A practical difference between an assignment and a novation

“Then you should say what you mean,” the March Hare went on.

“I do,” Alice hastily replied;

“at least—at least I mean what I say—that's the same thing, you know.”

“Not the same thing a bit!” said the Hatter.

--Lewis Carrol, Alice in Wonderland

The following article reminds me of the differences between a lease renewal and a lease extension. Very many leases do not really think there is a difference. To add more duration to a fixed term, the parties may summarily make a lease "renewal" amendment rather than a lease "extension" amendment.

The consequences from such a choice of form is not unlike the consequences of using an assignment agreement rather than a novation. In my primarily real estate experience, I've seen more assignments made that maybe should have been made as a novation.

In both cases (assignment/novation and renewal/extension), the intended practical effect is the same or substantively similar whichever choice is made, but the legal effect may be unexpected.

The article presented for post came to my attention, as many do, from Lexology, and the article is found at the link provided below. As usual, be aware that I tend to shape and reframe the articles I present to suit a teachable moment consistent with this educational blog. I often omit critical material, such as citations or facts, rearrange, paraphrase, slice, dice and probably misstate the original work. So, by all means, read the article at the link.

An Amended and Restated Loan Security Agreement Should Expressly So State If It Is Not Intended As a Novation

An amended and restated loan and security agreement (“Amended Loan Agreement”) may have been a novation of the original loan and security agreement resulting in the loss of the lender’s security interest and making payments fraudulent transfers, according to Bash v. Textron Fin. Corp., 834 F.3d 651 (6th Cir. 2016). Evidently, the parties did not intend to extinguish the earlier lien by amending and restating the agreement.

(I should note, to tie in the lead-in comment, that parties who renew leases rather than extend them, can discover they, too, have made a new agreement, accelerating or otherwise affecting provisions of the lease, such as when to return the security deposit, as well as the statute of limitations on claims made on breaches of lease during the "original" term.)

Fair Finance Company (“Debtor”) and its holding company, Fair Holdings, Inc. (“FHI”) received a $22 million revolving credit line under the terms of a loan and security agreement in 2002 (“2002 Loan Agreement”) with Textron Financial Corporation (“Textron”) and United Bank. As security for the loan, FHI pledged all of its present and future assets. The security interest created under the 2002 Loan Agreement extended to all future obligations of FHI, including obligations intended as replacements or substitutions for those existing under the 2002 Loan Agreement.

As the 2004 maturity date for the 2002 Loan Agreement approached, all parties involved began discussions on whether to renew the loan. Textron bought out United Bank’s position and entered into an amended and restated loan and security agreement (“2004 Amended Loan Agreement”) with Debtor and FHI. The amended loan agreement said the parties intended to amend and restate the original agreement to reduce the amount and modify certain terms and conditions, as well as state a new interest rate, new fee schedule, new covenants, new events of default and new conditions precedent, among other critical matters.

In 2007, the Debtor and FHI used part of the proceeds from an asset sale transaction to pay the remaining balance to Textron under the 2004 Amended Loan Agreement. This payment ended Textron’s relationship with the Debtor and FHI, and Textron released all of its liens.

But 2009, the FBI raided the Debtor’s headquarters. After the Debtor’s operations collapsed, a petition for involuntary bankruptcy was filed against the Debtor. The bankruptcy trustee filed a claim against Textron to avoid and recover fraudulent transfers. The district court concluded as a matter of law that the 2004 Amended Loan Agreement was not a novation and, as a result, the security interest conveyed pursuant to the 2002 Loan Agreement continued in full force. Accordingly, neither the 2004 Amended Loan Agreement, nor the payments made under it, could qualify as transfers for the purposes of a fraudulent transfer claim.

On appeal of the district court's decision, the trustee argued that the lien granted under the 2002 Loan Agreement was nullified because the 2004 Amended Loan Agreement was a novation of the 2002 Loan Agreement, and that when the 2002 Loan Agreement was extinguished, so was the security interest granted under the 2002 Loan Agreement.

The Court of Appeals then examined the elements of intent, knowledge and consent to determine if there had been a novation of the 2002 Loan Agreement. The Court found support for a novation in: (1) the text of the 2004 Amended Loan Agreement, where several provisions evidenced the intent of the parties for the 2004 Amended Loan Agreement to extinguish and wholly replace the 2002 Loan Agreement; (2) circumstantial evidence, such as the timing of  the 2004 Amended Loan Agreement, which occurred at the maturity of the 2002 Loan Agreement, new promissory notes and guaranties were issued, United Bank ceased to be a lender; and (3) new terms in the 2004 Amended Loan Agreement, all of which the Court said signified the intent to extinguish the 2002 Loan Agreement.

When all the facts were examined together, the court found there existed an ambiguity as to whether the parties intended the 2004 Amended Loan Agreement to extinguish the 2002 Loan Agreement, so it reversed and remanded the case for further proceedings. (Read to mean, lots more time and legal fees lost.)

The practical takeaway is that an amended and restated agreement should expressly state the intent of the parties that the security interest and liens in the collateral under the original security agreement continue in full force and effect and that the amended and restated agreement is not intended to be a novation.

I'd add, make clear your intent when making any transfer whether you use the term "assign", "novation", "renew" or "extend". A few extra words can avoid the very expensive and expansive process of litigating the facts to prove an intent inferred by one of those terms.

Some possibly helpful definitions from Black's Law Dictionary:

Assignment: "The act of transferring to another all or part of one's property, interests or rights."

Novation: "A type of substituted contract that has the effect of adding a party, either as obligor or obligee, who was not a party to the original duty. Substitution of a new contract, debt, or obligation for an existing one, between the same or different parties. The substitution by mutual agreement of one debtor for another or of one creditor for another, whereby the old debt is extinguished. A novation substitutes a new party and discharges one of the parties to a contract by agreement of all parties."

Renewal: "A revival or rehabilitation of an expiring subject; that which is made anew or re-established. The substitution of a new right or obligation for another of the same nature. A change of something old to something new."

But note additional interpretations of the word 'renewal' that expresses the confusion with an extension: "To grant or obtain extension of; to continue in force for a fresh period....; An extension of time in which that obligation may be discharged."

Comment: These additional meanings seem to derive from trading in financial and security instruments (chattel property), whereas leases of land involve estates, and a different branch of law with entirely different origins and complexities.  See, "Extension or renewal of note: "Takes place when parties agree upon valuable consideration for maturity of debt on day subsequent to that provided in original contract."]

Extend: "Term lends itself to great variety of meanings, which must in each case be gathered from context. Expand, enlarge, prolong, lengthen, widen....

Extension: An increase in length of time specified in contract.

Extension of Lease: "The word 'extension' when used in its proper and usual sense in connection with a lease means a prolongation of the previous leasehold estate. The distinction between 'extension' and 'renewal' of lease is chiefly that, in the case of renewal, a new lease is requisite, while, in the case of extension, the same lease continues in force during additional period upon performance of stipulated act."

Note that a lessee's assignment of a lease "without recourse against the assignor", or an assignment and release of transferor, which is agreed to by a landlord, has the same practical effect as a novation, inasmuch as it achieves a discharge of the obligations of the transferor, as in a novation.

California procurement database found to be off base

California Audit Report 2016-124, Department of General Services and California Department of Technology

Among the key findings: General Services does not have complete and accurate contracting data, and it did not implement controls to avoid these shortcomings with its contracting data.

The previous contract and procurement database system used through 2015 had severe limitations—we found many key data entry errors, and more than a third of the contracts and amendments we reviewed were missing from the system, including one with eight amendments worth $163 million.

Of the 27 approved noncompetitive requests we reviewed, nine lacked justification for bypassing the competitive bid process and 14 did not demonstrate that the vendor’s prices were reasonable.
Among the highlights of the report:

• General Services and Technology did not provide adequate oversight of the billions of dollars state agencies awarded through noncompetitive contracts from fiscal years 2011–12 through 2015–16.
vices did not ensure that a statewide contract database contained complete and accurate information about the State’s contracts for use by key decision makers.

• Although General Services transitioned to the new Financial Information System for California (FI$Cal) as its statewide contract database, it is unclear if FI$Cal will fully solve the State’s lack of comprehensive contracting data.

• Neither General Services nor Technology has established formal plans to regularly analyze the new FI$Cal data to identify instances of abuse or misuse of statewide noncompetitive procurements.

• General Services and Technology approved noncompetitive requests that lacked adequate justification for bypassing the competitive bid process, such as demonstrating that it conducted market research to substantiate that no competition existed.

• Nine of the 27 noncompetitive requests we reviewed could have been avoided if the agencies had engaged in sufficient planning.

• Although both General Services and Technology have enforcement mechanisms, they rarely employed them, allowing agencies to continue inappropriately using noncompetitive requests.

Billions in no-bid contracts mismanaged, state auditor says, By Adam Ashton (Excerpts; read full report at the link)

It didn’t take long for the cost of a technology contract in California’s unemployment office to increase twelvefold.

Two changes to the contract – added without bidding – swelled the deal to $8 million within a year. Then, the Employment Development Department submitted a request to add another $2 million worth of work to the arrangement without soliciting new bids from other companies.

That project is one of nine that State Auditor Elaine Howle highlighted in a new report released on Tuesday that urges California government to be more cautious in awarding high-value contracts without seeking competitive bids.

The report estimates that the state spent $44 billion on noncompetitive contracts worth $1 million or more between 2011 and 2016, a substantial sum that auditors said underscored the need for better management.

“The sheer magnitude of the value of the state’s noncompetitive contracts during this period emphasizes the importance of ensuring that the state provides adequate oversight of agencies’ contracting practices,” the report says.

State rules allow departments to award contracts without bidding in emergencies and under other special circumstances. But Howle’s auditors found that the state departments in charge of monitoring spending – the Department of General Services and the Department of Technology – have missed opportunities to challenge requests for noncompetitive contracts, failed to ensure that contract databases have accurate information and rarely disciplined other government agencies for misusing noncompetitive contracts.

The audits were based in part on a sampling of 27 noncompetitive contracts that state departments awarded over five years. Nine of them should have gone out to bid, auditors wrote.

Examples included:

▪ A $3 million contract extension that the California High-Speed Rail Authority presented just 17 days before its existing contract was scheduled to expire. High-Speed Rail did not describe why the vendor it chose had unique services that merited a noncompetitive contract.

▪ An $835 million noncompetitive contract amendment in 2013 for the company that manages Medi-Cal dental benefits. It was the seventh amendment to the original contract.

▪ A $75.5 million noncompetitive contract extension at the Department of Motor Vehicles on top of what was a $62.8 million for work on the state’s driver’s license production system.

▪ A fourth amendment to a Cal Fire aviation contract that was worth $27.8 million.

One $163 million contract that was missing from databases highlighted shortcomings in the state’s accounting system. It was the eighth change to a contract from the Department of Developmental Services, and no one entered it in the program the Department of General Services uses to follow spending.

State government is in the midst of a major overhaul of its accounting system with departments gradually adopting a new program called the Financial Information System for California (FI$Cal). When it’s in full use, the Department of General Services and the Department of Technology should be able to follow instantly any contract awarded by a state entity.

Until then, different state departments are using a hybrid system for accounting. Most use the system that FI$Cal is replacing; about a third of them use FI$Cal.

Howle’s office says it’s too early to tell whether FI$Cal will work as intended. “It is unclear if FI$Cal will fully solve the state’s lack of comprehensive contracting data,” auditors wrote.

Read more here: http://www.sacbee.com/news/politics-government/the-state-worker/article157239494.html#storylink=cpy

The anti-competitive multiplier effect of having no effective scope of contract change limitations

Canberra outsourcing deal quadruples to $390 million

The Australian Department of Agriculture signed a technology support deal with EDS in 2009 for $96 million. Since then, EDS has been acquired by HP Australia, and HP has twisted and turned and split and merged to become HPE , HP Inc, or DXC Australia.

The comprehensive managed services arrangement runs the gamut of IT services. When Agriculture took the work to market back in August 2008, it envisioned the contract would cover managed desktop, desktop LAN, midrange, storage area networks, helpdesk, Macs, and project services.

Work orders signed in December last year have now taken the value of the deal to over $390 million, more than four times its original value. And this figure is likely to keep growing until 2022 when the present iteration of the deal expires, at which point it will be 13 years old.

Despite a recent clause added to the deal which allows the department to take it back to market at any time it wants “if the performance of the services does not meet clearly defined and agreed requirements or if the value for money requirement is no longer being met”, a spokesperson for the department told iTnews there were no foreseeable plans to market-test the nearly $400 million deal.

The Department of Finance confirmed that the Commonwealth procurement rules don’t place any cap on the number or value of amendments that can be applied to a federal government contract.

"In order to ensure transparency in government procurement activities, entities are required to report contract amendments and variations on AusTender, including any increases to the total contract value," Finance said. Since 2009, Agriculture has published 227 such variations on the procurement website.

The rules also dictate “any variation to a procurement contract should not significantly change the scope of the contract”.

The procurement rules do, further, insist that “officials must achieve value for money in procurement”.

Agriculture insists it is doing so - even in the absence of any real competition. It called in procurement consultants, who calculated it would cost the agency more to run a new approach to market than it stood to save.

“The review found that the third party service provider was delivering the services to the expected level for a price that was market competitive at that time," a spokesperson said.

IT outsourcing has long been a point of controversy in Canberra, where the cost of running complex and highly regulated multi-year procurement programs often convinces agencies to stay with the same supplier for many years.

In 2015 the Department of Health switched to Datacom after 15 years with IBM.

And the Department of Defence continues to insist it is too busy to refresh its paired distributed computing deals with Unisys and Fujitsu, which are nearing the 20-year mark.

In the US, the concept of scope of the contract is taken a bit more strictly. While not necessarily determinate, a "large" price increase raises the suspicion of a change beyond the scope of the contract.

Plus, the scope of the contract is examined in the context of the contract's intent as the time it was solicited, not during some evolutionary period of the services actually performed. A comparison of the actual services presently being rendered in comparison to those actually solicited in the original contract may reveal a change in the nature, scope and character of the service of such magnitude that the government, and taxpayers, would be better served if it went back out to bid.

Also, in a rapidly changing time of technology, when the field of competition could be expected to provide newer technology at more competitive rates, the change in the field of competition can also influence what is meant by a "significant" change in the scope of the contract.

Too often, the cozy arrangements with an incumbent and a procurement staff not wanting to be bothered to "foster effective competition", as the American Bar Association Model Procurement Code mandates, results in situations like this, where there is rampant contract price inflation. No appraisal (which is what the third party review was in reality) is as tell-worthy as good old-fashioned competition. A dozen expert opinions of a horse will not tell a winner from a loser better than the race.

Contract administrators must not only monitor the services rendered and paid for, they must also monitor the services contracted.

Cleaning up the mess on your own dime

DOJ warns of fallout in Army-KBR contract dispute

Awarded to KBR in 2001, LOGCAP III — the Logistics Civil Augmentation Program III — has resulted in 160 task orders for everything from dining services for U.S. troops to in-theater delivery of housing. The outcome of a court battle between the Army and KBR over the final stages of LOGCAP III, the largest government services contract in U.S. history, could affect tens of thousands of federal contracts while creating “enormous uncertainty” for vendors and the government alike, according to the Justice Department.

The warning, delivered in the footnote of a recent U.S. Court of Federal Claims pleading, marks the latest development in a dispute to decide how to close out the 12-year-old, $38 billion military logistics contract supporting military operations in Iraq. In explaining the potentialimpact, lawyers speculated that if closeout activities had to be performed during the performance period of a contract, then the government could be forced to end deliveries to accommodate the closeout.

“For example, if an existing contract was for five years of performance, and closeout is estimated at one year, the government would need to direct the contractor to cease deliveries by year four to ensure that sufficient time exists to perform closeout,” the Justice Department filing stated.

While the Army has pushed to change the LOGCAP III pricing structure to a firm, fixed-price basis, KBR has sued to keep the closeout work under the existing cost-reimbursable arrangement. The company says the cost-reimbursable model is better because neither the company nor the Army can estimate the scope or duration of closeout work. “Legal, administrative, compliance, audit response, vendor issues, subcontract close-out and dispute resolution, to name a few, are all unknowns,” the company told the Army in a letter last summer.

KBR lawyers argue that LOGCAP III ended in December 2011 without any provisions to close out the contract. When the Army requested a proposal in 2013 for closeout activities under a firm fixed-price basis, the request was “unquestionably a solicitation for a new contract,” KBR argued.

Lost bid? Out of luck? Not if out of scope changes

I briefly introduced this subject from the Government Contracts Blog a week or so back but did not have time then to report much about it. It is worth taking the time, so here it is:

Let Bygones Be Bygones - Except When It Comes To "Out of Scope" Modifications

As a general matter, the GAO does not review matters pertaining to an agency’s contract administration decisions. 4 C.F.R. § 21.5(a). Contract modifications and changes fall into this category and bid protests raising issues related to the issuance of modifications or changes generally will not be considered by the GAO.

At other times, however, it may be to a contractor’s benefit to have a long memory and a watchful eye.

The Competition in Contracting Act (“CICA”) requires agencies to use full and open competition when acquiring goods or services. 10 U.S.C. § 2304.

Unless an agency invokes an exception, an “out of scope” modification or change is essentially an improper sole-source award that circumvents CICA’s competition requirements. The GAO will thus entertain a protest challenging a contract modification or change when the contractor alleges that the modification or change is “out of scope” of the awarded contract.

If the GAO sustains the protest, it may order the agency to terminate the contract and re-solicit its modified requirements on a competitive basis, as it should have done in the first place. This remedy may afford a contractor another opportunity to compete for the agency’s requirements. A contractor should thus keep a watchful eye on its competitor’s contract to ensure that the work its competitor is being asked to perform falls within the scope of the contract as awarded and that it preserves its right to file a timely challenge at the GAO.

To prevail on a protest alleging an “out of scope” modification, a contractor must show that the contract as modified is materially different from the contract as awarded.

While no one factor is dispositive, the contract type and changes to the nature and type of work have received heightened attention in bid protest decisions. A contractor’s chances for success increase based on the number of factors that support the conclusion that the modification or change was “out of scope.”

Despite the lack of a bright-line rule, one thing remains certain. A contractor that lets bygones be bygones and ignores the manner in which its competitor’s contract is proceeding may never have an opportunity to make this showing and may be deprived of an opportunity to compete for a requirement that should have been subject to competition. Maintaining a vigilant guard could thus provide a piece of the pie that had appeared previously to be out of reach.

Ontario cuts down on paying for publically funded lobbying services

Rules on consultants not followed

Hiring consultants without competition, getting uncontested project extensions and lobbying government have likely been systemic issues at all Ontario hospitals, says provincial auditor general Jim McCarter.

Among McCarter’s more shocking findings was the extent of single-sourced contracts — 75 per cent — and follow-on contracts that saw consultants work related jobs without having to reapply.

In one example, a consultant hired for a $160,000 job ended up being paid more than $1 million in add-on jobs.

Raising The Bar For Accountability And Transparency

Ontario is proposing strict new rules that would prevent organizations funded with taxpayer dollars from using public funds to hire external lobbyists to ask for more funding.

The proposed Broader Public Sector Accountability Act would, if passed, bring in new rules and higher accountability standards for hospitals, Local Health Integration Networks (LHINs) and the broader public sector around the use of external lobbyists, consultants and expenses. Hospital and LHIN executives could see reductions in pay, should they fail to comply with the requirements under the proposed Act.

The new rules would also apply to school boards, colleges, universities, hydro entities, community care access centres, Children's Aid Societies and other public sector organizations that receive more than $10 million in government funding.

In addition to ending the use of taxpayer dollars to hire lobbyists, the new rules would:

* Expand Freedom of Information legislation to cover hospitals.
* Require hospitals and LHINs to post expenses of senior executives online.
* Require hospitals and LHINs to report annually on their use of consultants.

The government is implementing the recommendations of the Auditor General and is taking further initiatives to raise the bar for accountability and transparency, whenever taxpayer dollars are spent. Increasing transparency and accountability is a key component of the government's Open Ontario Plan.

Contract variations up against a Wall in Europe

This post involves a European Court of Justice case, Wall AG C‑91/08.

It arises from a protest and appeal of a German solicitation. The background and protest decision are described in a Dundas & Wilson LLP Bulletin (at p. 3), from which the following is taken:

The case concerns a services concession contract granted by the City of Frankfurt to a public-private entity (FES), in which the City of Frankfurt holds 51% of the shares. Under the concession contract, FES was granted the rights to the commercial operation of 11 public toilets in the City of Frankfurt, involving the refurbishment of two public toilets in two railways stations.

Wall AG had been identified in the original concession documents as the intended subcontractor for the provision of advertising services and the supply of toilet cubicles. However, following the appointment of FES - but before any services were provided - FES put the provision of advertising services and the supply of toilet cubicles out to tender. Wall AG was not successful and the work was awarded to an alternative provider. Wall AG challenged the decision before the German courts.

It argued that the change in subcontractor constituted a substantial change to the concession contract concluded between the City of Frankfurt and FES.

The protest was heard before Advocate General Bot. AG Bot recognised that the EC Treaty transparency obligations left contracting authorities a wide margin of discretion to vary contracts, especially complex long-term partnering contracts such
as PPP contracts. However, that discretion had to be exercised in a manner that
protected against the abuse of the competitive tendering rules imposed by the EC Treaty.

In the present case, AG Bot concluded that the City of Frankfurt had breached those rules by allowing FES to substitute a key subcontractor so early into the contract (before any services had been provided) and without any apparent objective kustification. Significantly, he was persuaded that FES would not have been awarded the concession contract if it had not included Wall AG as its named subcontractor.

In the circumstances, EC Treaty rules required that such a change only be made following the re-tendering of the concession contract.

It must be emphasized that this has been a synopsis. As in most cases, the results reached can be influenced by the facts. Facts give cases nuance and context that are not always evident in the bare result. It is useful, perhaps therefore, for students and practitioners to review the ECJ's judgment and its rendition of the detailed facts upon which it based its decision. This is not intended to be a review of that case, however. This is provided for the simple proposition that changes in a contract can be of such nature as to require a new solicitation.

On this simple proposition, the ECJ held

1. Where amendments to the provisions of a service concession contract are materially different in character from those on the basis of which the original concession contract was awarded, and are therefore such as to demonstrate the intention of the parties to renegotiate the essential terms of the contract, all necessary measures must be taken, in accordance with the national legal system of the Member State concerned, to restore the transparency of the procedure, which may extend to a new award procedure.

This ECJ ruling was discussed in MacRoberts LLP's article ECJ rules on contract variations (May require registration with Lexology). The authors conclude,

The requirement to carefully consider whether an amendment constitutes a new award is not new. Indeed, the ECJ has previously put down a test in Pressetext, which is to be applied when an authority wishes to vary an existing contract stating an amendment might be material if it would have resulted in a different outcome if included originally, extends the scope of the contract, and/or changes the economic balance of the contract. Wall now builds on that test.

The Dundas & Wilson LLP Bulletin mentioned above is very instructive by including a discussion of the Pressetext and other cases to canvass other situations where variations to contract required new solicitation.

Peering through the fog of war and procurement protests

Fog of war no reason to skirt contracting rules

The Army issued the task order solicitations under multiple-award indefinite-delivery/indefinite-quantity (IDIQ) contracts. However, DynCorp argued, and GAO agreed, the orders were outside of the scope of the IDIQ contract’s counter-narcoterrorism-related work.

“We recognize the Army’s position that it needs to swiftly award a contract for these services,” said Ralph White, GAO’s acting managing associate general counsel for procurement law. However the existing IDIQ contracts were limited to providing counter-narcoterrorism support services worldwide.

Alan Chvotkin, executive vice president and counsel for the Professional Services Council, said GAO’s decision tells agencies they must adhere to the rules of contracting over their desire for expediency.

“The decision is a clear statement from GAO that, notwithstanding important national and international priorities, the contracting rules still matter,” Chvotkin said.

In the Matter of: DynCorp International LLC, B-402349 March 15, 2010

The scope of work for the ID/IQ contracts was limited to providing the "necessary goods and services required by the [Counter Narcoterrorism Technology Program Office] to support the counter-narcoterrorism mission" of the above listed agencies, nations, and authorities in three "program performance areas": technology development and application; training, operations, and logistics support; and program and executive support.

The performance work statement indicated that although these services would be provided worldwide, the current "primary countries of interest" were Colombia and Afghanistan.

With regard to training and security services specifically, the performance work statement stated that the services would be "in support of counter-narcoterrorism missions and objectives."

The sample task orders were to: (1) develop high resolution short-wave infrared cameras for surveillance and reconnaissance aircraft; (2) provide intelligence surveillance and reconnaissance support in the Trans-Sahara region of Africa; and (3) train Afghan Border Police to perform functions necessary to deny the flow of illegal persons, drugs, and weapons across borders.

The first of the two task order requests at issue here seeks mentoring and training services for the Afghan Ministry of the Interior and Afghan National Police. The remaining mentors support Ministry of Interior operations or law enforcement activities generally.

Notably, none of the descriptions of the mentoring and training tasks describe or mention responsibilities directly related to counter-narcoterrorism.

The second of the two task order requests at issue here seeks facility maintenance and logistics support .

DynCorp, which does not hold an ID/IQ contract with the Counter Narcoterrorism Technology Program Office, protests that [the task orders] are outside the scope of the underlying ID/IQ contracts because the requested services are unrelated to counter-narcoterrorism. The Army asserts that the ID/IQ contracts are written broadly so as to include the services requested here.

our Office is authorized to hear protests of task orders that are issued under multiple-award contracts where the protester asserts that the task order increases the scope, period, or maximum value of the contract under which the order is issued.

Task orders that are outside the scope of the underlying multiple-award contract are subject to the statutory requirement for full and open competition, absent a valid determination that the work is appropriate for procurement on a sole-source basis

The analysis of whether a task order is outside the scope of a multiple-award contract is the same as the analysis of whether a contract modification is outside the scope of a single-award contract.

In addition, the law in this area is well-settled. In determining whether a task order is beyond the scope of the contract, GAO and the courts look to whether there is a material difference between the task order and that contract.

Evidence of such a material difference is found by reviewing the circumstances attending the procurement that was conducted; examining any changes in the type of work, performance period, and costs between the contract as awarded and as modified by the task order; and considering whether the original contract solicitation adequately advised offerors of the potential for the type of task order issued.

The overall inquiry is whether the task order is of a nature that potential offerors would reasonably have anticipated.

DynCorp argues that the services requested by the TORPs at issue here are outside the scope of the underlying ID/IQ contracts, because the requested services are broader than and only indirectly related to the underlying contracts' counter-narcoterrorism efforts. In DynCorp's view, these TORPs involve support services for counter-insurgency and other efforts unrelated to counter-narcoterrorism

The Army admits that the Ministry of the Interior and Afghan National Police are primarily involved in counter-insurgency activities. However, according to the Army, there is a "nexus" between these counter-insurgency activities and counter-narcoterrorism "because in Afghanistan the insurgency is funded by drug trafficking" and therefore "any organization or ministry conducting counter[-] insurgency operations in Afghanistan necessarily is involved in countering illegal drug trafficking."

Based on our review of the record, we find that the underlying ID/IQ contracts do not contemplate providing the services requested by the TORPs here. Although the ID/IQ contracts were broadly written and included some training and logistics support, these contracts made clear that the activities had to be related to counter‑narcoterrorism operations.

The fact that there may be some small overlap in the services requested by the TORPs with those required under the ID/IQ contracts does not permit an agency to purchase other services under the ID/IQ contracts that were not reasonably contemplated when the ID/IQ contracts were issued.

Although the agency argues that the services sought by the TORPs are within the scope of the underlying ID/IQ contracts because the insurgency in Afghanistan is funded, at least in part, by money from drug trafficking, AR 34-38, our analysis is necessarily focused on the contract vehicles at issue here--i.e., the underlying ID/IQ contracts and the two TORPs for task orders the agency seeks to place against them. As noted above, the ID/IQ contracts do not include counter-insurgency activities and did not advise offerors that mentoring, training, facilities, and logistics support for counter-insurgency, general law enforcement, or the administration of the Ministry of the Interior or the Afghan National Police unrelated to counter-narcoterrorism operations could be provided. Instead, as discussed above, the ID/IQ contracts limited the training and support to activities that supported counter-narcoterrorism operations.

Finally, we find unpersuasive the agency's reliance on general statements in the TORPs and ID/IQ contracts to show that the TORPs are within the scope of the ID/IQ contracts. For example, we note that the "mission objective" for each of the TORPs generally states that the services sought "support the Warfighter in globally combating Narcoterrorism." We also acknowledge the presence of general statements in the ID/IQ contracts that indicate that the Counter Narcoterrorism Technology Program Office will acquire goods and services "that cross traditional Department of Defense acquisition and contracting scopes," cover a "full spectrum of support," and include "[s]upport for training, operations, and logistic[s] for military and civilian missions."

However, these statements must be read in the context of the solicitations as a whole. As noted above, the underlying ID/IQ contracts make clear that the services involved were to be provided in connection with counter-narcoterrorism operations, while the TORPs sought services that were much broader than counter-narcoterrorism and, therefore, are outside the scope of the ID/IQ contracts.

A contracting agency cannot extract isolated "catch all" words and phrases from a contract, or stretch the flexibility of that contract, in order to justify issuing a task order whose nature would not reasonably have been anticipated by potential offerors; to countenance such a justification would eviscerate the requirements of CICA.

Procurement controversies -- Chicago, Ill.,

City probes big no-bid deal
$26 MIL. | Firm tied to ex-official got contract extension

The Daley administration is conducting an internal investigation to determine why a technology consulting firm that employs a former city budget director got a $26 million contract expansion from the Health Department without competitive bidding or sign-off from the Sole Source Advisory Board.

The $26 million expansion was the second modification of EKI’s no-bid contract. An increase of that magnitude should have sparked a new round of competition. At the very least, it should have been authorized by the Sole Source Advisory Board.

As for the $26 million expansion of EKI’s contract, Johnson said, “As far as I know, it was within the authority of the chief procurement officer to do that. He looked at it. He talked it over with the Health Department and that’s what they decided to do.”