The unmitigated gall of unmitigated conflicts of interest

Hattip to the lawfirm Venable LLP for pointing out this new case. You may prefer to read their explanation of the case here rather than the rendition of the decision below.

MONTEREY CONSULTANTS, INC., vs USA, US Court of Federal Claims, No.14-1164C, Re-filed: March 26, 2015 Read the full decision at the link; this is a capriciously selected and edited version of it.

This is a protest of the Department of Veteran Affair’s recision of a task order to Monterey Consultants, Inc. for services in support of the agency’s program to verify the status of small and veteran-owned businesses. The task order to Monterey was cancelled as a corrective action because the agency concluded that Monterey had a potential or actual organizational conflict of interest. Plaintiff alleges that neither is true.

Monterey Consultants, Inc. (“Monterey”), held a blanket purchase agreement (“BPA”) with the Department of Veteran Affairs (“VA”) under which it provided support services to the VA’s Center for Verification and Evaluation (“CVE”) and Office of Small and Disadvantaged Business Utilization (“OSDBU”). This BPA, called the “IPT”,was the agency’s long-standing contract vehicle for procuring a wide variety of services in support of all of OSDBU’s various missions (e.g., research, verification, analysis, outreach, and training). Monterey was awarded the BPA in February 2013. It did work under a variety of call orders, including processing and verification services for the CVE and administrative support of the OSDBU’s acquisition efforts.

In an effort to reduce the scope of the work procured with a single contracting vehicle, the IPT BPA, the agency let the BPA expire on its terms and sought to replace its acquisition of some of those services through two separate contracts placed as task orders under the GSA’s Federal Supply Schedule (“FSS”). The solicitation at issue in this protest was identified by the agency as a follow-on for two specific BPA call orders, 18 and 19. Call orders 18 and 19 were for support services related to the CVE’s verification of small business status. Monterey had performed under both of those orders pursuant to the BPA. Monterey also provided support for other OSDBU work, including acquisition support under call order 17.

The VA issued a Request for Quote (“RFQ” or “solicitation”) on June 13, 2014, as a 100 percent set-aside for service-disabled veteran owned small businesses holding one or both of two GSA FSS contracts for support services. The RFQ sought “administrative, paralegal, project management, and professional support” for the CVE. Specifically, these services were to be in support of the CVE’s verification processing and management of that processing.


The RFQ addressed Organizational Conflicts of Interest (“OCIs”) in section 18:

It is recognized by the parties that the efforts to be performed by the contractor under this contract are of such a nature that they may create a potential Organizational Conflict of Interest (OCI) as contemplated by Subpart 9.5 of the FAR. It is the intention of the parties that the contractor shall not engage in any contractual activities which may impair its ability to render unbiased advice and recommendations, or in which it may gain an unfair competitive advantage as a result of the knowledge, information and experience gained during the performance of this contract. It does not include the normal flow of benefits from incumbency. Contractors performing on other contracts in support of Verification shall be presumed to have an OCI with respect to this contract and are ineligible to quote on this requirement, due to the integrated nature of work perform[ed] under this solicitation and existing contracts. (emphasis supplied).

A further condition for bidding on the RFQ was that offerors were required to “agree not to participate . . . in any acquisition wherein: (1) The contractor has participated in the analysis and recommendation leading to the acquisition decision to acquire such services; or (2) the Contractor may have an unfair competitive advantage resulting from information gained during the performance of this contract.”

The solicitation went on to instruct offerors who believed that their participation would cause an OCI to “include in [their] proposal[s] an appropriate discussion and mitigation plan.” The VA would review such materials, make a determination of whether there was an OCI, and, if so, determine whether the mitigation plan was sufficient to allow the offeror to participate.

Three offerors submitted proposals. Monterey was initially awarded the contract on September 8, 2014, based on its higher technical scores, which, in the agency’s eyes, made it a better value despite its higher price.

Loch Harbour filed a protest in this court, the principal ground of which was that Monterey was ineligible for award because it had an OCI stemming from its prior work under the BPA. Upon reviewing the complaint, the Contracting Officer (“CO”), James Boughner, began an investigation into the possible OCI based on Monterey’s prior work for OSDBU and CVE.

The CO recorded his initial findings in a letter to Monterey.  In the letter, he stated his finding that, prior to the solicitation’s public release, all of Monterey’s and its subcontractor’s personnel had access to documents relating to the solicitation, including the requirements, independent government cost estimates, acquisition plan, market research, and evaluation criteria. The CO also found that Monterey personnel provided services directly relating to the preparation of the solicitation. AR 1569. The letter also detailed Mr. Boughner’s communication with Mr. Skinner of OSDBU and Zachary Wilcox of the VA’s Strategic Acquisition Center. Both of those gentlemen informed Mr. Boughner that Monterey did not have, or did not provide, an OCI mitigation plan for its work under the BPA.

Mr. Boughner sent another letter to Monterey informing it of his final conclusions regarding the OCI investigation and the agency’s intent to take corrective action. He found a potential OCI resulting from Monterey employee access to solicitation documents and a lack of mitigation plan in place for Monterey. The CO’s letter stated that Monterey had a potential OCI “at the time [it] submitted its offer and that no efforts were made by either OSDBU or Monterey to avoid or mitigate the conflict of interest prior to award to Monterey.”

The CO also pointed out that Monterey’s technical proposal in response to the RFQ represented that neither Monterey nor its subcontractors had an OCI. The CO found this to be further support for
his conclusion that Monterey did not have an mitigation plan in place (because one would not have been needed if the bidder felt it had no OCI). Although Monterey employees “signed Non-Disclosure Agreements in the course of their duties in accessing these documents, this was inadequate, because there was no Mitigation Plan . . . to show how their organizational and/or management system or other actions would avoid or mitigation any actual or potential [OCIs]”.

As a result, Monterey’s task order award was rescinded.

Monterey responded to the two letters from the CO with a series of phone calls, emails, and letters over a three week span. Monterey represented to Mr. Boughner both that it had a mitigation plan, dating back to its BPA proposal, and that any solicitation information to which it had access would not have conferred on it any competitive advantage because all the information was eventually released to the other offerors. Monterey and CACI employees claimed in declarations not to have had access to “any information” or “any non-public documents” relating to the solicitation.

During the course of the OCI investigation, OSDBU’s Director of Acquisition Support, Jules Tchoujan became aware of an email exchange between CACI employees Daniel Swart and Kathleen Wilson, both of whom worked under the BPA. From this correspondence it is clear that one of them is advising the other on drafting Monterey/CACI’s proposal in response to the other solicitation for the OSDBU work. As a result, the CO made an additional finding that Monterey had an actual OCI as a result of the involvement of Mr. Swart in both the preparation of Monterey’s proposal for the follow-on work and his work under the BPA in preparing pre-solicitation acquisition documents. The CO noted that this was a violation of Mr. Swart’s NDA, and cited that fact as evidence of the lack of force and effect of the purported mitigation plans in place for Monterey and CACI, in a further letter to Montery.

In the context of an organizational conflict of interest, the Federal Circuit has explained that each situation should be examined “on the basis of its particular facts and the nature of the proposed contract,” and that, “the identification of OCIs . . . requires the exercise of considerable discretion on the part of the agency.” This means that contracting officers must be afforded “great latitude in handling OCIs,” and thus their decisions will not be reversed absent irrationality. It is important also to recognize that the CO need not find an actual organizational conflict. All that is necessary to support agency action in response to an OCI is the potential for impropriety: even one based solely on the appearance of impropriety.

Plaintiff argues that the CO’s decision regarding Monterey’s OCI was irrational because it was both factually unsupported and wrong in the particulars. We examine each of the CO’s findings in turn.

Although the CO's first letter is not specific as to which of the documents investigate were accessed, edited, or otherwise only available for access by plaintiff’s personnel, the problem is clear: prior to public availability, Monterey had access to information that could give it a competitive edge in crafting its proposal for the follow-on procurement.

The CO then identified a compounding problem–that Monterey did not have an OCI risk mitigation plan to alleviate the problem of access to documents. The CO quoted Monterey’s proposal for the IPT BPA in which Monterey represented that it was not aware of any OCI related to the work under that solicitation. The CO recognized that Monterey, and presumably CACI, employees had signed nondisclosure agreements during their work on the BPA and in support of the acquisition, but found this fact to be unavailing for Monterey because of the absence of a risk mitigation plan. He found these measures to be inadequate because Monterey had not shown how the NDAs themselves would “avoid or mitigate any actual or potential [OCIs].”

Plaintiff attacks those findings as unfounded. First, as to the unequal access to information, plaintiff argues that Monterey’s work on the BPA “did not involve the development of requirements/performance work statements.” This is critical in its view because it shows a lack of prejudice to the agency and other offerors from Monterey’s access to information prior to the solicitation’s release. In essence, “no harm, no foul” is plaintiff’s view of the situation.

Plaintiff further directs our attention to evidence provided by the Director of CVE, that CVE “fire walled Monterey from every activity in the requirements preparation” and that Monterey had no role in formulating the performance work statement, costing, or any other contract documents. Plaintiff’s point is that, a CO’s finding of mere access to pre-solicitation documents is not enough to disqualify it here.

Second, plaintiff argues that any document it might have had access to eventually became public anyway, further supporting its notion of lack of prejudice to other offerors.

Third, plaintiff points to the NDAs signed by its employees as evidence of the fire wall maintained by Monterey pursuant to its mitigation plan. It avers that none of its employees with access to the server on which solicitation and other acquisition documents were stored were allowed to work on its proposal for this RFQ. Instead, according to plaintiff, only government employees had a hand in preparing acquisition documents such as the statement of work and other requirements documents. Thus, despite access, Monterey gained no competitive advantage from its incumbency.

Defendant responds by relying on the undisputed facts that 1) Monterey and/or CACI did acquisition support work under several BPA call orders, 2) the RFQ was a follow-on from two BPA call orders performed by Monterey, 3) Monterey personnel had access to all solicitation documents, including confidential documents never shared with other offerors, and 4) Monterey was required by the RFQ to identify any potential OCIs but failed to do so. This, in combination with the RFQ’s stated assumption that anyone who had previously performed CVE verification work was presumed to be ineligible,
provided the necessary backdrop to support the CO’s investigation and conclusion.

In light of the government’s interest in safeguarding the integrity of the procurement process, the facts on this record establish the rationality of the CO’s conclusion. We begin with the undisputed
facts. Plaintiff had access to all of the acquisition documents, and at least one or two Monterey/CACI employees did access them when providing editing and other quality control services in support of the acquisition efforts of OSDBU/CVE. Plaintiff admitted at oral argument that it did have access to some documents never released to the public, such as the internal government cost estimates.
With regard to other documents, regardless of whether they later became public, it is not disputed that Monterey had access to them first. This creates, on its face, the potential for an OCI.

Monterey therefore had a duty to mitigate that conflict or face ineligibility to bid on the follow-on solicitation. The solicitation stated a presumption that offerors who had performed support of CVE verification in the past would be ineligible for award and also required any offeror who identified a potential OCI to provide and implement a mitigation plan to alleviate the possibility of unfair competitive advantage.

The CO found Monterey not to have had a mitigation plan in place during its performance of the BPA. Several agency officials told the CO that they were unaware of any mitigation plan during Monterey’s performance under the BPA. The CO took into account the representation by Monterey in its BPA proposal that it had no actual or potential OCIs as evidence that it did not have a mitigation plan in place, along with the fact that it did not present a plan with its bid for the follow-on RFQ. He took both of those facts at face value as indications of plaintiff’s then-belief that it had nothing to mitigate. He thus gave no credit to the after-the-fact plan provided by Monterey.   Our own examination of the plan provided to the CO provides us with little confidence that it was related specifically to the work performed by Monterey under the BPA.

The CO reasonably concluded that the NDAs signed by Montery employees were insufficient mitigation measures without a working mitigation plan. He was unprepared to supply, by force of imagination or otherwise, the details of how non-disclosure agreements would actually operate to prevent, at a minimum, the appearance of impropriety.

Given the discretion we afford on review of agency action in this regard, we cannot say that the CO acted arbitrarily and capriciously with regard to his conclusion of a potential, unmitigated OCI. Here, the CO found very recent potential access to presolicitation documents and no plan for mitigation. The information that might have been gleaned was neither stale nor irrelevant. The CO’s finding of an unmitigated potential conflict of interest was thus neither arbitrary, capricious, nor contrary to law.

Lastly, the CO sent an additional letter to Monterey, informing it of a further basis for the recision of Monterey’s award. In this letter, he found an actual OCI existed. He relied on emails between Mr. Swart and Ms. Wilson, two CACI employees working under Monterey’s BPA. The CO found in these email exchanges a violation of Mr. Swart’s NDA. This is then cited by the CO as evidence that any mitigation plan alleged by plaintiff to have been in place by Monterey or CACI was either not implemented or not followed by their employees.

It is important to understand that the solicitation referenced by the CO in this letter is not the present solicitation. It instead relates to other work in support of OSDBU, separately solicited. This work for OSDBU was, however, previously consolidated under the single BPA held by plaintiff prior to the solicitation at issue. Plaintiff’s primary argument in this regard is thus that the actual OCI is irrelevant to the issues at bar and could not have presented a reasonable basis for the CO’s conclusion to rescind Monterey’s task order award. Plaintiff also presents the three unsworn statements of Mr. Swart to argue that the CO was factually incorrect in his findings of an actual OCI.

Defendant answers that the OCI resulted from related work under the same prior contract and thus is highly relevant to Monterey’s eligibility to bid on the solicitation at issue here. The fact that the same alleged mitigation plan should have prevented Mr. Swart’s disclosure of pre-solicitation information is important, asserts defendant, because it shows the irrelevance of that plan to Monterey’s OCI. Although the CO’s conclusion was reasonable even absent this evidence of actual impropriety, we agree that it provides further support for his conclusion and recision of Monterey’s award. Plaintiff reads too much into the letter and relies too heavily on an arbitrary division of the two solicitations. The CO cited this information as illustrative of what it identified as the primary problem he found with regard to Monterey’s potential OCI for the CVE solicitation: "[whatever] Mitigation Plans were in place by Monterey and CACI to avoid OCI is unfounded, as the mplementation of any alleged plan was clearly not followed by Monterey employees.”

He found the disclosure to be evidence of the lack of an effective mitigation plan. The mitigation plan alleged to have been in place for this solicitation is the same as that which should have prevented the actions of Mr. Swart with regard to the OSDBU work solicitation. Because it was the same purported mitigation plan at issue in both instances, it was proper for the CO to have considered the actions of Mr. Swart regarding the related solicitation. The CO’s conclusion was thus not irrational in this regard.

Conclusion

We find that the contracting officer’s decision to rescind the award to Monterey was rational and supported by the record. The CO correctly identified a potential OCI on the part of plaintiff as the incumbent contractor and a bidder for the follow-on procurement. The CO further found that plaintiff had no effective, implemented risk mitigation plan, leading him to conclude that Monterey should not have been awarded the contract. We find no irrationality in his conclusion.

Of croquet and magicians

A couple of years ago or so, I posted a note on the efforts of the UK Ministry of Defense to outsource its procurement selection process. Yes, privitise procurement of the UK's defense apparatus: UK considers outsourcing defense procurement

So, what has become of that?

Fraudulent arms companies charged taxpayers for magicians, croquet and speeding fines

Plans to privatise the arms procurement sector collapsed in 2013 after bidders withdrew from the process. The Labour party described it as a “complete shambles". Defence Minister Michael Fallon will lift the lid on the abuses and tell the audience at an Institute of Directors dinner in Durham that “vital” work is required to overhaul the procurement process used by the Ministry of Defence, the FT reports.

This will include a new Whitehall defence watchdog, which will have the power to fine arms companies up to £1m for breaching contract rules.

As noted in that short article (not as short as this excerpt, so you should always read the full source-linked citations in this blawg), the FT has a story on the matter:

Arms companies charged taxpayers for croquet and magicians

“It will now be up to suppliers to justify, rather than for us to disqualify, every pound of their contracts,” the defence secretary will tell the audience, adding that the MoD will demand “100 per cent transparency”.

A bit more is available here:

Exclusive: UK single-source procurement reportedly led to claims for 'croquet and magicians'

Fallon claimed that a "lack of commercial leverage" and "information" led defence contractors to claim for costs including croquet, horse racing trips, motoring fines, and "close-up magicians". He stated that there were expenses that the "taxpayer had no business paying".

Fallon - in his current role since July 2014 - expanded on reforms to single-source procurement that were enshrined in the Defence Reform Act of May 2014.

On the reforms, Fallon said that "the bottom line is that we [UK MoD] spend around GBP6 billion [USD8.9 billion] a year on single-source contracts - nearly 50% of our procurement budget".

The measures outlined in the Defence Reform Act include a single-source pricing framework for non-competitive procurements valued at GBP5 million or more; the establishment of a Single Source Regulations Office to ensure value for money and the payment of what was described as a "fair and reasonable" price to contractors; and the requirement for contractors to disclose costs through a standard reports. The latter measure gives the MoD "full open-book rights" according to Fallon.

Not all commentators seem to understand the new direction (or maybe they do and are trying to lead it off track):

BEN GRIFFITHS: Prosperity firmly linked to safety and security - and that's why defence MUST be an issue for this election

Michael Fallon was looking to the past when he unveiled reforms of the procurement process for military equipment.

He flagged up a shocking and unacceptable culture where arms-makers claimed back costs including croquet, horse racing trips, motoring fines and even two magicians. Fallon was right to castigate the previous regime of suppliers exploiting a lack of competitive pressure and transparency. Today’s defence sector is changing for the better, however.

As Ian King noted this week, partnership between government and industry is essential so that the armed forces get the equipment they need at a price the taxpayer can afford to bear over the long term.

Getting "equipment they need at a price the taxpayer can afford to bear" is an invitation to "soak 'em". A pricing model that is intent on getting whatever the market can bear will always be more expensive for the government and other consumers than it could be.

A pricing model that focuses on the cost and fair and reasonable value of that item shifts attention away from what the market can bear to "do we really need it at that price?" It often turns out that our perception of need is quite faulty, especially when close attention is not paid to fighting the next war but fixated on fighting the last one or supporting the military industrial complex that supplied the last war.  See, Recycling the procurement cycle

We don't need a model that justifies expense of an item because, on someone's assessment, the taxpayer can bear the burden. We should balance the cost against the perceived need and evaluate both need and cost with scrutiny.

I think the Defense Minister is on the right track when he says the government will require suppliers to justify costs. The federal procurement regime in the US, as well as the state and local regimes based on the ABA Model Procurement Code, like Guam's, have that focus. But, of course, it does little good to have that power in a regime if it is ignored or implemented poorly.

Having to deal with responsible bidders is taking too much time and money, say Illinois universtities

Tom Kacich: Change in purchasing laws may be ahead Read the full, original piece at the link.

The presidents of the University of Illinois and Illinois State were pressed by committee members to suggest how much procurement laws were costing universities. UI President Robert Easter said he had heard one estimate that it cost the UI $70 million a year in waste and inefficiency in the purchase of equipment, supplies and services.

Sen. Chapin Rose of Mahomet said "The governor's entire life has been taking over a company and making it more efficient. This is the kind of stuff that drives him nuts."

Ben Bagby, the state's chief procurement officer for higher education, acknowledged that changes "absolutely" are needed. "There are too many situations where we have to qualify a vendor before they submit a bid and if they make a mistake, because the way the law is written, we have to disqualify them. That means we go to the next high vendor. Sometimes we've reached up to the 10th vendor before we can get somebody who actually meets all the requirements of the procurement code. I'm not talking about whether they have a good product or a good price or not, but just the basic statutory requirements."

"These issues we're having with higher ed are the same issues the (state) agencies are having," Bagby said. "There definitely is a cost to the state of Illinois to disqualify vendors or to rebid. Or just the lack of competition because it is so difficult. It does make it more difficult for us to get full and open competition and the best price from the market."

In one case, Bagby said, "Eastern Illinois University told me that at one time in one procurement they lost $230,000 because of these particular types of issues. It's usually the inability of the vendor to qualify or to understand the documents or the law itself. It's very complicated."

It's worth noting that the tougher procurement laws were reform measures instituted in the aftermath of the conviction of former Govs. George Ryan and Rod Blagojevich.

"There was a cost to the state from corruption, and the fact that the process wasn't thoroughly reviewed and didn't go through the scrutiny it should have gone through," noted Sen. Dan Kotowski, D-Park Ridge. "When we have situations where we have previous governors who were indicted and convicted, we take steps to remedy the problem. Sometimes we may overcompensate for that.

"But there was a cost that was never really indicated to taxpayers in the fact that these contracts were being given out. I remember the testimony on the Senate floor about people writing their own requirements for RFPs due to the fact that they had given a campaign contribution."

Rose agreed. "Did we need procurement reform after Blagojevich? Hell yes, we needed it," he said. But we need a trailer bill to fix the problems from that procurement bill.

I think it is important to remember that good governance requires full time procurement accountability, and not just from government but from the private sector participants. It should not be seen as something to pull off a shelf for political shellacking. It's hard work, and someone's got to do it, or governance will deteriorate. It sounds to me like some training and education would go a long way to helping staff and vendors learn the ropes.

Procurement controversy du jour: Philippines voting machines

This story illustrates the problem with bid protests: not the protests themselves, which can reveal questionable judgment or incompetence, but the need for an expeditious resolution of them, especially judicial review.

EDITORIAL - Resolve the questions quickly

Legal challenges were expected in the maintenance contract for voting machines that was awarded just three days before Sixto Brillantes Jr. retired on Feb. 2 as chairman of the Commission on Elections. Smartmatic-Total Information Management, which supplied the 80,000 precinct count optical scan machines that the Comelec used in the 2010 and 2013 polls, bagged the P268.8-million contract to refurbish the PCOS machines for the general elections next year.

Those opposing the deal argue that it should have been opened to public bidding as required under government procurement laws instead of being approved merely as an extension of a warranty for the PCOS machines. For its part, the Comelec argued that aside from time constraints as it prepares for next year’s polls, it would be risky to award the diagnostics and repair of the PCOS machines to another company.

Yesterday the Comelec warned that the court TRO could set back the timetable for poll preparations seriously enough to compel a return to manual voting in 2016. After automated elections in 2010 and 2013, Filipinos are sure to protest against a return to the long, laborious and fraud-prone manual vote.

All sectors, including the courts, must do their part to prevent this from happening. The courts must not take their usual sweet time in resolving the challenges to the refurbishment contract. The other day, the Supreme Court voted 12-2 to issue a temporary restraining order on the deal, effective immediately and with no specified duration. The slow administration of justice is already wreaking havoc in places such as Makati, where no one knows when the legal question over the suspension of the mayor will be settled with finality. With only 13 months to go before the general elections, the SC must act more quickly in the case of the Comelec deal with Smartmatic-TIM. The nation wants poll automation, and it should be conducted as smoothly as possible, with all legal challenges resolved.

Winner takes all?

I cannot forget when my children and grandchildren were little bundles of joy. But in the world of contracting, both government and private (as discussed below), some bundles are filled with despair, and anti-competitive effects.

In US federal contracting, bundling is recognized to provide benefit to the government as a means of reducing costs through efficiencies (although I am unaware of how that gets quantified).

Bundling may provide substantial benefits to the Government. Measurably substantial benefits may include, individually or in any combination or aggregate, cost savings or price reduction, quality improvements that will save time or improve or enhance performance or efficiency, reduction in acquisition cycle times, better terms and conditions, and any other benefits. The agency must quantify the identified benefits and explain how their impact would be measurably substantial. Except as provided in paragraph (d) of this section, the agency may determine bundling to be necessary and justified if, as compared to the benefits that it would derive from contracting to meet those requirements if not bundled, it would derive measurably substantial benefits (for which certain thresholds are given). Reduction of administrative or personnel costs alone is not sufficient justification for bundling unless the cost savings are expected to be at least 10 percent of the estimated contract or order value (including options) of the bundled requirements. Reduction of administrative or personnel costs alone is not sufficient justification for bundling unless the cost savings are expected to be at least 10 percent of the estimated contract or order value (including options) of the bundled requirements.  ( See FAR Subpart 7.107, Additional requirements for acquisitions involving bundling.)

Bundling is also recognized to adversely affect the ability of small contractors to obtain work they would otherwise be competitive to perform. Indeed, it appears that the only reason bundling has percolated up to attention at all as possibly anti-competitive is because of the social welfare income-shifting politics behind the Small Business Administration framework. (Don't get me wrong, I support some efforts to retain the small business engine of the economy, both as an incubator of enterprise but also to inhibit the progressive monopolization of of big money. I just think we need to call a spade a spade so we know the limits of what it is we are dealing with.)

This is revealed in the way the federal government has defined "bundling": it applies to existing contracts, however, there is movement to extend bundling rules to new contracts as well. Thus, an early study of the negative effects of bundling was criticized by the GAO in 2000:

The Office of Advocacy, an independent agency whose mission is to represent and advance small business before Congress, has sponsored studies that have concluded (1) that the federal government has fallen short of its 1998 goal of 23 percent of its prime contract dollars being awarded to small businesses and (2) that contract bundling is growing and negatively affecting small businesses. The Office of Advocacy's study is the only government-wide study to be completed to date and it concludes that contract bundling has increased and had a negative effect on small business' share of federal contracts; however, the study's analysis was based on a definition that was broader than the statutory definition of contract bundling and provided no convincing evidence that bundling caused adverse effects on small businesses.

The following report from the Congressional Research Service provides (in this quote) a brief description of the history of the bundling issue.

Contract “Bundling” Under the Small Business Act: Existing Law and Proposed Amendments

“Bundling” refers to the consolidation of two or more requirements for goods or services previously provided or performed under separate smaller contracts into a solicitation for a single contract that is likely to be unsuitable for award to a small business because of its size or scope. Although bundling can potentially reduce costs or improve performance for federal agencies, it can also limit opportunities for small businesses to receive federal prime contracts. For this reason, Congress amended the Small Business Act in 1997 to require that procuring activities comply with certain procedures before issuing a bundled solicitation. Specifically, the 1997 amendments require that procuring activities (1) conduct market research to justify acquisition strategies that could lead to bundled contracts, (2) provide advance notice of bundled solicitations to the Small Business Administration (SBA) and incumbent small business contractors, and (3) implement certain procurement strategies when solicitations involve “substantial bundling.” These steps are intended to ensure that any bundling is “necessary and justified.” Only “unnecessary and unjustified” bundling is prohibited under the 1997 and subsequent amendments.

Although bundling can be done if justified, it seems that requirement is not being heeded, and it is bumping up against cost-cutting measures intended to consolidate contracts, just the opposite of moves to prevent restrictive bundling. (The GAO report previously mentioned describes bundled contracts as a subset of consolidated contracts; a special case to be applied restrictively.)

Concerns over contract bundling cast shadow over 2013 small business successes

Rob Burton, a procurement attorney with Venable in Washington and a former deputy administrator at the Office of Federal Procurement Policy, said the issue of bundling and consolidation and the fact that agencies consistently are ignoring the requirements to justify their decisions isn't getting a lot of attention.

Emily Murphy, a House Small Business Committee staff member, said, "The numbers [of bundled or consolidated contracts] in the database are wrong, and that's bad from a public policy standpoint. But it's even worse when you consider it means that neither the justification, the mitigation nor the data capture is taking place when it comes to bundling or consolidation." She said the administration's goal of maintaining a certain percentage of dollars going to small firms doesn't take into account the long-term impact on the industrial base that these efforts are having on the companies in the private sector.

Ken Dodds, the Small Business Administration's director of policy, planning and liaison, said bundling has been a huge issue since the late 1990s. "Let's be clear: agencies can bundle, and they can consolidate. They just have to justify it. There are thresholds they have to do. They have to analyze the data. They have to mitigate. There are things they have to do," he said. Dodds said the problem is that there is little to no follow up with the agency that decided to bundle the requirements or contracts to see if they met their justification in terms of savings or efficiencies.

This issue came to light just recently when SBA ruled that GSA didn't justify its rationale for consolidating requirements under the office supplies 3 strategic sourcing solicitation.

I would think that that same kind of particularized justification for bundling in small business context should be extended to large scale "consolidation". Anti-competitive consolidations are just as invidious for large business as small, and minimized competition, at whatever the convenience is assumed to be, cannot justify the need to encourage competition.

But what about the private sector? Is winner take all consolidation simply part of the laissez-faire free market ideal, or should anti-competition laws or regulation also have a role to play in consumer choice? Consider sports TV.

Lawsuit could end sports leagues' all-or-nothing TV packages

Fans have long asked for tailored options to view live games on TV and other devices, saying league-wide [bundled] packages such as Major League Baseball's Extra Innings, the National Football League's Sunday Ticket and the National Hockey League's Center Ice offer more games than they want or can possibly watch.

A Boston baseball fan living in Los Angeles, for example, would currently have no choice but to order hundreds of games from across the league just to see the Red Sox play. The Extra Innings package, offering up to 80 out-of-market games a week, is advertised by cable providers for $195 a season.

Sony PlayStation Vue Is Cable TV Without The Cable Company

Sports fans can opt for a $60 per month bundle that adds regional sports networks like YES (New York) and Comcast SportsNet (Philadelphia and Chicago). ESPN (along with other Disney properties like ABC) remains a glaring omission for now. But by reaching distribution deals with carriers of pro franchises like the Yankees, Cubs, Bulls and Phillies, PlayStation Vue provides live home team coverage, a must for many cable subscribers. A $70 per month top-tier bundle brings the channel total to 85 with the addition of several family and lifestyle networks.

None of this sounds much different from a traditional pay TV package, minus the contract commitment and standalone cable box.

Cutting the cord: A sports fan's new breed of TV

As hundreds of thousands of Americans give up cable or satellite TV every year — watching their favorite shows on streaming devices such as Hulu or Netflix and earning the trendy name “cord cutters” — sports fans are being left behind, feeling chained to their expensive menu of channels because not enough alternatives exist outside of conventional methods.

Kevin Watterson, 34, lives in Minneapolis and considers himself a sports fan. But he ditched cable in 2013, fed up with his $120 monthly Comcast bill — which covered cable and Internet, but was soon to increase in price after the end of a discounted promotional period.

Today, he pays $130 a year for the MLB.TV package, streaming games onto his large screen via Apple TV, a $69 device. He watches other sports available over the air, via an HD antenna that can cost $40 or less. And he’s planning on picking up Sling TV, a new $20-a-month service that gives viewers a limited menu of channels, including ESPN and ESPN2, during April so he can watch the Masters.

“Sports is the last must-see-TV. You can watch everything else on demand,” said Dave Warner, 43, a recent sports fan cord cutter who analyzes TV sports trends on the website whatyoupayforsports.com.

But each channel costs something. ESPN and ESPN2 combined, for instance, make up a little over $6 on your monthly bill, Warner said. Other channels are a couple of dollars here, a few dollars there. It adds up — as providers, networks and fans know.

“It’s going to be a while until cord cutting really makes [networks] nervous,” Warner said. “They see it, but it’s not enough to truly impact their bottom line. For now, the networks are going to milk the cash cow for all its worth, and they will until nobody can afford it anymore.”

Big Ten facing crucial decisions about its TV future

The Big Ten Tournament has a nifty network threesome when it comes to television this week. Three networks -- CBS, ESPN, and the Big Ten Network -- will provide extensive coverage.

The more, the merrier from the perspective of Commissioner Jim Delany. The league's football and basketball deals with ESPN/ABC and CBS expire after the 2016-17 basketball season. Negotiations are expected to heat up soon, assuming they haven't already. One thing is certain: The Big Ten should be in line for a windfall. The conference will get significant increases from its 10-year, $1 billion deal with ESPN/ABC for football and basketball and 6-year, $72 million pact with CBS for basketball; It also has a 25-year, $2.8 billion deal with the league-run BTN that extends through 2031-32.

Delany knows his timing couldn't be better, as the Big Ten's TV rights will be the last major sports property, pro or college, to be on the market in this decade. That news isn't lost on Fox Sports, which desperately needs top-tier live programming for its cable outlet, Fox Sports 1. The network has struggled to gain a foothold in 1 1/2 years of operation. Fox is expected to make an aggressive bid for the Big Ten's rights. CBS Sports Network and NBCSN are unlikely contenders in this derby.

There are several factors in play, including this scenario: Delany might not have to pick between ESPN and Fox. With the commissioner looking to cash in big, there's speculation the price might be too high for one entity to write a huge multi-billion dollar check for the entire package. The best play might be for Delany to cut deals to place games on both networks. The move likely would lead to a bigger payday and it still would give the Big Ten a presence on ESPN.

I remember the days when to get a particular song you wanted, you had to buy a whole album, as the small-hole LPs took over the world of large-hole 45s. Given enough competition from the industry players, consumers will benefit. Given enough competition. 

And remember, the government is a consumer. It must always keep one eye on the market place to assure it "enough" competition. It is for that reason that we find the federal acquisition rule on bundling in the "Planning" part, Part 7, whose policy is "to promote and provide for ... full and open competition to the maximum extent practicable...." (Subpart 7.102(a))

Procurement controversie de jour: private contracting procurement fraud?

The Commonwealth Bank of Australia, despite its name, is not a government institution (any more). It is a pillar (really -- one of the official "four pillars") of Australian private banking. Other than that, this would be a scandalous, but not unusual, controversy of procurement fraud. 

Procurement fraud is not restricted to government contracting. Some principles of procurement are universal, as are the problems.

US firm ServiceMesh founded by former Al Gore adviser at centre of CBA scandal (Read the whole story of all cited articles at the links.)

IT executive Keith Hunter, the bank's former general manager of technology service management and operations, was arrested on Tuesday and charged with two counts of bribery relating to a contract awarded by the bank to a US IT firm – ServiceMesh. Jon Waldron, the Commonwealth Bank's former general manager of IT engineering, flew to the US on the weekend after he became aware of the police's bribery investigation. Last week police froze an account with almost $2 million of allegedly corrupt payments.

The men are alleged to have awarded big-money contracts, worth tens of millions of dollars, to US firm ServiceMesh without putting it to public tender. The two men then allegedly received payments from a not-for-profit organisation, Ace Foundation, which was set up by by ServiceMesh, in return for awarding the contract. ServiceMesh was sold to US giant Computer Sciences Corporation in 2013.

NSW police will allege that the Commonwealth Bank contract was of a "significant size" and would have "contributed significantly" to the IT company's sale to CSC. After the sale, police allege that Mr Hunter and Mr Waldron were paid $2.19 million.

The Commonwealth Bank began its own investigation into the alleged crime last October while also notifying police. Both Mr Waldron and Mr Hunter were fired by the bank last year. "We have no tolerance for any illegal activity by any employee and we take every situation seriously," a statement from the bank released on Wednesday said. CSC said it was assisting authorities while also conducting its own investigation.

Mr Hunter pleaded not guilty to both bribery charges when he appeared at Sydney's Central Local Court on Wednesday.

US citizen charged in Sydney with bribery over bank contract

A US citizen who was recently a senior executive at the Commonwealth Bank of Australia pleaded not guilty in a Sydney court today to charges that he accepted bribes to award a contract to a US information technology firm.

Keith Robert Hunter, 61, formerly of San Francisco, and his alleged accomplice another Sydney-based American who has not been named were allegedly paid USD 2.19 million for awarding a bank contract to ServiceMesh without a tender, according to court documents.

Hunter, who had previously held senior positions at global corporations Visa Inc. And J.P. Morgan, was arrested at his Sydney apartment yesterday. "I want to vomit. I cannot believe we were tis (sic) stupid," Hunter wrote, according to police evidence tendered to the Sydney Central Local Court.

The money was paid through a California-based shelf company Ace Inc. Which had been set up by ServiceMesh, police evidence said. When questioned by bank investigators, Hunter and his alleged accomplice said the payments from Ace were for consultancy work.

The wages of omission

Sunshine Week: Beat reporter shines light on schools' use of federal contracts

Using the state Freedom of Information Act to access copies of contracts, emails and bid documents, the Daily Press Isle of Wight County beat reporter found that the school division had omitted wage standards from the construction contract that are required under the federal Davis-Bacon Act. The effect was to lower the cost of construction by underpaying local workers hundreds of thousands of dollars.

"I spent a couple of months digging into the documents and digging into legislation to figure out exactly what had happened," Murphy said.

Murphy learned that hundreds of workers should have received wages that complied with the much higher "locally prevailing wage" standards required under the Davis-Bacon Act.

To date, the amount the schools division will have to make up in back pay to the workers has topped $620,000.

How did this happen? Murphy's reporting has forced the schools' leadership to address the pay discrepancy.

In 2010, Isle of Wight County Schools and the county administration applied for and later received $7.5 million in federally subsidized interest-free bonds from the Virginia Department of Education.

The Davis-Bacon Act, which has been in effect since 1931, requires that workers on federally funded projects be paid a minimum wage determined by the Department of Labor. The rate, called the locally prevailing wage, is based on the location of the project, the type of job and pay rates for similar work in the area.

The federal requirement and the local wage rates are supposed to be included in the contract. They weren't. Those payments cover eight of the 46 contractors and subcontractors that worked on the project, meaning the schools are likely to pay a significant amount more to workers.

This is a simple but salient story. It is amazing that the local authorities failed to include the wage rate requirement. (Guam law specifically requires it.) It is more amazing that the federal funding folk didn't pick it up. It is extraordinary that the workers themselves didn't blow the whistle.

My dismay with this story it that it reveals an error of significant proportion that escaped all inside government controls. How many of such events escape our notice because it has not drawn the notice of the people hired to provide governance oversight of our money?

This highlights the importance, in the first instance, of investigative reporting and the well founded policy of transparent government by sunshine laws.

It also highlights the need for protests brought by competitors, because no one else provides real time policing of the system as effective as jealous competitors. In this case, the oversight got past the procurement protest phase, for whatever reason, and was only unveiled after the contract was awarded. Neither the competing bidders nor the public has any right to bring a contract dispute protest to disclose this kind of error, other than by letting that little light shine on the misdeeds.

Bridge contracts vs Planning principle

This post involves a GAO decision involving, on one hand, the planning principle, and on the other the concept, replete with moral hazard, of a "bridge contract". Since Guam will soon be debating the adoption of bridge contracting as a method of source selection, I thought this is an instructive case study.

The planning principle is a core principle of American procurement philosophy, and likely other robust regimes. In the federal sphere, the Federal Acquisition Regulations ("FAR") devote SubPart 7 to it. The main theme of this policy is: 
     Agencies shall perform acquisition planning and conduct market research for all acquisitions in order to promote and provide for—

(1) Acquisition of commercial items to the extent practicable;
(2) Full and open competition to the extent practicable;
(3) Selection of appropriate contract type; and,
(4) Appropriate consideration of the use of pre-existing contracts, including interagency and intra-agency contracts, to fulfill the requirement, before awarding new contracts.

The importance of (2), "full and open competition", is underscored by FAR Subpart 6.301(c): "Contracting without providing for full and open competition shall not be justified on the basis of — (1) A lack of advance planning by the requiring activity...."

The importance of (2), "full and open competition", in this case runs up against the "to the extent practicable" qualifier when the contract awarded is based on the Section 8(a) Small Business rules.

This particular case seems to be concerned primarily with the interplay of (2) and (4), in circumstances involving the granting of a bridge contract. Here, it is worth pointing out that a bridge contract is, or should be, an absolute last resort, tailored to the particular circumstances, because it is awarded without competition, a pillar principle of procurement. It is the feature of no competition which saturates bridge contracts with moral hazard.

In should be noted that the ABA Model Procurement Code, which forms the basis for most of Guam's procurement law, has broadly similar principles and purposes. Though not as fully formed as the FAR version, the ABA version as reflected in Guam law provides "All procurements of supplies and services shall, where possible, be made sufficiently in advance of need for delivery or performance to promote maximum competition and good management of resources." (5 GCA § 5010.)

In Guam law, the emphasis on and primacy of planning is emphasized by the limitations placed on "emergency procurement" of supplies ("goods and supplies" per the literal statute, but "goods" is not a defined term in the procurement law, but "supply" is defined as somewhat analogous to the term "goods" under the UCC). Notwithstanding the gubernatorial power to declare emergencies for whatever cause or effect, the procurement law proscribes contracting for supplies and services in an "emergency" unless the "emergency" is not man-made: "Emergency means a condition posing an imminent threat ... which could not have been foreseen through the use of reasonable and prudent management procedures...." (5 GCA § 5030(x).)

And so, to the chase, but note: This case also involved the particular requirements of the Small Business Set Aside preference scheme (Section 8(a)), which impinged on the outcome of the decision, the details of which I skim over (read the whole decision at the link):


Matter of: eAlliant, LLC: B-407332.4; B-407332.7, December 23, 2014

eAlliant, LLC, of San Diego, California, protests the award of a sole-source bridge contract (No. N65236-15-C-1003), for a period of 1 month, followed by up to five 1‑month options, to Systems Integration and Management, Inc. (SIM), of Arlington, Virginia.

The Navy currently fulfills its requirement for service desk operations through a contract for business operations administrative support services (BOASS) at its New Orleans office. SIM is the incumbent contractor; the incumbent contract was due to expire on September 30, 2014.

The Navy began the acquisition process for the follow-on contract in October 2011. On December 9, 2011, the Navy issued a request for proposals. Following the receipt of proposals, award was made to eAlliant on September 7, 2012.

TRESCOS Joint Venture, which was an offeror and whose team included SIM, filed a protest in our Office on September 14 challenging the award. The agency advised our Office that it would take corrective action, and we dismissed the protest. The Navy again made award to eAlliant on January 25, 2013. On January 29, TRESCOS filed a protest in our Office challenging this second award. On March 15, the Navy decided to take corrective action, and our Office subsequently dismissed the protest.

The Navy issued an amendment to the RFP on May 17, 2013, conducted discussions, and on June 17 received revised technical and cost proposals. On July 29, 2014, the agency again made award to eAlliant. Based on information the agency identified during debriefings, the agency concluded that corrective action was required to address concerns regarding the cost realism evaluation. On August 1, TRESCOS filed another protest with our Office. Also on August 1, the agency took corrective action by terminating eAlliant’s award. Our Office subsequently dismissed TRESCOS’s protest.

Following the termination of the award to eAlliant, the Navy decided it would reevaluate offerors’ technical and cost proposals. Based on the projected award date for the contract of October 3, and the need for adequate time to transition to the new contractor, the agency concluded that an unacceptable break in service could not be avoided without awarding a bridge contract to ensure continuity of the critical services. Based on the limited time remaining prior to the expiration of the incumbent contract, the agency concluded that SIM was the only viable source capable of maintaining continuity of services, given its experience and large qualified workforce.

The Navy’s J&A (a written determination of justification and approval for the non-competitive award of a bridge contract) approved the sole-source award of a 1-month bridge contract, with five 1-month options, to SIM for the following reasons: (1) SIM currently is performing the same work under the incumbent contract; (2) the incumbent contract was due to expire on September 30, 2014; (3) several rounds of protests and corrective actions had delayed the award of the follow-on contract causing difficult acquisition planning; (4) a transition period would be required for any contractor who would be awarded the follow-on contract; (5) SIM possessed the required workforce in place in New Orleans capable of meeting the requirement without a transition; and (5) an interruption in service was unacceptable due to the critical nature of the agency’s functions being supported by the services.

eAlliant contends that the sole-source award of a bridge contract to SIM was improper for the following reasons: (1) the J&A improperly excluded eAlliant from consideration for the bridge contract; (2) the need for a sole-source contract was caused by the agency’s lack of advance planning....

CICA (the federal Competition in Contracting Act) requires that agencies solicit offers from as many potential sources as is practicable when using the unusual and compelling urgency exception to limit competition. As our Office has held, an agency nonetheless may limit a procurement to the only firm it reasonably believes can properly perform the work in the time available.

Noncompetitive procedures may not properly be used where the agency created the urgent need through a lack of advance planning. While an agency may not justify a noncompetitive award on the basis of urgency where the agency’s requirements have become urgent as a result of a lack of advance planning, such planning need not be entirely error-free or successful. Our review of an agency’s decision to conduct a noncompetitive procurement focuses on the adequacy of the rationale and conclusions set forth in the J&A; where the J&A sets forth a reasonable justification for the agency’s actions, we will not object to the award.

To the extent eAlliant argues that the Navy failed to meet its obligation to solicit offers from as many potential sources as practicable in seeking to enter into a sole-source 8(a) bridge contract, we find that there was no obligation for the agency to do so. The section 8(a) program has both competitive and noncompetitive components, depending on the dollar value of the requirement. Generally, where the acquisition value exceeds $4 million, a section 8(a) contract must be competed among section 8(a) firms; section 8(a) acquisitions with values less than $4 million, such as the one initially sought by the Navy for the bridge contract, may be awarded on a noncompetitive basis. Because of the broad discretion afforded a contracting officer to award a noncompetitive contract under section 8(a) of the Small Business Act, our review of actions related to noncompetitive acquisitions under the 8(a) program is generally limited to determining whether government officials have violated regulations or engaged in fraud or bad faith.

We therefore see no merit in eAlliant’s argument that the Navy’s attempt to enter into a sole-source 8(a) contract was improper, given the authority of agencies to do so on a noncompetitive basis. In any event, the protester conflates the process for award of a sole-source 8(a) contract and the requirements for awarding a sole-source contract under CICA’s urgent and compelling exception to full and open competition. Whereas FAR § 6.302-2(c)(2) requires agencies to solicit offers from as many potential sources as is practicable, the 8(a) sole-source provisions do not have such a requirement.

Next, to the extent eAlliant argues that after the Navy abandoned its attempt to award a bridge contract to an 8(a) firm on a noncompetitive basis, the agency failed to meet its obligation to solicit offers from as many potential sources as is practicable in awarding the 1-month sole-source bridge contract to SIM, we disagree. As discussed above, while an agency must solicit as many offerors as practicable when seeking to award a sole-source contract under the urgent and compelling exception to full and open competition, the agency may limit a procurement to the only firm it reasonably believes can properly perform the work in the time available.

Here, the Navy concluded by August 22, 2014, that its needs for the bridge contract could not be met through the 8(a) program within the timeframe needed to avoid a disruption in services. The agency therefore concluded that it needed to execute a 1-month sole-source bridge contract under the urgent and compelling exception to full and open competition. The agency executed a J&A which stated that SIM was the only firm capable of meeting the agency’s need to ensure continuity of service after the expiration of the incumbent contract on September 30.

Assuming, as the agency states, that the transition to a new contractor would require up to three weeks, and the agency’s abandoned pursuit of a sole-source 8(a) contract on August 21, the record shows that the agency would have had approximately two and a half weeks to issue a solicitation for the bridge contract, receive and evaluate proposals, and make an award. Although the protester argues, generally, that there was enough time to accomplish these tasks, we do not think that the protester demonstrates that the agency unreasonably concluded that there was not enough time to conduct a competition, and ensure a timely transition that would avoid an interruption of services. On this record, we find that the Navy reasonably concluded that SIM was the only firm that could meet the agency’s requirement to ensure uninterrupted services.

Next, eAlliant argues that the Navy’s need to award a 1-month sole-source bridge contract on an urgent and compelling basis was the result of the agency’s failure to conduct adequate advance planning. In this regard, eAlliant argues that the Navy improperly delayed making an award for its underlying requirement until July 2014. As discussed above, however, the record reflects that the agency began its acquisition for the follow-on requirement in December 2011, more than 2 years prior to the expiration of the incumbent contract on September 30, 2014. The agency made awards on September 7, 2012, and January 25, 2013, each of which was followed by protests and corrective action.

The Navy again attempted to award the on-going contract for these services on July 29, 2014, which left two months for transition--which, the agency stated, was “more than sufficient time” for transition. The Navy contends that the urgency that justified the award of the disputed bridge contract to SIM arose from the protest that followed the award to eAlliant on July 29, 2014, rather than the history of the procurement prior to that award. We agree with the agency. As our Office has held, an immediate need for services that arises as a result of an agency’s implementation of corrective action in response to a protest does not constitute a lack of advance planning.

Next, eAlliant argues that the Navy could have conducted a competition for the bridge contract following its corrective action on August 1, and the failure to do so demonstrates a lack of advance planning. In this regard, the protester cites the agency’s acknowledgement that there was “more than sufficient time” for transition to a new contractor at the time of the July 29, 2014, award. eAlliant contends, therefore, that the agency should have also had enough time to conduct both the transition as well as a competition for the bridge contract. We disagree with the protester.

The Navy first attempted to bridge its needs with a short-term sole-source 8(a) award. As also discussed above, the agency’s decision to pursue a sole-source 8(a) contract was a matter within the agency’s discretion. Although this attempt was not successful, our Office has recognized that such efforts do not need to be error-free, nor do they need to be successful. In light of the agency’s unsuccessful attempt to enter into an 8(a) contract, and the time lost to that effort, we think the agency reasonably concluded that an noncompetitive 1-month sole-source bridge contract was required.

Charity begins at homage?

Click links to articles.

Longtime USAID contractor embroiled in scandal fires top managers, others

International Relief and Development Inc., once one of the largest nonprofit contractors working for the U.S. Agency for International Development, has dismissed its board of directors and laid off 21 employees in an effort to stabilize the struggling organization, senior managers said Friday.

The managers are trying to lift a Jan. 26 suspension issued by USAID, preventing the nonprofit group from receiving federal work. The agency reported that it had found evidence of “serious misconduct” at IRD, including allegations of unchecked spending and mismanagement in humanitarian and stabilization programs, many of them in Iraq and Afghanistan.

Since 2007, IRD has received nearly $2.4 billion to administer USAID-funded programs.

Nonprofit contractor sent government $1.1 million bill for parties and retreats

The largest nonprofit contractor working for the U.S. Agency for International Development during the height of the wars in Iraq and Afghanistan billed the government $1.1 million for staff parties and pricey retreats — three of them held at one of the poshest destinations on the East Coast, Nemacolin Woodlands Resort in Pennsylvania.

Attendance was compulsory, and more than 100 IRD employees went to two of the mountain retreats. Among the perks they received at Nemacolin: private rooms; open bars; gala dinner parties; free iPods at one retreat, Nikon Coolpix cameras at another; skeet-shooting outings at the resort’s Field Club; extreme-driving classes at its Jeep Off-Road Driving Academy; and complimentary $50 gift certificates to spend on clothing, jewelry, massages — whatever the employees wanted.

“It was scandalous,” said Andrea Clarke, IRD’s former media and communications officer, who attended the 2008 retreat. “I remember thinking, ‘We’re dealing with issues where people are actually dying overseas, and here we were at this five-star resort and we are living it up.’ There were alarm bells going off every day. It was no way to run a nonprofit.”

In January, USAID suspended IRD from receiving any more federal work, citing other spending that involved “serious misconduct.”

The couple who presided over IRD — Arthur B. Keys, an ordained minister, and his wife, Jasna Basaric-Keys — retired from the nonprofit last summer. Attorneys for the couple have denied any wrongdoing, saying, “Dr. Keys made sure that things were charged correctly.” A new chief executive, Roger Ervin, took over at IRD in December and has forced seven of the nonprofit group’s longtime officers to resign and removed its board members. The nonprofit’s annual revenue from USAID has plummeted from $587 million in 2010 to $78 million last year.

IRD was one of the biggest beneficiaries of U.S.-financed projects in Iraq and Afghanistan designed to rebuild the countries and quell insurgencies after the U.S. invasions. Of the more than $2.4 billion IRD has collected from USAID since 2007, 82 percent went toward projects in the battle zones. “It was heartbreaking,” said one former IRD employee who attended the Nemacolin conference and spoke on the condition of anonymity because of the ongoing investigations. “We had all of these people working on programs in Third World countries, and then there were all of these people trying to get as much money as they could out of the programs.”

For departing USAID administrator, Afghanistan is rarely mentioned

Despite $100 billion and counting in reconstruction funding from the United States since 2001, Afghanistan has rarely rated a mention by Shah, particularly during his last year. With USAID’s Afghanistan projects fraught with graft, questionable spending and corruption by Afghan contractors and some major U.S. partners, the agency has struggled to prove its programs’ success and justify continued U.S. government spending in the war-riven nation. During his five years at USAID, he has made three visits to the region, according to the official agency website.

For years, John Sopko, the top U.S. government official tasked with oversight of spending in Afghanistan, and his staff at the Congress-appointed office of the Special Inspector General for Afghanistan Reconstruction (SIGAR) have attempted to verify USAID’s spending on development programs in that country. He says he has been routinely frustrated by the agency’s inability to specify initiatives that have worked.

“I said, ‘Can you point to any program? Is it better to put money into building schools, or was it better to hire teachers, or was it better to train?’” he says. “The American taxpayer deserves an answer. Congress deserves an answer.”

Last year SIGAR concluded that the success of USAID’s spending on women-related projects in Afghanistan could not be evaluated because the agency was unable to identify which portions of programs specifically related to women.

Contractors to Procurement Law: You ain't my sunshine

In a hattip to Sunshine Week, and the obvious particular procurement focus of this blawg, I note the following couple of articles:

How Government Contractors Hide Public Information (Click link to article)

When governments outsource public services, contractors attempt to circumvent sunshine laws and shield important public information from disclosure using broad exclusions to the Freedom of Information Act and state open records laws that exempt "trade secrets" or "proprietary information" from public scrutiny. Contractors use those loopholes as justification to hide basic public information from taxpayers including the fees they charge the public, how they spend public funds, and the details on the quality of public services they are paid to provide.

For example:

• When the New York State Comptroller audited National Heritage Academies Inc.'s (NHA) Brooklyn Excelsior (charter) School in 2012, NHA staff refused to provide details on how the school spent its money, preventing taxpayers from knowing "the extent to which the $10 million of annual public funding benefited students." According to the audit, NHA staff refused to provide details on how the school spent $1.6 million, claiming that "the expenditures were private and proprietary."

• Recently, Connecticut public radio station WNPR submitted a records request for the billing rate of the state's health care exchange call center operator, Maximus Inc. In response WNPR received a heavily-redacted version of the contract with details of Maximus' costs blackened-out. Only after WNPR filed a complaint with the Freedom of Information Commission did the state release an un-redacted version of the contract allowing the public to see if Maximus' fees were reasonable for the service provided.

• In Florida, after transportation officials began linking design changes in highway guardrails to fatal car accidents, a consumer safety research firm requested documents and communications about the Florida Department of Transportation's (FDOT) contract with Trinity Industries, which manufactures the guardrails. In response, FDOT provided 13 files and explained that Trinity was reviewing more than 1,000 emails to redact confidential information before releasing them. According to FDOT, Trinity had obtained a protective order that prevented the release of "trade secret" records about the guardrail design.

• In Florida, the Department of Corrections (DOC) contracts with Corizon Correctional Healthcare to provide health care for inmates at 41 state correctional facilities. When an investigative news agency -- Broward Bulldog -- requested companies history of malpractice litigation from Corizon, the company refused to release the documents, claiming that the information was a "trade secret."

• Public pension systems -- government entities that manage retirements for public employees such as teachers and police officers -- contract with financial firms to invest pensioners' funds. In 2014, the Securities and Exchange Commission (SEC) expressed concern over the fees charged by buyout firms, prompting The Wall Street Journal to ask the Iowa Public Employees' Retirement System for information on the fees paid to private equity contractor KKR & Co. for a $70 million investment. In response, the IPERS conferred with KKR and released a heavily-redacted document that provided little information on KKR's fees. KKR's lawyer stated that disclosing the company's fees could cause "competitive harm."

Contractors may have legitimate reasons for keeping some company information private. But government contracting shouldn't create a black box that hides public information from public scrutiny.

Note that I have previously mentioned this topic, in other contexts:

Will FOIA be foiled by outsourced subcontracting?, and
Transparency is collateral damage when major work is contracted out

How Many Contractors Work for the Government? It’s a Mystery. (Click link to article)

How large is the U.S. government’s contract workforce? The answer could help gauge how much federal agencies are outsourcing work to the private sector. But no one has managed to nail down a definitive number to date. That includes the nonpartisan Congressional Budget Office, which took a crack at it after the top Democrat on the House Budget Committee requested an analysis.

“Regrettably, CBO is unaware of any comprehensive information about the size of the federal government’s contracted workforce,” the CBO said in a letter to Rep. Chris Van Hollen (D-Md.) on Wednesday. But, the CBO said government agencies spent more than $500 billion on outside products and services in 2012, based on the federal contracting database. The number represents a rapid increase over the past dozen years, with the costs growing more rapidly than inflation. Federal spending on contracts grew by 87 percent between 2000 to 2012, an average of about 5 percent per year. By comparison, inflation averaged less than 3 percent each year during that span. Contracting also grew as a percentage of total federal spending during that time.

The government may not have a handle on the size of its contract workforce, but the CBO analysis gives federal-employee advocates a sense of how much recent administration’s have relied on the private sector instead of their own personnel.

As good as it gets?

Calvo again vetoes procurement reform legislation

Just as he did last year, Governor Eddie Calvo has once again vetoed legislation that would reform Guam's decades-old procurement law. Governor Calvo says the Guam Legislature appears to be responding to pressure from the private sector with this bill adding "Bill 20 will only prolong frivolous protests and potential increased litigation at the expense and detriment of the people."

UPDATE: Another article on this subject has appeared today (March 14, 2015) here.

There's prejudice, and then there's prejudice

A few posts back, I reported on a Federal Court of Claims case, Universal Marine Co., K.S.C., v U.S, that held a protestor lacked standing if it could not support a claim of economic interest in a solicitation if it did not provide at least some facts alleging injury to itself from the mishandling of a solicitation, or as it is known, "prejudice". 

As the Court in that case concluded, "even though “proving prejudice for purposes of standing merely requires ‘allegational prejudice,’” Universal Marine has not alleged facts that, if true, would create a “substantial chance” that it would be awarded the contract."

Lawyers Alex D. Tomaszczuk and Alexander B. Ginsberg, from the firm Pillsbury Winthrop Shaw Pittman LLP, have expanded on the lessons from Universal Marine, in an article on the Lexology.com website, which I think you will find edifying. 

The lesson added is this: It's one thing to claim prejudice, and another to prove it.

As they put it:

It is important to note that the “allegational prejudice” relevant in Universal Marine is distinct from, but often confused with, a second variety of prejudice necessary for a protester ultimately to prevail on the merits of its protest. This second variety of prejudice—often referred to as “APA [Administrative Procedure Act] prejudice”—requires a protester to demonstrate that, but for any errors it identifies during the protest, it had a “substantial chance” of receiving the award. See Linc Govt. Servs., LLC v. United States, 96 Fed. Cl. 672, 695-96 (2010). (“In order to prevail in a bid protest, however, a plaintiff must satisfy a second type of prejudice requirement, one that has caused a good deal of confusion because it is often mistaken for its standing doctrinal fraternal twin. ...

The need for this second showing of prejudice is captured in section 10(e) of the Administrative Procedure Act. ... In particular, the APA instructs that ‘due account shall be taken of the rule of prejudicial error’ when determining whether to set aside any unlawful agency decision.”) Thus, the first variety of prejudice — that discussed in Universal Marine — relates to the protest as alleged, while the second variety of prejudice examines the effect of errors actually demonstrated on the merits. See USfalcon, Inc. v. United States, 92 Fed Cl. 436, 450 (2010). (“Since the prejudice determination for purposes of standing necessarily occurs before the merits of a protest are reached, the Court must accept the well-pled allegations of agency error to be true. ... Normally, if the protester's case rests on just one allegedly irrational action, or just one purported violation of a law or regulation, the finding of prejudice in the standing context will be replicated on the merits, once the asserted error is confirmed. But a different outcome is possible if more than one ground is raised, as multiple errors might cumulatively establish prejudice, but not a smaller combination of them.”)

Thus, a protester ultimately must show both types of prejudice for its protest to succeed. The Court, however, will never reach consideration of “APA prejudice” if the protester fails to allege—as Universal Marine failed to allege—that it is an interested party.