Frivolous claims of protest costs

Study: Contractor Protests Have Negligible Impact on Defense Acquisitions

Defense contractor protests draw disproportionate media attention even though most of them get resolved relatively quickly without causing major disruptions to military procurement programs.

Congressional Research Service defense acquisition specialist Moshe Schwartz and legislative attorney Kate Manuel took a deep dive into bid protest trends across the federal government in response to growing congressional interest in the subject. In recent years, lawmakers have become alarmed by blaring headlines about high-profile contractor protests, prompting both the House and Senate in their respective versions of the 2016 National Defense Authorization Act to direct the Pentagon to commission an independent study of bid protests.

Schwartz and Manuel crunched bid protest data from fiscal year 2001 to 2014. In their July 21 report, they find that while the number of bid protests is growing against civilian agencies, Defense Department contracts are now less likely to be protested and, when challenged, are less likely to be ruled by GAO in favor of contractors than is the case with civilian agency contracts. They note that protests against civilian agencies are increasing at a faster rate than protests against Defense.

When defense programs are delayed, protests themselves are not the reason, the study said.

Over the past four years, the number of protests filed with GAO has been constant — 2,206 in fiscal year 2011 compared to 2,269 in 2014. Most were dismissed, withdrawn by the protester or settled before GAO issued an opinion. In recent years, the percentage of protests won by contractors against the Defense Department has dropped by more than half.

The increasing willingness of agencies to voluntarily take corrective action is one of the most significant trends in bid protests, the study said. Actions include rewriting contract requirements or amend request for proposals. In cases when they believe the procurement was done properly, some agencies still agree to meet with the protesting party to clarify why it lost. The relatively large share of protests that are resolved via settlement is a significant trend, the study said.

Greater efforts to negotiate disputes have increased the so-called “effectiveness rate” of bid protests. That is the percentage of protesters that obtain relief either through a protest being sustained or voluntary action taken by an agency. Agencies tend to voluntarily take corrective actions rather than wait for GAO to sustain a protest. From 2001 to 2014, the effectiveness rate of GAO protests grew from 33 to 43 percent. It has averaged 42 percent over that past five years. One possible explanation for the higher effectiveness rate is the unpredictable nature of GAO opinions.

Another way to read this, CRS noted, is that corrective action reflects agency risk aversion and fear of losing a protest. In this context, the high likelihood of protests being resolved through voluntary actions encourages companies to file protests. Under this line of thinking, if agencies allowed more cases to be decided on the merits, companies might be less inclined to file protests.

The ups and down of government spending also influence the rate of protests as contractors are more motivated to challenge awards when they see fewer opportunities. When federal spending was on an
upswing from 2001 to 2008 — spending grew 100 percent — protests increased by 35 percent. The trend reversed from 2008 to 2014 when government spending dropped by 25 percent and protests increased by 45 percent.

The study also delved into the psychological warfare between agencies and contractors. The threat of protests may motivate agency officials to do more rigorous market research, hold a competition instead of awarding a sole-source contract, or conduct more thorough and fair competitions. But fear of protests also could prompt officials to structure contracts in ways that are less likely to be protested, such as using “lowest price technically acceptable” as award criteria, instead of a best-value competition when best value may be more appropriate.

The Congressional Research Service, as its name implies, is for Congress. CRS does not generally make the reports directly available to the public. Thus, hattip and credit to Sandra I. Erwin who wrote the above blog post on national defense magazine.org for doing a very complete job of cataloging the main findings of the report, titled GAO Bid Protests: Trends and Analysis.  

Although I was initially able to obtain a copy of the report with the aid of our local Delegate to the House, Congresswoman Madeleine Bordallo (because I live on Guam, I and my fellow Guamanian citizens have no representation on the floor of Congress and no representation in the Senate), the report has now found its indirect way online.

As the report (Number R40227) explains,

This report is one of two providing Congress with background on the GAO bid-protest process. It analyzes (1) trends in bid protests filed with GAO, (2) why companies protest, (3) the impact bid protests have on acquisitions, (4) the most common grounds for GAO to sustain a protest, and (5) trends in bid protests filed against DOD. Its companion report, CRS Report R40228, R40227, by Kate M. Manuel and Moshe Schwartz, provides background and an overview of the time frames and procedures in a GAO bid protest.

Also see Making Sense Out of the Recent Congressional Study on Bid Protests, written by lawyers from the firm Holland & Hart LLP, published on the website of the National Law Review.

Yes, GAO bid protest filings have risen in recent years. No news there.

CRS also looked at the “effectiveness rate.” CRS tried to explain why the effectiveness rate for GAO protests is so high. One theory cited by CRS is that agencies usually take corrective action after GAO has indicated that it is going to sustain the protest. But the data uncovered by CRS does not support that theory.

Another CRS theory for this high effectiveness rate is the “predictable nature of GAO opinions.” Based upon this theory, CRS concluded that “the effectiveness rate is a rough measure of the number of protests that have actual or potential merit.” That seems about right to us. GAO often (but not always) sustains protests that have merit. Agencies take corrective action where it’s necessary. No controversy there.

CRS looked at the impact of protests on contract awards and implementation. CRS found that in 2014, the average time it took for GAO to resolve a protest was 39 days. CRS also found that more than half of GAO protests were resolved before the agency even filed its report responding to the protest (due 35 days after the protest filing). Those cases were resolved by dismissal or withdrawal of the protest. The average time for those cases was 21 days.

CRS did not look behind those numbers to separate out dismissals for agency corrective action and the GAO’s summary dismissal of protests that are untimely, lacking detail, or that otherwise fall outside GAO’s protest jurisdiction (e.g., contract administration issues). Maybe it should have. Such analysis might have yielded useful results.

Protests that are summarily dismissed on jurisdictional or procedural grounds are over and done. There is no further impact to the procurement. Protests that are dismissed for agency corrective action will have further impact (and delay) on the procurement. But CRS didn’t undertake that analysis. Instead, CRS took another path.

CRS concluded that agency actions to respond to protest issues (through corrective action or where protests are sustained by GAO) “can delay contract awards for weeks or months, costing millions of dollars and delaying delivery of goods and services.” But CRS cited to only one old (2007) DOD memorandum and one article about a procurement impacted by a GAO decision to support that conclusion. It seems to us that CRS’s conclusion was worthy of more detailed study. Certainly, the important conclusion for consideration by lawmakers – that delays from protests cost agencies millions of dollars – should have been based upon more extensive supporting data.

Yes, bid protests cause delays in procurements. Yes, delays are longer when agencies have to go back and fix errors. But there are some simple conclusions to be drawn from CRS’s statistics, too.

CRS showed that 43% of GAO protests had sufficient merit to result in a sustain or an agency determination to undertake voluntary corrective action to rectify identified or potential flaws in the procurement process.  Shouldn’t those procurements be corrected no matter the delay?

CRS also showed that 57% of protests lack merit and that more than half of protests are resolved within 21 days. That sure sounds like the delay in a lot of protest cases is limited to 21 days. What are the costs in dollars of a 21 day delay on a procurement?

The longer delays and higher costs come from post-protest actions that drag out the process beyond the time the protest is pending. Those delays are not really “caused” by the protest. Rather, they are caused by the contracting agency’s mistakes. That is not just a semantic argument.

Our takeaway from this is that CRS statistics show a procurement and GAO protest system that is working effectively. Concerns over protest-related delays in the government’s ability to acquire necessary products and services is understandable and rational.

But don’t forget, agencies already have tools to deal with that. They can override the automatic stay of contract performance triggered by a GAO protest, and should do so when it’s in their best interest, or when their need for the solicited goods or services is urgent.

Read the article at the link; I've taken some editorial liberty, as usual in the posts here.

Assessing need assement

The procurement regimes generally prefer that government only gets what it needs, not simply what it wants. It is curious that there is not much guidance in assessing the "need". 

See, for instance, the recent bus controversy in Sierra Leone, mentioned in this post a few weeks back. It appears from the reporting that Sierra Leone spent millions of dollars to acquire a fleet of buses that simply can't get down the roads they are meant to travel. The need was for better roads, not bigger buses, but they only considered the buses as the need. 

They didn't assess their needs assessment. They didn't prioritize their needs, either in the sense of which is more important for the public good or in the sense of which need should satisfied as a prerequisite to another.

Case in point: The Federal Acquisition Regulations have a whole Part devoted "Agency Needs". But, it starts from the assumption the need itself has already been assessed as the best of all alternatives: the emphasis is only on describing the need in a manner to yield a good specification.

11.000 Scope of part.

This part prescribes policies and procedures for describing agency needs.

To some extent, this thought was evoked by the following articles (read more at the links).

Reform Defense acquisition to reflect cyber age

There is currently a communication gap that leads to a guessing game in which companies devote millions of dollars to develop products the DoD does not actually need and then — in an attempt to avoid losses — devotes enormous efforts to convincing the DoD it should purchase them anyway. Everyone would benefit from a more rigorous Internal Research and Development (IRAD) investment process that allows the defense contractors to better understand their customer — the DoD — so they can provide the best possible product in a timely manner. Not only could millions of dollars be saved, better and broader communication about the DoD’s forecasted cyber requirements would reduce the need for lobbying and insider information.

Defense procurements are intended to provide the necessary tools for the military to execute its mission of defending freedom in the real and virtual world. But before these tools can be placed in the hands of the end user, the defense department must lead a multiyear procurement process. The process typically involves three key elements: requirements development, industry engagement in a series of sterile forums, and an appropriation by Congress allowing a request for proposal (RFP) to go forward.

While it historically led to modest success for standard vehicles or floating platforms, this process is unfit for the digital age. This is because the morphing of cyber attacks and the evolution of the technology used to prevent them far outpace the procurement process’ creep. As the purchase cycle plods on, the product being acquired becomes obsolete, and modifications must be inserted into the products requirement. Modifying the product can delay the process by months and sometimes even years. If the RFP does not pass muster, a mid stream requirement change will be issued, setting a program back. While the beefed up review and approval process is undoubtedly important, it is also time consuming.

One silver lining is the recently announced Better Buying Power 3.0. With Under Secretary of Defense for Acquisition, Technology, and Logistics Frank Kendall at the helm, DoD plans to realign Internal Research and Development (IRAD) spending. The proposed realignment calls for DoD to take on a gatekeeper role over IRAD spending, with an eye towards increasing and improving engagement between the Department and defense contractors regarding the DoD’s upcoming needs.

Comprehensive cyber reform is a complicated problem for which there is no silver bullet. However, finding ways for the procurement process to keep pace with ever evolving threats and technology and to be welcoming to non-traditional players is an essential piece in the complicated puzzle of protecting America from cyber threats. The reform of Better Buying Power provides an opportunity to increase DoD’s engagement with small, innovative companies. Silicon Valley executives already serve as trusted advisors on the digital warfront, but their expertise could also be harnessed to develop products and systems for the government. Under Secretary Kendall should use the realignment process to pull Silicon Valley’s finest into the procurement fold, assuring they are informed of DoD’s future requirements and that Department personnel are available to serve as envoys to tech companies as they navigate the complexities of the procurement process and the inner workings of DoD.

Making Defense Reform Sane Again: Planning, Programming, Budgeting, and Execution

Defense Secretary Ashton Carter has repeatedly called for reforms to the Pentagon’s ineffective acquisition system, and rightly so. Yet the troubled acquisition process is only one aspect of a larger departmental failure to align strategy with resources. To truly reform the Pentagon, Secretary Carter should take steps to narrow the gap between the theory and practice of the process designed to develop the future force: the Planning, Programming, Budgeting, and Execution (PPBE) system.

The PPBE process suffers from three discrepancies between how it functions in theory and in practice: an unrealistic timeline, a stove-piped analytic system, and a reliance on Overseas Contingency Operations (OCO) funding.

On paper, PPBE is presented as four distinct stages that progress sequentially: planning outlines the future security environment; programming proposes programs for investment; budgeting develops a detailed budget according to fiscal guidance; and execution ensures compliance throughout the process. Yet, in practice, all of these ostensibly distinct stages overlap.

To map out the future security environment and determine which roles and missions should be prioritized, the Pentagon requires scenarios and modeling. Yet instead of maintaining a common baseline and robust joint analytic community, the relevant actors within the Pentagon lack a shared grasp of necessary assumptions, constraints, and objectives. At present, each actor defines a future security environment that suits its particular interests. The military services are particularly guilty of this myopia, maintaining independent analysis centers that are much larger and better equipped than those of the Joint Staff. This bureaucratic arrangement undermines the central oversight necessary for scenario development.

Five steps can fix these problems and bring resources back in line with strategy. First, to reduce the workload demanded by the current annual PPBE timeline, the department should receive appropriations and authorizations for two-year periods instead of the current annual arrangement. Two-year budgets could undergo a second round of amendments after the first year to assuage congressional concerns about allocating an additional year of funding. Congress could thereby maintain a reassuring level of control over the process while enabling the flexibility the Pentagon requires.

Second, to encourage prioritization of the planning guidance, the secretary of defense should label roles and missions for the military as critical, high-risk, low-risk, or optional. In a time of fiscal austerity, prioritizing is a particularly important initiative in making the best use of scarce time and resources.

Third, to address the lack of analytical centralization and coordination, the next administration should appoint and empower a director of Cost Assessment and Program Evaluation (CAPE) with a strong vision of the organization’s role. This would ensure that CAPE maintains the resources and staff necessary to help the services integrate their activities. Moreover, the director of CAPE should work more closely with the Joint Staff’s Force Structure, Resource, and Assessment directorate to prioritize joint scenario development.

Fourth, the Pentagon must lessen its reliance on OCO funding. Current incentives preclude the services from doing so because programs and operations can all too easily be labeled as “war-time funding,” bypassing the closer scrutiny of normal budgetary channels.

Fifth, to promote a greater understanding of the process, defense leaders across the Pentagon should increase educational opportunities related to PPBE at the working level. To help defense personnel think more strategically and serve as better stewards of taxpayer dollars, the secretary of defense should make a PPBE familiarization course mandatory for all headquarters personnel. Doing so would help to introduce more individuals to this critical discussion and spur a new conversation regarding the disconnect between defense priorities and resources.

Another call for "special" treatment

AFP upgrade needs special rules

THE ARMED FORCES of the Philippines (AFP) has asked Congress to put up specialized rules to govern defense purchases, saying that the government’s procurement laws have posed as bottlenecks to the agency’s planned upgrades. The House committee on defense and national security called for a panel inquiry for updates on the AFP program, which has been signed recently amended in 2012.

Despite an allocation of P82.48 billion for the AFP Modernization Program until 2027, artillery and vessel upgrades have been delayed as the military had to endure the regular procurement process under Republic Act (RA) 9184, a military official said. “The acquisition system has been challenged by stringent requirements of RA 9184,” AFP Deputy Chief-of-Staff for Plans Brig. Gen. Guillermo A. Molina, Jr. told lawmakers during a sunset review of the AFP modernization program at the House of Representatives. Mr. Molina said the strict guidelines set by the procurement law has weighed on the pace of AFP’s acquisition of additional firearms and defense systems.

Of 30 planned projects under RA 10349 signed nearly three years ago, only two are under implementation while 28 remain stuck under various stages of procurement, a status report presented by AFP officials yesterday showed.

Department of National Defense (DND) Assistant Secretary Patrick M. Velez appealed to Congress to look into either amending the country’s procurement law to leave room to address specific issues on defense purchases, or include a provision in the two AFP modernization bills to exempt them from the limitations of the procedure

.
AFP asks Congress to ease procurement guidelines for defense equipment

One of the changes that the AFP proposed is the extension of the 30-day period for bid submissions since it has proven to be realistic. Velez said the procurement of defense equipment usually takes a longer time since it is sourced overseas.

In addition, the preference for lowest calculated bids and local producers should be relaxed since the highly advanced systems available abroad can be tailor-fit to meet specific requirements.

Velez said it might also be better if a separate procurement entity for defense agencies or uniformed personnel services be established since the recent trend in defense procurement remove the responsibility of purchasing equipment from the armed forces.

“[That] would now result to professionalization of defense procurement and correct certain deficiencies,” he said.

Read more in each of the articles at the links.

This is a theme that pops up frequently. For example:

Special needs and higher education, and

When corners are cut, even for great reasons (e.g., war), the way is opened for fraud

Even in countries or other jurisdictions that don't seem to have a history of questionable procurements, a cry for special treatment should be treated with critical and cynical scrutiny. 

If they had their "druthers", most bureaucracies, private or public, don't want to have to account for their acquisitions or be bothered to conduct them in a fair, honest, transparent and, yes, efficient manner. That kind of scrutiny is beneath them, and they are way too important to have to answer for their actions. It's a case of a patronizing "father knows best" attitude.

When someone says, "trust me, I'm from the Government and I'm only here to help", don't fall for it lightly.  It can and does happen, but those usually are not self-proclaimed "special" cases.

"Same old story ... failure to follow the rules"

Too many people blame the rules. They'd rather do without them. This is (another) story of how that works out for you.  Not surprisingly, this comes from Texas.

State auditors find problems with Land Office contracts

The Texas General Land Office had a conflict of interest when hiring the firm Grant Thornton LLP for oil and gas royalty audits. The July 2015 report said the land office’s former director of financial subsidiary operations had a “personal and professional association with her former supervisor,” who now works as a subcontractor to Grant Thornton. The land office employee served as a liaison between the two offices.

State Auditor Terry Keel’s office launched its audit in December 2014 after the three contracts were procured. The land office agreed with the state’s recommendations, which called for a cost analysis, a needs assessment and addressing any conflicts of interests prior to each procurement.

State procurement requirements call for agencies to disclose conflicts of interests during contract planning but the office failed to do so. [Some go further: disclosure only works when someone somewhere cares and pays attention. Some jurisdictions require recusal, and some fewer add bite to the requirement.]

Tom “Smitty” Smith of the group Public Citizen said, “It is the same old story of allegations of conflict of interest and failure to follow the rules for contracting.”

The state also found that the land office did not compare the cost of hiring full-time employees to conduct oil and gas royalty audits with the cost of contracting Grant Thornton LLP. According to the report, the office could have hired four employees to complete four audits for $426,813, but the Grant Thornton contract totaled more than $1 million.

A separate contract with IDEA Integration Corporation for information technology services was also not planned and monitored correctly, the audit found. The state’s Quality Assurance Team, which monitors major information resources projects for agencies, was not involved with the $1.9 million contract. Normally, if contract expenditures exceed $1 million it must be reviewed by the group.

In addition, the office assigned contract managers that had not obtained contract management training that is required by law.

This is not the first time state contracting practices have been under scrutiny, but Gov. Greg Abbott recently signed approved legislation that will strengthen state contracting regulations. The approval came after it was discovered that the Health and Human Services Commission handed a $110 million contract to Austin technology company 21CT. “It just goes to show you can’t trust the state agencies to do it without an outside agency to supervise their work,” Smith said. “This is the same story here — agency after agency failing to follow basic contracting provisions.”

Audit Finds "Significant Weaknesses" in GLO Contracting

The General Land Office’s contracting procedures are riddled with “significant weaknesses” that threaten the agency’s ability to ensure it is wisely spending its dollars, State Auditor John Keel said in a report made public Tuesday. “Due to significant weaknesses in its processes,” the audit said, the General Land Office “did not always plan, procure, form, and monitor” the contracts according to state rules and the agency’s own policies.

The GLO has a wide range of duties, including managing the rights to millions of acres of state-owned minerals, protecting the state’s coastline, handling billions of dollars for disaster recovery, preserving the Alamo and administering loans and other benefits to veterans.

For the nearly $2 million Grant Thornton contract, signed in 2013 and renewed in 2014, the auditor identified “significant deficiencies,” such as failing to study whether it needed to hire the firm in the first place. “The Office did not assess the need to hire Grant Thornton to provide supplemental staffing for the Office’s existing minerals audit department,” the report said. The agency researched rates at other firms, but only after it decided to hire Grant Thornton.

The agency initially told the state auditor that it removed the employee from the Grant Thornton contract, but it downplayed her involvement in brokering the contract. The auditor, however, concluded that the employee “had a significant role in the procurement,” including attending a relevant meeting, preparing a proposal for staffing mineral audits with Grant Thornton personnel and helping approve contracts with the company in 2013 and 2014.

The audit found other problems with the information technology contract with IDEA Integration Corporation. In that case, the report said, the GLO prepared an incomplete “statement of work,” and underestimated the roughly $1.9 million cost. The agency initially pegged the cost at about $93,000. While planning the deal, the agency "did not include key information, such as project time lines and applicable Texas Administrative Code information technology requirements," the report said.

Because of that error, the auditor said, agency staff did not complete disclosure forms designed to ward off nepotism, as required for contracts over $1 million.

In contrast, this:

UK: How To Guard Against Bribery And Corruption In The Tender Process

Any company caught paying bribes faces the prospect of a criminal conviction, an unlimited fine and terrible publicity. A further consequence for those supplying the public sector, is a discretionary ban from bidding for government contracts across the EU if the company is convicted of the offence of failing to prevent bribery under section seven of the Bribery Act 2010. The ban would be mandatory if one of the directors (or any person who has powers of representation, decision or control of the company) is involved and is convicted of bribing another person or a foreign public official under sections one or six of the Act. The stakes are high so it is important to have policies to prevent bribes being paid on your behalf.

For example taking a procurement manager for an expensive day out shortly before they decide on a tender. This could be unlawful if the intention was to influence their decision to favour your bid for reasons other than the relative merits of your tender. Timing is everything. The closer in time the hospitality is to a contract award the greater the likelihood that there will be an inference of impropriety.

What is required is a culture in which bribery is not tolerated at any level.

In a procurement setting you must understand the rules and stick to them.

Stepping back from the trees to view the forest

I have to be guilty of coming into the world of procurement with a bit of anti-corruption fervor. One's first dealing with such a mysterious scheme can produce paranoia, seeing evil in the many shadows kept from the light. Transparency becomes a cure-all.

Hopefully, my continued interests have moved beyond that initial perspective. A corruption-free procurement system is a necessary, but not sufficient, condition to enjoy an effective procurement regime for good governance. 

Good governance is concerned with "the creation of a shared sense of “us,” an imagined community on whose behalf the state acts" (as suggested by a quote from below), as envisioned, for instance, in the US Declaration of Independence, which concretely created a coalition of declared independent colonies, and its Constitution, which concretely created a new nation.  Good governance is most concerned with creating and maintaining a state that continues to provide peaceful prosperity for the community.

But good governance also requires maintaining that shared sense, not an easy task when competing interest groups bay for priority.  

As we look at the inevitable "problems" and imbalances in the procurement regime, as well as proposed "solutions" to the problems, we need to be ever mindful of which interests, political and private, contributed to the problem in the first place, and what interests benefit, or suffer, as a result of the problem and proposed solutions.  

We need to stay focused on good governance for all of us.  Not each of us, but for the whole and wholesomeness of the community on whose behalf an effective state acts.

The following articles are not all directly related to these comments but do suggest we need to step back from a close-up view of procurement problems from time to time, to observe the larger picture. (Again, read the articles in full at the links: I make no claim to representing them fully, accurately or as intended by the author, however much I may desire to keep faith with the essential message inferred.)

1/2 TRILLION spent on IT upgrades, but IRS, Feds still use DOS, Windows 97

President Obama's team has spent more than a half trillion dollars on information technology but some departments, notably the IRS, still run on DOS and Windows 97, which isn't serviced anymore by Microsoft, according to House chairman.

"Since President Obama has taken office, the federal government has spent in excess of $525 billion dollars on IT. And it doesn't work," said Rep. Jason Chaffetz, chairman of the House Oversight and Government Reform Committee. [That statement may be accurate as far as it goes, but to be fair I believe Windows 97 and DOS were introduced at least a decade before he took office.]

He said his committee is planning a deep probe into IT spending and why so many systems are still not updated.

"It's not the biggest, sexiest headline, but I don't know how you can spend a half trillion dollars and literally have" departments on out-of-date operating systems, he told Ripon according to a transcript and video provided to Secrets.

"The IRS still uses the DOS operating system. You have a Patent office that just got Windows 97. They don't even service Windows 97 anymore.  And yet they just got it.  So the procurement process is really, really broken in this regard," he added.

"I do appreciate the president's initial appointment of Beth Cobert as the acting director. She has 15 or so years at McKinsey & Co. and Nokia.  She's a much more serious player. Unfortunately, the president had put in someone in Katherine Archuleta, who was his political director on Obama for President.  She had absolutely no business running what is really the largest human resources operation on the face of the planet.  She had no technical background whatsoever, no experience dealing with these major computer issues," he said.

Cutting Troops But Letting the Civilian Army Swell

On July 9 the Army announced that 40,000 soldiers will be cut from active duty—some involuntarily. This comes on top of the 80,000 soldiers already let go since the Iraq and Afghanistan buildup. At a time of increasing global tension, the American military is smaller than it was before 9/11 at the nadir of the Clinton “peace dividend” drawdown.

Yet even as the military shrinks and readiness wanes, the Pentagon’s two civilian workforces—government employees and federal contractors—remain disproportionately large. Since 2010, the Pentagon’s civilian staff has grown 6%, to 744,000. Contractors: up 20%, to 730,000. Active duty military personnel, who number 1.36 million, are now outnumbered by the civilians supporting them—a historic shift.

The Pentagon’s purchasing power is staggering, and it now buys more services than hardware. Many tasks are contracted out, from basic IT and food service to bomber maintenance and logistics support. In 2010 the Pentagon spent $205 billion on equipment and $134 billion on services. By 2014 that relationship flipped, with $161 billion to services and $143 billion to weapons systems. This doesn’t include spending on services that are classified.

Everyone knows about cost overruns and schedule slips with the military’s flagship weapons programs, from the F-35 Joint Strike Fighter to the Navy’s newest all-electric aircraft carrier. But other bureaucratic missteps fly under the radar. Failures in IT acquisition akin to Healthcare.gov occur regularly in Pentagon service programs.

Because the Pentagon cannot adequately manage this unaccountable army of contractors, it ends up shortchanging the military, which is starting to lose critical staff, notably mid-grade field officers and senior noncommissioned officers.

Congressional and Pentagon leaders must impose oversight on the Pentagon’s shadow workforce. A start would be to get a handle on what contracts are in effect now. The Pentagon’s inventory of contracted services lacks a standardized classification, so it’s difficult to compare by type of service, price paid and contractor employed. With an adequate data set and support from top leaders, procurement professionals could analyze services spending, recommend better choices and avoid wasting precious defense dollars on excess or redundant services.

The arcane purchasing process is a high-profile issue inside the Beltway at the moment. This year’s National Defense Authorization Act contains more than 150 legislative provisions on acquisition reform alone—but only for weapons systems, not Pentagon services.

Fighting Corruption Won’t End Poverty

Countries are poor because governments are corrupt. And, unless they ensure that public resources are not stolen, and that public power is not used for private gain, they will remain poor, right? It certainly is tempting to believe so. Here, after all, is a narrative that neatly aligns the promise of prosperity with the struggle against injustice.

But that won’t necessarily make their countries more prosperous.

Consider the data. Probably the best measure of corruption is the World Bank’s Control of Corruption Indicator, which has been published since 1996 for over 180 countries. The CCI shows that while rich countries tend to be less corrupt than poor ones, countries that are relatively less corrupt, for their level of development, such as Ghana, Costa Rica, or Denmark, do not grow any faster than others.

Nor do countries that improve in their CCI score, such as Zambia, Macedonia, Uruguay, or New Zealand, grow faster. By contrast, the World Bank’s Government Effectiveness Indicator suggests that countries that, given their income level, have relatively effective governments or improve their performance, do tend to grow faster.

Our moral sentiments are strongly related to feelings of empathy in the face of harm and unfairness. It is easier to mobilize against injustice than for justice. We are more enthusiastic to fight the bad – say, hunger and poverty – than to fight for, say, the kind of growth and development that makes food and sustainable livelihoods plentiful. But, in the case of corruption, which is a bad that is caused by the absence of a good, attacking the bad is very different from creating the good.

Aside from prosecuting some bad apples, measures to fight corruption typically involve reforming procurement rules, public financial-management systems, and anti-corruption legislation. The underlying assumption is that the new rules, unlike the previous rules, will be enforced.

That has not been Uganda’s experience. In 2009, under pressure from the aid community, the government enacted what was billed at the time as the best anti-corruption legislation in the world; and yet all corruption indicators have continued moving south. Uganda is not an exception.

The anti-corruption agenda often ends up stimulating the creation of organizations that are more obsessed with abiding by the new and burdensome processes than they are with achieving their stated goals. As Harvard’s Lant Pritchett, Michael Woolcock, and Andrews argue, when inept organizations adopt “best practices” such as financial management systems and procurement rules, they become too distracted by decision-distorting protocols to do what they were established to do.

As Francis Fukuyama has pointed out, the development of a capable state that is accountable and ruled by law is one of the crowning achievements of human civilization. It involves the creation of a shared sense of “us,” an imagined community on whose behalf the state acts.

Some might argue that reducing corruption entails the creation of a capable state; the good is created out of the fight against the bad. The good is a capable state: a bureaucracy that can protect the country and its people, keep the peace, enforce rules and contracts, provide infrastructure and social services, regulate economic activity, credibly enter into inter-temporal obligations, and tax society to pay for it all. It is the absence of a capable state that causes corruption (the inability to prevent public officials, often in collusion with other members of society, from subverting decision-making for private gain), as well as poverty and backwardness.

This is not an easy task when societies are deeply divided by ethnicity, religion, or social status. After all, who is the state for?

What is to prevent the ethnic group currently in power from diverting resources to itself on the argument that “it’s our turn to eat?” Why shouldn’t those currently in control of the state transform it into their patrimony, as in Venezuela, where, more than two years after former President Hugo Chávez’s death, his daughters still occupy the presidential residence?

The fight against corruption mobilizes all of us because we want to do away with evil and injustice. But we should remember that casting the bad into the sea does not imply the sudden appearance on our shores of the good that we need.

Procurement controversies -- Australia

Another useful article from Lexology. Useful because it speaks in general principles that we see played out in different costumes in different places but with similar themes and morals.  As usual, don't rely on this rendition as a full and complete account.  Refer to the original at the link for references and other essential material.

Is a perceived conflict of interest enough to derail a tender process? by Australian lawyer Liana Westcott of the firm Russell Kennedy (see original published article here).

Beech-Jones J of the NSW Supreme Court has just finished grappling with procedural fairness, process contracts, bases for judicial review and LinkedIn profile updates in order to hand down his ex tempore judgment in Karimbla Properties (No 50) Pty Ltd v State of New South Wales & Anor.

The matter arose out of a tender for the sale of land at Macquarie Park by UrbanGrowth, a NSW corporate body established by legislation. UrbanGrowth planned a two-stage process commencing with an Expression of Interest and then proceeding to an Invitation to Tender with shortlisted entities.

One of the potential tenderers hoping to develop the site was Karimbla, part of a group of companies known as the Meriton Group.

Unfortunately, one of UrbanGrowth’s officials running the tender process was on both sides of the fence – simultaneously conducting the shortlisting process for UrbanGrowth and applying for a job with Meriton. Predictably, he neglected to declare this conflict of interests to UrbanGrowth or, it seems, to the independent probity adviser appointed to oversee the process.

Karimbla was shortlisted for participation in the second stage of the process, but things came unstuck when the gentleman’s UrbanGrowth colleagues noticed he had updated his LinkedIn profile with his new job – at Meriton.

A series of meetings followed and, after an exchange of correspondence on the issue, UrbanGrowth determined that the defensibility of the tender process had been tainted sufficiently that Karimbla / Meriton should be excluded from further participation. Although there was no evidence that confidential information had actually been leaked to Karimbla / Meriton, or that any favouritism had actually been afforded to Karimbla / Meriton in the shortlisting process, UrbanGrowth argued that the perception created by the circumstances was such that other tenderers could not be confident in the transparency and fairness of the process, and may withdraw if the issue was not resolved.

Meriton sought an injunction to prevent UrbanGrowth from continuing with the tender process or, alternately, to prevent an exchange of contracts flowing from the tender process. Counsel for Meriton raised a number of arguments around the amenability of the tender process to judicial review, the source of UrbanGrowth’s power to exclude a tender and the existence of a process contract requiring fair dealing by UrbanGrowth.

The Court (rightly in our view) dismissed the application, and in doing so made a number of useful observations drawing on existing case law:

• The right to exclude a tender does not generally have a statutory basis, and accordingly will not be subject to judicial review.
• While it is possible for a process contract to be formed by the issue of an approach to market, a properly drafted exclusion of legal relations in that document will generally be effective to negate a process contract.
• The fact that UrbanGrowth’s decision to exclude was based on perception only and not actual wrongdoing by the tenderer did not undermine its validity.

Ultimately, the application for injunction was dismissed and UrbanGrowth was able to proceed with the second stage of the tender process – without Karimbla / Meriton. While the outcome was largely positive for

UrbanGrowth, it was unfortunate for Karimbla / Meriton. By failing to identify the clear conflict inherent in employing a member of the UrbanGrowth tender team and declaring it proactively to UrbanGrowth, they lost the opportunity to win an attractive development opportunity.

With any luck, the case will prompt government entities to look more closely at their conflict of interest policies and practices, to ensure that employees and potential tenderers understand precisely what is expected of them, and are held accountable when those obligations are not met.

For a story that is not a repetition but does rhyme with this theme, see another recent conflicts case from Lexology, this one in the US:

Access to pre-solicitation information without mitigation plan: a recipe for rescission

The Court of Federal Claims (“CFC”) recently made clear that mere access to pre-solicitation information creates a potential Organizational Conflict of Interest (“OCI”) that can invalidate an award.

Can we have a discussion clarifying the solicitation?

Following on from the prior post and topic: discussions during the solicitation process. Along the way, "clarifications" are distinguished from "discussions". This case concerns my backyard -- Wake Island. But, America wakes to a new day in the Mariana Islands, not Wake Island. The same caveats apply here, and in all posts on this blawg, as mentioned in the prior post.

Matter of: International Waste Industries, B-411338, July 7, 2015

International Waste Industries (IWI) protests the Department of the Air Force’s award of a contract to Mahto Construction, Inc. (Mahto), of Wasilla, Alaska, under request for quotations (RFQ) for a solid waste incinerator for use at Wake Island. IWI contends that the agency unreasonably determined that its quotation was technically unacceptable and also engaged in unequal discussions.

The RFQ provided for award of a fixed-price contract for a solid waste incinerator to be delivered to Joint Base Pearl Harbor Hickham, for use on Wake Island by the Missile Defense Agency. Award was to be made to the vendor submitting the lowest‑priced technically acceptable quotation that conformed to the terms of the solicitation. The RFQ advised that to be technically acceptable, vendors must meet all of the specifications in the statement of work. In this regard, the statement of work included 11 specific requirements, including, as relevant here, that the incinerator be lined with replaceable ceramic refractory material.

he RFQ also provided, with regard to discussions, that:

The Government intends to evaluate offers and award without discussion, but reserves the right to conduct discussions. Therefore, the offeror’s initial offer should contain the offeror’s best terms from a price and technical standpoint. However, the Government reserves the right to conduct discussions if later determined by the contracting officer to be necessary.

As relevant here, Mahto’s quotation stated the following with regard to installation costs:

Mobilization to and from Jobsite by EWS technicians (air travel, taxi etc.) and Room and Board on-site. To be billed separately at $ per diem. In addition, with regard to “Payment Terms,” Mahto’s quotation listed a “Schedule of Payments” as follows:
[deleted]
[deleted]
[deleted]
[deleted]

After reviewing Mahto’s quotation, the Air Force contacted Mahto regarding the terms of its quotation set forth above. Specifically, the agency and Mahto engaged in the following exchanges:

[Agency Question] No. 1 - This requirement is intended to be awarded as a “Firm Fixed Price Contract.” Part II; page 6; item 11 lists Per Diem rates for technicians[.] CLIN [Contract Line Item Number] 0002 of the solicitation document asked for up-front pricing in regards to training and setup/support on Wake Island. Does the price quoted for CLIN 0002 encompass all travel, per diem, lodging costs and all other associated costs with commissioning/installing this Incinerator at Wake Island?

[Mahto Answer] The price quoted in CLIN 0002 encompasses all travel, per diem, lodging costs, and all other costs associated with commissioning/installing of the incinerator at Wake Island. For greater clarity, no additional costs will be invoiced/charged beyond the amount listed in CLIN 0002 for commissioning/installation of the incinerator at Wake Island without discussion and agreement by the USAF [U.S. Air Force].

[Agency Question] No. 2 - Page 8 of the Combined Synopsis Solicitation has a fill in section for “Net Terms.” Part II; page 6 of your pricing schedule lists your payment terms as a “Schedule of Payments” or progress payments. Acquisitions procured using FAR Parts 12 and 13 for the purchase of commercial items are typically paid using Net 30 Payment Terms, i.e., you would be paid within 30 days of the customer/end user accepting your invoice. The question here is do you accept Net 30 Payment Terms?

[Mahto Answer] Mahto Construction accepts a Net 30 payment term. Having stated this, we would prefer a progress payment schedule, which could be discussed/agreed-to at the time of po [purchase order] but if this is a non-starter for the contract, Net 30 terms are completely agreeable.

After conducting this exchange, the agency determined that Mahto’s quotation was technically acceptable. The agency, however, evaluated IWI’s quotation as technically unacceptable because, among other things, the agency found that IWI’s quotation did not specifically state whether its ceramic refractory material was replaceable.

After evaluating quotations, the Air Force concluded that Mahto, the highest-priced vendor, submitted the only technically acceptable quotation.

WI contends that the agency improperly held discussions with other vendors, but not with IWI. IWI argues that, had the agency conducted discussions with all of the vendors, IWI could have clarified the issues in its proposal that led to the agency’s conclusion that its quotation was technically unacceptable. In any case, asserts the protester, the agency unreasonably determined that its quotation was technically unacceptable.

As noted above, this procurement was conducted under the simplified procedures for evaluation of commercial items. Simplified acquisition procedures are designed, among other things, to reduce administrative expenses, promote efficiency and economy in contracting, and avoid unnecessary burdens for agencies and contractors. When using these procedures, an agency must conduct the procurement consistent with a concern for fair and equitable competition and must evaluate proposals in accordance with the terms of the solicitation.

Our Office reviews allegations of improper agency actions in conducting simplified acquisitions to ensure that the procurements are conducted consistent with a concern for fair and equitable competition and with the terms of the solicitation. Although an agency is not required to conduct discussions under simplified acquisition procedures, where an agency avails itself of negotiated procurement procedures, the agency should fairly and reasonably treat offerors in the conduct of those procedures. In this regard, FAR § 15.306 describes a range of exchanges that may take place when the agency decides to conduct exchanges with offerors during negotiated procurements.

Clarifications are “limited exchanges” between an agency and an offeror for the purpose of eliminating minor uncertainties or irregularities in a proposal, and do not give an offeror the opportunity to revise or modify its proposal. Clarifications are not to be used to cure proposal deficiencies or material omissions, or materially alter the technical or cost elements of the proposal, or otherwise revise the proposal.

Discussions, on the other hand, occur when an agency communicates with an offeror for the purpose of obtaining information essential to determine the acceptability of a proposal, or provides the offeror with an opportunity to revise or modify its proposal in some material respect.

As a general matter, when an agency conducts discussions with one offeror, it must afford all offerors remaining in the competition an opportunity to engage in meaningful discussions. Further, it is the actions of the parties that determines whether discussions have been held and not merely the characterization of the communications by the agency.

The Air Force asserts that its communications with the Mahto were clarifications, not discussions. We disagree.

Mahto was permitted to revise portions of its quotation that did not comply with the solicitation’s terms. In this regard, the RFQ did not include any provision for progress payments, and instead incorporated FAR § 52.212-4, which provides that: “Payment shall be made for items accepted by the Government that have been delivered to the delivery destinations set forth in this contract.” Mahto’s quotation, however, instead quoted a schedule of payments under which payments would be made in four installments at various contract milestones. When the agency communicated with Mahto about this discrepancy, Mahto altered its quotation, dropping the requirement for progress payments, and instead agreed to accept the agency’s proposed “Net 30” payment terms.

In addition, although the RFQ required vendors to propose a fixed price for 16 days of training, setup, and support on Wake Island, Mahto’s quotation stated that the costs associated with its technicians’ work on Wake Island would be “billed separately” on a per diem basis. Where, as here, a solicitation requests proposals on a fixed-price basis, a price offer that is conditional and not firm cannot be considered for award. Thus, Mahto’s statement that the costs of transporting technicians to and from the jobsite would be billed separately failed to comply with the RFQ’s requirement that vendors quote fixed prices for that work.

The agency’s communications with the awardee invited a response from Mahto that was necessary to determine the acceptability of Mahto’s quotation and, in fact, resulted in Mahto being permitted to supplement or alter its quotation. This is quintessentially the nature of discussions, not clarifications. Accordingly, we conclude that the Air Force, having conducted discussions with Mahto, was required to also conduct discussions with all other vendors in the competition, including IWI. We sustain the protest on that basis.

A case of unequal and misleading discussions?

This GAO decision involved an RFP for shipping/logistics services to GITMO. It was to be awarded based on a basis of Lowest Priced Technically Acceptable proposals (in a variant of the "multi-step bid" method of the ABA Model Procurement Code as adopted on Guam). For purposes of this post, technical acceptability was not an issue.   At the end of the first round, the protestor was low priced. But, the government agency, TRANSCOM, had issues with both bidders' prices, saying in most respects they were too high (unreasonable) and in some cases too low (unrealistic, resulting in the appearance of unbalanced pricing).

Discussions were had with each of the bidders in which TRANSCOM aired its concerns about pricing. Subsequently, the protestor raised its overall price and the awardee lowered its price, with the result the protestor was no longer low priced; it priced itself out of the contest.

Was it something the government said?

The usual caveats apply: read the case at the link. This rendition is not complete, is not accurate and may not be entirely a fair characterization, regardless of my intention. So, you are warned.

Matter of: TransAtlantic Lines, LLC, B-411242; B-411242.2, June 23, 2015

TransAtlantic Lines, LLC, protests the award of a contract for cargo transportation services. The RFP sought proposals for dedicated liner service for containerized and breakbulk cargo between Jacksonville/Blount Island, Florida and the U.S. Naval Station Guantanamo Bay, Cuba (GTMO). The RFP contemplated the award of a fixed-price requirements contract for a base year and two option years, with award to the lowest-priced, technically‑acceptable (LPTA) offeror. The RFP identified the following non-price technical evaluation factors, under which proposals would be rated as acceptable or unacceptable: technical capability, past performance, and information assurance and cyber security. If the proposal clearly met the minimum requirements of the solicitation, an acceptable rating would be assigned.  If a proposal was rated unacceptable under any subfactor, the proposal’s overall technical rating would be unacceptable.

With respect to technical capability, the RFP instructed offerors to submit written narratives demonstrating the offeror’s understanding of the Performance Work Statement (PWS) requirements and explaining how the offeror would meet the solicitation requirements. In addition, the RFP identified three technical capability subfactors: equipment, management of operations, and schedule. With respect to equipment, the RFP first instructed offerors to “identify the vessel(s) . . . to be utilized for this contract” and to “[d]escribe the quantity and type of equipment proposed to perform the requirements.” The RFP advised that offerors’ descriptions of the proposed vessel(s) and equipment had to be “sufficient to ascertain compliance” with several specific PWS sections, including those related to vessel cargo space, equipment, and GTMO’s port characteristics. With respect to the management of operations subfactor, the RFP required, among other things, that offerors describe their planned approach to meeting and managing several PWS requirements, such as port operations and transportation of hazardous cargo. With respect to the schedule subfactor, the RFP required that offerors propose a liner schedule that met the PWS’s departure, arrival, and transit requirements.

With respect to price, the RFP instructed offerors to complete a pricing schedule listing proposed individual rates for 105 line items under four categories: accessorial, ocean, single factor, and fuel. The RFP advised that TRANSCOM would evaluate individual rates, the proposed price for each period of performance, and the total proposed price to ensure fair and reasonable prices. The RFP further provided, “Unreasonably high prices may result in elimination of an offeror from further consideration.”

Two offerors, TransAtlantic and Schuyler, submitted proposals. A four-person technical evaluation team (TET) evaluated the two proposals and ultimately assigned both proposals acceptable ratings. However, with respect to price, the agency’s source selection evaluation board (SSEB) initially concluded that TransAtlantic’s total proposed price of $17,782,987.50 and Schuyler’s total proposed price of $19,692,588.50 were not fair and reasonable due to high rates for certain line items.

More specifically, the price analysis concluded that six of TransAtlantic’s individual rates were “significantly overstated.” In addition, the SSEB also noted “the presence of significantly overstated and significantly understated line items rates,” which raised the concern of unbalanced pricing. (As an illustrative example, the price evaluation team highlighted that TransAtlantic’s “extremely high container rates are being offset by the low container rates in an attempt to maintain a specific Total Evaluated Price.”) With respect to Schuyler’s proposed rates, the evaluators found that 12 line items in the accessorial and single factor categories were “unreasonably high,” and concluded that two individual mileage rates in the base year, as well as the firm’s [deleted] percent escalation in the option years, were also unreasonable.

Consequently, TRANSCOM entered into discussions with the two offerors in an effort to remedy the pricing concerns. The agency conducted multiple rounds of discussions with both offerors. Ultimately, the firms reduced their rates for the line items at issue and provided sufficient substantiation for their prices such that the price evaluators were able to deem the proposed prices fair and reasonable.

Notably, in addition to reducing its rates for certain line items, TransAtlantic also increased rates for other line items. In its final proposal revision (FPR), TransAtlantic’s total proposed price increased to $20,841,427.50, whereas Schuyler’s total proposed price decreased to $16,812,960.50.

TransAtlantic complains that TRANSCOM engaged in unequal and misleading discussions with the offerors. As noted above, the SSEB initially deemed both offerors’ prices as not fair. The EN required TransAtlantic to “substantiate the rates” or submit a revised pricing schedule for evaluation. In addition, the EN identified 21 other rates that, in conjunction with the unreasonably high prices, suggested unbalanced pricing.

In response to the EN, TransAtlantic reduced its proposed rates for the six line items identified as unreasonably high, as well as for another line item already deemed fair and reasonable (and not singled out in the EN). The firm also raised its rates for five other line items, including three of the 21 line items called out in the EN. In response to the agency’s concerns of unbalanced pricing, TransAtlantic explained that it already owns some of the equipment and other equipment is being provided by subcontractors. The firm also submitted a more general discussion to explain its low-priced items, referring to historical prices and changes in the PWS (as compared with previous contracts for similar liner service) as justification.

The price evaluation team reviewed TransAtlantic’s response and determined that only one of the six unreasonably high rates was reduced enough to be deemed reasonable and that TransAtlantic’s written explanation “did very little to substantiate” the high rates. In addition, the price evaluators found that one of the other rates that TransAtlantic increased resulted in that rate no longer being reasonable. Finally, the price evaluators noted that the firm’s “atypical prices still suggest unbalanced pricing.” For instance, the evaluators expressed concern that TransAtlantic had priced certain line items into others.

The price evaluation team also found that Schuyler had not reduced all of its prices enough or sufficiently substantiated its rates to deem them fair and reasonable, so the contract officer began a round of oral discussions with each, during which he provided each firm TRANSCOM “target rates” for the offerors’ line items still priced unreasonably high. Specifically, the contracting officer provided TransAtlantic target rates for six line items and provided Schuyler target rates for four other line items. The contracting officer requested from both offerors further substantiation to support the high prices or reductions in the high rates.

In response to oral discussions, TransAtlantic reduced its rates for five of the six line items the agency had identified as unreasonably high; the firm’s total proposed price decreased by $10,450. The firm also provided additional explanation justifying its rates. A seventh line item was also increased to a rate such that it was no longer considered reasonable. The price evaluators noted that many of TransAtlantic’s rates appeared “illogical and inconsistent with customary commercial practice,” and that the firm’s pricing strategy -- trying to stay within a certain total price--still suggested unbalanced pricing. Schuyler, on the other hand, provided additional price substantiation such that the price evaluation team was able to determine that all of its proposed rates were fair and reasonable.

By letter of January 28, 2015, the agency provided TransAtlantic with a last opportunity to “further explain and support the rates in question.” The letter explained that TransAtlantic “risks removal from further award consideration” if its prices could not be deemed fair and reasonable or were unbalanced.[15] Id. In response, TransAtlantic further reduced its rates for the line items at issue. The firm also increased rates for four line items that the price evaluators previously deemed reasonable. Notably, an increase in the rate for one line item in particular that had not been questioned by the agency had a $900,000 impact in the base year and option year 1. Based on the firm’s rate decreases and additional rate substantiation, the price evaluation team deemed TransAtlantic’s proposed prices fair and reasonable. The price evaluators also assessed the risks associated with any unbalanced pricing and determined that because line item rates were no longer overstated.

But ultimately, TransAtlantic’s rate decreases, coupled with the firm’s rate increases for several line items, resulted in a net increase of $4,176,360 in the firm’s total proposed price. Consequently, after the third round of discussions, Schuyler’s proposal was now the lowest-priced. TransAtlantic further reduced its prices in its FPR, as did Schuyler, but Schuyler remained the lowest‑priced, technically‑acceptable offeror by more than $4 million.

TransAtlantic first complains that it was misled into increasing its price during discussions because the agency’s concerns regarding unbalanced pricing were erroneous. The protester also argues that the agency engaged in unequal discussions when it disclosed to the offerors target prices for different line items.

In negotiated procurements, whenever discussions are conducted by an agency, they are required to be meaningful, equitable, and not misleading. In conducting discussions with offerors, an agency may not consciously mislead or coerce an offeror into raising its price. However, we will not find discussions to be improper where the agency in good faith provides accurate information to an offeror, even where the offeror uses that information to its ultimate competitive detriment. Agencies have broad discretion to determine the content and extent of discussions, and we limit our review of the agency’s judgments in this area to a determination of whether they are reasonable.

Here, the record reflects that the price evaluators had legitimate concerns regarding unbalanced pricing and properly raised those concerns during discussions. The record further demonstrates that TransAtlantic ultimately increased several rates -- resulting in an increase in its total proposed price by more than $4 million -- based on the firm’s business judgment and not misleading discussions.

The record here supports the price evaluators’ concerns regarding unbalanced pricing. Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly overstated, while others are understated. FAR § 15.404-1(g)(1). As a general matter, unbalanced pricing may increase risk to the government and can result in payment of unreasonably high prices. Moreover, as noted above, the firm deliberately built the price for certain line items into the price for others, even though the agency may not require both line items at the same time, thereby exposing the agency to paying for services not performed.

Because the evaluators’ concerns regarding unbalanced pricing were reasonable, we find nothing misleading about the agency raising the issue with TransAtlantic during discussions.

In any event, notwithstanding the reasonableness of the discussion inquiry, the record reflects that TransAtlantic’s rate increases were not connected entirely to the agency’s unbalanced pricing concerns. In this regard, of the 21 line items identified in the initial EN as suggestive of unbalanced pricing (when coupled with the unreasonably high rates), the record shows that TransAtlantic ultimately increased its rates for only four of those line items. Accordingly, the record does not support TransAtlantic’s assertion that TRANSCOM misled it into increasing its price due to an unreasonable discussion of unbalanced pricing. Ultimately, TransAtlantic’s decision to revise certain prices upward reflected the exercise of the firm’s own business judgment and not improper conduct by the agency.

Next, TransAtlantic contends that discussions were unequal because the agency provided target prices for different line items to the offerors.

In connection with the requirement that discussions be meaningful, offerors may not be treated unequally; that is, offerors must be afforded equal opportunities to address the portions of their proposals that require revision, explanation, or amplification. However, the requirement for equal treatment does not mean that discussions with offerors must, or should, be identical. To the contrary, discussions must be tailored to each offeror’s own proposal.

We find nothing improper about the conduct of discussions here. As discussed above, after the submission of responses to the ENs, TransAtlantic’s proposal still included six rates deemed unreasonable and Schuyler proposed four rates (for different line items) that the evaluators considered unreasonable. As a result, the contracting officer provided TransAtlantic with government target prices for the six line items at issue in its proposal and provided Schuyler target prices for four different line items.

Here, because the rates deemed unreasonable were different for the two offerors, we find nothing improper with the agency only having disclosed target prices to the offerors for the rates at issue in their respective proposals. In this regard, the record reflects that the price discussions, including the provision of target prices, were properly tailored to address the concerns associated with each firm’s proposal. TransAtlantic had already proposed reasonable rates for the four line items that Schuyler was provided target prices for, so the agency was under no obligation to provide this information to TransAtlantic. (agency had no obligation to raise during discussions the issue of pricing with the protester where the protester’s pricing was not unreasonable; discussions unobjectionable where agency advised one offeror that two line item prices exceeded a government budget ceiling but did not provide protester with same information where protester’s prices did not exceed budget ceilings).

In any event, the record confirms that TransAtlantic was not prejudiced by the agency’s selective disclosure of target prices. In this respect, competitive prejudice is an essential element of a viable protest; where the protester fails to demonstrate that, but for the agency’s actions, it would have had a substantial chance of receiving the award, there is no basis for finding prejudice, and our Office will not sustain the protest.

Here, the four target prices that TRANSCOM provided to Schuyler amounted to $10,500 (based on the estimated volume) over the course of the contract’s entire period of performance. Moreover, the record reflects that TransAtlantic already had proposed rates that were equal to or below the government’s targets for the four line items at issue. Thus, given the LPTA nature of this procurement and the fact that the awardee was lower‑priced by more than $4 million, we fail to see how TransAtlantic was prejudiced by the agency’s decision not to provide TransAtlantic with the target prices for the four line items that TRANSCOM discussed with Schuyler.

PPPs: Extolling the virtues, examining the risks

I am usually skeptical of those who trumpet the virtues of PPPs. While they can certainly be a tonic for a cash strapped state or municipality, they can also be a toxic waste.  It takes a careful and sober analysis before rushing into one.

The following article, published on the Lexology website and elsewhere, offers a balanced perspective. I offer highlights, but you should read the whole piece.

P3S: managing risks and rewards by attorney Barbara A. Geisman of the firm Thompson Coburn LLP.   Interest in P3s is growing as governments search for ways to access expertise, deflect risk, speed up project completion, lower capital and operating costs, avoid public votes and increased taxes, and keep what might otherwise be counted against public debt limits “off the books.”

Successful P3s — Public-Private Partnerships — can be blessings for state and local governments searching for new ways to finance many types of critical “infrastructure”—roads, schools, prisons, and more—and control operating costs. Success or failure depends on how well each partner plans ahead and how realistic each partner can be.

In all P3s the government partner attempts to tap private sector expertise and financial resources while the private partner hopes to make a profit. Successful and unsuccessful partnerships of the past offer valuable lessons and can help both private and public partners considering P3s negotiate deals that make sense for both.

This tool is worth a hard look for any capital-strapped governmental entity in need of new infrastructure. But public officials must approach potential P3 arrangements with eyes wide open and a clear understanding of both prospective benefits and prospective risks.

Similarly, P3s can be a source of profit and accolades for private partners in a P3 venture. But private partners, too, must carefully evaluate potential benefits against a variety of risks: If a private entity accepts responsibility for long-term situations it cannot control or pledges too much of its capital and borrowing power to a single project, then the entity places its overall future at risk.

These arrangements must be carefully structured from both sides of the partnership to create the desired “win-win.” Without well-informed attention to detail and more than a modicum of foresight, a P3 can cause significant damage to both public and private reputations and balance sheets. Structuring a P3 is very challenging because P3s come in an almost unlimited variety of flavors, depending on the public entity’s goals.

Some types are familiar, like the federal low-income housing tax credit, or LIHTC. That program was intended in part to shift responsibility for providing affordable housing for the nation’s working class families from traditional “housing authorities” to the private sector. The LIHTC program shifts cost, operating, and financing risks to the private developer. It accomplishes its goal of providing affordable residential rental units by subsidizing annual debt service and operating costs with federal tax credits and limiting the rent the private developer can charge. Because this specific type of P3 has a sufficiently long history and is appropriately targeted to one particular purpose, most of the potential “bugs” have been worked out of the structure, and the program is generally considered a success.

At the other end of the spectrum, some P3s are essentially “one offs” — that is, there is no universally accepted and time-tested model for the contract arrangement. Those P3s present greater uncertainties and risks for public and private partners alike.

The risk that both sides may lose in a P3 deal can increase if the deal is “too good” for either side. An important key to successful P3s is responsible management of risks and benefits—that is, an allocation that is fair to both parties.

In a P3 whose structure is relatively “simple” — for example, the public sector seeks to shift only construction cost and possibly operating cost risk to the private sector — associated public sector risks can be mitigated to a significant extent by careful up front due diligence and by incorporating protections like net worth maintenance requirements or letters of credit into the construction and operating documents. Associated private sector risks can be mitigated by including clear parameters for design and construction outcomes, sharing arrangements for mitigation of unforeseen circumstances, and fair, carefully drafted cost-escalation provisions in the agreements. In long-term arrangements, both partners must recognize that the future is uncertain and that innovation or public policy changes may impact the validity of demand or cost projections.

In P3s that rely on the private sector to generate all of the income required to pay project-related debt, due diligence becomes much more complex.

Equally important, both private and governmental entities moving down the path toward a P3 partnership must have the courage to pull off the road when a collision of interests is imminent. That can be very hard when a company or a government has invested significant amounts of time and money in documenting a deal that has been essentially “promised” to shareholders or constituents. Deal momentum snowballs in the rush to schedule the groundbreaking, fill a gaping budget hole, or announce a big contract to shareholders and deal documentation can easily pick up unintentional debris in the dash to the finish line. If obstacles to a successful relationship seem insurmountable or the deal presents risks that have not or cannot be reasonably allocated or shared in a manner that adequately protects each party’s interests, it may be time to put on the brakes regardless of how near the finish line may seem.

Government officials and private decision-makers must carefully consider the long-term public policy implications of the deal under consideration. Will it unacceptably limit the government’s ability to monitor and refine long-term strategies to address changing needs? If an agreement prohibits the development of new roads in an area served by a P3 toll road, citizens may be forced to endure unacceptable traffic congestion for the term of an agreement which may last many decades. If an agreement prohibits expansion of a region’s mass transit system to preserve demand for a toll road, that region’s sustainability efforts may be intolerably hampered—and the only remedy may be for the public sector to “buy back” the project at significant cost and re-assume the operating and maintenance burden when the public sector’s primary interest in the agreement in the first place was to shed that burden. If an agreement requires a private company to operate and pay for operating a facility when that private entity cannot control the market for the facility’s “outputs,” the company’s assets can be decimated even to the point of bankruptcy.

The operating pro forma must make sense for each party and the P3 agreement must allow for changes in that pro forma as new situations develop. New technologies are coming on the market every day and public polices change over time. Such issues can be addressed by reasonable partners: for example, instead of inking a 75-year “all or nothing” term, the partners can agree to 5-year or 10-year agreement increments where each partner may decline to renew the agreement at the end of the incremental term but once the agreement is renewed neither can terminate during the renewal period. That arrangement strikes a balance between predictability and inability to foresee what tomorrow will bring: either party can completely bow out when the agreement comes up for renewal but, if the working relationship has been a good one, it is more likely that each party will view the renewal as an opportunity to tweak the agreement and work out bugs.

Each partner must understand, empathize with, and fairly respond to the legitimate concerns of its counterpart. Risk allocation imbalance is dangerous for both sides. If the government unreasonably over-allocates risk to the private sector partner, either no one will respond to the request for proposals or those who do respond will be more likely to fail because they have little experience in evaluating and quantifying P3 types of risks. If the private partner loads too much risk on the public partner, the government will be criticized by its constituents. Appropriately balanced risk is the hallmark of a win-win deal.

A corollary here is that the private sector partner must always remember that all of the terms of a P3 deal are [-- or should be, see here and here --] public. Virtually all governments are subject to some type of “Sunshine law” that enables reporters and others to access virtually all of the final documents involved in any deal. Each P3 deal must withstand public scrutiny — if a big or even medium-sized deal cannot pass a “smell test,” it is likely that some reporter will discover the deal’s flaws by poring through the public record.

Each party should think hard before it agrees to overt or “disguised” non-compete provisions. For example, a trash-to-energy arrangement may require the public sector to deliver a minimum volume of trash each month to a privately owned incinerator at a set price for a multi-decade term. Prospectively, that may look like a reasonable private sector “ask” but, in hindsight, such a provision could prevent the government from competing with the private incinerator by diverting part of its waste stream to a recycling facility.

Both parties must choose their partners carefully. A government with an unstable political climate will be a bad partner for an established private company because political battles can lead to capricious reconsideration of decisions and generate bad publicity for the company as political opponents seek to discredit each other. A government with an unfriendly business climate may, wittingly or unwittingly, hamper the project’s success. Careful due diligence on both sides of the partnership is essential for P3 success: mistakes are inevitable and each partner must be able to responsibly and successfully shoulder its negotiated share of responsibility for those mistakes.

Both parties must also look carefully at the quality of the public sector “assets” upon which the deal is predicated. Is there a market for the asset or service? Is that market likely to grow or decline? Will the government partner support or thwart private efforts to sustain and grow the market? Can and will the private partner invest sufficiently in the asset to fulfill the government partner’s goals? What happens if the market assessment was “off”?

Each party should approach untested technologies with a large grain of salt. P3s should not be viewed by either party as opportunities to experiment: risks associated with experiments are difficult if not impossible to allocate and a failed experiment will inevitably generate bad press.

Beware of projects that attempt to address too many goals by placing unrealistic burdens on the private partner. If a project is overburdened with requirements that do not relate directly to the core purpose of the project—e.g., excessive minority participation, local training, and workforce requirements—the cost of the project will escalate.

While local government charters and other organizational documents are often flexible as to the types of contracts permitted, a local P3 will almost certainly require passage of a specific law that authorizes the particular P3 agreement. On the federal and state levels, special legislation empowering agencies to enter into P3 types of arrangements is almost always required, although many states and the federal government have recently enacted legislation authorizing some types of P3s.

Each party must be willing to invest in good professional help in structuring the P3 agreement—and must be willing to pay for that help, even if it ultimately decides to crater the prospective deal. Private parties unused to dealing with prevailing wage, public bidding, and local benefit concerns may find themselves saddled with unanticipated costs and negative media coverage. Public parties unused to negotiating with sophisticated businesspeople may lose on key points if they cannot benefit from equally sophisticated help.

Sure, Kid, first one's free

In the face of rising new technologies, it is tempting to place mission critical facilities into the hands of the apparent rising star. Think Microsoft's early DOS, for instance. Or, more pertinent to this post, Motorola's emergency radio system. 

Microsoft's DOS and its Windows progeny, and Motorola and its hand-held radios are ubiquitous, not because they are the best in show now, but because they were best in show when the curtains went up on the show. And like Vaudevillians, they refuse to retire gracefully, even in the face of newly emerging and disruptive technologies offering more effective and economic solutions. If only they would embrace an open source system. By doggedly hanging on they loose their luster and prestige; they become speed bumps in the race to the future.

I think, to foster competition (which is a fundamental principle and requirement of US federal and local procurement laws based on the ABA Model Procurement Code), no technology should be purchased with government funds for what is or is likely to become a standard and commonly used piece of equipment (or software) unless the vendor offers to submit its proprietary rights in the equipment to open sourcing after a limited period of time: say, five years. They don't have to sell to the government if they don't want to. And rising technologies bring out competition, so the government would not long be left out of the loop.

I have mentioned the Motorola example before, here and here. But it's a story that won't go away, as seen below. The the full stories at the links.

Want government reform? Idea #3: A new public safety communication strategy

Have you ever noticed how police officers carry both a cellular phone and a hand-held radio? It might surprise you to learn that you are paying hundreds of times more for the radio than the cell phone. And you’re about to pay millions more unless we have the courage to change course.

Today there are as many mobile phones as people, prices have fallen and consumers have benefitted from innovation that led to iPhones, Windows Mobile, Droid and other robust platforms. The change has been technically disruptive and positive. In that same time, the nation’s public safety community—law enforcement, fire, EMS—has also spent billions of public tax dollars on new infrastructure and yet the quality, cost and functionality of their expensive, proprietary, two-way radios has not materially improved since the 1970s.

The uncomfortable truth is that for city, county and state governments public safety radio equipment costs between 10x and 100x more than it does in most other countries, despite the U.S. leadership position for wireless technologies such as smartphones, WiFi, WiMax and more. The reason is that the nation’s public safety communications market does not enjoy healthy, vibrant, market-based competition in any way comparable to consumer mobile services.

Our nation’s first responders and 9-1-1 dispatchers aggressively moved to establish an industry standard for first responders called “P25” to get better radios at lower prices, to break the monopoly of the current structure. Unfortunately, more than 25 years later, P25 is still not available, still not implemented and even the Chairman of the FCC recently jolted Members of Congress by acknowledging “…[P25] has taken more than 20 years to develop and is still not complete” and “the protracted development of P25 has allowed vendors to take advantage of selling proprietary solutions.”

If our state’s march toward P25 continues, it will be more business as usual – and first responder radios will still cost $5,000 each. Just one P25 radio for one police officer costs $5,000 and yet it has less processing power and functionality than an iPhone, Windows Mobile or Droid phone. Public safety is building their own mirror system to commercial services. A mirror system that is on track to be proprietary, closed, and expensive like our existing first responder radio systems.

We should stop buying P25 radios at literally $5,000 per radio and start buying TETRA radios. TETRA is similar to P25, but it is truly open standard radio used by police and fire departments in Europe and Asia . They offer more features and are tested around the globe… and cost less than $500 each. They are essentially “Nextel-like” in their capability but are a fraction of the cost of the non-open standard P25. We should absolutely back a national broadband plan – but not this one. Not until it is legally bound to an open, public standard that enables true, free market participation from any and all vendors. Not a penny of federal or state funding should go towards any proprietary 4G/LTE solutions.

Faced with a tech tsunami, Motorola fights to preserve cop-com franchise

As Chicago cops braced for protests in advance of the NATO and G-8 summits in 2012, hometown radio giant Motorola made what seemed like a grand gesture. The company, which for years has used tenacious marketing and clout to reign over the emergency radio business, donated to the city $1.8 million worth of telecom equipment that could beam data and videos to law enforcement officers shielding the world leaders. Motorola Vice President John Molloy said the company also could operate a network for the city as a “test platform” until year end and provide Chicago’s public safety agencies entrée to the world of emergency broadband LTE – the new global standard for transmitting huge amounts of data at rocket speed.

Motorola’s gift was designed to keep on giving.

From Mississippi to Texas and California, the company now known as Motorola Solutions Inc. has reshaped its business strategy in the face of a technology tsunami that threatens to upend its decades-long hold on the emergency communications market. While fighting to preserve its immense walkie-talkie franchise, Motorola has maneuvered to become a player in broadband, where it must contend with new and bigger competitors in a scrum for billions of dollars of taxpayer funds pledged for a coast-to-coast emergency data delivery network.

Motorola’s aggressive push into broadband, however, is a cause for consternation among officials of the First Responder Network Authority, or FirstNet, the Commerce Department agency tasked with building the first nationwide public-safety communications system. To garner broadband business, Motorola has relied on many of the same strategies and deep customer relationships that helped it capture more than 80 percent of the radio market.

As McClatchy reported in a series of articles last year, the industry giant has landed scores of sole-source radio contracts and wielded enough pricing power to sell its glitzy handsets for as much as $7,000 apiece, at a taxpayer cost of hundreds of millions, if not billions, of dollars that could have been saved in a more competitive market.

Motorola rival charges FBI’s new radio deal also biased

For the second time in a year, the FBI’s attempt to replace its 30-year-old two-way radio network could be stalled because of accusations that the bureau is skewing its bid solicitation to favor Motorola Solutions Inc., the emergency communications industry’s dominant player.

Last year, the bureau scrapped a plan to hand Illinois-based Motorola a sole-source contract worth up to $500 million, including upgrades for other law enforcement agencies, after four competing vendors filed protests.

Now the FBI has sought competitive bids for a contract limited to modernizing its own network at a cost of about $200 million, but the action is still drawing allegations of bias from Motorola’s biggest rival, Harris Corp., which has formally protested. The conflict offers the latest evidence of how difficult it will be to break one company's market power over a multibillion-dollar business underwritten solely by taxpayers.

The FBI’s dilemma is that it wants its agents’ radios to be able to connect with all of the thousands of law enforcement agencies nationwide. But many state and local systems use older Motorola equipment with proprietary designs that cannot interact with other manufacturers’ products, meaning that Motorola’s rivals cannot meet the bureau’s requirement.

Motorola Solutions’ monopoly on radio systems needs to end

In 2005 San Francisco Sheriff, Warren Rupf, and Alameda Sheriff, Charlie Plummer, decided that because of the failures of communication during 9/11, they wanted to implement a new digital two-way radio system so that all of their first responders could talk to each other.

Unfortunately, Motorola Solutions stood in the way. Motorola had no interest in allowing for any competitive bidding process. Before the Sheriff’s could try to solicit bids for such a radio system, they were told that any plan must include the first $5.7 million going towards a master controller made by Motorola and any equipment must connect with the older, antiquated Motorola SmartNet II system.

A seven-month McClatchy investigation found that local and state politicians around the country have helped Motorola secure an estimated 80 percent of all the emergency telecommunications business in America. The politicians help Motorola by giving them noncompetitive contracts, modifying years-old contracts to acquire new systems or by crafting bid specifications to Motorola’s advantage. [Read the story for more on this study.]

In 2004, a Sept. 11 commission recommended that the nation’s public safety community adopt measures to improve interoperability, meaning that all radios must interact no matter their manufacturer. Yet, Motorola has continued to fight such interoperability. In Colorado, Louisiana, Kansas and other states, Motorola has found ways to insert software encryption that serve no purpose other than to not allow rival companies to interact with them. John Powell, a former chairman of a National Public Safety Telecommunications Council panel, criticized federal agencies for failing to put enough “teeth in those grant guidance documents” to ensure against proprietary features, such as Motorola’s encryption.

Et cetera