The following article, and the case which it reports, is not exactly about procurement. It does, though, inform the discussion about how to determine which activities of a government are legislatively determined to be governmental functions that must be performed by the government. The function in controversy here is the initial review of a contested parking ticket.
The article bringing this to light was flagged by the State Bar of California's Daily News Digest August 12, 2016, and appeared on NBC Los Angeles News online.
City of Los Angeles Ordered to Change Parking Ticket Dispute Process
The California Court of Appeal has ordered the City of Los Angeles to change the way it handles parking ticket disputes. A three-judge panel said the city can no longer outsource the handling of the initial reviews of parking tickets requested by motorists, but must do those reviews themselves. The appeals court’s decision, handed down this week, says the state vehicle code requires cities, not outside contractors, to conduct all initial reviews of parking tickets.
The case is Weiss v. City of Los Angeles. Pieces of the case reflected below are my own editorializing, and cut, rearranged, left out, paraphrased and otherwise altered and (mis)construed, as is my practice in this blawg. Thus, you are better served by reading the case in its entirely at the link.
In this appeal by the City of Los Angeles (City) and Xerox Business Services, Inc. (Xerox,) we consider whether the City, as the “issuing agency” for notice of parking violations in the City, must conduct the “initial review” of challenged citations, or whether it may delegate that duty to Xerox, its “processing agency”. [The decision in the case required interpretation of the complex statutory scheme, which had evolved over time. As is the case with many such statutory evolutions, some genes change, some stay the same and some just disappear, making the interpretation process more complex than a simple reading of a single statute might suggest.]
Weiss got a parking ticket, which he contested. After an initial review performed by Xerox, Weiss received a letter advising him that an initial review had been performed and the citation would not be cancelled. [There followed a round-about means of getting the issue before the court, interesting for those studying writs of mandate, standing and the like, but not germane to this post, which is more about the question, how to determine if a particular governmental function can to delegated to a private contractor. Thus, I limit the discussion here to:"Weiss’ claim that the initial review process, as currently constituted, did not comply with the statutory obligations of the initial review under the Vehicle Code".] Since 1985, the City has contracted with Xerox to act as its processing agency. As part of Xerox’s processing duties, the City delegates the duty to conduct the initial review of contested citations. Xerox is paid based on the number of parking citations processed per month, but does not receive additional compensation to conduct initial reviews. Xerox performs the initial reviews through its Parking Violations Bureau (Bureau), which is staffed by a subcontractor. In fiscal year 2013, Xerox conducted 135,291 initial reviews [constituting about 5% of citations processed].
The initial review is conducted by Bureau clerks, who must adhere to 46 Business Processing Rules (BPR), drafted by the City (or by Xerox and approved by the City). When considering a contested citation, the Bureau clerk refers to the applicable BPR, if any; if that BPR permits dismissal of a citation, the clerk dismisses it. If no BPR addresses the particular challenge, but a motorist has presented sufficient evidence to overcome a citation, clerks are instructed to refer the matter to a supervisor for a decision. The motorist learns the result of the initial review through one of 97 form letters drafted and approved by the City, on City letterhead, sent to the motorist by Xerox.
The trial court below concluded that, setting aside the issue whether Xerox was authorized to conduct the initial review, the City’s system of initial review complied with the Vehicle Code requirements in the scope of the review, in the fairness of its procedure to the motorist, and in the fairness of its substantive decision-making process.
The question at issue in this appeal [and this post] is whether the state vehicle code requires that the City, as the issuing agency, conduct the initial review, rather than its processing agency, Xerox. In its ruling, the court below reviewed the statutory framework, its legislative history (including pertinent existing, amended and repealed Vehicle Code sections), and case law. Conceding that the question was close, the court concluded that legislative changes in 1995 to the statutory scheme reflected the Legislature’s intent to place a nondelegable duty to perform the initial review on the City, the public agency that issues parking citations.
The 1993 revision maintained the prior definition of a “processing agency”; ‘processing agency’ means the contracting party responsible for the processing of the notices of parking violations and notices of delinquent parking violations. It also contained an amended version of section 40200.5, which preserved the issuing agency’s authority to contract with a processing agency (“an issuing agency may elect to contract with the county, with a private vendor, or [others] . . . for the processing of notices of parking violations and notices of delinquent parking violations....
Prior to the 1995 revisions, the legislation allowed an issuing agency to contract with a processing agency for the processing of notices of parking violations, including investigating the circumstances of the citation and conducting the initial review as well as giving the processing agency the authority to make the decision whether to cancel the citation.
The 1995 revisions repealed the previous statutes which had expressly provided that the processing agency may conduct initial reviews, and gave the processing agency the authority to investigate challenged citations. It enacted a new provisions assigning responsibility for conducting the initial review to the “issuing agency,” giving that agency the authority to determine whether to cancel the citation, and requiring it to inform the processing agency of its decision, further eliminating any reference to the authority of the “processing agency” to conduct the initial review.
Legislative deletion of an express statutory provision “‘is presumed to effect a substantial change in the law’ [citation].” (Barajas v. City of Anaheim (1993) 15 Cal.App.4th 1808, 1814.) Considered in their entirety, the 1995 changes strongly suggest that by repealing section 40200.7 and former section 40215, and replacing them with a new section 40215, the Legislature intended to give sole authority to conduct the initial review to the issuing agency, and to preclude delegation of that duty to the processing agency. No other rational explanation comports with the breadth of the modifications eliminating references to the processing agency’s authority.
But, the 1995 revisions did not amend section 40200.5 to directly reflect the elimination of the processing agency’s authority to conduct the initial review. Thus it remains that the issuing agency could contract with a processing agency “for the processing of notices of parking violations and notices of delinquent parking violations, prior to filing with the court...." This might be read in isolation, without considering the 1995 changes, as suggesting that the issuing agency may contract with the processing agency to conduct the initial review because that review occurs before the judicial review.
However, given the history of the relevant statutes as we have traced them, it is unreasonable to assume that by failing to amend section 40200.5, the Legislature intended to retain the authority of the processing agency to conduct the initial review and undo the changes it so clearly made in the 1995 amendments.
The 1995 changes deleting any reference to the processing agency’s authority to conduct the initial review, compel the conclusion that the issuing agency (here, the City) must conduct the initial review, and cannot delegate that duty by contract to the processing agency (here, Xerox).
There are, at least, a couple of procurement questions that jumped out at me from the case. First, recall that Since 1985, the City has contracted with Xerox to act as its processing agency, and is paid based on the number of parking citations processed per month, but does not receive additional compensation to conduct initial reviews. I cannot believe that if another contractor held the contract for processing parking citations, that Xerox (or any other contractor) would conduct the initial reviews "for free", recalling again there were 135,291 such initial reviews conducted in 2013. I wonder what the cost of doing that "free" work would be if contracted out to another party, and if that "free" work is actually paid by inflated prices or costs in the "processing" portion of the work.
Second there is an aspect of Guam Procurement Ethics law that stands out. This "free work" is given as part and parcel of getting actual paid work. It is not a gratuity as typically defined because there is nothing paid to a particular person, and no particular person is benefited. But under Guam Procurement Ethics law (5 GCA § 5630(d)):
It shall be a breach of ethical standards for any person who is or may become a contractor ... to offer, give or agree to give any employee or agent of the Territory or for any employee or agent of the Territory to solicit or accept from any such person or entity or agent thereof, a favor or gratuity on behalf of the Territory whether or not such favor or gratuity may be considered a reimbursable expense of the Territory, during the pendency of any matter related to procurement, including contract performance warranty periods.
For purposes of this Section, a favor is anything, including raffle tickets, of more than deminimus value and whether intended for the personal enjoyment of the receiver or for the department or organization in which they are employed or for any person, association, club or organization associated therewith or sponsored thereby.
Guam legislators are (most of the time, on whole) sensitive to "buy in" and bundling and other evils that diminish competition and stain the integrity of the procurement system and undermine the peoples' trust in government.
I cannot forget when my children and grandchildren were little bundles of joy. But in the world of contracting, both government and private (as discussed below), some bundles are filled with despair, and anti-competitive effects.
In US federal contracting, bundling is recognized to provide benefit to the government as a means of reducing costs through efficiencies (although I am unaware of how that gets quantified).
Bundling may provide substantial benefits to the Government. Measurably substantial benefits may include, individually or in any combination or aggregate, cost savings or price reduction, quality improvements that will save time or improve or enhance performance or efficiency, reduction in acquisition cycle times, better terms and conditions, and any other benefits. The agency must quantify the identified benefits and explain how their impact would be measurably substantial. Except as provided in paragraph (d) of this section, the agency may determine bundling to be necessary and justified if, as compared to the benefits that it would derive from contracting to meet those requirements if not bundled, it would derive measurably substantial benefits (for which certain thresholds are given). Reduction of administrative or personnel costs alone is not sufficient justification for bundling unless the cost savings are expected to be at least 10 percent of the estimated contract or order value (including options) of the bundled requirements. Reduction of administrative or personnel costs alone is not sufficient justification for bundling unless the cost savings are expected to be at least 10 percent of the estimated contract or order value (including options) of the bundled requirements. ( See FAR Subpart 7.107, Additional requirements for acquisitions involving bundling.)
Bundling is also recognized to adversely affect the ability of small contractors to obtain work they would otherwise be competitive to perform. Indeed, it appears that the only reason bundling has percolated up to attention at all as possibly anti-competitive is because of the social welfare income-shifting politics behind the Small Business Administration framework. (Don't get me wrong, I support some efforts to retain the small business engine of the economy, both as an incubator of enterprise but also to inhibit the progressive monopolization of of big money. I just think we need to call a spade a spade so we know the limits of what it is we are dealing with.)
This is revealed in the way the federal government has defined "bundling": it applies to existing contracts, however, there is movement to extend bundling rules to new contracts as well. Thus, an early study of the negative effects of bundling was criticized by the GAO in 2000:
The Office of Advocacy, an independent agency whose mission is to represent and advance small business before Congress, has sponsored studies that have concluded (1) that the federal government has fallen short of its 1998 goal of 23 percent of its prime contract dollars being awarded to small businesses and (2) that contract bundling is growing and negatively affecting small businesses. The Office of Advocacy's study is the only government-wide study to be completed to date and it concludes that contract bundling has increased and had a negative effect on small business' share of federal contracts; however, the study's analysis was based on a definition that was broader than the statutory definition of contract bundling and provided no convincing evidence that bundling caused adverse effects on small businesses.
The following report from the Congressional Research Service provides (in this quote) a brief description of the history of the bundling issue.
Contract “Bundling” Under the Small Business Act: Existing Law and Proposed Amendments
“Bundling” refers to the consolidation of two or more requirements for goods or services previously provided or performed under separate smaller contracts into a solicitation for a single contract that is likely to be unsuitable for award to a small business because of its size or scope. Although bundling can potentially reduce costs or improve performance for federal agencies, it can also limit opportunities for small businesses to receive federal prime contracts. For this reason, Congress amended the Small Business Act in 1997 to require that procuring activities comply with certain procedures before issuing a bundled solicitation. Specifically, the 1997 amendments require that procuring activities (1) conduct market research to justify acquisition strategies that could lead to bundled contracts, (2) provide advance notice of bundled solicitations to the Small Business Administration (SBA) and incumbent small business contractors, and (3) implement certain procurement strategies when solicitations involve “substantial bundling.” These steps are intended to ensure that any bundling is “necessary and justified.” Only “unnecessary and unjustified” bundling is prohibited under the 1997 and subsequent amendments.
Although bundling can be done if justified, it seems that requirement is not being heeded, and it is bumping up against cost-cutting measures intended to consolidate contracts, just the opposite of moves to prevent restrictive bundling. (The GAO report previously mentioned describes bundled contracts as a subset of consolidated contracts; a special case to be applied restrictively.)
Concerns over contract bundling cast shadow over 2013 small business successes
Rob Burton, a procurement attorney with Venable in Washington and a former deputy administrator at the Office of Federal Procurement Policy, said the issue of bundling and consolidation and the fact that agencies consistently are ignoring the requirements to justify their decisions isn't getting a lot of attention.
Emily Murphy, a House Small Business Committee staff member, said, "The numbers [of bundled or consolidated contracts] in the database are wrong, and that's bad from a public policy standpoint. But it's even worse when you consider it means that neither the justification, the mitigation nor the data capture is taking place when it comes to bundling or consolidation." She said the administration's goal of maintaining a certain percentage of dollars going to small firms doesn't take into account the long-term impact on the industrial base that these efforts are having on the companies in the private sector.
Ken Dodds, the Small Business Administration's director of policy, planning and liaison, said bundling has been a huge issue since the late 1990s. "Let's be clear: agencies can bundle, and they can consolidate. They just have to justify it. There are thresholds they have to do. They have to analyze the data. They have to mitigate. There are things they have to do," he said. Dodds said the problem is that there is little to no follow up with the agency that decided to bundle the requirements or contracts to see if they met their justification in terms of savings or efficiencies.
This issue came to light just recently when SBA ruled that GSA didn't justify its rationale for consolidating requirements under the office supplies 3 strategic sourcing solicitation.
I would think that that same kind of particularized justification for bundling in small business context should be extended to large scale "consolidation". Anti-competitive consolidations are just as invidious for large business as small, and minimized competition, at whatever the convenience is assumed to be, cannot justify the need to encourage competition.
But what about the private sector? Is winner take all consolidation simply part of the laissez-faire free market ideal, or should anti-competition laws or regulation also have a role to play in consumer choice? Consider sports TV.
Lawsuit could end sports leagues' all-or-nothing TV packages
Fans have long asked for tailored options to view live games on TV and other devices, saying league-wide [bundled] packages such as Major League Baseball's Extra Innings, the National Football League's Sunday Ticket and the National Hockey League's Center Ice offer more games than they want or can possibly watch.
A Boston baseball fan living in Los Angeles, for example, would currently have no choice but to order hundreds of games from across the league just to see the Red Sox play. The Extra Innings package, offering up to 80 out-of-market games a week, is advertised by cable providers for $195 a season.
Sony PlayStation Vue Is Cable TV Without The Cable Company
Sports fans can opt for a $60 per month bundle that adds regional sports networks like YES (New York) and Comcast SportsNet (Philadelphia and Chicago). ESPN (along with other Disney properties like ABC) remains a glaring omission for now. But by reaching distribution deals with carriers of pro franchises like the Yankees, Cubs, Bulls and Phillies, PlayStation Vue provides live home team coverage, a must for many cable subscribers. A $70 per month top-tier bundle brings the channel total to 85 with the addition of several family and lifestyle networks.
None of this sounds much different from a traditional pay TV package, minus the contract commitment and standalone cable box.
Cutting the cord: A sports fan's new breed of TV
As hundreds of thousands of Americans give up cable or satellite TV every year — watching their favorite shows on streaming devices such as Hulu or Netflix and earning the trendy name “cord cutters” — sports fans are being left behind, feeling chained to their expensive menu of channels because not enough alternatives exist outside of conventional methods.
Kevin Watterson, 34, lives in Minneapolis and considers himself a sports fan. But he ditched cable in 2013, fed up with his $120 monthly Comcast bill — which covered cable and Internet, but was soon to increase in price after the end of a discounted promotional period.
Today, he pays $130 a year for the MLB.TV package, streaming games onto his large screen via Apple TV, a $69 device. He watches other sports available over the air, via an HD antenna that can cost $40 or less. And he’s planning on picking up Sling TV, a new $20-a-month service that gives viewers a limited menu of channels, including ESPN and ESPN2, during April so he can watch the Masters.
“Sports is the last must-see-TV. You can watch everything else on demand,” said Dave Warner, 43, a recent sports fan cord cutter who analyzes TV sports trends on the website whatyoupayforsports.com.
But each channel costs something. ESPN and ESPN2 combined, for instance, make up a little over $6 on your monthly bill, Warner said. Other channels are a couple of dollars here, a few dollars there. It adds up — as providers, networks and fans know.
“It’s going to be a while until cord cutting really makes [networks] nervous,” Warner said. “They see it, but it’s not enough to truly impact their bottom line. For now, the networks are going to milk the cash cow for all its worth, and they will until nobody can afford it anymore.”
Big Ten facing crucial decisions about its TV future
The Big Ten Tournament has a nifty network threesome when it comes to television this week. Three networks -- CBS, ESPN, and the Big Ten Network -- will provide extensive coverage.
The more, the merrier from the perspective of Commissioner Jim Delany. The league's football and basketball deals with ESPN/ABC and CBS expire after the 2016-17 basketball season. Negotiations are expected to heat up soon, assuming they haven't already. One thing is certain: The Big Ten should be in line for a windfall. The conference will get significant increases from its 10-year, $1 billion deal with ESPN/ABC for football and basketball and 6-year, $72 million pact with CBS for basketball; It also has a 25-year, $2.8 billion deal with the league-run BTN that extends through 2031-32.
Delany knows his timing couldn't be better, as the Big Ten's TV rights will be the last major sports property, pro or college, to be on the market in this decade. That news isn't lost on Fox Sports, which desperately needs top-tier live programming for its cable outlet, Fox Sports 1. The network has struggled to gain a foothold in 1 1/2 years of operation. Fox is expected to make an aggressive bid for the Big Ten's rights. CBS Sports Network and NBCSN are unlikely contenders in this derby.
There are several factors in play, including this scenario: Delany might not have to pick between ESPN and Fox. With the commissioner looking to cash in big, there's speculation the price might be too high for one entity to write a huge multi-billion dollar check for the entire package. The best play might be for Delany to cut deals to place games on both networks. The move likely would lead to a bigger payday and it still would give the Big Ten a presence on ESPN.
I remember the days when to get a particular song you wanted, you had to buy a whole album, as the small-hole LPs took over the world of large-hole 45s. Given enough competition from the industry players, consumers will benefit. Given enough competition.
And remember, the government is a consumer. It must always keep one eye on the market place to assure it "enough" competition. It is for that reason that we find the federal acquisition rule on bundling in the "Planning" part, Part 7, whose policy is "to promote and provide for ... full and open competition to the maximum extent practicable...." (Subpart 7.102(a))
The article for this post is very long, and very good and worth the read in its entirety. You probably would do well to just skip this post and go directly to the article at the link, although I have offered a few comments down below, after presenting bits of the article in my usual fashion of slicing and dicing it beyond recognition of its author.
The author is Charles Shafer, a principal consultant with Red Team Consulting, a consulting, capture and price strategy consulting firm.
Why big procurements struggle and what can be done about it
There’s a wealth of constantly evolving IT products available that can be leveraged to answer some of the most difficult missions in government. Six different government entities took similar approaches to that business problem by creating large, long-term, high-volume, billion-dollar contracts by essentially vetting an initial group of government-savvy manufacturers and resellers. This process gave them each a contract where these companies compete on a daily basis for government IT commodity requirements by offering the latest technology at the best prices.
These contracts, which are task order contracts, have long been a very successful and useful tool. Many of these contracts are in their second or third iteration. And all of these contracts were opened again for competition in this decade, offering an opportunity for new technology resellers and manufacturers to earn a spot on these contracts and force existing awardees to compete again to maintain their position.
These procurements were conducted by six different contracting offices, working with completely different program offices, over the course of four years. Some of the solicitations contained traditional evaluation factors such as past performance and management approach, and some discarded with these factors entirely. Some used a multi-phased approach that rejected proposals in stages and others attempted to do all their evaluations at once. Some of these procurements were made up of smaller contracts that separated businesses based on their size and socio-economic profiles, while others lumped all contractors together.
However, there are a few commonalities that each of these procurements share. Each procurement required bidders to propose products that fit a profile of specifications given by the government. In each solicitation, the products covered a wide spectrum of technology, from basic personal computers to enterprise-class equipment. Many of the procurements had a long list of products, sometimes hundreds of items long.
The flexible nature of these contracts means the government is not obligated to buy any item from that original list, and it is widely known that proposing items against this list is done primarily for proposal evaluation purposes, and has little to do with post-award activities. Because these contracts allow you to regularly change your catalog post-award, you can propose a product with the initial submission that is compliant and cheap, but you know to be inferior and undesirable, with the intention of replacing it or putting another item on the contract post-award.
That’s because each of these contracts has a mechanism known as “technology refresh” and “technology insertion,” which allows bidders to update the list of products they offer after award. These mechanisms are necessary to keep pace with a rapidly changing technology market. It is important to remember that the government is not buying any initial products with the creation of these contracts. They simply serve to initiate the vehicles that will later fulfill billions of dollars of competed delivery orders after award. This creates an environment where the initial pricing submission has little basis in reality. [See, Are we hard wired to corrupt our procurement systems?]
In every case, the government used this initial list of products as a pass or fail measure for the technical evaluation factor. That means a bidder had to provide a combination of technology products that met every single specification the government marked as mandatory to be eligible for an award. The list of requirements attached to a single product could sometimes be 20 or 30 specifications long. When you multiply this list by the dozens or sometimes hundreds of products, you end up with individual pass/fail elements that can go well into the thousands.
The vast number of requirements caused significant delays during the proposal phase and much longer delays during the government’s evaluation and award periods. In many cases, the technical requirements for a product were initially unclear, impossible to fulfill, or specific to a single manufacturer.
Because these were pass/fail requirements that could invalidate an entire bid with one deficient response, bidders asked questions to clarify requirements. The delays and frustrations during the proposal period were nothing compared to what actually happened when the government began evaluating proposals. In a perfect world, with plentiful and skilled resources and no gray areas, it would take an evaluation team several months to properly evaluate and document the number of proposals received. At best, the products list evaluation method is a time consuming endeavor, and at its worst, it’s a liability for litigation.
Most often, evaluators compare the prices of bids by looking at the entire price of a bid, known as a total evaluated price (TEP). Because the price of some products are significantly less than others (for example, an LCD monitor and an enterprise-class storage system), certain products, based on their price and quantity, end up contributing much more to the TEP than other products.
In industry, we call this “weighting,” meaning that one product “weighs” more than others as far as its impact on pricing. Extreme weighting give rise to a pricing methodology known as gaming. All of these procurements had weighting issues.
With these options, each bidder is presented with a much lower risk when understating prices. Bidders know to understate the price on the most heavily weighted items - it’s grade-school math.
This gaming approach has become the standard rather than the exception on these large procurements. This has created a downward spiral with each bid, as prices move lower and lower, becoming less and less realistic while testing business ethics.
The government is fully aware that gaming happens. It’s not a practice that was created by the technology commodity industry and it has been practiced for some time. There is an entire acquisition regulation dedicated to gaming, which the government addresses as “unbalanced pricing.”
They define this in FAR 15.404-1: “Unbalanced pricing exists when, despite an acceptable total evaluated price, the price of one or more contract line items is significantly over or understated as indicated by the application of cost or price analysis techniques.” The government has the right to reject offers for unbalanced pricing.
Once the government makes it over the solicitation hump and has an actual contract these contracts can be greatly beneficial to the government. They are dynamic and responsive to technology needs and can often be updated much faster than a GSA schedule. The competitive aspects of the contract drive down prices on products while also offering technology solutions the government might not have previous considered.
I believe there is a middle ground.
The proposed list of products should be vastly simplified, in both number of products and specifications. If the likelihood of a contractor having to deliver on their initial list of products is very low, then it should be reduced to a simple exercise for both industry and government. Using a much shorter list of products that are widely available and compliant with government standards, like laptops and monitors and servers, will ease several pre-award problem areas.
The key is to make the product evaluation portion simple. The government should rely more heavily on subjective evaluation factors like corporate experience, past performance, and written technical and management approaches. Detailed corporate experience and past performance information are reliable sources for evaluation in this industry as it’s not something that is often fabricated.
To me, the difficulty with this approach is that the government has given up trying to get the supplies it needs, because it cannot specify the products needed in the quantities needed fast enough to meet the demands of the consuming end users. The information from the using agencies is streaming at the procurement officers through a fire hose, or the pit stop re-fueling systems used in the Indy 500 races. With the scale down of procurement staff, there is not enough procurement broadband to deal with it all.
To deal with it, the government has turned to trying to get the supplies it needs to getting intermediaries, who get the supplies it needs. Thus, a solicitation for things turns to a solicitation for services. This may be a thoroughly rational approach, but it has flow on consequences that should be ameliorated. (Not to mention the hint of a inherently governmental function factor: see, To procure or not to procure: is that the question?
Mr. Shafer says, "Anyone who has spent time developing proposals for federal contracts will tell you that much of the evaluation process is subjective, except when it comes to pass/fail evaluation factors. Those should, by definition, be black or white." What is really being said here is that product evaluation for supplies is more objectively testable ("black or white") than the evaluation of service providers (which "is subjective").
Mr. Shafer endorses this approach because it focuses on the old-boy network of tried and true service providers. The problem I have with that is there is nothing in this approach that weeds out the gamers he mentions, and the more the same network is relied upon the narrower that network gets.
To provide the integrity that is essential to have confidence in outsourced procurement services, critical solicitation and contract administration over the service-providers should be ramped up, and the mix of service providers should be competed far more than once a decade or so ("all of these contracts were opened again for competition in this decade"). And, maybe, it would not hurt to decentralize some of the commodity purchases ("IT commodity requirements") to more users.
Being an incumbent can have its advantages, amongst them knowledge of how the contract administration process runs after the contract performance begins. This knowledge can at times give the incumbent a price advantage at bid opening, but the onus then is great on the government to contain performance cost increases.
On Guam, the government had lapsed into the habit of awarding, often without any competition, and usually with unduly specifications, copier contracts to one of a couple of competitors.
When after at least a decade of such behavior, one large agency was forced to open the work to competitive bids, the incumbent shocked the competition with a bid roughly 50% lower than it had been getting under prior contracts. But, in a review of the contract performance under the new award, the OPA found that the running costs under the new contract had shot up so much that those costs dwarfed the bid price.
This case concerns the competition, if it can be called that, between Motorola and Raytheon for emergency communications equipment. Read the whole article at the link, as usual, because I truncate and often rearrange the excerpts, and leave out some really good stuff; the related and linked stories mentioned in the article add valuable context, too.
How Motorola bested Raytheon and captured L.A. County’s emergency radio contract
Rather than signaling a new burst of competition in a taxpayer-financed market, the outcome is another reminder of how difficult it’s been for competitors to overcome Motorola’s dominance.
It looked in the summer of 2011 as if electronics giant Raytheon Corp. had gained a major foothold in the U.S. emergency communications market long dominated by one company: Motorola. Raytheon had been selected as the prime contractor for a sprawling, $600 million communications system connecting Los Angeles County’s public safety agencies with those of Los Angeles and more than 80 other cities in the county, two school districts and UCLA via the latest in two-way radio and high-speed broadband technology.
Like large urban areas across the country, Los Angeles County spent years working to meet a drumbeat of interoperability edicts from Washington. The goal was to unite local first responders in a seamless communication system that could withstand a terrorist strike, an earthquake, a wildfire or some other disaster.
In 2010, the newly formed Los Angeles Regional Interoperable Communications System, or LA-RICS, solicited bid proposals for a two-way radio system and a new broadband network. Raytheon’s negotiating team only needed to work out the design details with a joint government authority. Raytheon and the joint powers authority were in a final exclusive bargaining period when things got tangled.
A Los Angeles County attorney declared that the procurement violated an arcane state law because it bundled the radio and broadband systems with the construction of towers in a single “turn-key” contract. Under the law, construction projects had to be bid separately, the attorney reported. Motorola, however, had for years built turn-key projects in California that mingled tower construction and radio electronics.
Patrick Mallon, the executive director of LA-RICS, said in a phone interview that if the authority had proceeded, construction bids would have had to have been taken for each of 300 towers, posing “astronomical risks” if anything went wrong. The state legislature rushed a legislative fix into law, but LA-RICS started the process anew anyway, breaking the radio and broadband networks into separate contracts.
In the final round, the radio system was revised to end Los Angeles’ use of a commercial television band width and shift to a 700-megahertz band set aside for emergency communications. Motorola’s winning bid was a jaw-dropper: $280 million, or about half of its first-round bid and $135 million below Raytheon’s price of $415 million.
The question is, will contract modifications raise Motorola’s price?
For example, public records show that LA-RICS’ subject matter experts concluded that many of Motorola’s towers exceeded government height limits, a characterization that Mallon disputed. If shorter towers must be built, more towers costing up to $1 million each will be required, because their signals don’t extend as far. The authority has agreed to hold Motorola responsible for no more than $2 million of any additional tower costs.
Raytheon also announced that it was dropping out of the broadband competition and left empty handed.
I was doing some research into the restrictive effects of "bundling" in contract solicitations, and came across this illuminating article (which I've chopped and paraphrased) by Pat Wittie (once?) of the law firm Kilcullen, Wilson & Kilcullen:
What is a “Bundled” Procurement? And When is It Improper?
Regardless of how the term is defined, bundling’s effect is to group a variety of segregable requirements into a single solicitation, so that all bidders/offerors must be able to satisfy all of the requirements. Offerors that can provide only some are excluded from the competition.
The backdrop for this discussion is the Competition in Contracting Act, which requires full and open competition and states clearly that solicitations may contain restrictive provisions and conditions only to the extent necessary to satisfy the needs of the agency, or as authorized by law. 10 U.S.C. § 2305(a)(1)(B)(ii); 41 U.S.C. § 253a(a)(2)(B). Over the years, GAO has evaluated bundled procurements in a variety of contexts, and with a few important exceptions, it has come down squarely on the side of competition and against bundling.
[After discussing cases declaring this general principle, the article continues:] Bundling, then, is strongly discouraged, carefully scrutinized, and seldom upheld in a protest. There are, however, a few situations in which bundling has been adequately justified, at least in GAO’s view. Most of those situations fit into one of three categories:
(i) Design integrity/interoperability: the requirements to be bundled all relate to a single integrated system, where design integrity and interoperability are critical.
(ii) Overwhelming administrative burden: the agency’s administrative burden will be truly overwhelming if the work is not bundled. (Although agencies often defend solicitations that involve bundled requirements on grounds of administrative efficiency, they seldom win. GAO’s threshold for administrative convenience is low, and its tolerance for inconvenience to the agency is high, at least when balanced against the statutory requirement for competition.)
(iii) National security: the agency can provide a well-documented justification based on national security or military readiness considerations.
IDIQ Contracts Are Governed By Slightly Different Considerations. Historically, the “bundling” issue has arisen in garden-variety supply, service, or construction contracts, but more recently the concept has spilled over into IDIQ and task order contracts. In fact, amendments to the Competition in Contracting Act (CICA) that were passed in 1994 as part of the Federal Acquisition Streamlining Act created: (i) a scheme for “multiple awards” under IDIQ procurements, which is effectively a statutory preference in favor of unbundling, and (ii) a requirement for unbundling on task order contracts for advisory and assistance services where the amount is expected to exceed $10 million over 3 years. Legislative history clearly focuses on the benefits of constant, head-to-head competition among multiple awardees as tasks or delivery orders are identified and released.
These statutory provisions have been implemented through the FAR at 16.500 et seq. FAR 16.504(c)(1) establishes the general preference for multiple awards on IDIQ contracts, but identifies six situations in which multiple awards “should not” be made. With IDIQ contracts, bundling into a single award is likely to be permitted when an agency can demonstrate that only one contractor can provide the requirement, or if administrative costs of multiple awards are overwhelming, or if design integrity or interoperability are critical, or if “more favorable terms and conditions” will prevail with a single award.
The analysis does not stop there, however, since GAO has grafted a “void for vagueness” standard onto IDIQ solicitations. In fact, in connection with a protest that it dismissed as untimely last year, GAO took the extraordinary step of writing a letter to the Air Force and the Army, chastising those agencies for violation of CICA and FAR 16.504 even though it did not address the protest on the merits. (Letters to the Air Force and Army Concerning Valenzuela Engineering, Inc., B-277979, Dec. 9, 1997, Jan. 26, 1998, 98-1 CPD ¶ 51.) GAO reviewed the statement of work in this IDIQ solicitation and concluded that it was so broad that it did not “reasonably describe the scope of services needed,” thus failing to provide potential offerors notice of the work that would be within the scope of the resulting contract. GAO took pains to point out that:
inclusion of broad categories of work in one statement of work constitutes a form of bundling, since different kinds of work (or tasks in different geographical or technical areas) are combined into one procurement, and an overly broad statement of work can unjustifiably diminish competition, just as bundling does, by deterring businesses, particularly small businesses, from competing for a contract, notwithstanding their ability to perform some of the work at issue.
Thus a solicitation with a broad, vague, undifferentiated statement of work can constitute a prohibited form of bundling, at least in connection with IDIQ contracts. GAO has not addressed whether this would be true even if the agency could make persuasive arguments in favor of a single, bundled award on grounds of quality, design integrity, or national security.
[And then there are] amendments to the Small Business Act passed in 1997 [which] are driving the SBA’s proposed regulation. The approach taken by Congress in the statute and by SBA in the proposed regulations, however, shows only passing interest in competition as a principle. Instead, the primary consideration - the principal focus - is on process, i.e., maximizing small business access to federal procurements. Toward this end, the proposed regulations impose a strict quantitative analysis requirement. The exercise of judgment and discretion by an agency-to which GAO typically defers-is far more tightly circumscribed than it has been in the typical GAO decisions. Under the proposed regulation, the effect of bundling must be quantified and its justification must involve “measurably substantial benefits.”
Impressed by the comprehensiveness of the paper (even if dated), I looked around for its source, and discovered this new procurement resource link, actually more of a link of links:
The Government Contracts Law Report
Sometimes even an old link can prove to be a rich vein to mine.
This is another report on the Lexicology online service from the informative and insightful guys, Anatoly M. Darov and Timothy J. Famulare at the law firm Burns & Levinson LLP.
The [Massachusetts Attorney General's] Bid Protest Unit addressed another protest in a line of recent “bundling” protests arising from pavement management services in the town of Kingston.
Pavement Maintenance Systems, Inc. (“PMS”) challenged Kinston’s latest procurement for roadway surface restoration services. In 2002, the town solicited bids for surface restoration seeking one contractor to perform three services: (1) infrared patching of utility and large pavement cuts, (2) small crack filling, and (3) “restorative sealing” of entire roadways. Subcontracting was not permitted, and the contractor had to have five years experience with all three services.
Felix Marino Co., Inc. was the only contractor that could meet the experience requirements and provide all three services, and, in fact, had developed the “restorative sealing” process. PMS challenged the award to Felix Marino in 2002, arguing that the three services are unrelated and should not have been bundled. The Massachusetts Appeals Court rejected this argument in a 2004 decision.
In its 2012 protest, PMS presented unrebutted evidence that the town has never used the restorative sealing process and has used the crack-filling process only twice; that Felix Marino charges the town twice as much for the infrared patching services as it does in towns where there is competition; and that these three processes would never actually be provided at the same time. The town also failed to demonstrate that working with one contractor has actually saved it any administrative costs.
The Attorney General determined that “administrative ease” is not a rational basis to bundle the services. Further, because only one bidder could meet the experience requirement for all three services, that requirement was overly restrictive and violated G.L. c. 30, §39M(b)
For another instance of bundling found to be restrictive, see Matter of: Sigmatech, Inc., File: B-296401, Date: August 10, 2005. This is a Decision under GAO's protest procedure. The official Digest of the decision states:
Protest challenging bundling of system engineering and support services with other requirements under a single-award BPA issued under awardee’s Federal Supply Schedule contract is sustained, where agency failed to perform bundling analysis or satisfy the requirements of Federal Acquisition Regulations sections 7.107 (a), (b); 10.001(c)(2); and 19.202-1.
and
Protest challenging bundling of system engineering and support services with other requirements under a single-award blanket purchase agreement (BPA) issued under awardee’s Federal Supply Schedule contract is timely, where record does not demonstrate that protester knew of basis for protest until task orders for work, which the protester had previously performed, were issued under the BPA, and the protester filed its protest within 10 days thereafter; GAO resolves doubts regarding timeliness in favor of protesters.
