Pay to plea

Pay-Up-or-Shut-Up Fee Proposed for Federal Contracting Protests

The U.S. Government Accountability Office, which arbitrates contract disputes, is asking Congress to approve the agency’s first-ever fee to file a bid protest, said Ralph White, GAO’s managing associate general counsel for procurement law.

The proposed charge might come in the form of a $240 flat fee, which would fund an online docket system designed to help the GAO cope with a rising caseload, he said. The online docket would help ease the strain on GAO staff who must now manually filter through about 16,000 protest- related e-mail messages a year, White said. The current process raises the risk of mistakes and delays, he said. The proposed docketing system would increase transparency in the bid protest process by allowing contractors and the public to “instantaneously access all documents filed in a particular protest through a readily accessible web-based portal,” according to the GAO document.

It’s necessary to fund the online docket with a fee because Congress may not be willing to approve taxpayer money for it, White said.

The agency is proposing either the flat fee of $240 for each protest, or a lower initial charge with additional costs for filing supplementary documents. Both arrangements would raise about the same amount of money. The fee would be in line with the amounts charged at other legal venues, White said. For example, the U.S. Court of Federal Claims, which also hears contract disputes, charges a $350 filing fee, according to the GAO.

Some members of Congress probably will support the fee as a way to deter frivolous protests, while others may oppose it because they’ll see it as a burden on small businesses, said Dan Gordon, associate dean of procurement law at George Washington Law School and a former top contracting official in the Obama administration.

Charging a protest fee probably wouldn’t greatly alter the workload at GAO, he said.

“I would be astonished if there was a significant decline in the number of protests because of that fee,” Gordon said in a phone interview.

It's interesting to conjecture what other frivolous projects would be funded by the members of Congress instead of funding the docket system. My objection is about spending money frivolously, not about good faith petitioning our government for redress.

Past performance as a measure of responsibility

The UK law firm CMS Cameron McKenna LLP, as previously noted in prior posts, provides a valuable free resource of various legal issues called Law-Now, including procurement issues.  

The article noted below describes the newly adopted scheme in the UK to formalize consideration of bidder past performance in certain government acquisitions.  As always, you are advised to read the source document (at the link); I cut and paste and re-arrange and paraphrase in ways which may not do justice to the source.

Taking Account of a Bidder’s Past Performance  

There has been no consistent approach to considering previous performance in assessing a bidder’s ability to perform a contract.  The government has now published the PPN to ensure that, in certain cases, public bodies will now be required to include minimum standards for reliability based on past performance.  As a result, suppliers will now be required to give more detailed information and should expect that such information will be carefully checked within government.

The PPN applies to Departments, Executive Agencies and Non Departmental Public Bodies (together, “Departmental Bodies”) procuring goods and/or services in respect of information and communications technology, facilities management or business processing outsourcing with a total anticipated value of £20 million or more (excluding VAT).

In order to assess a bidder's past performance, Departmental Bodies should:

· specify the minimum standards relating to past performance and information required in relation to those standards in the OJEU notice.

  · verify information provided by any bidder in relation to past performance by checking with any reasonably available source of information and giving the bidder an opportunity to make representations on any further information obtained.

  · apply the minimum standards for reliability based on past performance to exclude bidders which fail to meet them. 

  · assess whether a bidder continues to meet the minimum standards for reliability at specified subsequent stages in the procurement process, particularly in complex or lengthy procurement processes.

To demonstrate compliance with the minimum standards for reliability based on past performance, bidders are required to provide:

  · a list comprising a statement of the principal goods sold and/or services provided by the bidder in the previous three years.  Bidders (including consortia or group entities) are entitled to satisfy the minimum standards for reliability by reference to the past performance of members of a consortium or other group entities; and 

  · certificates from those to whom the goods and/or services on the list were provided.  If the certificate does not state that the goods and/or services provided satisfactorily, bidders are required to provide information to show that the reason for such failure will not recur in the performance of the contract being procured.  In the event that a certificate cannot be obtained, the supplier may provide a self-certification. 

It should be noted, however, that although the application of minimum standards for reliability is important, it is only one aspect of the overall assessment of the suitability of bidders in any procurement.  The other requirements of technical or professional ability and economic and financial standing should continue to be assessed for all bidders who have met the minimum standards of reliability.

Past performance has long been one factor among others to be considered by US governmental bodies in the determination of bidder or offeror responsibility.  

The ABA Model Procurement Code as adopted on Guam defines responsibility to mean having "the capability in all respects to perform fully the contract requirements and the integrity and reliability which will assure good faith performance".  (5 GCA § 5201(f).)  Guam and Model regulations specifically identify "a satisfactory record of performance" as one of the factors to consider in determining responsibility.  (2 GAR § 3116(b)((2)(A)(ii).)   

Will FOIA be foiled by outsourced subcontracting?

I have previously reported how a couple of states have responded to claims that contractors are immune from making disclosures under Freedom of Information Act requests, using that phrase loosely since rights to government data are not uniform, either in substance or practice.

In Reveal the truth or face the consequences, I discussed a New Mexico state decision that followed Florida law to the effect that contractors who perform state functions by acting on behalf of a government entity must disclose disclosable information under the relevant local FOIA law. The test applied there was essentially based on an agency analysis under the totality of the circumstances.

The issue is being raised elsewhere, as revealed in the following two articles.

Transparency Outsourced as U.S. Hires Vendors for Disclosure Aid

At least 25 federal agencies are outsourcing parts of the FOIA process. The contractors, sometimes using workers with security clearances, are building FOIA software, corresponding with requesters, redacting documents and recommending what information should be withheld.

With contractors involved, the process becomes more complicated because the companies employing the FOIA workers aren’t directly subject to FOIA laws, said John Wonderlich, policy director at the Sunlight Foundation, a Washington-based group that pushes to open government records.

“If I was in charge of an agency and wanted to create an unaccountable FOIA process, the first thing I would do is put an outside contractor in charge of it because fewer of our accountability laws apply to them,” Wonderlich said in an interview. “It would just be another layer between me and the public.”

Using contractors to answer FOIA requests falls into a murky area of law, said Scott Amey, general counsel at the Washington-based Project on Government Oversight.

The vendors aren’t allowed to approve agency responses to FOIA requests because the work is considered “inherently governmental,” according to federal acquisition rules. On the other hand, they are permitted to “support” the preparation of responses.

While contractors may suggest what information will be released, redacted or denied, the agency must make the final decision, Amey said.

“They are walking right up to the line,” he said. “It still makes you question the integrity of the system if contractors play such a vital role and merely have their guidance approved.”

Some open-records advocates say hiring contractors to speed up the FOIA process may help federal agencies as they wrestle with budget cuts and a growing backlog of requests. FOIA contractors know employees aren’t allowed to make decisions for the government and would never cross that line, said Randolph Wagner, chief financial officer for Wagner Resources Inc., another Gaithersburg-based company.

“It’s more like a cliff,” said Wagner, whose company derives about 50 to 60 percent of its revenue from FOIA-related tasks. “We don’t want to make the decision on behalf of the government.”

His employees, who work on-site at agencies, may be involved in the process from “beginning to end,” he said.

They receive requests, communicate with information seekers and contact agency officials to retrieve the records, Wagner said. When they receive the records, his employees provide recommendations about how much information can be released. A higher authority in the agency makes the final decision, Wagner said.

The FOIA offices aren’t manned to handle all of the work, Wagner said. “In most cases, we outnumber the people we work with, three to one. They’re the decision-makers and we’re the workers.” The work isn’t glamorous and there isn’t much opportunity for federal employees in FOIA offices to get promoted, Wagner said. “If you want open transparency, you’ve got to have somebody work on it,” he said.

Government contracts called public data

In a sweeping ruling Tuesday, the Minnesota Court of Appeals said government contractors are subject to state open records laws.

The ruling means that Milwaukee-based Johnson Controls must reveal to Timberjay Newspapers of Tower, Minn., details of its subcontract with a Minnesota architectural firm to build schools in St. Louis County.

Helmberger was concerned about flaws he noticed in an $80 million project involving construction and renovation of several St. Louis County schools, whose district contracted with Johnson Controls for the project. In 2010 he requested a copy of Johnson's subcontract with Duluth-based Architectural Resources Inc. under the state's Data Practices Act. Johnson refused Helmberger's request, maintaining that the contract contained proprietary secrets and was not subject to open records laws.

Under the law, private residents or businesses contracting with the government must comply with the Data Practices Act "as if it were a government entity."

In March 2011, the Minnesota Department of Administration sided with Helmberger, but an administrative law judge threw out the request because the subcontract "did not involve the performance of a governmental function."

The Appeals Court disagreed, arguing that the planning, design and construction of five public schools falls under state laws that mandate the duty of a school district to "furnish school facilities" to children -- including constructing and renovating buildings.

Attorneys for the contractors have not yet decided whether to petition the state Supreme Court to hear the case.

Another difference between government and private contracting

Although the scale of the deals were different, there is a common core to both stories below, apart from the obvious political meddling that can taint government contracting: what does the government do when it bungles the procurement vetting process, and how might that differ from the private sector?  Guam's case involves the solicitation of a health insurance contract; the UK's case involves the solicitation of a rail project management contract.

In Guam's case, the solicitation involved the procurement of health insurance for the government's employees. Being the political season and there being a family connection between one bidder and the administration, the Guam Parliamentarians determined to step in and remove the Executive from the role of procurer, rewrite the specifications and the procurement method for this one solicitation, this one time, and award the contract to all comers. In the UK's case, the embarrassment continues.

Guam:

Second Protest Filed Over Guam Government Insurance Contracts

3 of 4 health insurers protest bid process

Restart of bidding for health insurance sought

Health insurance measure debated


AG: Postpone health insurance bill

GovGuam health insurance procurement bill passes

UK:

This railway fiasco reveals all that's wrong with the Tories

It was an epic debacle. Last week the government withdrew the award of the vast £13bn West Coast rail franchise contract to FirstGroup, acknowledging that its own processes were faulty. Ministers, releasing the news at midnight to set the terms of the news story, spun that middle-ranking officials were to blame for the cock-up and had been suspended.

This is a first order crisis of the state. The structure of a hollowed-out Department for Transport was exposed as dysfunctional – and the proposed inquiry into what went wrong stank from the outset. It's a massive passing of the buck by frightened and callow politicians

If there is no trust in the process, meaning that companies can be expected to launch judicial reviews challenging decisions, then the expense will become prohibitive.

Anyone But Branson: Rail-bid civil servants 'exchanged derogatory emails about tycoon'

The Government awarded the new £7billion franchise to FirstGroup, but cancelled it before the planned handover in December after Sir Richard’s Virgin group, which offered £700million less, made a successful legal challenge on the grounds that the Government ‘got its sums wrong’.

Virgin executives have long been concerned about the perception of an ‘anti-Virgin’ bias and culture within the department characterised as ‘Anyone But Branson’.

Heads should roll after this rail bid debacle

If a blunder of this proportion had occurred in the private sector, the consequences would be very different.

the Department for Transport delivered a masterclass in bungling. It announced – in a statement sneaked out in the middle of the night – that the franchising process for the West Coast Main Line (WCML) would have to be re-run because of “flaws”. Specifically, mistakes were made in pricing in inflation and passenger projections when assessing the competing bids – surely an elementary error.

Patrick McLoughlin, the recently appointed Transport Secretary, wasted no time in blaming his department’s officials for the fiasco, and three civil servants have been suspended while further investigations are conducted. His predecessor, Justine Greening, who signed off the deal and who has since been moved to the Department for International Development, also has questions to answer.

Will heads roll? Don’t count on it. This, after all, is the state sector, where incompetence even on such a dizzying scale rarely leads to the culprits paying with their jobs. If a blunder of this proportion had occurred in the private sector, the consequences would be very different. As a result of failing to hire enough staff to meet its contractual obligations at the Olympics, G4S forfeited a £50 million slice of its fee and two senior executives lost their jobs. This debacle, in contrast, will cost the taxpayer £40 million in compensation payments to the bidding companies.

When it was announced in August that FirstGroup had won the 13-year West Coast franchise with a £5.5 billion bid, this newspaper was not alone in questioning whether the deal was credible. Sir Richard Branson, whose Virgin Group has run the line successfully for the past 15 years, has been vindicated in his description of the decision as “flawed and insane”.

Indeed, had Virgin not sought to take the issue to court, the miscalculation would have remained undiscovered – it was only in preparing its defence that the Department for Transport stumbled across the errors. The only consolation to be drawn from this fiasco is that the franchise had not changed hands before the flaws were exposed. And credit for that goes not to politicians or civil servants, but to Virgin and its justifiable anger over a deal that did not add up.

There's one final comment to make in regard to the last paragraph above. I refer you to a recent Guam Public Auditor decision noting gross errors that would not have gone noticed or corrected but for a bidder's protest: OPA-PA-11-002.

Notwithstanding the railing against and deflection of blame on protesting bidders, public contracting relies on them to police the system, as it is politically inadvisable to admit wrongs and correct them publicly, let alone dismiss staff. In the private arena, heads roll, personal prices are paid, and the mistakes tend not to repeat themselves so often, or at least by the same people.  Any attempt to frustrate the protest review process will result, ultimately, in more inefficiency and higher cost in the government.  It is not in the nature of the beast to control its own instinct for avoiding accountability.

Oligopoly in competition's clothing?

Competition is the cornerstone of most procurement regimes, but doesn't always yield lowest price, as anecdotally seen in a recent post. I would also want to have more information about the anomalous result indicated in the following story. (It would help to read the whole story to understand the context of this extract, as is usually the case in items reported here.)

Health insurance costs grew slowly for two years. Now, they’re speeding up.

Anderson argues that stronger government intervention is necessary to slow price growth in the health-care market. He points to the example of Maryland, the only state where the government sets the rates that hospitals can charge insurance companies.

The program began in 1976, when Maryland’s per-admission hospital spending was 26 percent higher than in the rest of the country. Between 1977 and 2009, the state’s hospitals “experienced the lowest cumulative increase in cost per adjusted admission of any state in the nation,” researchers in the Journal of American Medical Association concluded.

“Hospital prices have been held down substantially,” Gerard said of the Maryland experience. “And private insurers pay the same rates as public insurers.”

Such efforts, however, have fallen out of favor in other states. Congress gave states the authority to set payments in the early 1970s. About 30 states went on to do so. All states except Maryland gravitated away from those models, as states have looked for more competition and less regulation in health-care markets.

Beauty contest or drawing straws?

This article is about the debate over negotiated best value versus lowest price technically acceptable ("multi-step") competitive bidding. The subplot is whether one source selection method necessarily determines a more optimal outcome. If all facts, past, present and future, were known, best value would be a no-brainer, but best value has not insulated government from cost overruns or less than optimal contractor performance.

OFPP lets DOD deal with pricing complexities first

the Office of Federal Procurement Policy looks to DOD's experience for guidance on the balance of price against value in contract awards, [as revealed by] Joe Jordan, OFPP administrator, at a recent breakfast hosted by the Coalition for Government Procurement. “The bottom line is it’s just a tough area, because you’ve got tricky incentives,” Jordan said.

Generally speaking, he said industry likes best-value procurements. They allow companies to propose higher prices, since officials will consider other evaluation criteria beyond price. On the other hand, the government is pushing low price and not always fully analyzing the entire lifecycle of a project, Jordan said. Both sides have good arguments, so the contracting officer's judgment is the final arbiter.

“It’s always a challenge with the overburdened acquisition workforce, but I think we’re at a place where we need to do some more analysis, having some more conversations with industry and agencies, especially the Department of Defense, to figure out exactly where equilibrium lies,” Jordan said.

Industry experts have been increasingly concerned that federal officials have developed a lowest price technically acceptable attitude for their procurements.

Larry Allen, president of Allen Federal Business Partners, said “They [DOD] seem happy with the drive to low price and uninterested in whether it may be misapplied in some circumstances.”

In his speech, Jordan said both the lowest price technically acceptable and the best value procurements have their place. He emphasized that he isn’t choosing one over the other.

“Do both, but do them at the right time,” he said.

Read more at the link to the article above.

The problem is that no one can predict the future. One method gives the procurement officer a warm fuzzy feeling at the time the bid is awarded, in the belief that "best value" has been achieved. The other gives the procurement officer cover from second-guessing score keepers of her career. But either method can, and too often does, yield to buyer's remorse when the winning bidder hits the road.

Buyers like to find comfort in dealing with proven bidders with known track records, thus tend to favor "best value" and its "old boy" network of quantifiable "past performance". But multi-step must also be made only after the responsibility of the bidder is determined, so I tend to suspect that the presumed reliability of "past performance" is a red herring, deflecting the process away from competition from newcomers, erecting unnecessary obstacles to market entry.

It's a case of choosing a winner by beauty contest (best value) or drawing straws (lowest price technically acceptable). Only time will tell which method truly gives the government what it actually seeks at the most optimal cost over the life cycle, through an efficient source selection process.

And there is no "right time" to make that choice before the ultimate facts are known.

Competition does not always assure fair and reasonable price

In going through my woodpile, I came across this old Comptroller General opinion that I hope you find as instructive as I do.

The protest concerned an award to provide paint and was made by an incumbent. The award was made when three bids were submitted, but the incumbent was not advised to bid (the protest timing issue is interesting, but not the point of this post; read the Decision if you're interested in that aspect).

Excerpts follow.

Matter of: Crawford Laboratories File: B-277069 Date: August 29, 1997

We sustain the protest because the agency has provided no rational basis for its price reasonableness determination.

Prior to the awards, the contracting officer determined that Hanley's and Durant's
prices were reasonable. The contracting officer's price analysis recognized that the
prices bid on the two subitems of item 3 were "substantially higher" than the prices
that the agency had paid for those items on the prior contract. In fact, the bids
were more than double the prices that the agency had paid previously. The record
shows that the award prices for item 2 and item 4 also were more than double the
prices for those items on the prior contract.

To support the determination of price reasonableness, the contracting officer noted that there had been competition, with three bids "within a competitive range of each other" and that the Price Producers Index (PPI) for 1994-1997 showed the cost of the ingredients used to manufacture the primers had increased by 13.5 percent during that period.

While comparison of prices obtained competitively ordinarily may provide a basis for determining the reasonableness of prices, here, where all prices are significantly higher (at least double) than the prior contract prices, we think without some analysis or explanation for the higher current prices, the comparison of the bids alone is insufficient to support the determination.

For example, FAR § 15.805-2 identifies a number of price analysis techniques--such as comparison of the prices received with the published price lists or market prices, an independent government estimate, or prices obtained through market research--which a contracting officer may use to ensure a fair and reasonable price.

In spite of the agency's after-the-fact explanation, other than the comparison of prices received under the current solicitation, the contracting officer apparently did not use any of the other price analysis techniques identified under FAR § 15.805-2. In short, the record lacks any meaningful support for the price reasonableness decision, and we conclude that the contracting officer failed to satisfy her obligation under FAR § 14.408-2 to determine that the award prices were reasonable.

Unless the contracting officer can adequately justify the reasonableness of those prices in accordance with FAR §§ 14.408-2 and 15.805-2, we recommend that the contracts on items 2 through 4 be terminated for the convenience of the government and be recompeted. Further, we recommend that Crawford be reimbursed its costs of filing and pursuing the protest, including reasonable attorneys' fees. 4 C.F.R. § 21.8(d)(1).