores,” or controllers, that have connected with Motorola equipment for years, they said.

It was Harris, Motorola’s biggest rival in the domestic market, that installed infrastructure under a contract to upgrade two-way radios for multiple departments in the nation’s capital in 2007. Hence, Harris lawyers wrote, if the FBI seeks to justify a “follow-on” contract, it selected the wrong company.

On its face, Harris said, the FBI proposal also must be scrapped because it seeks to allow 11 other agencies within the Justice and Homeland Security departments to buy up to about $170 million in Motorola equipment off of the contract over the next five years. Harris said that proposal “renders improper any sole-source award to Motorola,” because those agencies are already using Harris equipment.

Harris’ protest also took issue with the FBI’s assertions that two of its procurement officials spoke with other vendors at a trade show and concluded that none could overcome the proprietary barriers of Motorola’s legacy equipment, noting there was no visit to Harris’ booth.

This last issue, about speaking to vendors other than the bidder about the bidder's compliance, resonated with me when I read it.

A few years back, the company employing me bid on a contract to provide copier machines. It was low bidder, so the higher bid competitor, who had been sole sourcing the machines for years (illegally), sent a "confidential" letter to the head of the department, with whom there was an established business relationship by this time.  The competitor should have formally protested the matter to have it contested, but it chose to poison the well, a fact that was not discovered until much later.

The letter said the machines were nonresponsive because they did not natively provide certain tracking information specified, quoting an employee of the competitor saying he was familiar with the machines and had discussed the tracking issue with a person with experience with our company's machines. This letter had the desired effect, and the award was never made.  

It should be noted that the IFB did not require that any documentation be provided with the bid to evidence responsiveness; it relied on the bidder's responsibility to provide a machine that met the specifications.  In fact, the purchasing agency never raised the question.

The company protested the failure to award and, despite never raising the issue of the alleged non-compliance, the matter proceeded to appeals. I raised the nonresponsible impropriety of the subversive communications and failure to raise the issue by protest, but found no fertile field on appeal for the argument. 

Nevertheless, the company won the appeal but with the proviso that the government specifically decide that the bid of the machines was responsive. It was obvious, then, that the tainted message had infected the appeal, too. 

So the company judicially appealed that part of the decision since the responsiveness of the bid was never asserted by the purchasing agency as an issue; it was pursued only by the competing bidder.  The inference was that the bid was responsive and the only grounds to not award the contract were internal administrative issues, such as lack of funding.

The aggravating thing was, and remains, that had the government actually asked the question whether the machine was noncompliant as "confidentially" alleged by the competitor, and sought assurance of compliance, the company could have and would have answered that, though the machine itself was noncompliant, the company intended to provide common third party software with the machine, which performed the same function as the competitor's imbedded software, and made the bid compliant even if the machine, standing alone, may not have been.


September 4, 2014
FBI Scraps $500 Million Potential Deal With Motorola Solutions Following Protests

The FBI has canceled plans to award a potential $500 million, five-year sole-source contract to Motorola Solutions, following protests from competitors RELM Wireless Corporation, Harris Corporation and E.F. Johnson Technologies. It is unclear how the FBI intends to go ahead with the infrastructure equipment and mobile radios contract now, with the agency saying that it will “reassess its requirements, as well as the acquisition strategy for meeting them.”

Non-responsibility, suspension and debarment

This post is inspired by a well written article describing debarment by the Canadian government I happened to read. Since I am neither licensed nor competent to comment at all on Canadian law I will only comment on what may be a contrast between common US practice.  I will set out the author's counsel without the cut, paste, paraphrasing that I usually apply, though I will be selective, so better to read the whole article for context as well as accuracy, as you should with every article cited on this blawg. 

Besides which, there are in this article and those in other posts, many points of information and issues raised that I do not focus on; even more reason to read the original piece at the link provided.

A practical approach to navigating debarment by the Canadian government

Federal debarment of contractors that violate federal contracting rules is sharply on the rise. The recent Integrity Framework[1] issued by Public Works and Government Services Canada is fuelled by a desire for government accountability in an age of unprecedented government spending. The consequences of debarment are significant and include the right of the government to terminate the contract for default and to demand the immediate return of any advance payments made.

The federal government uses debarment to ensure that contracts are awarded only to “reliable and dependable” contractors. In simple terms, debarment amounts to a government-wide ban. Federal departments are prohibited from doing business for a period of 10 years with an individual contractor that has engaged in improper conduct. Unlike in other jurisdictions, Canada’s debarment regime is not codified under any particular statute or regulation but rather is a policy[2] administered through a series of certifications and standard terms and conditions given by the bidder or contractor in its proposal or contract with the government.

A contractor may be debarred from participating in government procurements for 10 years from the date when the contractor or its affiliate has been convicted of an “integrity offence.” Integrity offences include bribery of Canadian and foreign public officials, extortion, tax evasion, bid-rigging, forgery, fraudulent manipulation of stock exchange transactions, insider trading, falsification of books, money laundering and acceptance of secret commissions.

Canada’s debarment regime is implemented by way of a series of certifications provided by the bidder in federal government solicitation documents and resulting contracts. The bidder or contractor, as the case may be, must certify in its bid (or contract) that neither it, nor any member of its board of directors or any of its affiliates has a conviction or been discharged of any of the following integrity offences during the previous 10 years....

A bidder that is unable to provide the certifications will be “debarred” or disqualified from the bidding process. The government has retained for itself the right to enter into a contract with an otherwise non-compliant bidder when it is in the “public interest” to do so, which includes when no one else is capable of performing the contract or for reasons related to emergency, national security, health and safety or economic harm.

I was interested in how much this subject matter is so similar to Guam law and its American Bar Association Model Code inspiration. But also a tad perplexed.

One the one hand, it appears that failure to certify integrity by way of certain affirmative certifications disqualifies a bidder from the bidding process.   But at the same time, it suggests that such failure is an automatic debarment. Consider these statements from the article:

The federal government uses debarment to ensure that contracts are awarded only to “reliable and dependable” contractors.

A bidder that is unable to provide the certifications will be “debarred” or disqualified from the bidding process.

In simple terms, debarment amounts to a government-wide ban.

A contractor may be debarred from participating in government procurements for 10 years from the date when the contractor or its affiliate has been convicted of an “integrity offence.

In our regime, the legislation and policy have the same goals: "to ensure that contracts are awarded only to “reliable and dependable” contractors". Unless I missed the intent of the article, however, our regime differentiates from eliminating a bidder "from the bidding process", and invoking "a government-wide ban" on the contractor.

Under our regime, no bidder or offeror (or contractor tendering a proposal) is eligible to receive an award if found to be "nonresponsible". Responsibility is a judgment made by the contracting officer considering a variety of "Standards of Responsibility", which are not restricted to self-certification. (See Guam Procurement Regulation 2 GAR § 3116(b)(2), and ABA Model Procurement Regulation R-3.401.02.) 

Responsibility is defined in terms of capability to perform, as well as integrity and reliability. (See Guam law 5 GCA § 5201(f); ABA Model Code 3-101(6).)

Thus, a bidder lacking in integrity may be found nonresponsible even if capable, and a bidder lacking in capability may be found nonresponsible even if of high integrity.  Responsibility does not necessarily hinge on improper behaviour alone.

Since capability is a factor even when there is no question of integrity, in our regime, we do not automatically suspend or debar a contractor which is found to be nonresponsible; it may be have capabilities to perform adequately in another contracting context.

There is, though, a separate process by which bidders or offerors may be suspended or debared "from consideration for award of contracts" (suspension being instant but lasting only 3 months, and debarment allows for hearing and lasts for 3 years; see, Guam law 5 GCA § 5426 and ABA Model Code 9-102). 


Among reasons substantiating a suspension or debarment are findings of convictions of certain crimes evidencing lack of commercially moral turpitude, deliberate failure without good cause to perform, a recent record of failure to perform or of unsatisfactory performance caused by acts beyond the control of the contractor, violation of procurement ethics, and filing a frivolous or fraudulent petition, protest or appeal under the procurement law.

Although contracts may contain provisions allowing for termination of the contract by the government, the suspension or debarment does not automatically apply to continued performance of a contract, since is specifically applies to "consideration for award of contracts".

Sole sourcery at the core?

Sole sourcing is a perpetual sore point in procurement because it is the magic door through which competition is put to the side.

It seems easy enough to appreciate that if there are multiple sources of a product, or service, open competition should be employed to obtain best pricing. That works well for most things routinely purchased. But that presumes that the description of that which is being sought has not been tailor made. Bespoke specifications are the devil's workshop drawings.

Is the core propulsion system for rocketry a routinely used product manufactured by multiple sources? That is at the core of the protest dispute in the articles below. But time is a critical factor. A new entrant to the industry hasn't entered it until it is proven to be up and running, that is capable of delivering at the time specified in the award. Until then, regardless of whatever is on the horizon, the procurement show must go on.

In US Federal procurement, the "sole source" immunity to competitive purchasing is not entirely intuitive based on the simple explanation given above. The federal government describes sole source contracting in a conveniently circular way: “Sole source acquisition” means a contract for the purchase of supplies or services that is entered into or proposed
to be entered into by an agency after soliciting and negotiating with only one source." (FAR Subpart 6.003.)

It then describes a number of "Circumstances permitting other than full and open competition" (FAR 6.302), including: Only one responsible source and no other supplies or services will satisfy agency requirements, Unusual and compelling urgency, Industrial mobilization; engineering, developmental, or research capability; or expert services, International agreement, Authorized or required by statute, National security, and, Public interest. (FAR 6.302-7) How big is that hole you need to drive your rocket through? To be sure, justifications are required (FAR 6.303), and the justifications must be articulated, reasonable and consistent with the needs as specified in the solicitation requirements (FAR 6.303), but ....

SpaceX Protest Challenges U.S. Air Force Plan To Buy 22 Rocket Cores from ULA Apr. 29, 2014

A formal bid protest filed April 28 by upstart rocket maker Space Exploration Technologies Corp. is targeting most, but not all, of a large block of national security launches the U.S. Air Force intends to award without competition to its incumbent provider, United Launch Alliance.

Hawthorne, California-based SpaceX has asked the U.S. Court of Federal Claims to bar the Air Force from buying 22 first-stage rocket cores on a sole-source basis from ULA. That number is a subset of the 36 cores the Air Force plans to buy from Denver-based ULA, some of which will be used for heavy-lift missions that require three cores strapped together in a side-by-side configuration.

SpaceX concedes that until its planned Falcon Heavy rocket is fully up and operating in fiscal year 2017 it cannot compete for these heavy missions, currently carried out by ULA’s Delta 4 Heavy rocket. But in the meantime, SpaceX is fighting for the right to bid on the missions it can launch with its proven Falcon 9 rocket.

In December, ULA and the Air Force reached contractual terms for the first batch of rockets under the block buy, which is a pillar of the service’s strategy for saving money on its overbudget satellite-launching program.

The other pillar is competition, and the Air Force, in parallel to the block buy, had planned to put an additional 14 missions up for bid to give newcomers like SpaceX a crack at Pentagon business.

However, that number was later reduced to seven, at least initially, for reasons that included a slowdown in the procurement of satellites whose launches were targeted for competition.

In its complaint, SpaceX said it has identified seven planned missions for which it can compete: two for the U.S. National Reconnaissance Office, three next-generation GPS 3 navigation satellites, one missile warning satellite and one mission known as Air Force Space Command-4. The company said it has not seen information from the Air Force that explains why SpaceX is “not qualified to compete for the other fifteen missions.”

In an April 28 response to SpacX’s claim, ULA said launch is one of the “most risk-intolerant and technologically advanced components” of national security.

“ULA is the only government certified launch provider that meets all of the unique ... requirements that are critical to supporting our troops and keeping our country safe,” ULA spokeswoman Jessica Rye said.

Amid SpaceX Protest, USAF Defends Sole-Source EELV Strategy May 7, 2014

The U.S. Air Force is defending its sole-source buy of launches from the United Launch Alliance (ULA) as a “good deal” for the taxpayer. The service broke its silence on the matter in an interview with Aviation Week since SpaceX filed its lawsuit April 28 in Federal Claims Court. “The only reason we have taken any of the actions we have goes back to the fact that we have one single mission, which is getting these payloads on orbit to defend the nation,” says Lt. Gen. CR Davis, military deputy to the Air Force procurement chief. “As we were getting to that point where we had to negotiate that contract [with ULA] and obligate that money, I will remind everybody there was no certified [new] entrant. There were no documents submitted. There were no three launches. There was nothing we could do to anticipate that that would work out other than get a worse deal for the taxpayer through buying less cores from the company that has gotten us there 70 times before.”

In order to be certified to compete against ULA, SpaceX was required to execute three successful launches of its Falcon 9v1.1 and deliver required documentation to the Air Force for review. Davis says SpaceX has now met that requirement and is eligible to receive a request for proposals for forthcoming launch competitions. Though eligible to bid, the company cannot win a contract until the Air Force certifies it.

The National Reconnaissance Office is planning to award a launch next year for a 2017 mission. Davis says the Air Force and NRO are trying to schedule the award to allow for a competition. “We’d love to have them done by the end of December of this year. Our best guess that we think we’ll end up with is March of next year,” he says. “If we can work to slip the award to March or April of next year … we are trying to go through that debate right now.” The service is spending $250 million to conduct the certification work, Davis says.

The service is also conducting an audit of the company’s engineering, accounting and other process; since SpaceX is a commercial launch service provider, it does not adhere to the onerous paperwork requirements set up by the Pentagon.

Davis defends the decision to guarantee ULA 36 cores worth of work – 28 launches (as some require multiple cores) – over five years despite common knowledge that SpaceX – and eventually Orbital Sciences with its Antares – were breaking into the market.

“When we realized there was no way at the time as we looked at it for new entrants to pick up additional launches, there was no reason to go below 36 [cores]. The more you buy the better price break we are going to get.” Davis says studies prompted the Air Force to originally plan for a 50-core deal; however, Pentagon procurement chief Frank Kendall directed the service in a November 27, 2012 acquisition decision memorandum to “procure up to 36 EELV core across five years” and “introduce a competitive procurement environment in the EELV program by competing up to 14 cores with initial contract awards as early as fiscal 2015.”

“For ULA to be able to continue to be able to deliver at the price that they gave us we over that period of years, we have to buy 36 launch cores worth of service,” Davis says. “If we don’t buy that, ULA will have the opportunity for ULA to say we have to readjust the prices … there is probably a cost increase that would occur in there … Anything you pull out of the contract suddenly results in us reopening the contract, which drives more cost that has been negotiated on a very competitive quantity.”

SpaceX Challenge to ULA Block Buy Could Hinge on Questions of Timing May 14, 2014

With a temporary injunction barring United Launch Alliance from buying Russian-made engines for its Atlas 5 rocket now lifted, the case brought by Space Exploration Technologies Corp. challenging the U.S. Air Force’s sole-source order of ULA rockets appears to be focusing on questions of timing, including whether the plaintiff met the deadline for filing its protest.

By waiting until April 28 to sue the government in the U.S. Court of Federal Claims, lawyers say, SpaceX might have missed its 90-day window for challenging the procurement.

Government argues for dismissal of SpaceX rocket contract complaint July 2, 2014

"SpaceX's complaint is amorphous," the motion claims. "Rather than challenge a single procurement action, SpaceX broadly protests any sole-source purchase of single-core evolved expendable launch vehicles (EELV) and associated launch services. This challenge appears to implicate the United States Air Force's entire EELV program -- including past and future purchases under various contracts."

"Although SpaceX may have ongoing concerns regarding the EELV program that it wishes to explore, SpaceX's own failure to timely object to the RFP means that it does not have standing to bring those complaints to this Court by challenging what it calls the 'block buy' contract."

"SpaceX's argument appears to be that any sole-source purchase of single-core launches from ULS is improper," according to the government motion. "In SpaceX's view, all such launches must be competed now that SpaceX has performed the third certifying flight of its single-core Falcon 9 v1.1 launch vehicle and submitted test data to the Air Force.

The government motion claims a procurement can only be challenged by an "interested party," in this case "an actual or prospective bidder" with a "direct economic interest."

SpaceX fails to meet either of those standards, the government says, because the company was not an actual or prospective bidder for the contract in question and that its "failure to timely indicate an interest in competing for the RFP" shows a lack of direct economic interest.

To prove the latter, the government argues, citing other federal cases, SpaceX would have to show that it had a "substantial chance" of winning the contract in question. Given SpaceX's failure to "timely respond" to the original solicitation, the company "cannot possibly make this showing."

"It is too late for SpaceX to try to bring a challenge to that procurement now," the government said.

SpaceX completed its third and fourth successful Falcon 9 v1.1 flights earlier this year and while eventual certification is expected, the review process is not yet complete. Company officials have said it is their belief that certification is required to launch a military payload but not required to bid on a contract.

Under Guam and ABA Model procurement law, a bidder is not responsible unless it is capable. Capability is meant to be determined at the time of award. Here there has been no award, at least as stated in the articles, only an intent to award. Capability means the ability to perform when required to do so, and responsibility is determined by having ability to perform.

To your blawger, this is going to turn on the issue of timing: when were bids due? It appears the government had completed negotiations for the purchase in late 2012, and that the solicitation began at least as early as 2011. When did the protestor prove its capability? When was the protestor a viable "source"?

As was stated in the Aviation Week article above, quoting Lt. Gen. CR Davis,

“As we were getting to that point where we had to negotiate that contract [with ULA] and obligate that money, I will remind everybody there was no certified [new] entrant. There were no documents submitted. There were no three launches. There was nothing we could do to anticipate that that would work out other than get a worse deal for the taxpayer through buying less cores from the company that has gotten us there 70 times before.”

In order to be certified to compete against ULA, SpaceX was required to execute three successful launches of its Falcon 9v1.1 and deliver required documentation to the Air Force for review. Davis says SpaceX has now met that requirement and is eligible to receive a request for proposals for forthcoming launch competitions. Though eligible to bid, the company cannot win a contract until the Air Force certifies it. Davis says the service expects that SpaceX will be certified by March of 2015.

Whatever the ultimate decision on the sole source nature of this solicitation, it will be eclipsed by the changing nature of rocket science.

Why hire mediocrity when you can contract for it?

The government contractor 'scam?' (Note: This is one of a series of guest columns written by Federal Report readers on the Federal News Radio website. I have taken editorial liberties, as usual, so you should read the source.)

The federal government has technology needs just like any private corporation. It is hard to find good IT talent and even harder to retain that talent.

So, the various IT departments within the federal government often turn to contractors to subsidize the existing federal staff. The idea is that these "experts" can come in and hit the ground running — no training required. They perform a very specialized function, and, in theory, do it very well. When the job is done or the contract expires, they vanish and move on to another client. It sounds like a cost-effective idea.

But is it?

I have been running a cybersecurity division for a federal agency for enough years to become fully jaded with the contractor selection process. Some will argue that I have no idea what I am talking about. I am just a dumb fed who cannot possibly comprehend what it takes to survive in the private sector.

Actually, I ran an IT corporation for about 10 years. I know exactly what it costs to pay for a benefits package, health insurance, training and all the other costs that go into fully burdening a billable hourly rate for IT professionals. Some will be offended that I am calling "all contractors" thieves or liars. I can accept that, and I know there are very skilled contractors doing IT work for the fed every day; however, I also know that for every IT rockstar currently employed by the fed, there are about 20 that are terrible.

The contractor selection process begins with the fed issuing a request-for-proposal (RFP), which contains a rather lengthy description of the type of work and other details. Companies then submit proposals for the work which they customize to fit the RFP. These proposals now need to be reviewed, so that the best candidate wins the contract. The fed creates a review panel hopefully consisting of people (feds) that are qualified to decide who that company should be.

I have sat on a number of these panels and reviewed a myriad of proposals sent in by private contracting corporations — many of them pitifully lacking in just about every area. When a contracting official has to begin the process by reminding the panel that they cannot take off points due to poor grammar, misspellings or unclear sentence/paragraph structure, it is a sudden reminder that we, as a federal agency, embrace mediocrity. It is like coming to a job interview without showering, wearing gym clothes, and handing in a resume full of typos and other glaring errors, yet being told by your company to "ignore all that." Personally, I find it very hard to ignore.

Alas, the futility of my exercise is clear. Many of the proposals are just bad. It's tough to overlook the inexperience and ambiguity I am reading, but I am told I must — and so I do. Thank you, Uncle Sam, for appealing to the lowest common denominator, and ensuring that my contractor support will be terrible for the next year, and then likely for the four option years that will follow.

One of the sections of each proposal typically includes resumes of the actual people who will support the contact. There are times this section looks fantastic. But wait! The people that are being pitched with this proposal have no intention of being a part of this new contract. What a scam!

Contractors lament about high overhead costs, marketing expenses and how they are barely breaking even on their contracts. But IT contractors are commonly charging the government $200K or more per year per person and paying them $100-120K per year. I recently learned of a contractor to a federal agency who was being paid $175 per hour for Cisco work which breaks down to about $350K per year. Even if the net profit to the contracting company was a measly $150K (sarcasm intended), that's not too bad for one employee.

And here is where the contractor magic gets even better — if you demonstrate that you will tolerate substandard talent and not complain, they will start filtering in "professionals" to your office who cannot possibly command salaries higher than $45K-$75K anywhere. So they are charging $200K per year and fill the slot with a person that they only pay around $50K. The profit margin just got a lot bigger, and my technical support just got a lot worse.

A healthy contractor relationship should be rather simple. It should offer valued experience and talent for a reasonable price. If either the talent or cost is not reasonable, then the contract should be re-evaluated.

Distinguishing bid defects from bidder instructions

This post concerns a recent decision by the Guam Public Auditor. I'll start with a rendition of the Decision (bearing in mind I selectively cut, paste, rearrange, paraphrase, etc., so read the Decision at the link to get the true version).

In the Appeal of J&B Modern Tech, OPA-PA-14-001.

J&B asserts in this appeal that JRN's failure to attend a December 10, 2013 site inspection of Southern High School rendered JRN a nomesponsive bidder who should have been disqualified from consideration of the IFB award. J&B asserts that it should be awarded the bid.

John Leon Guerrero of GDOE Facilities and Maintenance requested a cost proposal from JRN for duct work to be performed at Simon Sanchez High School, Southern High School, and Upi Elementary School. To prepare the requested cost proposal, JRN personnel conducted site inspections. Upon completing the site inspections at the three schools, JRN's Project Engineer informed Mr. Leon Guerrero that the scope of work for which the cost proposal was requested amounted to more than $100,000.00 and should be opened for bids.

GDOE issued GDOE IFB 005-2014. The IFB sought proposals for the furnishing and installation of Air Conditioning Exterior Duct System for four high schools.

The IFB stated that "The Contractor must conduct pre site inspections to determine existing conditions and any special needs/requirements for execution of the project. Site inspection and field verification of existing layout is mandatorv." The GDOE Supply Management Adminsitrator issued Amendment No. 1 advising bidders that a pre-bid coμference and site inspection would take place on December 6, 2013. The site inspection got to three of the four schools on that date, but the inspection of the 4th school was postponed. A JRN representative was present for the inspection on December 6 inspection, but did not attend the postponed inspection of the 4th school.

J&B and JRN submitted their bids on December 17. JRN's bid was about $95,000 lower than J&B's. Given the price discrepancy, GDOE confirmed (via email) with Dan Gomez of JRN that JRN conducted a site inspection of Southern High School prior to December 6, 2013, that JRN understood the scope of work at Southern High School, and that JRN confirmed its bid price. On February 5, 2014, GDOE issued a Bid Status notification to J&B stating that J&B was not selected due to higher price offered.

J&B filed its Protest to GDOE asserting that JRN's failure to attend the mandatory site inspection of Southern High School on December 10, 2013 rendered JRN's bid nonresponsive and disqualified from consideration for award.

JRN did conduct a pre site inspection of Southern High School to determine existing conditions and any special needs/requirements for execution of the project, albeit before the IFB was issued. Consistent with the IFB requirements, JRN assumed full responsibility to ensure that all proposed equipment meet or exceed existing quality and specifications, i.e., material specifications, dimensions, configuration, mechanical requirements, mounting and installation requirements, etc.

The manner and timing in which JRN conducted its site inspection of Southern High School did not prejudice J&B and is a minor informality which GDOE could and apparently did waive. Minor informalities are mistakes found in bids after opening but prior to award and are matters of form rather than substance 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).)

Irrespective of whether or not GDOE determined that JRN's pre-IFB issuance site inspection of Southern High School was a minor informality which was waived or not, the Public Auditor concludes that GDOE's determination, that the site inspections while deemed "mandatory" were not deemed conditions precedent for "responsiveness" of bids, was not in error. A "responsive bidder" is a person who submitted a bid which conforms in all material respects to the Invitation for Bids. 5 G.C.A. § 520 l(g). RN's bid was responsive to the requirements of the IFB.

A quick read of the Decision, with its focus on waiver of mistakes, might lead to the conclusion that this was the basis of the Decision. But it was not, and should not have been.  The decision did not find a minor informality in J&B's bid; it found that the bid was responsive.

The failure to attend a "mandatory" pre-bid conference and site inspection was not a mistaken element of JRN's bid.  Attendance was a procedural instruction to bidders to assure that all bidders were properly informed of the nature of the work, its scope, and what would be required of bidders to complete the installation of the duct work.

As the decision implied, the fault alleged in the bid process here was not material; it was not a condition precedent to being qualified to bid.  JRN's bid was responsive because it conformed in all material respects to the IFB.

The reference in the Decision to waiver of a minor mistake is a reference to a bid mistake, not a procedural requirement for consideration of a bid submission. The reference is to the regulation dealing with "Mistakes in Bids". (2 GAR § 3109(m).)  The regulation's subparts describe variously the consequences of mistakes in bids in general, mistakes made or discovered before bid opening, mistakes after opening but before award, and those after award. The waiver of a "minor informality" is in the subpart dealing with mistakes in a bid found after opening but before award. (§ 3109(m)(4)(B)).)

The decision discussed the nature of minor informalities, and then found that the bid was responsive.  It described both: a minor informality is one that is negligible therefore does not prejudice other bidders in terms of , and a responsive bid is one that is material in all respects.  Connecting the dots, the decision implies that, when analyzing responsiveness (which must conform in all material respects), an immaterial matter is one that does not prejudice other bidders because it does not affect price, quantity, quality, delivery, or contractual conditions.  (And note, "contractual" conditions are ones that are part of the ultimate awarded contract, not conditions of submitting a bid.)

The regulation on mistakes in bids actually refers to two distinct kinds of mistakes collectively called a "minor informality"; one mistake is a "matter of form", and the other is called an "insignificant mistake". "Minor informalities are matters of form, rather than substance evident from the bid document". On the other hand, "insignificant mistakes" are those 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."  This mistake is insignificant because, whatever its nature (even if it is denominated a "mandatory" requirement), the  failure does not cause prejudice to other bidders.

Thus, waivable insignificant mistakes go beyond mere matters of form. "Examples include the failure of a bidder to: (1) return the number of signed bids required by the Invitation for Bids; (2) sign the bid, but only if the unsigned bid is accompanied by other material indicating the bidder's intent to be bound; or (3) acknowledge receipt of an amendment to the Invitation for Bids; but only if: (i) it is clear from the bid that the bidder received the amendment and intended to be bound by its terms; or (ii) the amendment involved had a negligible effect on price, quantity, quality, or delivery."

The significant feature of this rule is that mistakes that do not prejudice other bidders can, and should if the state is not prejudiced, be waived. Further, the provision is significant because it describes what is meant by "prejudice other bidders".  

Finally, it becomes significant because it also bears on the question whether a nonconforming aspect in an IFB might be considered immaterial and therefore not rise to the level of a nonresponsive.  As the cases hold, not all nonconforming bids are nonresponsive.  Only a material nonconforming bid is nonresponsive.

An error by a bidder or in a bid does not prejudice other bidders if "the effect on price, quantity, quality, delivery, or contractual conditions is negligible." Failure to attend a site inspection does not prejudice or disadvantage another attending bidder, but it could certainly disadvantage the bidder who fails to attend. That is no concern of other bidders.

This is expressly allowed by Guam procurement law. "Correction or withdrawal of inadvertently erroneous bids before or after award ... shall be permitted in accordance with regulations.... After bid opening, no changes in bid prices or other provisions of bids prejudicial to the interest of the Territory or fair competition shall be permitted." (5 GCA § 5211(f).)

Although there is no specific law on Guam dealing with abnormally low bids, it is the usual case around the world that they are to be questioned (see, The price is not always right). The discrepancy in price here (nearly 25% lower than the other bidder) obviously raised that question, and GDOE is to be commended for confirming with the low bidder that it understood the scope of work and confirmed its bid price.

This case can stand for the proposition that not all matters in an IFB which are declared to be mandatory are material or prejudicial, and can be overlooked, or "waived". 

Where, as here, other bidders were not prejudiced by a waiver of a bid requirement ("that is, the effect on price, quantity, quality, delivery, or contractual conditions is negligible"), and the territory's concern to get a price that understood the requirements and risks are met (the fourth school had, in fact, been recently inspected for the very factors pertinent to the bid), even a so-called mandatory bid requirement is not really mandatory at all.