May the Force be with you

One medical website describes an epidemic as including "any problem that has grown out of control". It distinguishes pandemic by the breadth of the "problem".  "An epidemic becomes a pandemic when it spreads over significant geographical areas and affects a large percent of the population. In short, a pandemic is an epidemic on a national or global level."


Now, of course, that website was referring to disease, a disease usually caused by a tiny, hard to decipher critter of some sort. one which at the extreme threatens the survival of the human or  other species.  But, by that definition, in a world organized by contracts, the world is now also caught in the grips of a force majeure pandemic. One London based firm, Farrer & Co., elucidates (though, in my usual slice and dice tossed salad rendition, I have "taken license" of their explanation to assist the mad scheme of this blog, so you are implored to read the original at that link):

Attention is now turning to whether businesses and their suppliers, customers and commercial partners can continue to perform their contractual obligations in spite of the fundamentally different situation in which they find themselves and, if not, what consequences flow from that.

These events shine a spotlight on contractual small print and legal concepts that perhaps provoked little thought in more normal times. They may now be critical to business survival.

Contrary to common perception, there is no statutory or common law definition of force majeure or a force majeure event in English Law. The parties to a contract therefore have the freedom to agree what will amount to a force majeure for the purpose of their contract and what the consequences will be if such an event happens. That means there are no generic answers to questions about how force majeure applies – each party must look at the wording of their own contracts to establish how it works in the relevant circumstances.

That caveat makes Dr. Fauci's assertions and Trump-inspired qualifications look down right transparent. But, it is a sound description of the beast.

As the authors cited cautioned, "This note is designed to be of general application," and it does pretty well hold true around the world, regardless of legal system. So, again, if you need a broad grounding in force majeure, that article is a good place to start. Another broadly examined article dealing generally with the force majeure-like factual issues that arise in this particular Covid-19 pandemic I'd recommend is Coronavirus/COVID-19: Implications for Commercial and Financial Contracts from the firm Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates.

Given the vagueness, or vagaries, of legal theories resulting because of or in the midst of a medical pandemic, and the slippery facts upon which it all rests, I do not attempt to provide my own discussion of the legal issues. But, all you have to do is search online the topic "covid-19 force majeure" and you will see a swarm of force majeure discussions from around the globe, each lying in wait for your interest.

A tortuous path to nowhere on unfair labor wages claim against low bidder

I have to acknowledge the firm Horvitz & Levy LLP and its blog, At The Lectern, for alerting me to this California Supreme Court case: ROY ALLAN SLURRY SEAL, INC. v AMERICAN ASPHALT SOUTH, INC.

Note that this decision of the California Supreme Court overturns the lower court decision reported in this post below.

To prove the tort of intentional interference with prospective economic advantage, a plaintiff must establish “the existence of an economic relationship with some third party that contains the probability of future economic benefit to the plaintiff.” Here we decide whether such a relationship exists between a bidder for a public works contract and the public entity soliciting bids. Plaintiffs alleged that they had submitted the second lowest bids on several contracts awarded to defendant, and that their bids would have been accepted but for defendant‟s wrongful conduct during the bidding process. Public works contracts are a unique species of commercial dealings. In the contracts at issue here, the public entities retained broad discretion to reject all bids. In these highly regulated circumstances, plaintiffs had “at most a hope for an economic relationship and a desire for future benefit.”

The Riverside complaint alleged that American won six public works contracts2 on which either Allan or Martin was the second lowest bidder. American‟s underbids ranged from $3,842 to $140,794. To support their theory of tortious interference, plaintiffs alleged as follows.

Together, plaintiffs had 60 years of experience handling public works projects for slurry seal repair and maintenance. The cost of materials for these projects is essentially the same for all contractors. American engaged in wrongful, fraudulent, and illegal conduct by submitting deflated bids because it failed to pay prevailing wage and overtime compensation in connection with the named contracts, and with other public works contracts during the same period. Plaintiffs alleged they had both a relationship with the contracting public entities and a reasonable probability of future economic benefit, because they “were the respective second lowest bidder[s] and would have been awarded the contract[s] but for the fraudulent and/or illegal conduct of [American] . . . .” According to the complaint, “[American]‟s bid would have been rejected if [American]‟s conduct in failing to pay its employees properly was made known to the [public entity,] and/or [American] would not have been able to submit a lower bid . . . if [American] was properly paying all of its employees the prevailing wages . . . .” Plaintiffs alleged that the failure to secure the Riverside contracts resulted in estimated lost profits of $168,511 for Allan and $269,830 for Martin.

The Appeals Court found that, implicit in the Plaintiff's claim is the allegation that the various public entities were required to award the contract to the lowest responsible bidder and that plaintiffs satisfied all the requirements necessary to qualify for those contracts. Although plaintiffs here did not submit the lowest bids, that was alleged to be due solely to American‟s violation of its statutory obligation to pay its workers the prevailing wage. It went on to add, “an actionable economic expectancy arises once the public agency awards a contract to an unlawful bidder".

The Supreme Court reasoned that the tort of intentional interference with prospective economic advantage has five elements to be proved, the first being the existence, between the plaintiff and some third party, of an economic relationship that contains the probability of future economic benefit to the plaintiff. We focus on the first element, and consider a question of first impression. Can a disappointed bidder on a public works contract demonstrate the requisite economic relationship with the public entity?

American argues that merely submitting a bid to a public entity does not create an existing relationship but rather the hope of one. It emphasizes that each bidder is considered a stranger to the public entity because the entity is prohibited from favoring bidders with whom it has had past dealings. Additionally, public entities have discretion to reject all of the bids submitted. Under these circumstances, American contends, there is no existing relationship with which to interfere and no reasonable probability that a benefit will be conferred by the awarding of a contract.

A cause of action for tortious interference has been found lacking when either the economic relationship with a third party is too attenuated or the probability of economic benefit too speculative. The tort has traditionally protected the expectancies involved in ordinary commercial dealings—not the "expectancies", whatever they may be, involved in the governmental licensing process. A relationship between a competitor and a City cannot be characterized as an economic relationship. The tort “protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will eventually arise.”

In a government contracting bid situation, there could be no existing relationship between plaintiffs and the public entities soliciting bids because public contract law forbids it. Public entities are required by statute to award these contracts to the lowest responsible bidder. Under the law, each bidder must be treated as a stranger to the entity.

A public entity‟s solicitation for bids is merely a request for offers from interested parties. It encourages multiple parties to compete for the contract. The bidding was sealed, and no negotiations took place. Ultimately, the public entities had broad discretion to reject all bids.

The case law recognizes that “the interference tort applies to interference with existing noncontractual relations which hold the promise of future economic advantage.” Here, when American allegedly submitted illegally deflated bids, plaintiffs were only one of several bidders on these public works contracts. No one knew if plaintiffs would be the lowest bidder, and the public entities had not yet decided whether or not to award the contracts. Plaintiffs cannot rely on the outcome of later events to prove that American interfered with an existing economic relationship.

The Court is cautious in defining the interference torts, to avoid promoting speculative claims. California authority requires at least the reasonable probability of an expectancy to establish a cause of action for interference with prospective economic advantage. This requirement is especially appropriate to evaluate a lost economic expectancy where the facts involve a competitive contest of one kind or another. To require less of a showing would open the proverbial floodgates to a surge of litigation based on alleged missed opportunities to win various types of contests, despite the speculative outcome of many of them.

We have previously noted in a case alleging lost profits under a promissory estoppel theory, inherently speculative nature of public works bidding.

Additionally, to be awarded the contracts, plaintiffs were required to meet the criteria for responsible bidders and responsive bids. Determining whether a certain bidder is “responsible” generally entails an evaluation of the bidder's trustworthiness, quality, fitness, capacity, and experience to satisfactorily perform the contract in question. It is a complex matter dependent, often, on information received outside the bidding process and requiring, in many cases, an application of subtle judgment. Given the complex and
external nature of a determination of nonresponsibility, it is speculative for plaintiffs to allege, as a basis for the economic relationship, that they were the second lowest bidder and would have been awarded the contract if not for American's illegal conduct.

For these reasons, the public works bidding process differs from the types of commercial transactions that traditionally have formed the basis for tort liability. In ordinary commercial transactions, there is a background of business experience on the basis of which it is possible to estimate with some fair amount of success both the value of what has been lost and the likelihood that the plaintiff would have received it if the defendant had not interfered. By contrast, in these public works contracts, the bidding was sealed, there were no negotiations, all qualified contractors were on equal footing regardless of past contractual dealings, the public entities were required to determine the bidder‟s responsibility, and they retained discretion to reject all bids. These circumstances counsel against extending a tortious interference claim to the bid process for these public works contracts.

Additionally, we must consider whether expanding tort liability in the area of public works contracts would ultimately create social benefits exceeding those created by existing remedies for such conduct, and outweighing any costs and burdens it would impose. Courts must act prudently when fashioning damages remedies in an area of law governed by an extensive statutory scheme.

Plaintiffs argue that their lawsuits will protect employees on public works projects by uncovering and deterring wage law violations. The argument fails for two reasons. First, the area is already extensively regulated. Prevailing wages are required by statute to be paid on all public works contracts. Several statutory mechanisms exist to enforce that duty. A public entity may withhold payments to a contractor who violates the prevailing wage laws. The Division of Labor Standards Enforcement may recover wages, interest, and damages on behalf of employees through an administrative hearing process and a civil action. The affected employees also possess private rights of action arising from statute and contract. None of these statutory schemes contemplates damage awards to a disappointed public works bidder who alleges the winning bid was based on prevailing wage violations. The duties created by the wage-and-hour statutes run solely from employer to employee. They do not create any action for civil damages in a competing bidder.

Expanding tort liability to cover wrongful interference with the public contracts bid process would provide little additional benefit in light of the extensive statutory scheme. Conversely, an expansion has potentially significant public policy disadvantages. The possibility of significant monetary gain may encourage frivolous litigation by second lowest bidders for effort they did not make and risks they did not take. That litigation, in turn, may deter responsible bidders from participating in the process, thus undermining the Legislature's goal of stimulating competition in a manner conducive to sound fiscal practices. Such a result would directly contravene the principles underlying the tort of intentional interference with prospective economic advantage: carefully drawing lines of legal liability in a way that maximizes areas of competition free of legal penalties.

The costs of recognizing the tort in this context is just too high.

(Note that I slice and dice, so read the case yourself and do not rely on what is presented here, except as a tease to lure you to the original.)

Just stand still whilst we try to sort this out

On Guam, there are time limits within which an appeal of a protest must be brought, both administratively and for judicial review. Separately, remedies available to a successful protester are significantly different depending on whether the protest is brought before the award or after the award.

This has led to a bit of hard ball, with agencies denying a protest and immediately awarding a contract, notwithstanding that protesters have about two weeks to appeal the award decision from the date of that decision. That nasty business has been held up in recent times as the Public Auditor has ruled on administrative appeal that the award must not be made until a protester's time to appeal has run. There are also moves afoot to try to make that a statutory requirement. (I have alluded to this issue before.)

But, things have already been codified in in the UK and other European jurisdictions which close the door on that treacherous behavior/behaviour, as seen in the following articles. 

The usual caveat here: I cut, rearrange, paraphrase, edit, omit (quite often very important matter), and pretty much often make a mash of articles mentioned, so to be safe and fully informed, read the whole bits at the links.

Procurement Law Jargon Buster - "Standstill Periods" and "Alcatel Letters"

The Public Contracts Regulations 2006 (the ”Regulations”) require public contracting authorities to apply a compulsory waiting period between their decision to award a contract to which the Regulations apply and the date on which the contract is signed. This is commonly called the Standstill Period. The regulations themselves apply to contracts for the supply of goods works and services, where contract values are above specified thresholds.

This requirement follows a judgement of the European Court of Justice in the Alcatel case when the ECJ decided that contracting authorities should allow a period of time to elapse between decision and signing in order to give unsuccessful bidders a chance to seek remedies if they were dissatisfied with the procurement process. To achieve this, a contracting authority must inform bidders of its decision to award the contract, commonly called Alcatel Letters.

The period kicks in from the date the authority decides to award the contract. Usually this will come towards the end of an often lengthy procurement process where bidders will have been shortlisted and finally whittled down to one, for example through a process called “competitive dialogue”. At that point, when the authority makes its selection, the Alcatel Letter is issued and the standstill period should then commence. At the end of that period the contract is signed. This is designed to give unsuccessful bidders an opportunity to challenge the award if they believe there has been a breach of the procurement rules.

The decision notice should include the criteria for the contract award and the reasons for the decision including the characteristics and relative advantages of the winning tender, the scores of the winning bid and of the party receiving the notice. The notice also must name the winning bidder and provide details of the standstill period. On receipt of the notice, unsuccessful bidders may request an “accelerated debrief”.

If the contract is awarded inside the standstill period or an Alcatel letter is not issued, under the new rules, it may be possible to get the contract declared “ineffective” with potentially serious consequences for the procuring authority.

Unsuccessful Tenderers’ Entitlement to Information: Irish Court Clarifies Position

In a significant judgment delivered on 15 February 2016, the High Court has given guidance on the level of detail that must be included in standstill letters to disappointed tenderers in a procurement process. The judgment also provides clarity as to the level of further engagement that is required subsequent to the initial standstill letter, as well as the point at which the challenge period begins to run in circumstances where further reasons are provided.

This case concerned an above-threshold competition run by Kildare County Council (“KCC”) seeking engineering consultancy services in relation to the design and delivery of the new Athy southern distributor road.1 RPS Consulting Engineers Ltd (“RPS”) was unsuccessful, despite having tendered a price that was significantly lower than that of the successful tenderer. RPS engaged in correspondence with KCC in which it alleged that it had not been given sufficient reasons in the standstill letter as to why it had not been selected. KCC responded on two occasions to the effect that it had provided all of the information to which RPS was entitled, at which point RPS instituted proceedings against KCC. The proceedings were commenced after the standstill period and after the contract had already been signed, and the Court was asked only to determine whether sufficient reasons had been given to RPS.

The Court held that KCC had breached its obligation to provide sufficient reasons for its decision, and ordered that KCC provide such reasons within 15 days of the judgment. The Court held that the reasons given by KCC had been inadequate for a number of reasons.

It is not enough to state that the successful tenderer’s response was superior to that of the addressee; rather the letter must contain reference to specific matters, respects, examples or facts which explain why the decision about relative advantage was made (eg matters which the winner’s response included, or the applicant’s response lacked, or vice versa), so that the bidder is aware of the matters of fact and law on the basis of which the decision to reject its tender was reached. In this case, the narrative in the letters to the disappointed bidders consisted only of a repetition of the criteria, a repetition of the score (but phrased in terms of “good”, “very good” etc rather than numerically) and a handful of additional words to indicate comparative quality as between the unsuccessful and successful tenderers. This was held not to be sufficiently precise as to the matters of fact and law that were relied upon by KCC in making its decision. The provision of scores alone will not suffice for qualitatively assessed criteria but may suffice in respect of price.

The reasons provided to a disappointed tenderer must be bespoke to the tenderer in question; it is in breach of the obligation to give reasons to copy and paste generic reasons that could apply to any tenderer. The Court was severely critical of the fact that formulaic reasons were included in all of the letters to unsuccessful tenderers, with the only variations being whether the addressee’s bid was “good”, “very good” etc. Reasons provided must fully explain why the marks in question were awarded; if a person unfamiliar with the process cannot readily understand from the reasons why a particular score was awarded then the reasons will be insufficient.

Contracting authorities must respond positively to requests for further reasons, after the initial standstill letter is sent. A refusal to engage was described as a “fundamental flaw”. The Court concluded that there are two separate elements to the obligation to give reasons under EU law, namely:

• a contracting authority must automatically give a summary of the reasons for its decision with the standstill letter (this is expressly transposed in the Irish Remedies Regulations); and
• the contracting authority must provide further information, within 15 days, upon receipt of a written request (under Article 41 of Directive 2004/18)

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To round out a short overview, also have a look at The five biggest standstill letter mistakes.

Suing in tort based on facts arising from procurement dispute

DFS: "We Have a Very Direct Beef With Lotte"

DFS and Lotte Duty Free were back in court today over a dispute on a lucrative concession contract to operate duty free shops at the AB Won Pat International Airport.

DFS, the previous concessionaire, is continuing to challenge the awarding of the contract while Lotte maintains they never did anything improper.

It’s been well over two years since the issue surfaced. The concession contract at the Guam Airport was up for procurement in early 2013. DFS and Lotte Duty Free submitted bids, along with two others, and Lotte, being the lowest bidder at the time, got the deal.

But DFS challenged the decision on allegations that the Guam International Airport Authority and Lotte Duty Free were in collusion. After filing a lawsuit and taking the case through the judicial system as well as the Office of Public Accountability, the case landed back in the Superior Court’s hands.

A total of 20 charges were filed, but 19 of the 20 were dismissed. The remaining charge that still stands has to do with TORT claims or civil claims caused by wrongful acts that resulted in serious loss or economic harm.

Attorney for Lotte Duty Free, Cesar Cabot says Lotte has already filed motions for dismissal of the TORT claims because he believes it to be improper and illegal. What DFS is saying is that this was a corrupted procurement process and that’s very different," Patrick Civille, legal counsel for DFS GUam, answered back.

READER ALERT:  The following article and case,  Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 234 Cal. App. 4th 748 (2015), has been reversed by the California Supreme Court in this post, above.

Second-lowest bidder for public contracts may sue lowest bidder who paid less than prevailing wages

Public agencies have little, if any, discretion when awarding public contracts because they are required to award the contract to the lowest bidder, subject to certain minimum qualifications. These limitations are designed to protect the public and its financial interests, not the bidders.

Losing bidders typically can contest the award only by challenging the bid itself via bid protest, or the bidding process.

A California Appellate Court recently held that second-lowest bidders on public contracts may sue the successful lowest bidder for intentional interference of prospective economic advantage when the lowest bidder won the contract only because it paid its workers less than the wages required by law.

In Roy Allan Slurry Seal, Inc. v. American Asphalt South, Inc., 234 Cal. App. 4th 748 (2015), plaintiffs alleged they would have been awarded public contracts worth almost $15 million if defendant had not decreased its costs by illegally underpaying its workers.

Assuming the facts to be true, the court found that plaintiffs’ allegations were sufficient to create a cause of action against the winning bidder who paid less than prevailing wage. Consequentially, contractors who fail to pay the prevailing wage may now be liable under tort law in addition to prevailing wage laws.

The court’s holding is limited to losing bidders who can show that they were the actual and lawful lowest bidders.

ROY ALLAN SLURRY SEAL, INC. v. AMERICAN ASPHALT SOUTH, INC., 234 Cal. App. 4th 748 (2015) [Note: The following is excerpted and/or paraphrased without full context, order or citations. Read the original for accuracy and for all the other issues and information omitted here.]

May the second place bidder on a public works contract state a cause of action for intentional interference with prospective economic advantage against the winning bidder if the winner was only able to obtain lowest bidder status by illegally paying its workers less than the prevailing wage? We hold that the answer is yes if the plaintiff alleges it was the second lowest bidder and therefore would have otherwise been awarded the contract, because that fact gives rise to a relationship with the public agency that made plaintiff's award of the contract reasonably probable.

Allan and Martin jointly sued American in those five counties for intentional interference with prospective economic advantage and other torts, alleging that American had only been able to submit the lowest bid by paying its workers less than the statutorily required prevailing wage. (Lab. Code, §§ 1770, 1771 [contractors on public works projects must pay the prevailing wage, as determined by the Department of Industrial Relations].) Allan and Martin alleged that each was the second lowest bidder, as to, respectively, 17 and 6 of the contracts and would have been awarded those contracts as the lowest bidder had American's bid included labor costs based on the prevailing wage. Plaintiffs contend that their bid submissions created the required economic relationship for the intentional interference with economic advantage tort.

The tort of intentional interference with prospective economic advantage (intentional interference) provides a remedy to those "who suffer[] the loss of an advantageous relationship" due to the actions of "a malicious interloper." "[T]he mere fact that a prospective economic relationship has not attained the dignity of a legally enforceable agreement does not permit third parties to interfere with performance." The tort is considerably more inclusive than actions for interference with contract, and therefore does not depend on the existence of a valid contract.

In order to state a cause of action for this tort, a plaintiff must allege five elements. [To win, proof is required.]

First, the existence of an economic relationship with some third party that makes it reasonably probable the plaintiff will gain some future economic benefit. This protects the expectation that the relationship will eventually produce the desired benefit, not the speculative expectation that a potentially beneficial relationship will arise.

Second, the defendant must have knowledge of the plaintiff's economic relationship.

Third, the defendant must have engaged in wrongful acts designed to disrupt the plaintiff's relationship. This requires allegations that the defendant engaged in an independently unlawful act separate and apart from the acts of interference and that the defendant either intended to interfere or acted with the knowledge that interference was certain or substantially certain to occur. However, and it is enough that the defendant was aware its actions would frustrate the legitimate expectations of a specific, albeit unnamed, party.

Fourth, the plaintiffs' economic relationship was actually disrupted.

Fifth, the plaintiffs suffered economic harm that was proximately caused by the defendant's interference.

The competitive bidding laws for public works contracts are designed to protect the public, not bidders. Therefore while public agencies are generally expected to accept the bid of the lowest responsible bidder, they still have discretion to reject all bids or accept one of multiple bids that have tied as the lowest.

Based on appellate decisions applying this principle in various contexts, which we discuss post, American contends that losing bidders are barred from suing their successful competitors for intentional interference because there was no existing relationship with which to interfere and no reasonable probability that any contract would ever have been awarded.

In Swinerton & Walberg Co. v. City of Inglewood-L.A. County Civic Center Authority (1974) 40 Cal.App.3d 98, 101 [114 Cal.Rptr. 834] (Swinerton), the plaintiff was allowed to state a cause of action for promissory estoppel against the winning bidder for conspiring with the agency to award it the contract.

The California Supreme Court, in Korea Supply Co. v. Lockheed Martin Corp. (2003) 29 Cal.4th 1134, 1157 [131 Cal.Rptr.2d 29, 63 P.3d 937] (Korea Supply), considered the pleading requirements of an intentional interference cause of action brought by the agent of the losing bidder on a contract to supply military radar equipment to the government of South Korea. The agent alleged that the winning bidder obtained the contract by providing bribes and sexual favors to key Korean officials, in violation of the federal Foreign Corrupt Practices Act of 1977. (15 U.S.C. § 78dd-2.)

The agent alleged that its principal's product was superior and its bid was significantly lower than the defendant's bid, that but for the defendant's misconduct its principal would have been awarded the contract, and that as a result the agent lost the commission it would have otherwise obtained.

Korea Supply stands for the proposition that specific intent to disrupt a plaintiff's business expectancy is not an element of the intentional interference tort; however, essential to Korea Supply's proximate cause discussion is the notion that the defendant intentionally interfered with the losing bidder's viable contractual expectancy.

Implicit in this this argument is the allegation that the various public entities were required to award the contract to the lowest responsible bidder and that plaintiffs satisfied all the requirements necessary to qualify for those contracts, and that but for the alleged misconduct it was plaintiffs who in fact submitted the true and lawful lowest bids.

The bidder-versus-public agency decisions are based on the principle that the public contracting laws are designed to protect the public. While that policy makes sense in order to protect taxpayers from damage awards against a public agency on top of the contract price that went to the successful bidder, its application in this context is far from clear. This action seeks damages from only the winning bidder and therefore does not call for protection of the public. And while taxpayers gain some financial benefit by contracting with businesses that pay less than the statutorily required prevailing wage, American does not contend, and we believe no court would hold, that such an advantage is worthy of judicial protection.

As Korea Supply suggests, a bidder on a government contract who submits a superior bid and loses out only because a competitor manipulated the bid selection process through illegal conduct has been the victim of actionable intentional interference. This is consistent with the notion that the true lowest bidder may bring a mandate action to compel the public agency to reverse its previous decision improperly awarding a contract. Absent some enforceable right, such mandate actions would not be possible.

We conclude that an actionable economic expectancy arises once the public agency awards a contract to an unlawful bidder, thereby signaling that the contract would have gone to the second lowest qualifying bidder. We see no reason to cut off any legal effect from the winning bidder's misconduct simply because it precedes the completion of the bidding process. Assuming that the timing had some legal significance, the defendant's wrongful conduct persists throughout the bidding process, well past the time when it is wrongly awarded the public works contract. In short, by continuing its unlawful conduct after wrongly winning the contract, the defendant interferes with an expectancy that would have otherwise materialized.

In any event, we limit our holding to losing bidders who can show they were the actual and lawful lowest bidders on a public works project.

The takeaway, for me anyway, is that the tort of interference with prospective economic advantage is not leverage to set aside a procurement award; it is really not a "protest" case cognizable under procurement statutes at all.   It is a plain vanilla tort claim against a person alleged to have caused economic harm to the plaintiff.

Unlike procurement standing however, where "remote" parties, such as agents and subcontractors are denied the right to protest, this tort does recognize that tort claimants need not be directly affected if their damages are merely proximate. 

In short, though this case applies a procurement-like concept of next-in-line-for-award limitation on use of the tort by another bidder, it does provide a means of redress in damages for an aggrieved "true" low responsible bidder that is not available under procurement statutes.

It will be interesting to see if this gets appealed to the Supreme Court, and in any event how far this decision will be carried.

You can't get just anything you want at the FSS restaurant

Apologies to Arlo Guthrie.

This is not an accurately complete rendition of the GAO's decision. Read that at the link.

Matter of: US Investigations Services, Professional Services Division, Inc.: B-410454.2, January 15, 2015

DIGEST: Protest against issuance of a task order to a vendor for support services pursuant to its General Services Administration Federal Supply Schedule contract is sustained where the record does not support contracting agency’s determination that the services called for under the task order were within the scope of the vendor’s contract.

US Investigations Services, Professional Services Division, Inc. (USIS) protests the issuance of a delivery order to FCi Federal, Inc. under request for quotations (RFQ) issued by the Department of Justice, Federal Bureau of Investigation (FBI), for services in connection with the agency’s Name Check and Freedom of Information Act (FOIA)/Declassification programs. The Delivery Order was issued under FCi’s Federal Supply Schedule (FSS) contract.

The RFQ contemplates the award of a fixed-price delivery order for a 12-month period of performance. The successful contractor will provide personnel to perform services in connection with the agency’s National Name Check Program. Under that program, the successful contractor will provide research, analytical, and reporting services for authorized federal agencies. Essentially, contractor personnel research FBI files to provide available and appropriate information within legal and policy constraints. The RFQ also contemplates services in connection with the agency’s FOIA/Declassification program. Under that program, the successful contractor will provide services to the agency in connection with responding to FOIA requests, and also in making determinations regarding the appropriate classification of national security related information.

The agency received three quotations in response to the solicitation. All three quotations were found technically acceptable, and all three firms also received past performance ratings of good. FCi submitted the lowest price of $13,298,366, followed by USIS and the third firm. The agency made award to FCi because it submitted the lowest price.

After being advised of the agency’s issuance of a task order to FCi, USIS filed this protest. USIS alleges that issuance of a task order to FCi was improper because the labor categories required to perform the task order are not on FCi’s FSS contract. The protester maintains that the agency erred in finding that the labor categories included on the awardee’s FSS contract encompass the types of employees required to perform the requirement. We agree with the protester that the labor categories included on FCi’s FSS contract do not encompass the solicited services.

As a general matter, FSS procedures provide agencies a simplified process for obtaining commonly used commercial supplies and services and, although streamlined, by regulation, satisfy the requirement for full and open competition. However, non-FSS products and services may not be purchased using FSS procedures; their purchase requires compliance with otherwise applicable procurement laws and regulations, including those requiring the use of full competitive procedures.

Where an agency announces its intention to order from an existing FSS, all items quoted and ordered are required to be on the vendor’s schedule contract as a precondition to its receiving the order. In the case of a services task order such as the one at issue here, all of the solicited labor categories must be on the successful vendor’s FSS contract.

The RFQ here essentially included four principal labor categories: research analysts, program managers, general consultants, and legal administrative specialists. For three of the four labor categories -- research analysts, general consultants, and legal administrative specialists -- FCi proposed a single labor category from its FSS contract, program management analyst. FCi’s FSS contract includes the following description of its program management analyst labor category:

Plans and provides analytical support for facilitation, methodology development and evaluation, business management techniques, and organizational development. Supports business process improvements and modernization projects. Key responsibilities include: Developing modern business methods, identifying best practices, and creating and assessing performance measurements.

An examination of the labor categories required under the RFQ, however, shows that the duties, responsibilities and qualifications of the types of employees solicited by the agency are not encompassed within FCi’s program management analyst labor category.

Comparing the above-quoted definitions found in FCi’s FSS contract and the RFQ, we conclude that FCi’s program management analyst labor category does not include many of the requirements for the labor categories identified in the RFQ. For example, FCi’s labor category description makes no mention of experience with paralegal, records management, declassification review or historical research career fields, and also makes no mention of in-depth knowledge of FBI policy, functions, and familiarity with other government agencies’ functions. FCi’s labor category description also makes no mention of applying knowledge of administrative principles, practices, and techniques; organizing and maintaining files and database record keeping systems; preparing, writing, editing, and creating graphs and charts; or drafting, reviewing, evaluating, and processing technical and administrative documents.

Instead of the disciplines and career fields identified in the RFQ, the principal disciplines and capabilities described in FCi’s program management analyst labor category are the development of business methods, the identification of best practices, and creating and assessing performance measurements. The focus of FCi’s labor category appears principally to be the development of business techniques and organizational development activities. Simply stated, none of the responsibilities or activities described in FCi’s labor category description -- identified as ‘key’ responsibilities in FCi’s labor category description -- is germane to the work required under the RFQ.

The contemporaneous evaluation record does not show that the agency gave any meaningful consideration to the question of whether or not FCi’s FSS contract included labor categories that encompassed the requirements of the task order. In this connection, the agency’s individual evaluators did not prepare any narrative materials when reviewing the proposals. The agency’s summary technical evaluation report and award determination similarly are devoid of any meaningful consideration of whether award could be made to FCi in light of the labor categories available under its FSS contract.

Finally, in responding to the protest, the agency states only generally that it gave consideration to whether or not FCi’s FSS contract included labor categories that encompassed the requirements of the RFQ. Even in responding to USIS’s specific allegations, the agency has not meaningfully or critically analyzed the question, or explained how it reasonably could reconcile the apparent divergence between FCi’s labor category description quoted above and the requirements of the RFQ.

[But here, the GAO ran into an obstacle preventing the usually implemented remedial recommendation, because the FBI pulled a quicky ("urgent and compelling") stay override.]

In light of our discussion above, we conclude that FCi is ineligible for award because the labor categories required to perform are not available under FCi’s FSS contract.

Ordinarily, our Office would recommend that the agency terminate the task order issued to FCi because FCi is ineligible for award. However, during the pendency of the protest, the agency elected to override the automatic stay of performance of the FCi task order based on urgent and compelling circumstances.

Accordingly, we recommend that the agency consider the feasibility of terminating the task order awarded to FCi. Should the agency conclude that it is not feasible to terminate FCi’s task order, we recommend that USIS be reimbursed the costs associated with preparing its quotation in response to the RFQ. In addition, and regardless of whether or not the agency decides to terminate FCi’s task order, we recommend that USIS be reimbursed the costs associated with filing and pursuing its protest, including reasonable attorneys’ fees. In the alternative, if the agency determines that it is feasible to terminate FCi’s task order, we recommend that the agency make award to the concern next in line for award, if otherwise proper.

It is perhaps worth reminding here that the GAO, which hears most protests in federal government contracting, has no enforcement power, thus "recommends" remedial actions it finds appropriate. The overwhelming majority of these recommendations are, however, adhered to by agencies.

Also, though not directly related to the focus of the decision, the GAO's decision included a very instructive footnote, as well as a "zingy":

[1] USIS alleges that the agency improperly found FCi’s prices reasonable. According to the protester, because FCi did not propose labor categories that were required by the RFQ, the firm’s proposed hourly rates were unreasonably low. There is no merit to this aspect of USIS’s protest. In a fixed-price contract setting, determinations of price reasonableness relate to whether a firm’s proposed prices are too high, not too low. An allegation that a firm’s prices are too low does not provide a basis for our Office to object to the agency’s price evaluation.

USIS also challenges the agency’s evaluation of its past performance. We have considered this aspect of its protest and conclude that USIS’s allegation amounts to no more than disagreement with the agency’s evaluation findings in the area of past performance. USIS’s disagreement with the agency’s evaluation, without more, does not provide a basis for our Office to find the agency’s evaluation unreasonable.

[4] It would appear that USIS is the next firm in line for award. In considering whether or not award to USIS is otherwise proper, the agency will be required to find the firm responsible. In a recent decision of our Office, we specifically questioned an affirmative determination of USIS’s responsibility made by the Department of Homeland Security, U.S. Citizenship and Immigration Services, because the record demonstrated that the contracting officer there failed to consider specific allegations of fraud advanced by the Department of Justice (DOJ) in a civil suit filed against USIS’s parent company, USIS LLC; failed to consider the relationship between USIS and its parent concern; and applied an incorrect legal standard in determining whether USIS was responsible. FCi Federal, Inc., B-408558.4, et al., Oct. 20, 2014, 2014 CPD ¶ 308 at 11. [See also, The responsibility to consider all factors to make a determination of responsibility]

A stop work order of a different order

It is clear that contract administration is a component of that range of matters falling under the "procurement" umbrella. Thus, contract disputes, particularly government contract disputes that this blawg tends to stick to as "procurement" rather than simply "acquisition", are of interest. The case reported in this post was spotted on the Lexology website, which reported the article as originally posted on the Gordon & Rees LLP Construction Law Blog.

The case is Kiewit-Turner v. Department of Veterans Affairs (CBCA 3450, December 9, 2014), decided by the U.S. Civilian Board of Contract Appeals. The decision is in the nature of an interpretation of the contract and the subsequent rights and obligations of the parties, brought by an action for declaratory relief, a uniquely useful contract remedy. As usual, this is a my own rendition of the decision and you must read the original decision for citations, fullness, context and accuracy, etc.

This decision answers the following three questions: (1) Did the contract modification known as SA-007 obligate the respondent, the Department of Veterans Affairs (VA), to provide a design that could be built for $582,840,000? (2) Did the VA materially breach the contract by failing to provide a design that could be built for that amount of money? (3) If such a breach occurred, is KT entitled to stop work?

After hearing testimony for eight days, reviewing a voluminous documentary record, and considering lengthy briefs and reply briefs submitted by the parties, we now answer each of these questions in the affirmative.

On August 31, 2010, the VA awarded to KT a contract for the performance of preconstruction services on a medical center campus in Aurora, Colorado. The contract included an option for the performance of construction services as well. The contract was described as an “integrated design and construct,” or IDc, type contract – something similar to the “construction management at risk” or “construction management as constructor” types of contract used in the private sector. A key early VA funding decision was establishing a construction cost target, known as the estimated construction cost at award, or ECCA, at $582,840,000. This ECCA was prescribed, on the same day as the KT contract was awardedThe VA had never used this type of contract before. The agency’s own project management plan recognized as a high risk that “IDc represents new contracting approach for VA; does not fit existing procedures which is complicated by VA culture that does not encourage or is [not] comfortable with new approaches.”

Indeed, the VA did not use the IDc mechanism properly right from the start. This limited the agency’s flexibility to make modifications based on KT’s pre-construction services advice. A September 2011 review by the Army Corps of Engineers, which was commissioned by the VA, confirmed that the IDc contract was not properly used: “[T]he IDc contract type may have not been appropriate for the Medical Center Replacement in Denver. . . . [P]roceed[ing] with design development to major design milestones (DD1) prior to procurement of the IDc contractor . . . did not permit the IDc contractor to integrate with the designer to achieve the benefits related to this contract type. . . . The current methodology appears to be counterintuitive to the Government’s ability to achieve best value.”

KT informed the VA at many stages that the design lacked coordination and completeness, that the design was over budget and included elements that were above the standard for a healthcare facility, and that value engineering (VE) was not being incorporated into the design. As early as October 2010, an independent advisor was cautioning the VA’s project executive that the costs of the project, per the then-current design, were increasing. In November, the project executive’s supervisor told him that “[the] DD1 packet is unsatisfactory and the JVT (the original design team) is not listening to the directions they are given from the user [side] or from the CFM [VA Office of Construction and Facilities Management] side.”

In September 2011, the agency’s project executive and contracting officer issued a critical performance evaluation of the JVT designer. They complained that the JVT had chosen form over function, placed an over-emphasis on aesthetics, had produced an unnecessarily complex design, did not believe that a budget problem existed, and was often uncooperative with the agency. In December 2011, the contracting officer denied the JVT’s request for release of retainage, “[d]ue to the ECCA above the contract stated limit and the complete design has not been accepted.” In March 2012, the contracting officer reminded the JVT that under its contract, when bids exceeded the estimated price, the JVT had to “perform such redesign and other services as are necessary to permit contract award within the funding limitation.”

Nevertheless, the VA asked KT to prepare a proposal for the optional work under its contract – constructing the medical facilities. In July 2011, the parties agreed that KT would submit a firm target price (FTP) proposal in the amount of $603 million. On August 25, 2011, KT submitted such a proposal. The price was $599.6 million for construction itself and $3.4 million for all pre-construction activities, with a ceiling price of $609 million. The FTP was based on a detailed analysis of DD-2 enhanced drawings. The proposal included many pages of general, technical, and pricing clarifications, which noted assumptions on which the proposal was based. We credit the testimony of KT’s former managing partner that including these sorts of assumptions and qualifications in a proposal is typical in the commercial world for an IDc-type contract where the design is incomplete. The proposal assumed that the VA would ensure that the design include $23 million of value engineering (VE) items and that KT would negotiate price reductions of nearly $31 million from its subcontractors. KT’s detailed FTP proposal became known as “The Book.” By the time that KT submitted its proposal, the VA also had in hand an independent estimate which showed that the cost of construction would be $677,697,408.

Chris Kyrgos, the VA contracting officer’s supervisor demanded that KT remove the clarifications, qualifications, and assumptions from The Book and present a proposal based on the most recent set of drawings. KT’s managing partner explained further that in light of the contractor’s estimate that the current design would cost more than $664 million to construct, KT could not possibly build the project for only $603 million. At this point,it was proposed that if the VA would agree to present a set of drawings that could be constructed for the ECCA, KT would agree to perform the construction work for the price it had offered. A handwritten statement entitled “Agreements – Path Forward” was signed. The three key paragraphs of this statement read:
1. All parties agree that they must get price to $604 mil. They will each expend resources to keep that goal.
2. VA shall cause JVT to produce a design that meets their ECCA with use of alternates and other methods as a safety net.
3. Agreed: . . . FTP set to $604m[illion]/clg.[ceiling]@610. (The difference between the ECCA of $582,840,000 and the FTP of $604 million was that the latter included pre-construction and off-site infrastructure work, as well as other items, but the former did not.)

Both parties understood that by making this agreement, the VA recognized that it would have to ensure that through the use of VE and other means, the JVT would produce a design which could be constructed for less than the current estimated cost of the project. KT’s managing partner testified that “[t]he big caveat there is they have to produce a design that meets the ECCA because the current design didn’t come anywhere close to that.” Demonstrating that both parties understood this, in March 2012, KT’s deputy managing partner and the VA contracting officer gave to personnel from both parties a presentation entitled “SA-007 and Managing to the $604M.” The presentation asked, “Does SA-007 clearly define the scope of work?” and provided the answer, “No. Defines the box.” The VA adhered to this understating well into 2013.

KT expected, based on communications from the VA, to receive 100% complete construction documents by the end of January 2012. In late 2011, however, the VA let lapse its architect/engineer peer review contract, and without a peer review, the agency would not release the 100% design package. KT told the VA that the “lack of this information is currently creating numerous negative impacts in material procurement/fabrications, obtaining approvals of submittals, coordination of trades, putting work in place in the field, as well as obstructing our ability to maintain the schedule as currently planned.” KT proposed that it solicit subcontractor bids based on 95% drawings, but the VA rejected this request.

The 100% documents were finally delivered to KT on August 31, 2012. These documents turned out to be far from finished, however. The incomplete design, and changes to it, prompted KT to issue an unusually large number of requests for information (RFIs), seeking clarification as to design elements. Responses to RFIs were often late and/or incomplete.

KT planned to subcontract about 85% of the work on this project. All subcontracts valued at $300,000 or more were required by the contract to be secured through a competitive process in which at least three bids were made. The subcontracting process required consent to each subcontract from the VA’s contracting officer. By the fall of 2012, according to witnesses from KT, the VA medical center, and a VA resident engineer on the project, prospective subcontractors were reluctant to submit bids for project work because subcontractors were not being timely paid for work they had performed. Sureties were also refusing to participate in the project due to the lack of timely payment to subcontractors. Those firms that did bid on subcontracts increased their prices to account for the risk of not being paid timely, or even not being paid at all. Meanwhile, the project’s cost was increasing.

In March 2013, KT submitted to the VA a firm fixed price proposal, based primarily on competitive subcontractor bids, in the amount of $897,584,831 (with clarifications and qualifications). The VA rejected this proposal, with the contracting officer stating that the agency “will continue to hold Kiewit-Turner responsible to the firm target price and ceiling price established in SA-007.” (The parties never agreed on a firm fixed price, as opposed to a firm target price, for KT’s work.) In June, KT told the VA that the cost could be as high as $1.085 billion.

KT proposed many multi-million-dollar VE changes to modify the design so as to bring it within budget. Most of them were rejected by the VA. Often, however, even if a VE proposal was approved at all levels of the VA, the JVT refused to incorporate it into the design. In February 2014, the VA adopted the figure of $630 million as the “independent government estimate.” Even at the amount of $630 million, JVT members complained that the estimate was $48 million over the ECCA and would cause the JVT to have to redesign the project to lower its cost.

In January 2013, the VA brought together KT and the JVT to discuss how the project might be redesigned to be within budget. A VA executive explained that “the VA’s intent [was] to focus on the JVT’s obligation to deliver a design at or below the ECCA.” The three-day meeting which ensued – called the “blue ocean” meeting – was devoted to brainstorming to develop cost-cutting ideas. The agency tells us in its brief that it ultimately accepted only about $10 million of the blue ocean ideas.

On April 30, 2013, KT requested a final decision from the contracting officer as to whether the VA had breached its obligation under the contract to provide a design that could be built for the ECCA of $582,840,000 and whether KT consequently had the right to suspend work. The contracting officer issued a decision denying that the VA had breached the contract and directing KT to proceed with construction of the project. The agency has no plans to redesign the project. According to VA witnesses, the agency has approximately $630 million appropriated for construction of the project.

In June 2013, the contracting officer wrote to the JVT, “Please do not proceed with any cost cutting items from the January 2013 meeting.” Also in June, the VA’s director of cost estimating determined that the Jacobs estimate of nearly $785 million should be rejected because Jacobs’ failure to use actual known costs was a “fatal flaw” that undermined the reliability of the estimate. (The reason that Jacobs had not used actual known costs, however, was that the contracting officer had specifically directed the firm not to use them. The contracting officer did not disclose this fact to the cost estimating director.) And the contracting officer told KT that it must use pricing from The Book, the contents of which had been made irrelevant when SA-007 was agreed to, as the basis from which pricing change orders would be considered.

A KT executive testified at our hearing in June 2014 that KT had already financed $20 million worth of work for which it had not been paid and projected that this figure could reach $100 million by December 2014.

Discussion

(1) Did contract modification SA-007 obligate the VA to provide a design that could be built for $582,840,000?

SA-007 could not be more clear: “The VA shall ensure the A/E (Joint Venture Team) will produce a design that meets their Estimated Construction Cost at Award (ECCA) with use of alternate and other methods as a safety net.” The ECCA was $582,840,000 at the time that SA-007 was agreed to, and it remained at that number throughout the period discussed in this decision. Because the language is unambiguous on its face, its plain language dictates an affirmative answer to the question. Use of the words “shall” and “ensure” demonstrates that the VA must make certain that the design will meet the ECCA.

“Although extrinsic evidence may not be used to interpret an unambiguous contract provision, [the Court of Appeals for the Federal Circuit has] looked to it to confirm that the parties intended for the term to have its plain and ordinary meaning.” TEG-Paradigm Environmental, Inc. v. United States, 465 F.3d 1329, 1338 (Fed. Cir. 2006). The extrinsic evidence here confirms that the SA-007 paragraph regarding the ECCA means exactly what it says. The VA’s commitment to produce a design that could be built for the ECCA was the key to the parties’ agreement.

The agency maintains that KT is obligated to perform construction work for the FTP, altered only by the cost of scope changes and adjustments to the profit percentage pursuant to a clause contained in SA-007. The ECCA provision, according to the VA, is inconsistent with the profit adjustment clause. These contentions are not well taken. The mention of the ECCA in SA-007 is not just material to the agreement – it is critical to the agreement. SA-007 clearly links the ECCA and the FTP, providing that the latter is dependent on the former. Altering the contract price to account for scope changes is not possible, for reasons we discuss later in this opinion. There is no inconsistency between the ECCA provision and the profit adjustment clause; if the VA had produced a design which could be constructed for the ECCA, the profit adjustment clause could have been implemented in accordance with its terms.


(2) Did the VA materially breach the contract by failing to provide a design that could be built for the ECCA of $582,840,000?

“Not every departure from the literal terms of a contract is sufficient to be deemed a material breach of a contract requirement.” “A party breaches a contract when it is in material non-compliance with the terms of the contract.” “A breach is material when it relates to a matter of vital importance, or goes to the essence of the contract.” “The standard of materiality for the purposes of deciding whether a contract was breached is necessarily imprecise and flexible. The determination depends on the nature and effect of the violation in light of how the particular contract was viewed, bargained for, entered into, and performed by the parties.” We consider also the factors enunciated in section 241 of the Restatement when determining whether a breach is material:

In determining whether a failure to render or to offer performance is material, the following circumstances are significant:
(a) the extent to which the injured party will be deprived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be adequately compensated for the part of that benefit of which he will be deprived;
(c) the extent to which the party failing to perform or to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or to offer to perform will cure his failure, taking account of all the circumstances including any reasonable assurances;
(e) the extent to which the behavior of the party failing to perform or to offer to perform comports with standards of good faith and fair dealing.

The VA’s breach of its contract with KT, by failing to provide a design which could be constructed for the ECCA, is of vital importance, as it goes to the essence of the agreement. The breach is material under each of the Restatement standards (as detailed meticulously in the decision). Applying these principles, we find that the behavior of the VA has not comported with standards of good faith and fair dealing required by law. The agency failed to provide a design that could be constructed within the ECCA because it did not control its designer, the JVT. It paid no heed to VE suggestions for cost reductions which were made by KT and Jacobs (or even those which were accepted by the agency’s own medical center personnel following the “blue ocean” meeting). The agency delayed progress of construction, such as by delaying the processing of design changes and change orders, as described under factor (a) above. The agency disregarded cost estimates by KT and Jacobs, even to the point of rejecting a Jacobs estimate because it was developed under restrictions which the agency itself had imposed. The agency adopted as an independent government estimate a document which was neither independent (it was developed by a subcontractor to the JVT, an entity which had a strong interest in the result), nor by the Government (it was by the JVT), nor an estimate (it was by admission of the chief estimator an academic exercise), and the number was so far below any previous estimate as to be of dubious accuracy. The agency did this notwithstanding the testimony of every witness who addressed the matter, including several VA witnesses, that an “independent” estimate should not be made by a party with a vested interest in the outcome. The agency ultimately directed KT to continue its construction work for the FTP, even though the agency refused to fund that work appropriately.

We do not know what the cost of construction of this project ultimately will be. Whether it is any of these figures, however, it will be significantly in excess of the ECCA of $582,840,000. We find that beyond doubt, the VA’s breach of its contract with KT was material.

(3) Is KT entitled to stop work?

The Court of Appeals for the Federal Circuit has held that “[u]pon material breach of a contract the non-breaching party has the right to discontinue performance of the contract.” The Court has explained further, “The choice of remedy is generally with the non-breaching party, and only in exceptional circumstances will equity require the non-breaching party to continue to perform the remainder of the contract.” “[I]f a contract is not clearly divisible, in accordance with the intention of the parties, the breaching party can not require the non-breaching party to continue to perform what is left of the contract.”

The VA draws our attention to Northern Helex Co. and Cities Service Helex, Inc.), two cases in which the Court of Claims held that if a contractor continues performance under a contract, without protest, notwithstanding the Government’s breach, “the obligations of both parties remain in force and the injured party may retain only a claim for damages for partial breach.” The VA’s analysis, however, ignores the phrase “without protest” which is part of the teaching of these decisions. The record is clear that KT has been proceeding with the construction (to avoid any possibility of being charged with being in default) under strenuous protest, including the very constructive advancement of VE proposals, throughout the post-SA-007 history of the project. As a matter of law, KT has the right to stop performance.

As enunciated in this opinion, we afford Kiewit-Turner the declaratory relief it seeks.

Another similar tale of contract dispute over claimed misrepresentations of material facts by the government, entitling the contractor to damages, is reported in:

Court of Federal Claims determines that government contractor may recover for losses attributable to omissions and inaccuracies in data provided by government in negotiated procurement .

UK's National Health Service Pilot Program Procurement Pulled

The National Health Service in the UK decided to test a plan to provide a new program for health services delivery. It is not clear to me just what the program entails, but it appears to be some kind of doctor appointments/referral system. The system was to be installed in a variety of regional centres. You can read the story and decipher for yourself at Procurement breach throws 111 pilots into disarray.

Since this was a two year test run, someone (or ones) some where (or wheres) made the decision to simply award the test sites services ("pilots") without a competitive process. At the last minute, the roll-out was cancelled and awarded pilots were cancelled. As the article explains,

Contracts for pilots covering NHS Westminster, NHS Kensington and Chelsea, NHS Hammersmith and Fulham and NHS Hillingdon were pulled after NHS North West London admitted its decision to award contracts without any tender process could be open to legal challenge.

The move has raised fears that pilots elsewhere in the country, some of which have also been awarded rather than put out to tender, could also be open to challenge – a prospect which could throw the national deployment of 111 into disarray.

Pulse understands the move has triggered anger from local GPs who had invested time and resources in planning how to integrate with the 111 pilot.

The wider impact of the decision remains unclear, amid confusion over whether NHS trusts are required to put pilots out to tender. Contracts for the full rollout of NHS 111, some of which are expected to be worth as much as £100m, will need to undergo a full competitive tender process, but the Department of Health told Pulse there was no central guidance on whether pilots should be put out to tender, and it was considered a matter for ‘local commissioners, subject to their legal advice'.

Dr Richard Vautrey, GPC deputy chair, said: ‘GPs are right to be angry about this, but it also reflects the complexities of the 111 procurement agenda and the pressures PCT clusters and CCGs are under because of the very tight timescale set by DH.'

Dr Agnelo Fernandes, the RCGP's urgent care lead and chair of Croydon Healthcare Consortium in Croydon said: ‘They are pilots so they are not covered by the same rules as full procurement but CCGs need to cover themselves by doing some kind of limited procurement, even if it is a pilot for 111.'

This is an instructive article for two purposes (at least). First, it illustrates, again, the way procurements too often get trampled in the rushed implementation of some political bright idea. Time and again this leads to unhappy endings. We should learn from these examples to get it right the first time. It's all part of the planning principle.

Second, it raises the matter of remedies for broken procurement. Here the procurement was cancelled, as were awards already made. Not all regimes allow awards to be rescinded, which I consider a moral hazard because it means if you hurry fast enough you can get away with abusing the process. Guam law also allows contracts that have been awarded by a faulty procurement process to be cancelled, as does the US federal law.

Insofar as this article raised the notion that "pilot programs" should somehow be exempt from general procurement requirements, I consider that to be a bad idea. Guam law, for instance, requires any contract by the government to be governed by the procurement process. There is a very big advantage that accrues to an incumbent contractor, and if a contractor could gain that advantage without competition, it would give the contractor an even more unfair advantage.

Pressing "play" after hitting the "pause button"

Among the material I subscribe to for procurement law developments is the excellent "Law-Now" series available by registration from CMS Cameron McKenna LLP, a UK-registered law firm.

A recent CMS Cameron McKenna Law-Now article deals with the "pause button" mentioned in this prior post: Hitting the pause button on procurerment. This concerns the mechanisms by which various procurement regimes try to maintain an interim status quo to allow a review of a procurement controversy.

As with other posts in this blawg, I quote from the article in excerpts, often re-arranging and editing the content; you should always click the link and read the source article in full for a complete and authentic understanding.

The procurement in issue in this case discussion involved the provision of cleaning services to a large vocational educational institution.

High Court lifts automatic suspension in procurement case

In the first case of its kind under the new public procurement remedies rules, the Public Contracts Regulations 2006, as amended by the Public Contracts (Amendment) Regulations 2009, the High Court has lifted an automatic suspension of entry into a contract. Under the new rules when a disgruntled bidder issues and serves a claim form prior to contract signature, the contracting authority is automatically prevented from entering into the contract. It is then incumbent on the contracting authority to apply to court to lift the automatic suspension.

The Court treated the application as though it were an application for an injunction and applied the American Cyanamid test. The Court looked at whether: (i) there was a serious issue to be tried; (ii) damages would be an adequate remedy; and (iii) the balance of convenience lay in keeping the suspension in place.

Based on the balance of convenience (or the balance of “irremediable prejudice”), the suspension was lifted. The judgment is interesting in a number of respects.

The Court concluded that it would “substantially emasculate” the effect of the new regulations if they required the claimant challenging the award to establish that it would have been awarded the contract, but for the defects in the procurement process. The Court therefore concluded that the proper test was whether, by reason of the defects in the process, the claimant has lost a “more than fanciful” chance of obtaining the contract.

The Court accepted that there were defects in the process and that there was a serious issue to be tried. However, whilst conceding that Indigo had a “more than fanciful chance” of obtaining the contract if it were re-run according to the rules, the Court concluded that the College’s case on causation would be more likely to be accepted at full trial, and that, in any event, there was only a low likelihood that the Court at trial would assess that chance of a loss as much more than the minimum threshold level of non-fanciful.

The Court found that quantification of the profits that could be earned by Indigo would be difficult (although the Court could, if required, carry out a quantification) and that damages would not be intrinsically an adequate remedy.

The Court then considered the balance of convenience, by assessing which course seemed likely to cause the least irremediable prejudice, taking into account, not only each of the parties, but also irremediable prejudice to third parties and the wider general public, as is important in the context of public procurement. In this respect, the Court found that the continuation of the suspension would result in the forced closure of the Colchester site, if only because of the impact of the health and safety regulations. The current cleaning contract was due to expire on 31 December 2010 and the suspension would mean that no contract could be put in place on expiry. Closure would affect both students and staff at the site. The Court rejected Indigo’s argument that the present contract could be simply extended for three months. As far as the Court was concerned this was not a solution because it ignored the possibility of appeal and further delay while the tender process was re-run. Moreover, although the contract provided for a possible extension, the Court concluded that this was for only one extension, which had already been granted, and did not provide for any further extension.

In conclusion, the Court found that the prejudicial impact on the College and the wider public of leaving the suspension in place far outweighed any prejudice which may be caused to Indigo by lifting it.

COMMENT: In terms of comparing this to Guam law (which, as often mentioned, is based on the American Bar Association Model Procurement Code), the first fact of importance is that this case involved a pre-contract protest. Under Guam law, the legislative automatic stay is only available pre-award/contract (although injunctive relief in a court is not foreclosed). It is not clear from this discussion if the automatic suspension is also likewise limited to pre-contract situations.

Under US federal law, as pointed out in my prior post mentioned above, an injunction would also be available (not automatically) in a post-award situation.

The second aspect of this case which is similar to Guam law, is that the court "lifted" the automatic suspension . Under Guam law, the automatic stay can be lifted upon application and adequate showing of necessity and public interest.

A factual item I think may have been critical to the balancing outcome in this case is that the protestor "came third, a considerable way behind the winner", a characterization which suggests there was little likelihood of it prevailing on the merits of its claim. Likelihood of prevailing on the merits is a significant requirement of injunctive/stay relief in the usual Guam situation.

Finally, I was particularly interested to read that the applicable regulations there apply a "standstill period" after the announcement of the preferred tenderer and before the contract was made.

I have been critical of the "gap" that exists between the rendition of a protest decision and the institution of a administrative appeal, and the lack of any "gap" that exists between the time the best offeror is chosen in an RFP and the announcement of the contract: in both cases there is insufficient coverage of the automatic stay effect to allow an aggrieved bidder or offeror to perfect a protest or appeal, which is quite prejudicial considering the significant damages available under a pre-award protest to those available post-award.

I believe Guam law would benefit from a similar "standstill period".

Failure to award

This story was published today in the Marianas Variety, Guam Edition.

GDOE’s use of emergency power to buy copier machines questioned

A PROTEST has been filed with the Office of Public Accountability against the Guam Department of Education for abusing “emergency declarations” to procure copier machines instead of properly awarding contracts through the normal procurement process.

According to the complaint that Attorney John Thos. Brown, legal counsel for Island Business Systems & Supplies or Town House Department Stores, Inc., filed GDOE issued an invitation for bid in May, but failed to follow through with the rest of the procurement process and award a contract to the lowest bidder, IBSS.

Instead, Brown said GDOE Superintendent Nerissa Bretania Underwood used “emergency declarations” to purchase copiers from Xerox Guam.

There's more to the story, but that is the gist of it.

You can read the Notice of Appeal here.

The interesting aspect of this Appeal is that the Protest alleges that the award of the contract was withheld due to bad faith. Usually appeals are brought alleging a solicitation was conducted wrongly. Here, the allegation is that the solicitation was a good as far as it went, but that it just did not go far enough and award the contract to the low bidder.

There are reasons allowing a government to reject bids or cancel a solicitation, and no bidder has any beneficial or legal right to an award where the government has legitimate rights to end a solicitation. The operative point here is that the action of the government must be legitimate.

In the ABA Model Procurement Code, and Guam Law, there is a right that the bidder can rely on: all parties involved in the negotiation, performance, or administration of territorial contracts have a duty to act in good faith. Moreover, there is an overriding obligation to apply the procurement law "to ensure the fair and equitable treatment of all persons who deal with the procurement system". The government does not act legitimately if it denies a bidder its right to fairness and good faith consideration of contract award.

The Appeal in this case alleges certain facts which specifically draw into question whether the government administered the procurement in this case fairly and in good faith. The Appeal seeks an order that the government award the contract.

This raises an interesting question of remedies. When there is a finding that the solicitation is in violation of the law, the only practicable remedy to a protesting low bidder is to have the solicitation or proposed award "revised to comply with the law". (See 5 GCA § 5451.) In the typical case this would result in a revision of some specification, method of source selection, reconsideration of relevant evaluation criteria or contract term; that is, some error of judgment.

Here, there has been no award or proposed award, and the violation alleged is the failure to judge, not the error of judgment. Thus, the only available "revision" is to require that the decision making process be "revised" by determining the award that should have been made but was not; that is, to exercise the judgment that should have occurred but, for lack of good faith and fairness, was not.

On Guam, the Public Auditor has that authority implicitly by the grant of "the power to review and determine de novo any matter properly submitted". (5 GCA § 5703.)

Dealing with the government? Get it in writing first

I've included this item because I've seen a couple of cases like it on Guam of late. There's one case making its way to the Supreme Court now, possibly.

The moral of the story is that government procurement requires authority and written contracts. And law trumps whatever moral rights you think might be appropriate.

Implied contracts and promissory estoppel are hard to enforce, if at all, because of sovereign immunity, claims acts and procurement rules that require audit tracking and accountability. Not to mention competitive processes that disfavor favoritism.

Sisson vows to take unpaid repair bill to voters

Highway Surveyor Jack Sisson says the Westport repair shop fixed his department’s battered dump truck a year ago and deserves to get paid $17,692 for his troubles.

Town Administrator Michael Coughlin says the transaction was illegal, the truck never should have been fixed that way, and there is no way the town will pay.

At issue is a Highway Department 1999 Freightliner 6-wheel dump truck that slammed into a utility pole while plowing snow. The front end was pushed in and the truck was totaled, Mr. Coughlin said — “but Mr. Sisson went ahead on his own and got it fixed anyway.”

Mr. Sisson said buying a new truck would have cost much more and the truck still had life in it.

He said he went to Henry’s Diesel, a Westport shop owned by Henry Majewski, because that’s where he has long gone for repairs of this nature.

“We go there because has always done a great job for us and for the fire department and the police.” Mr. Sisson said he didn’t get three bids because this is how we have always done it when we needed to obtain parts — “and Mr. Coughlin knows that.” He called it unlikely that anyone else around could have located the hard-to-find nose for that old truck.

But Mr. Coughlin said the rules are clear — that bids are needed for purchases or repairs of this sort.

He said the Mass. Inspector General’s Office blocked the expenditure because it violated procurement rules that require bids. In a March letter, that office stated that state law requires that no purchase may be made by a town employee without written permission from the town’s chief procurement officer. And any contract for goods or services valued at between $5,000 and $25,000 requires the solicitation of three price bids.

The town’s attorney, Kopelman and Paige, agrees that the bill should not be paid, Mr. Coughlin said.

“Services and equipment purchased by the Highway Surveyor were not in conformity with either state law oir town by-law and in excess of the authority granted to him,” Kopelman and Page wrote to the attorney for Henry’s Diesel. “Moreover, there is no written binding contractual relationship between the town and your client.”

Mr. Coughlin said Henry’s Diesel took the town to court over the payment and the town prevailed. In late May, a Fall River District Court Judge dismissed the claim saying that since the contract was not reduced to writing, it was not enforceable against a town.

Procurement law has many aims. One of its foremost goals is to avoid the kind of cavalier attitude and old boy network this controversy illustrates.

Government employees must be made to know, by proper education and training, that they are custodians of the public purse, with high ethical responsibilities, and accountable to make sure the public interests come first. Among the many policies in the ABA Model Procurement Code, not one of them say procurement must bend to the convenience of the government.

And, private vendors must also be made to know that there are rules of engagement when dealing commercially with the government that are different from the rules by which private parties do business.

Goverrnment not most favored customer of Oracle

The US Federal Government has an expedited procurement scheme for certain commonly acquired products and services. It's like an online warehouse of goods and services offered by various pre-approved contracts and contractors.

It's called the GSA Supply Schedule or the Federal Supply Schedule Program. The online website for the FSSP is here.

The idea behind the program is that GSA (Government Services Agency) negotiates with contractors who apply to offer their goods and services. If approved, prices and terms are agreed, and any government agency (including many non-Federal "agencies") can purchase from any approved contractor without any other formal procurement methodology: the policy of competition is negated by the theory that the government, using its huge bargaining position, can get best available prices under the program without the need of competitive bids.

Key to making that theory effective is the additional requirement that contractors must agree to sell to the government on a "most favored customer" pricing basis.

The following InformationWeek.com article illustrates how the program is meant to work, and sometimes may not.

It also introduces the ancient common law "Qui Tam" remedy, a creature of US procurement law called the False Claims Act , going back to the US Civil War time.

Suit Alleges Oracle Bilked Feds Out Of Millions

The federal government has joined a lawsuit against Oracle that had been filed on its behalf, claiming that the software company bilked it out of "tens of millions of dollars."

The lawsuit, initially filed by former Oracle contract specialist Paul Frascella in May 2007, was under seal until recently, when the United States moved to intervene in the case.

Frascella brought the suit under the False Claims Act, which allows private citizens to sue a company on behalf of the federal government, and he's seeking 25% of all damages.

According to the complaint, federal regulations require that General Services Administration contractors negotiating Multiple Award Schedule contracts, which allow agencies to buy products from the GSA schedule without having to jump through some of the typical government procurement hoops, "obtain the best price given to the most favored customer" in order to decide whether to accept solicitations.

In addition, Frascella's complaint details a number of schemes he says were designed to give commercial customers deeper discounts than the government.

The suit accuses Oracle of using a "scheme to defraud the United States by failing to disclose deep discounts" that it offered to its most favored commercial customers, which, the suit says, ultimately lead to tens of millions of dollars worth of overcharges.

SEE also: Northrop Grumman settles whistleblower case