Unilaterial termination of government contract: fettered or convenient?

There is, in this post, a bit of a red herring. I will be comparing failures of a government to perform an admitted contract, and the effect of the contract obligation on the validity of the contracted obligation. Actually, the compared situtations are distinguishable on their facts, but the common notion is one of governance issues one necessarily encounters when contracting with a government. Thus, this is more a case of contrasts, not comparisons at a certain level, but a teachable moment nevertheless (I hope).

Note that I regularly, with no disrespect intended, slice and dice, reorganize, paraphrase, leave out critical facts and citations, and generally make a mess of the original source to fit the available space and the point to be made in a post. So, always, always, go to the source; read the original at the link and don't get misled by my wayward rendition.

The impetus of this post is the Australian appellate case captioned Searle v Commonwealth of Australia [2019] NSWCA 127, decided May 31, 2019. A good nutshell discussion of the case is provided by Dr Nick Seddon, an honorary professor at the Australia National University College of Law, on the Australian Public Law blog. Dr Seddon is an accomplished leading authority, and author, on Australian commercial and government contract law. Critically for this blog writer, he writes in a forthright and narrative style that is easy to read and grasp.

Searle v Commonwealth [2019] NSWCA 127 – government contracting and fettering

What happened in Searle?    Searle joined the Navy as a marine technician. After being signed up, he entered into a training contract under which he would undertake a course of training towards a Certificate IV in Engineering. Under it the Navy undertook to provide a training plan and the various components to achieve the Certificate. The Navy failed to provide these elements of training. After leaving the Navy, Searle sued for damages for breach of contract. He argued that, if he had achieved the Certificate, he could have obtained a more remunerative job in civilian life than he in fact got.

There is a special legal background to this story. Going back to medieval times, English law held that the Crown does not enter into contracts with its servants. This applies in Australia although, for the ordinary public service, it has been superseded by elaborate legislation. Not so for the military, or at least not so as to remove the basic proposition that there is no contract between an service member and the Commonwealth. Such members are engaged at her Majesty’s pleasure.

The fettering rule.   When government enters into a contract, there is always a potential tension. To what extent does the contract bind the government in a way that may thwart the government’s task of governing? The answer to this traditionally has been that freedom to govern trumps freedom of contract. Under various labels (executive necessity, the rule against fettering or, more vaguely, sovereign risk) the government must be free to implement its programs and policies even if this causes the government to be in breach of contract. Traditionally, that is too bad for the contractor with no right to a remedy. This collection of principles has generated much controversy over many years, though it arises rarely. The controversy is fully described by Bell P, the lead New South Wales Court of Appeal judge in Searle v Commonwealth.

This tension is captured in a number of propositions (stated starkly here):
1. The government may simply break a contract with impunity;
2. The government cannot contract out of, or relieve the contractor from, existing statutory obligations;
3. The government cannot through a contract fetter its future exercise of executive power;
4. The government cannot through contract commit to future legislation;
5. The government may instigate legislation to override an existing contract.
Propositions 2 and 4 are less controversial and are well-established. Propositions 1 and 3 are controversial and ill-defined. Proposition 5 is well-established but controversial.

The no-fettering argument in Searle:   The Commonwealth said that the basic employment arrangement was not contract but, instead, an exercise of the Crown’s prerogative (or executive) power. Even if the training contract was a separate arrangement, over and above the underlying employment arrangement, the training contract could not fetter the Navy’s prerogative right to direct, control and manage Searle as a military person (dubbed “Navy Command” in the Court of Appeal). This was therefore a proposition 3 (the training contract could not fetter the exercise of Navy Command), or possibly a proposition 1 (the Commonwealth could simply break the training contract with impunity), case. This argument succeeded before the trial Judge.

Appeal:   On appeal, the New South Wales Court of Appeal (the functional equivalent to a Supreme Court in many U.S. jurisdictions) took this opportunity to examine the long-standing controversy about propositions 1 and 3, described as “uncertain” and “ill-defined”. The lead judgment by Bell P was supported by short judgments from Bathurst CJ and Basten JA. It was held that the training contract did not amount to a fetter on the Commonwealth’s executive (or prerogative) power of Naval Command and that the Commonwealth was liable to pay damages.

Space does not allow coverage of the very thorough description and analysis by Bell P of the difficulties and criticisms of the fettering doctrine. Making a government contract almost invariably employs the executive power. The fettering rule says that that contract is void if it purports to dictate or control a future exercise of executive power, including making another contract. If this is correct, it is a public law intrusion on contracting.

The Mason solution:   The consequence of invoking the fettering rule -- the contract that offends the rule is void -- has been one of the strands of criticism of the rule. Voidness is usually chaotic. Many years after the contract is made, a court pulls the rug leaving the parties in a very uncertain position. An important solution to this problem was suggested by way of obiter dicta by Mason J in Ansett Transport Industries (Operations) Pty Ltd v Commonwealth (1977) 139 CLR 54 at 76. This was that the contract is not void but it could not be enforced by coercive orders such as an injunction of specific performance. But, on the other hand, it could be the subject of a damages remedy. This solution preserves the underlying rationale of the fettering doctrine and, at the same time, protects the contractor. It is clear that the denial of the equitable remedies of injunction or specific performance is because of the government’s imperative to be unhindered in its task of implementing its policies and programs -- not for one of the reasons that guides a court’s discretion under the ordinary law of contract.

The training contract:    In Searle the contest was between the training contract and the future exercise of the power of Naval Command. Absent a possible fettering argument, there was no basis for challenging the contract. At a factual level, the training contract simply did not fetter the power of Naval Command. Any resort to Naval Command that detracted from the obligations arising from the training contract did not fetter the Commonwealth in any real sense. Even the possibility of having to pay damages in accordance with the Mason solution would not amount to a practical fetter. The Commonwealth conceded that it had the power to enter into such a contract and did not attempt to argue that it lacked that power, absent a fettering argument.

President Bell, during the course of his wide-ranging examination of the academic and judicial criticisms of the fettering doctrine, was clearly motivated by the fundamental principle that contracts should be kept, not just for the sake of the contractor but also from the perspective of government, because otherwise it would not be a credible commercial player. "This approach is more nuanced than others which carry the crude, often overbroad and instinctively unfair consequence of a contract being treated as void. It is an approach which arguably best reconciles the competing policy considerations."

Conclusion:   This case “raises a number of very important questions of principle” about government contracting, albeit in an area of the law that is rarely litigated. The fettering doctrine, at least arising from propositions 1 and 3, has been festering over many years and is in need of a fresh look and restatement. The Mason solution has been applied for the first time in Australia by the New South Wales Court of Appeal. It strikes a sensible balance between the government’s imperative to govern and its need to make contracts.

Watch this space for a possible appeal to the High Court.

In the U.S., the private law of contract has been undermined and supplanted by statutory laws applicable to government acquisition contracts. In the typical "procurement" government contract, the government is acquiring something. "“Acquisition” means the acquiring by contract with appropriated funds of supplies or services (including construction) by and for the use of the Federal Government through purchase or lease.... Acquisition begins at the point when agency needs are established and includes the description of requirements to satisfy agency needs, solicitation and selection of sources, award of contracts, contract financing, contract performance, contract administration, and those technical and management functions directly related to the process of fulfilling agency needs by contract. 2 FAR 2.101(a) In the Searle case, the government was acquiring nothing.

There was nothing more than an arrangement between the government and an employee that the government would provide a service for an employee. It was something in the nature of, what the U.S. Supreme Court has styled, a "gratuity": "Pensions, compensation allowances and privileges are gratuities. They involve no agreement of parties; and the grant of them creates no vested right. The benefits conferred by gratuities may be redistributed or withdrawn at any time in the discretion of Congress. ... On the other hand War Risk policies, being contracts, are property and create vested rights. The terms of these contracts are to be found in part in the policy, in part in the statutes under which they are issued and the regulations promulgated thereunder." Lynch v. United States, 292 US 571,577, U.S. Supreme Court (1934)

I'm not sure if that is a difference with a distinction between the fettering rules for government contract as practiced in Australia and contract clauses available in U.S. government, and Guam, contracting regulations, but by definition, Searle did not deal with a government contract as we know in procurement. "“Contract” means a mutually binding legal relationship obligating the seller to furnish the supplies or services (including construction) and the buyer to pay for them. It includes all types of commitments that obligate the Government to an expenditure of appropriated funds and that, except as otherwise authorized, are in writing. In addition to bilateral instruments, contracts include (but are not limited to) awards and notices of awards; job orders or task letters issued under basic ordering agreements; letter contracts; orders, such as purchase orders, under which the contract becomes effective by written acceptance or performance; and bilateral contract modifications. Contracts do not include grants and cooperative agreements ...." 2 FAR 2.101(a)

Guam's procurement law would not provide jurisdiction for a court to hear the contract claim brought by Searle, because the Guam procurement law does not waive sovereign immunity involving government contracts that are not acquisitions. In Guam, the government has waived sovereignty to be sued under government contracts more generally, but under the Claims Act, and, similar to Searle, the Claims Act only has jurisdiction to render judgement for monetary awards related to expenses incurred "upon a contract", not other monetary damages and it is an open question whether it even applies to to oral or un-written contracts, or to any theories of recovery based in equity, contracts implied in law, quasi-contract, or quantum meruit. The Guam Supreme Court has left to "another day our answer to whether the Guam Legislature has extended the waiver of sovereign immunity to oral or unwritten contracts, or to any theories of recovery based in equity." Guam Police Department v. Superior Court (Lujan) 2011 Guam 8, ftnt 8.

But, to the extent that the authority of the executive branch of the government in the U.S. is impinged upon by the procurement contracting process, the U.S. government and most if not all other jurisdictions in the USA have obtained a bit of flexibility unavailable in private contract law to cope with matters of good public governance, resulting in similar outcomes as in Searle yeilding a sensible balance between the government’s imperative to govern and its need to make contracts, in reliance on the immunity of the 'crown', particular laws and regulations, and the contract between the parties, all in concert, when a void contract is to be avoided.

An example of this is the accepted "Termination for Convenience" clause, which in private law of contracts would normally render the entire contract void as an illusory "bargain". It allows the government to unilaterally terminate a contract for practically any reason short of bad faith or fraud. However, it also requires that the government to compensate the contractor for work done and profits earned to the date of termination. It thus reached a similar outcome as in the Searle case. The termination for convenience clause arose out of the experiences of war, in particular the armistice following hostilities (in the "good old" days of wars between established states), when peace suddenly broke out but war material contracts persisted, without the government's need for more war materiel -- indeed as an impediment to redirecting funds to meet the needs of rebuilding the country.

Another example is the standard contract disputes clause. In simple terms, this clause and implementing regulations provides that contract disputes between the government and a contractor will be decided by the government if the parties are unable to "mutually agree" on a settlement and resolution of the dispute. In the face of this somewhat illusory and certainly conflicted decision making process, the clause contemplates a review of the government's decision, administratively, judicially or both.

This discussion illustrates a point I make when people tell me that government contracting should be done in the same manner as private contracting: government contracting must be conducted with an eye to good public governance as the overriding principle on which the contracting is allowed. It is true that "when the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals". Lynch v. United States, supra, 579, U.S. Supreme Court (1934) Nevertheless, only Congress can determine to allow a cause of action against the government arising under that contract. "The character of the cause of action — the fact that it is in contract as distinguished from tort — may be important in determining (as under the Tucker Act) whether consent to sue was given." Id., at 582 "Specifically, the Tucker Act permits three kinds of claims against the government: (1) contractual claims, (2) noncontractual claims where the plaintiff seeks the return of money paid to the government and (3) noncontractual claims where the plaintiff asserts that he is entitled to payment by the government."

American jurisdictions tend to mitigate the "fettering tensions" discussed above by Dr Seddon with a combination of regulations and contract clauses, coupled with particular waivers of sovereign immunity. And they each, in their separate ways, look for that nuance which strikes a sensible balance between the government’s imperative to govern and its need to make contracts.

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.

Administrative reviewers and an obligation to substantiate basis of decision in law and fact

Articles in the informative legal website Lexology suggest that, at least in the federal arena, US courts are taking a more careful look at the reasoning offered up by an administrative procurement review authority, both as to its legal underpinnings as well as its factual ones.

In applying any implications this may have for Guam, or your own jurisdiction, it is important to distinguish the standard of review that is applied in your particular situation. For instance, on Guam the standard of administrative review by the Public Auditor (Office of Public Accountability) is de novo, and that decision is final unless judicially appealed (unlike the advisory opinion of the GAO -- the federal government's Government Accountability Office). 

However, on judicial review of the Gaum OPA decision, the court must give "great weight and the benefit of reasonable doubt" to decisions of the Public Auditor, but it is not conclusive on the court, and "any determination of an issue or a finding of fact by the Public Auditor" is not final if it is "arbitrary, capricious, fraudulent, clearly erroneous, or contrary to law". 

It seems to me that, in practice, the result would be the same in the federal regime as under Guam law, as indicated by the last article below in which the Court equates "not rational" with "arbitrary and capricious".

As usual, you must read the source articles because I tend to selectively cut, re-arrange, paraphrase, drop footnotes and citations, and otherwise "edit" to suit myself in the post at hand.

The first case was first seen as perhaps limited to the issue of conflicts of interest, in the 2010 article A retreat from hard line OCI decisions? The COFC overturns a controversial GAO ruling, by attorneys Anne Bluth Perry and Jessica M. Madon of the law firm Sheppard Mullin Richter & Hampton LLP.   I do not address the conflicts issues:

On July 16, 2010, the Court of Federal Claims (“COFC”) determined that a Government Accountability Office (“GAO”) bid protest recommendation that an awardee, Turner Construction Co (“Turner”), be disqualified on the basis of organizational conflicts of interest (“OCI”) under an Army Corps of Engineers (the “Army”) hospital renovation contract was irrational.

In the context of a bid protest, the COFC reviews agency procurement decisions to determine if they are “arbitrary and capricious” or “lack a rational basis.” If the agency procurement action in question is the following of a GAO recommendation, then the agency’s decision will be found to lack a rational basis only if the GAO recommendation “is itself irrational.” This is precisely what COFC found in Turner.

The Court found that GAO had summarily assumed that, during the course of the potential merger discussions, the parties were “effectively aligned” and had a “community of interests” whereas the CO had determined, based on a post-award analysis of the facts, that the parties were merely “potential merger partners, with no community of interests.” Since GAO had not identified any hard facts of a “sufficient alignment of interests,” COFC found that GAO’s assumption of such an alignment was irrational.

GAO’s conclusion that there was a “biased ground rules” OCI (where an offeror skews the competition in its favor) was similarly determined to be irrational because the COFC found that GAO again ignored the CO’s detailed factual findings. Rather, GAO opted to assume that there was the opportunity to skew the competition unfairly and thus ignored all of the actual facts showing that the competition was not skewed.

The same lack of any hard facts was found with respect to GAO’s view that there was an “unequal access OCI.” Again, GAO was held to have improperly relied upon the possibility that the party had inside information. Reiterating the requirement for hard facts, the COFC held that the GAO needed to find “the ‘possession’ of undisclosed, competitively useful information” before finding such an unequal access OCI.

The Federal Claims Court decision was itself appealed, as reported in the next article in 2012, Federal courts overrule GAO and require reinstatement of low bidder, authored by Attorney Bram Hanono from the same Sheppard Mullin firm:

In Turner Construction Co., Inc. v United States, 645 F.3d 1377 (Fed. Cir. 2011) ("Turner II"), the United States Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims' ("COFC") decision in Turner Construction Co., Inc. v. United States, 94 Fed.Cl. 561 (2010) ("Turner I") that a GAO bid protest recommendation was irrational.

In Turner II, the court affirmed the COFC's finding that the GAO irrationally refused to follow the CO's fact-based conclusion that no OCI existed. The court further held that the COFC properly ordered the Army to restore the contract with Turner based on the COFC's broad equitable powers to fashion appropriate remedies.

Turner II is a reminder that the COFC has the independent jurisdiction to review underlying procurement decisions, as well as GAO decisions, even when the GAO recommends that an agency take corrective action. In the Turner cases, the Army was required to restore Turner's contract, even though the Army had previously followed the GAO's recommendation to rescind the contract. The Turner cases may signal a shift in the Federal Courts to give more weight to the CO's decision on a bid protest and less weight to the GAO's recommendations.

Finally (for this post at any rate), there is the recent article Corrective action catch 22: Court of Federal Claims holds agency action must be rational even if GAO protest decision was not, written by attorneys C. Joël Van Over and Alexander B. Ginsberg of the law firm Pillsbury Winthrop Shaw Pittman LLP:

The United States Court of Federal Claims’ July 15, 2014 decision in RUSH Construction, Inc. v. United States, reflects the unusual circumstance in which the court effectively sat in appellate review of an earlier bid protest decision by the Government Accountability Office (GAO) after the U.S. Army Corps of Engineers ("CoE") followed GAO’s recommendation in that decision. The court ultimately overruled GAO when it found that it was arbitrary and capricious for the agency to follow GAO’s irrational recommendation. In so doing, the court cited numerous flaws in GAO’s reasoning and its reliance on inapposite case law.

An unsuccessful bidder protested at GAO, contending that the errors rendered RUSH’s bid ambiguous and non-responsive. GAO agreed, finding that RUSH’s bid contained material deviations from the terms of the solicitation, which could not be waived. In reaching this conclusion, GAO’s legal analysis was succinct—in fact, it was largely confined to one paragraph, wherein GAO stated:

A bid that fails to include a price for every item required by the IFB generally must be rejected as nonresponsive. HH & K Builders . This includes a bidder's failure to provide a responsive bid for optional contract line items, which thus renders the entire bid nonresponsive. Massillon Constr. & Supply, Inc.. This rule reflects the legal principle that a bidder who has failed to submit a price for an item generally cannot be said to be obligated to furnish that item. United Food Servs.. Therefore, where a page in a bidder's schedule does not clearly indicate that the prices apply to an option that the IFB requires to be priced, the bid is ambiguous and thus, nonresponsive. Thompson Metal Fab, Inc.

GAO cited a fifth case, Pro Alarm Co., via footnote for the principle that a bidder’s failure to “acknowledge an amendment may be waived where the amendment results in less stringent obligations on the bidder ... .” In sustaining the protest, GAO recommended that the CoE “reject RUSH’s bid as nonresponsive... .”

The Court of Federal Claims explained: “[a]n inquiry into the rationality of the GAO decision is the same as an inquiry into whether the agency had a rational basis for its decision.” The court then conducted a thorough analysis of each of the cases GAO cited, observing that the cases “fall into one of three lines of analysis—that is, either omitted price cases, unacknowledged solicitation amendment cases, or ambiguous bid cases.” Ultimately, the court concluded that GAO failed with regard to all three of these “lines of analysis.”

The Court said, "GAO has relied on the legal principles set forth in three cases involving the omission of a price. But it has offered no explanation as to how these legal principles support the decision it reached in this case.”

Next, the court stated: “By analyzing the omission of a bid schedule note under Pro Alarm Company, GAO equates such an omission with an unacknowledged solicitation amendment. But GAO offers no explanation for why it made this comparison. There is no obvious parallel between the two fact scenarios, and GAO does not attempt to analogize the facts of Pro Alarm Company to those of RUSH.”

The court also rejected GAO’s case citation on the issue of ambiguity, writing: “GAO then cited to Thompson Metal Fab for the proposition that ‘where a bidder’s schedule does not clearly indicate that the prices apply to an option that the IFB requires to be priced, the bid is ambiguous and thus, nonresponsive.’ ... GAO appears to have concluded summarily that RUSH’s bid schedule was ambiguous, without examining its own case law that sets forth standards for evaluating bid ambiguity.”)

Because the court found that “GAO seems to have premised its decision on inapposite case law,” the court held that “GAO’s decision was not rational” and that the CoE’s corrective action implementing GAO’s recommendation necessarily was “arbitrary and capricious.” Thus, the court granted RUSH’s motion for judgment on the administrative record.

Procurement reforms du jour

Scotland.  Local preference and training.

Scottish procurement reform bill sent to Parliament

Changes to public procurement rules in Scotland that will make it easier for small businesses to bid for public contracts have moved closer, as a reform bill goes to Parliament. The Procurement Reform Bill sets out how European legislation will be interpreted and put into practice in Scotland.

First minister Alex Salmond said the bill would generate new training and employment opportunities. The Bill will require public bodies to consider how procurement activity can improve the economic, social and environmental wellbeing of local communities.

“Our Bill here in Scotland will give Parliament the opportunity to go further than Wales, by taking the power to regulate how companies are selected to bid and how their suitability should be assessed,” he said. “These regulations will address blacklisting, working within the framework of EU law.”

Namibia.  Centralization and effective review.

Namibia introduces legislation as part of procurement reform

The country seeks to streamline large public sector procurement, help SMEs and reduce loopholes.

Namibian procurement reform edges closer

The Public Procurement Bill would create a Central Procurement Board to centralise the management of high-value contracts across the public sector, while a review panel would give aggrieved bidders a route for redress without having to go to the courts.

Minister of finance Saara Kuugongelwa-Amadhila said as she tabled the bill: “The intention is to provide for the speedy resolution of such complaints, which will minimise the frequency of bidders’ recourse to court actions.”

The bill also seeks to stimulate economic growth by giving preference to local businesses and socially disadvantaged groups, according to the state-owned New Era newspaper.

The new law also repeals the Tender Board Act of 1996, which is described as “no longer sufficient or adequate to achieve the country’s developmental objectives”.

Unlike the tender board, which dealt with almost all public sector contracts, the new board would only deal with contracts over a certain threshold value, with lower value contracts dealt with by the public body concerned.

Singapore.  Integrity enhanced.

Trust in public service crucial to success of govt policies: PM Lee

Singapore Prime Minister Lee Hsien Loong has emphasised that a major determinant of success in implementing government policies that improve the lives of people is trust in the government, and in particular, the public service. He said it is important that Singaporeans trust that the government understands their needs, is committed to the people, and will remain a steward of the public good.

He said: "Ultimately, integrity is not about systems and processes but values. The government must have a culture that doesn't tolerate any wrongdoing or dishonesty and the public officers must have the right values -- service, integrity, excellence -- and each officer and the service as a whole must take pride in being clean, incorrupt. "This is your command responsibility, you cannot devolve it to your subordinates, you cannot leave it to your procurement or financial officers. You are the boss, you are in charge."

Mr Lee also stressed that critical to maintaining public trust is upholding the highest standards of integrity -- something which has been painstakingly built up over many years. Mr Lee said because there is integrity, businesses can compete fairly instead of relying on improper influence. And because there is integrity, public officers can be given the discretion to exercise judgement when managing multi-million dollar projects.

The Prime Minister emphasised that one reason why Singapore has been able to maintain a clean system is that it pays public servants properly in line with the quality of the officers and the value of their contributions. He stressed that this policy will continue. In return he said, Singapore insists on the high standards of performance and integrity, and if an officer is discovered to have been dishonest, he will be punished to the full extent of the law.

Mr Lee said this principle will be maintained even when it may be embarrassing to the government. Mr Lee acknowledged that the past year has seen a string of high-profile cases involving public officers, including some senior ones in sex for favours scandals, procurement lapses and fraud cases.

He said beyond these individual cases, the public service must strengthen its systems to uphold reputation for integrity and incorruptibility, and dispel any doubts that standards have fallen. Head of Civil Service, Peter Ong, said Mr Lee's presence at the annual seminar was a clear demonstration of the type of leadership he is encouraging public sector leaders to show - that is to lead by example and model the right values for staff.

Singapore officials to declare casino trips after graft scandal

Singapore civil servants must declare casino visits starting Tuesday, authorities said, months after a senior anti-graft official was charged with embezzling state money to fund his gambling habit. Civil servants must declare within seven days if they have visited the city-state's two casinos more than four times a month, or if they purchase an annual pass that allows unlimited access, the government's Public Service Division (PSD) said.

Government officials in certain positions where "misconduct will have significant reputational risk to the Public Service" must declare every visit within seven days, it said in a statement. Singapore pays its civil servants some of the highest government salaries globally in what it says is a deterrent to corruption.

Civil servants involved in gaming enforcement as well as others who represent the government in business dealings with the two casino operators will remain barred from visiting the casinos unless in an official capacity.

The agency said it was also bringing in compulsory job rotations and block leave for some officials holding positions that "are more susceptible to being suborned and exploited if the incumbent were to remain in the same job for too long". "Officers are expected to maintain the highest standards of personal conduct and integrity, and their actions must not bring the Public Service into disrepute or call into question its impartiality," PSD said.

The move follows a string of high-profile corruption cases in the city-state, including one involving Edwin Yeo Seow Hiang, an assistant director at the Corrupt Practices Investigation Bureau (CPIB), the country's graft-busting agency. Large-scale graft cases remain rare in Singapore, a thriving business hub and financial centre, and the government has jealously guarded its reputation as among the least corrupt in the world.

New Zealand.  Uniformity.

New government procurement rules come into effect

The new rules replace 44 different pieces of legislation, Cabinet directives and miscellaneous guidance released by a multitude of government agencies over many years. The emphasis will shift from who can deliver the lowest upfront costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.

“By... making the tendering process consistent across the public service, we expect to make our procurement business more accessible to smaller local firms who previously may have been discouraged by the process,” Economic Development Minister Stephen Joyce said in April when announcing the changes.

The new procurement rules will apply to all Public Service departments, the New Zealand Police and the Defence Force. Other State Sector agencies and the broader Public Service will also be encouraged to adopt them.

A brief, practical guide to the Irish version of EU procurement protests

The Association of Corporate Counsel's associated Lexocology website has posted another handy reference for procurement students and practitioners. This one is posted by attorneys Cormac Little, Claire Waterson and Sheila Tormey from the law firm William Fry. The basic advice of the article is certainly good for Guam, and may be universal.

Public procurement - a practical guide to challenging public contract decisions

A disappointed bidder should know that challenging public sector contract decisions is not easy. The EU Remedies Directive, implemented into Irish law in 2010, governs how parties might challenge contract decisions. However, time limits are strict and the grounds on which challenges can be taken are relatively restricted.

If you suspect there has been a breach of the procurement rules, you should gather your resources quickly and efficiently.

However, it is imperative for aggrieved parties to act swiftly to protect their rights.

This guide is intended to help aggrieved bidders navigate the rules for challenging decisions regarding contracts procured under EU rules. Not all contracts are subject to the full force of the EU procurement rules. For example, certain “non-priority” services (such as legal services and training services) are not subject to detailed procedural requirements and time limits. A limited number of exceptional circumstances such as urgency may also justify a departure from the normal rules. However, whichever rules apply, contracting authorities must always respect the over-riding principles of transparency, equal treatment and observance of fair procedures.

The 2010 Remedies Regulations, which implement the EU Remedies Directive and the EU Utilities Remedies Directive, establish a special form of judicial review applying to contracts governed by the EU public procurement rules. High Court litigation is unfortunately the only serious option for disgruntled bidders seeking to protect their rights. There is no Irish procurement authority with powers to investigate complaints and resolve disputes outside litigation. While a complaint to the European Commission might assist in persuading the contracting authority to terminate the infringement, this falls outside the control of the challenger. Moreover, significant delays are common. In addition, any subsequent enforcement action by the Commission becomes more about the State’s responsibility for failure to fulfil its EU law obligations than obtaining a remedy for the complainant.

Contracts which fall outside the scope of the EU public procurement rules are normally awarded under more flexible national guidelines issued by the Department of Finance. Challenges to such procedures are subject to general principles of judicial review and contract law. This guide focuses on the special procedure for challenging decisions under the EU regime.

Challenging decisions of a public body in court is subject to judicial review principles. The proceedings are not a full appeal and the Courts have repeatedly stated that their role is not to ‘second guess’ the public body’s actions. Instead, the focus is on how the decision was reached. Were there procedural errors or bias? Was the action so unreasonable it could not be objectively sustained?

Circumstances that might constitute grounds for challenge include:

Failure to advertise a relevant contract
Wrongly determining that a candidate does not meet the pre-qualification criteria
Giving one bidder important information that is not provided to other bidders
Bias in favour of one party (or against another)
Incorrect application of the award criteria; or
Changing the award criteria or their relative weightings after receipt of bids.

The burden of proof usually lies on the disappointed bidder. However, this burden might switch to the public body in certain circumstances. For example, if the challenger can show that another bidder had access to additional information that it did not receive, the contracting authority will have to explain why the apparent inequality in treatment did not breach the procurement rules.

Participants in a tender process must be informed in writing of the outcome of the process and must be given a summary of the reasons for rejection of their pre-qualification submission or tender.

Contracting authorities are precluded from awarding a contract for a certain period after this information has been communicated to unsuccessful bidders. This “standstill” period must be at least fourteen calendar days, provided the information is issued by fax or email. In other cases, the authority must wait at least sixteen days before signing a contract with the successful bidder.

A participant may also use Freedom of Information rules to seek records relating to the award process. Records requested under this legislation are unlikely, given the short time limits, to arrive in time to inform a decision to take legal proceedings under the Remedies Regulations.

Timing is a key consideration and aggrieved bidders must not delay. A company usually has 30 days after it learned of the decision (or knew or ought to have known of the infringement) in which to issue proceedings, and must inform the public body before doing so. [So much time! Guam allows only 14 days and the Attorney General has repeatedly sought to narrow that to 7.]

Challenges may be made to any decision that produces legal effects, not just contract awards. The strict timing rules mean that if, for example, a bidder believes that the wrong procedure was used, it should issue proceedings within 30 days of publication of the contract notice. If it does not launch a legal challenge yet continues to participate in the process until its bid is rejected, any proceedings contesting the choice of procedure will be ruled ‘out of time’. Likewise, one can challenge a decision excluding a party from the award process at pre-qualification stage, but this must normally be done within 30 days of receiving notification of the exclusion. Each application will be looked at critically, although time limits may be extended at the discretion of the High Court.

There are a number of potential remedies available to an aggrieved bidder. The availability of a particular remedy primarily depends on which stage of the procedure it is sought. The High Court has broad powers to declare the contract ineffective, indeed is required to do so in a number of circumstances, for example, a contract was awarded without prior publication of a contract notice. The Court may also grant injunctions aimed at correcting the alleged infringement or avoiding further harm to the applicant’s interests. The High Court may also award damages to compensate for any loss caused by the breach of procurement rules. Finally, the Remedies Regulations have introduced the concept of a financial penalty payable by the relevant contracting authority, separate to any damages award.

The following practical steps should help:

Act swiftly. Time limits for taking action are short, so do not delay. Seek advice early if you suspect there has been a breach of the rules. Remember that you will need some time to obtain legal advice and to make an informed decision on the options open to you.
Ask questions. You are entitled to be given reasons for the rejection of your tender. If you are not satisfied, ask for a debriefing meeting to obtain further information. Although it may be difficult to accept, there may be a valid reason for rejecting your tender: it is better to find this out at an early stage than mid-way through costly litigation.
Create a paper trail. Keep notes of any conversations that could be relevant. Where possible, record your objections or concerns in relation to the process in writing (e.g., in an e-mail to the authority’s relevant contact person).
Consider your preferred result and be realistic. Do you believe you should have been awarded the contract? Are you seeking damages? In many cases, parties would be happy for the flawed process to be abandoned and started afresh, or even to know that the authority has learnt its lesson and will apply this to future processes.

Those last 4 tips cannot be more true in Ireland or the EU than they are on Guam or in any US jurisdiction I've reviewed. The procurement law tends to help those who help themselves. Indeed, as I often repeat, the whole integrity of the procurement system relies primarily on outsourcing the policing role to the private contracting sector. The public sector may train, audit and "tut tut", but only a vigilant, empowered private sector contracting party offers real time prophylactic remedial effect.

Aggrieved contracting parties do the community a service by keeping the system accountable and on track.

"Bidders have a right to know that any procurement process is fair, transparent and run with integrity"

Business complaints over public sector procurement contracts soar by 167%

The coalition has always looked to the private sector to run hospitals, schools and other frontline services but new contracts are often at low margins as the government looks for cost-savings. This puts bidders under pressure to win more work to compensate for reduced profits.

All of this puts significant strain on business, says David Isaac, head of the advanced manufacturing and technology services sector at Pinsent Masons. "Bidding for public sector contracts requires substantial upfront investment with no guarantee of return. In that context, bidders have a right to know that any procurement process is fair, transparent and run with integrity."

According to an FoI request our firm sent to the government, business complaints over how public sector contracts are awarded soared by 167% in the last 12 months to 196 – up from 73 in the previous year.

One tactic that some businesses have deployed is to challenge the procurement process and litigate if their bid is unsuccessful. That is not to say all complaints are motivated by a commercial agenda: at times there may be cause to challenge the process. However, a significant increase in the number of complaints being made indicates that something else is going on.

Complaining to the Cabinet Office is one way to stop a rival gaining an advantage in the procurement process. For example, businesses will complain about the procurement strategy that a public sector body is following if they think that strategy favours their competitor. Another way to gain an advantage is to look to external expertise for advice on submitting a successful bid. We have witnessed an increasing number of private sector bidders looking to their lawyers for this type of advice.

But does complaining work? Complaints to the Cabinet Office can sometimes lead to the bidding rules for a government procurement contract being changed while bidding for the contract is still progressing. Making a complaint while the bidding process is still open can delay things long enough to give a business crucial extra time to prepare and submit its bid, although a court challenge would be needed to actually overturn a contract that has been signed.

Simon Colvin, a partner at Pinsent Masons who advises central government departments on national IT outsourcing projects, points out that contracting authorities are increasingly conscious of market pressures. "Time invested at the outset of a procurement is key to ensuring that processes are fair and transparent. This approach together with ongoing monitoring as the procurement progresses towards contract award should ensure that bidders complaints are minimised and, if they do arise, can be handled effectively."

While the pressure to protest is obvious, it is not in anyone's interest to protest in ignorance. Ignorance of facts may always be a justifiable excuse to protest, but ignorance of the legal requirements for procurement, which are often not intuitive to non-government contractors, is not. It is as imperative that the private sector know the rules of government contracting as the public sector. Knowledge of the rules of the road will not only temper expectations of the desperate business person, but minimize their costs by knowing when not to chase shadows or rainbows.

By the way, the ABA Model Procurement Code also recognizes the need for a fair, transparent procurement system run with integrity. In a comment to MPC § 3-201, it is declared "fair and open competition is a basic tenet of public procurement. such competition reduces the opportunity for favoritism and inspires public confidence that contracts are awarded equitably and economically".

India tells prospective contractors, "Let's Talk"

Govt bodies to give reasons for rejecting procurement tenders

The government awards public contracts worth lakhs of crores each year, but the process is fraught with delays as losing bidders often seek to stall their execution by filing vigilance complaints and mounting multiple legal challenges. Congress president Sonia Gandhi has identified public procurement as the biggest source of corruption along with the allocation of natural resources.

Finance Minister P Chidambaram had told Parliament in 2011 that even buying a pencil is a painstaking process in government. "Every time you go for procurement, on the day you are going to place the order, you will have a complaint on your table," he had said in his earlier avatar as home minister.

"It has been observed that there are many instances of a tender being rejected or tender documents not being issued and when the party enquires reasons, the same are not communicated," the procurement division in the expenditure department has said in a memo sent to government departments last month. "In such cases, the first round of litigation is to find out the reasons and the second round is to challenge the reasons," it noted.

The finance ministry has asked all government bodies to disclose the reasons for rejecting or excluding bidders from contracts awarded by them in order to bring more transparency into public procurement and avoid litigations from losing bidders.

Procurements made by the central government are currently regulated by the General Financial Rules of 2005, which only have the status of a subordinate legislation and are generic guidelines on government expenditure. Violations of these rules seldom attract penalties, noted a recent report on probity in India's public procurement by the United Nations Office on Drugs and Crime. The finance ministry has, however, pointed out that the rules clearly require that "every authority delegated with the financial powers of procuring goods in public interest" shall be responsible for bringing transparency in such procurements and ensuring "fair and equitable treatment of suppliers and promotion of competition." The rules also stipulate that suitable provisions be made in the bidding document "to enable a bidder to question the bidding conditions, process and/or rejection" of its bid. "The reasons for rejecting a tender or non-issuing a tender document to a prospective bidder must be disclosed where enquiries are made by the bidder," the finance ministry has said.

The ministry has pointed departments to a recent order on the issue by the Delhi High Court and said that importance of complying with it 'in letter and spirit cannot be over-emphasised.' Adjudging a case filed by a contractor who was not being issued tender documents by a government department, the court had said: "We have repeatedly emphasised in various orders that whenever a tender is rejected or tender documents are not issued and a party enquires reasons, it is necessary that the reasons be communicated to avoid unnecessary litigation...Despite this, the authorities persist in keeping silent over such representations, which we strongly deprecate."

In the US federal government contracting system, this is called "debriefing". It is a process that has been adopted in the last decade or so.

Contract Debriefings

Debriefings instill confidence in the contracting process by affirming that proposals were treated fairly. Statutory and regulatory changes to the debriefing rules better establish the debriefing as an offeror right that can reduce the number of protest filings, and strengthens the Government’s relationship with industry.

Debriefing means informing unsuccessful offerors of the basis of the selection decision and contract award. This information includes the Government’s evaluation of the significant weaknesses or deficiencies in the offeror’s proposal. Debriefings provide offerors to a competitive solicitation with an explanation of the evaluation process, an assessment of their proposal in relation to the evaluation criteria, a general understanding of the basis of the award decision, and the rationale for their exclusion from the competition.

Debriefings are different than notifications to unsuccessful offerors. The contracting officer must notify the offerors promptly in writing when their proposals are excluded from the competitive range or otherwise eliminated from the competition. See FAR 15.503for detailed coverage of notifications.

Legal and Practical Aspects of Debriefings: Adding Value to the Procurement Process (You may have to "trust" the site and click through a series of alerts. I do.)

Properly conducted, debriefings can greatly aid offerors, who can obtain insights for improving their proposals in future procurements. A skillfully performed debriefing also can ward off a potential protest by an unsuccessful offeror to the agency, the General Accounting Office (GAO), or the United States Court of Federal Claims whereby the agency allays the debriefed offeror’s concerns about possible prejudicial error in the evaluation or selection decision.

Poorly conducted, debriefings can decrease an offeror’s confidence in the agency’s evaluation practices, and can discourage that offeror from pursuing future business with that agency, thereby decreasing competition. A confusing or poorly executed debriefing also can spark a protest when the offeror was not otherwise so inclined. Most protests consume extensive agency resources in defending the procurement before the protest decision maker.5

In a debriefing, which can occur before or after contract award, agency representatives inform the offeror, commonly face to face, of the proposal’s weaknesses and deficiencies. The procuring agency in a postaward debriefing will further disclose limited information relating to the awardee’s proposal, such as the awardee’s overall evaluated cost or price, and the rationale for the source selection. The debriefed offeror either before or after award is entitled to receive certain other information, such as whether the agency followed the applicable source selection procedures. Debriefings are closely regulated by statute3 and the FAR,4 which identify appropriate topics for further discussion in this article.

Of course, the legal eagles do not warm easily to commercial realism, because they know how to make the worm turn.

Should government attorneys attend debriefings?

At the Nash & Cibinic Roundtable this past December 2 and 3 in Washington, DC, an issue came up that has bothered me for many years. The issue is the role of the government contract lawyer in the contracting process. Specifically, what role does the government contract lawyer play in debriefings of unsuccessful offerors? During a discussion of debriefings, one of the attendees identified herself as a government attorney and said that she always made a point of attending debriefings given by the contracting officers of her agency. I don't remember the entire comment, but the impression that I got was that she did so in order to ensure that all went well.

The comment made my contracting officer blood boil. I oppose the practice of having government lawyers attend debriefings. The main reason is that it sends the wrong signal to the company that is being debriefed. If I go to a meeting with someone who is unhappy with me and bring my lawyer, it sends a signal (whether accurate or not) that I expect trouble and feel the need to have a counselor present. Another reason is that I don't want any interruptions, interjections, note passing, whispering in my ear, or requests to caucus. Those things look bad. A debriefing is not supposed to be an interrogation, a negotiation, a debate, or an adversarial proceeding.

Of course, I am assuming that the CO is competent, that he or she understands the rules of the source selection process, understands how the source selection in question was conducted, knows the facts of the evaluation of the proposal in question, can explain the findings and conclusions of the evaluation team, and understands the basis for the source selection decision. If that is not the case, it raises the question of whether the CO should provide a face-to-face or telephonic debriefing. If the person responsible for the debriefing, the CO, cannot be trusted to do a good job, then perhaps a written debriefing, prepared or reviewed by an attorney, is the thing to do. But to send an incompetent CO into a debriefing armed with his or her lawyer does not strike me as a particularly intelligent course of action.

At one point during the Roundtable discussion, someone in the audience shouted out, "What if the offeror brings an attorney?" So what? As a CO, I asked offerors on more than one occasion if they had an attorney and, if so, would they please bring him or her to the debriefing. Why? I respect attorneys for their ability to think clearly and be dispassionate. An attorney is likely to recognize and acknowledge that a source selection was conducted properly even when their client is climbing the walls. If we did a good job and if I could explain the job that we did, then there was nothing to worry about. In my last source selection as a government CO, the loser filed a protest with the GAO right away. I called the protester, asked them to attend a debriefing, and asked them to bring their lawyer. They brought Professor Gilbert J. Ginsburg of The George Washington University Law School, a renowned government contracts expert. At the debriefing I handed them a copy of our request for proposals, a copy of their proposal, our complete source selection file for their proposal, including the write-ups by the individual evaluators and the scores, and told them to go through the material and to ask any questions they had. I left them in the conference room. They called me about an hour later, thanked me, and said goodbye. The next day I received a copy of their communication with the GAO withdrawing their protest.

Would I meet with my attorney before a debriefing? Not unless I had a legal question. As a CO, I would not need advice about what to say and what not to say. I believe in full disclosure debriefings. I believe in giving the loser everything. If a protest is filed, the protester?s lawyer is going to get everything anyway, including the proposals of the other offerors, so why withhold? While as a CO I cannot release the proposals of the other offerors, I see no reason to withhold anything else. if we made a mistake I would rather be told and be given a chance to take corrective action before a protest is filed. Full disclosure shows no fear.

Don't take this as dislike of attorneys. I work with them all the time and both like and admire most of the ones I meet. I have deep respect for the profession, which I consider to be admirable. But as I see it they and the CO have different roles to play in acquisition. If the attorney reviewed the source selection decision and found it to be legally sufficient, then he or she has played their part. Debriefing the losers is the CO?s role. If the CO is competent, then he or she will not need an attorney's services during the debriefings. If the CO is not competent, then a face-to-face or telephonic debriefing should be avoided at all costs. Having an attorney present will not make things go better.

FAS made a Mess of MAS

Improper Management Intervention in Multiple Award Schedule Contracts, Report Number A120161/Q/6/P13003, June 4, 2013, by Office of Audits, Office of Inspector General, U.S. General Services Administration

OBJECTIVE -- The objective of this audit was to review the circumstances related to FAS management intervention in contracting actions related to MAS contracts.

Finding - Improper Federal Acquisition Service (FAS) management intervention in Multiple Award Schedule (MAS) contracts resulted in inflated pricing and/or unfavorable contract terms, and undermined the authority of contracting officers.

Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none. Transactions relating to the expenditure of public funds require the highest degree of public trust and an impeccable standard of conduct. The general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships. While many Federal laws and regulations place restrictions on the actions of Government personnel, their official conduct must, in addition, be such that they would have no reluctance to make a full public disclosure of their actions. [FAR 3.101-1]

In the course of performing Multiple Award Schedule (MAS) contract audits, the Office of Inspector General (OIG) identified numerous instances where Federal Acquisition Service (FAS) management, based on complaints from contractors, overrode contracting officer determinations without proper justification, pressured contracting officers to extend or award contracts, and reassigned contracts to different contracting officers. In the Oracle contract, the directors did not provide justification for transferring the contract to another contracting officer. In addition, the contracting officer who was replaced stated that the Division Director said, “Oracle is done with you as a CO.” In addition, when the OIG asked why some standard GSA contract language was changed in Deloitte’s contract, the contracting officer stated that Deloitte would not agree to a contract without the revised language.

These instances of FAS management intervention included direct communications between contractors and FAS management, often without the knowledge and participation of the responsible contracting officers.

In at least one case, FAS management interference resulted in a contract with higher prices and less favorable terms than those recommended by the original contracting officers. In other cases, interference resulted in questionable contract extensions.

To more fully assess the extent and possible impact of these cases on the integrity of the MAS contracting process, we reviewed the circumstances related to some of these management intervention actions. This report focuses on three large MAS contracts representing over $900 million in contract sales in calendar year 2011 (CY 2011).

The Federal Acquisition Regulation (FAR) Part 1 includes a “Statement of guiding principles,” as well as the authorities and responsibilities of the contracting officer.
FAR 1.102-4(a) states: "Government members of the [acquisition] Team must be empowered to make acquisition decisions within their areas of responsibility, including selection, negotiation, and administration of contracts consistent with the Guiding Principles. In particular, the contracting officer must have the authority to the maximum extent practicable and consistent with law, to determine the application of rules, regulations, and policies, on a specific contract."

In addition, the following FAR citations outline the authorities and responsibilities of the contracting officer. "No contract shall be entered into unless the contracting officer ensures that all requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met. [FAR 1.602-1(b)] Contracting officers are responsible for ensuring performance of all necessary actions for effective contracting, ensuring compliance with the terms of the contract, and safeguarding the interests of the United States in its contractual relationships. In order to perform these responsibilities, contracting officers should be allowed wide latitude to exercise business judgment."

The concentration of authority in the contracting officer is critical to maintain the integrity of the contracting process. FAR 4.1 requires that, “Only contracting officers shall sign contracts on behalf of the United States.” In addition to the FAR requirement of wide latitude, contracting officers must also complete educational and training requirements before being granted a contracting warrant. The FAR, therefore, vests significant contracting authority and responsibility in the contracting officer and ensures that the contracting process is independent from all impairments.

FAS management intervention undermined the authority and morale of GSA contracting officers. FAS management (1) allowed contractors to circumvent contracting officers when the contractors disagreed with contracting staff determinations, and (2) supported the contractors’ positions, including reassigning contracts to different contracting officers. In each reassignment case, the new contracting officer awarded or extended contracts without properly addressing significant issues identified by previous contracting officers.

Although we have noted instances of improper management interference across several MAS Schedules, the three examples included in this report relate to FAS Schedule 70 Information Technology contracts. We will primarily focus on the actions of the Deputy Director and a Division Director (directors) of the Schedule 70 program.

FAS directors’ interference in the Oracle contract included undocumented discussions with Oracle representatives without the knowledge or participation of contracting staff, directives to the contracting officer to take actions contrary to the contracting officer’s determinations, and reassignment of the contract to another contracting officer. The evidence shows that Oracle officials went over the heads of the contracting staff to FAS management to have contracting staff replaced and to obtain decisions favorable to the company. This intervention usurped the contracting officer’s authority and resulted in the extension of the contract with questionable pricing, terms, and conditions. The Division Director twice intervened by directing the extension of the contract, despite contracting officers’ determinations that extensions were not in the best interests of the United States. The directors’ explanation for extending the contract was that the volume of sales under Oracle’s contract demonstrated a need by federal agencies. However, no examples were provided to demonstrate how government agencies would be negatively impacted if the contract were allowed to expire.

Oracle’s Senior Director of Government Affairs sent an e-mail to the Associate Administrator for GSA’s Office of Governmentwide Policy that stated, “Regarding GSA. We’re having a miserable time with our contracting officer on ge! tting [sic] our schedule contract modified. How would we go about getting a new one?” The GSA official asked Oracle if it was referring to a FAS contracting officer and Oracle responded that it was. Oracle also provided the June 29 letter and stated, “We find it a bit difficult when a CO is telling us which of our job titles do not qualify to be on a schedule. Can fill you in on the rest.”

FAS management intervention in the Carahsoft contract included undocumented discussions with Carahsoft representatives without the knowledge or participation of contracting staff, directives to the contracting officer to take actions contrary to the contracting officer’s determinations, and reassignment of the contract to another contracting officer. This intervention usurped contracting officer authority and resulted in the lengthy extension of a contract with inflated pricing and other terms and conditions unfavorable to the Government. Carahsoft’s MAS Contract Number GS-35F-0131R was scheduled to expire on November 18, 2009, but has been repeatedly extended on a temporary basis and is still currently under temporary extension.

On March 30, 2011, the contracting officer sent an e-mail to the OIG that stated:

The pressure is coming from my boss who has told me he doesn't want Carahsoft to call their Congressman. They have already called their Congressman before, so . . . my Division Director, said if we don't work with them (which means bend the rules that we have in place and make other vendors follow) that they will call the Congressman, and he doesn't want that. I just feel stuck between a rock and a hard place. I don't feel like Carahsoft wants to negotiate . . . they want to dictate. When I try to negotiate, or ask for information, they don't want to provide it, and [the Division Director] has told me they are going to call their Congressman, and it will come right back down to [their] or my lap to fix.

FAS management intervention in the Deloitte contracts included undocumented director discussions with Deloitte representatives without the knowledge or participation of contracting staff, directives to the contracting officer to take actions contrary to the contracting officer’s determinations, and reassignment of the contract to another contracting officer. This intervention usurped contracting officer authority and resulted in the award of a contract with inflated pricing and other terms and conditions unfavorable to the Government.

To me, one of the teachable moments of this report is that when structures are set up to "streamline" procurement, to place efficiency over integrity, issues such as this cannot come to light because there is no competitor in the process who would step in to complain. In this case it is a necessary precondition to having such a mechanism, in my mind, to have an independent and robust review mechanism that the contracting professionals can turn to and trust to "have their back".

While this post is has run on a bit, there is a lot more very interesting and human interaction detailed in the report that makes for valuable insight of what goes on at the coalface of procurement, and I highly recommend a read of it. It's only 15 pages long and you have already read a lot of it here.

Doth we protest too much? Methinks not

Protests delay Air Force contracts for firefighting, war planes

Protests have jumped 87 percent to a record 2,475 in the fiscal year ended Sept. 30 from fiscal 2006, which may be partly due to increased competition over declining awards in recent years. U.S. contracts fell about 4 percent to $512 billion last year from fiscal 2010, according to data compiled by Bloomberg.

The U.S. Air Force was set to deliver aircraft to the Afghan military in April. Its suppliers have only now started building them — after the contract was contested, canceled, re-bid, re-awarded, and contested yet again. Instead, they won’t be delivered until mid- to late 2014, as the U.S. plans to withdraw the last of its combat troops from Afghanistan.

The Air Force contract, with a maximum value of $950 million, was awarded to closely held Sierra Nevada Corp. and Brazilian subcontractor Embraer in December 2011. It has since been protested by Beechcraft. At the U.S. Forest Service, a protest of a contract for up to seven air tankers used to drop flame retardant means the 2013 wildfire season may be over by the time the planes are flying, said a spokesman for Sen. Mark Udall, D-Colo. Sierra Nevada officials had planned to supply the first of Embraer’s 20 turboprop aircraft in April 2013, said Taco Gilbert, a vice president at Sparks, Nev.-based Sierra Nevada, which is providing avionics and instruction under the contract.

For companies such as closely held Beechcraft, securing contracts is key as the Pentagon and other agencies slow spending. The company’s direct military contracts plunged about 68 percent to $331 million in fiscal 2012 from fiscal 2009, according to data compiled by Bloomberg. Beechcraft announced on Feb. 19 that it had emerged from bankruptcy protection. For Embraer, the award is a coup. The company is trying to tap the U.S. military market and expand its defense unit, which produced 15 percent of its 2011 sales.

There’s little the agencies can do to prevent the automatic, 100-day work delays triggered by protests to the U.S. Government Accountability Office, which arbitrates contract disputes. As a last-ditch effort, the government can supersede the stays with an override, which requires the officials to justify an urgent need or show that it’s in the best interest of U.S. taxpayers.

There have been no significant changes to the automatic delays in almost two decades. Congress in 2009 requested that GAO assess whether frivolous protests were rising. The office responded that attempts to discourage those challenges might backfire by adding costs and deterring “good-faith protests.”

Protests can serve as checks and balances to a sometimes opaque and flawed contracting process.

A prime example is the Air Force’s attempt to procure aerial refueling tankers. Chicago-based Boeing eventually prevailed against competitors European Aeronautic, Defence & Space Co. and Northrop Grumman.

Boeing’s first attempt at the $35 billion contract was derailed in 2004 by a scandal involving former top Air Force procurement official Darleen Druyun and then-Boeing Chief Financial Officer Michael Sears. Sears offered Druyun a job in October 2002 during the initial tanker negotiations. She was hired in January 2003. Sears and Druyun were convicted of violating federal conflict-of-interest laws.

Boeing was awarded the contract in February 2011, about 10 years after the Air Force first proposed the tanker-replacement program.

In March, the Air Force chose to override the latest protest from Wichita, Kansas-based Beechcraft, authorizing Sierra and subcontractor Embraer to resume work. Beechcraft has called the override unjustified, saying in a statement that the Air Force’s decision would lead to higher costs to taxpayers. It lost its challenge of the override at the U.S. Court of Federal Claims. The GAO has until June 17 to make a decision on the company’s protest of the contract.

Agency officials rarely use overrides. Even as protests soared, overrides have dropped by almost half to 33 in fiscal 2012 from 62 in fiscal 2006, according to GAO data obtained through a Freedom of Information Act request. Their waning popularity may be a result of increasing scrutiny from the Court of Federal Claims, which has let agencies know that it’s “not going to give them a free pass,” said Daniel Forman, a partner and co-chairman of the government contracting unit at the Washington-based law firm Crowell & Moring LLP.

Sue Payton, who was assistant secretary for acquisition at the Air Force from 2006 to 2009, said she used to build potential delays into the timeline for planning contracts. “Getting the requirements right up front saves you from protest hell,” Payton said.

The most effective way of avoiding challenges, though, is making sure the contracting process is fair and complete from beginning to end, according to current and former military officials. The Army tries to deter protests with contract solicitations that are “thoroughly scrubbed” to make sure they are clear, concise and compliant with federal regulations, said Matthew Bourke, a spokesman for the service. It also works to keep “a very open dialog with our industry partners,” he said in an e-mail.

Courting government business and sovereign immunity

One of the risks of doing business with the government is that you cannot sue them for fault, even if clearly wrong, unless you get its permission to sue. At least with the common law, a sovereign cannot be sued unless it consents to be sued. This is the law of "sovereign immunity". Fortunately, most US jurisdictions do consent, at least in a very restricted manner, to being sued in procurement matters. But you may have to hop on one foot and plea, "may it please the court", if that is one of the conditions the sovereign demands of you.

When the government allows suit, it is said to waive sovereign immunity. And it is a very strict application of legislative, or constitutionally, granted waiver. The right to sue may only be in a very particularly described case (or cause of action), in a particular court, at a particular time, and in a particular manner. Get any of those conditions wrong, and your "right" to sue he sovereign is a mirage.

I must here disclaim much knowledge of such matters. Sovereign immunity is generally in the knowledge of courts and litigators, and I do not litigate. I am a simple minded in house general commercial lawyer. So, this is more in the nature of a "heads up" than any kind of elucidation of the law of this topic. Still, I thought you might want to be aware.

Here I link to two cases, the first from Pennsylvania, and the second from Guam, each dismissing a procurement claim on the basis of sovereign immunity.  In the Pennsylvania case, the issue was which tribunal was required; in the Guam case, the issue was what form of action was required.

The following case is from the Commonwealth (State for those outside the USA) of Pennsylvania, USA. Again, I have no knowledge of Pennsylvanian law. I am guessing, but it appears to me that Pennsylvania had a long standing law relating to government contracting, particularly construction contracting, and that it more recently adopted a more comprehensive law dealing more broadly with government contracting, including for supplies, services and construction. At first blush, it looks somewhat like the ABA Model Procurement Law on which Guam's law is based.

One of the issues presented is "Does the Board of Claims have exclusive jurisdiction to determine claims arising under a contract with the Commonwealth, including the claim that a contract exists?" Please have a read of the whole case at the link and don't rely on my exposition of it; I have selectively cut and pasted and rearranged and paraphrased the opinion, so there is plenty of opportunity here for me to misstate the case. Further there are other issues of importance that I do not touch on.

The background here is that SGI (the appellant) won an RFP under the competitive sealed proposal method of source selection, and the other offeror, GTECH protested, following which the government agency (DGS) cancelled the bid.   Pennsylvania law evidently does not allow a protest of a bid which is cancelled before award. 

SGI brought this action, seeking declaratory and injunctive relief, in the Commonwealth Court's original jurisdiction, and petitioned for a preliminary injunction claiming it had received the contract, or was entitled to receive it, and sought to affirm it. The issue was whether SGI brought a cognizable claim to the Commonwealth Court, or whether it should have been brought before the administrative Board of Claims. The lower court had allowed the non-monetary claim to be brought to the Commonwealth Court rather than the Board of Claims.

The interplay of the older Board of Claims Act terms and the newer Procurement Act terms has to be considered, also, so you must read the opinion to understand that nuance. Such is the tangled web of sovereign immunity.

SCIENTIFIC GAMES INTERNATIONAL, INC. v. COMMONWEALTH OF PENNSYLVANIA, Supreme Court of Pennsylvania, Middle District, Decided March 25, 2013.

The Procurement Code establishes administrative processes to address disputes arising in the procurement setting. On account of the doctrine of sovereign immunity, however, contractors, bidders, and offerors have limited recourse and remedies.

We consider the contours of the Board of Claims' exclusive jurisdiction pertaining to procurement litigation against Commonwealth agencies. More specifically, we are asked to determine whether such jurisdiction forecloses original-jurisdiction proceedings in the Commonwealth Court.

The Procurement Code contains a scheme for resolution of disputes arising in connection with the solicitation or award of a contract, commencing with a pre-litigation process encompassing a protest procedure administered by the purchasing agency and a right of appeal to the Commonwealth Court. For post-award contract disputes, the Procurement Code establishes a claim procedure before the contracting officer, subject to review in the independent administrative board known as the Board of Claims. The Board of Claims is given "exclusive jurisdiction" to arbitrate claims arising from contracts entered into by Commonwealth agencies, except: "(d) Nonmonetary relief. — Nothing in this section shall preclude a party from seeking nonmonetary relief in another forum as provided by law."

Significantly, as well, the Procurement Code "reaffirms sovereign immunity," prescribing, with limited exceptions, that "no provision of this part shall constitute a waiver of sovereign immunity[.]" The only exceptions to this sovereign immunity waiver in the Procurement Code pertain to the protest and claim procedures described above, and to proceedings in the Board of Claims "to the extent set forth in" the chapter pertaining to legal and contractual remedies.

GTECH claims that sovereign immunity has been waived only relative to the protest, claims, and Board-of-Claims procedures specified in the Procurement Code. Thus, for jurisdiction of claims against the Commonwealth to be cognizable in judicial venues, a legislative waiver of sovereign immunity must be found elsewhere to pertain. Appellants observe, however, that neither the Commonwealth Court panel nor SGI has identified any such waiver provision.

SGI adopts the Commonwealth Court panel's position that jurisdiction was proper under Section 1724(d):"On its face, Section 1724(d) preserves parties' ability to invoke any grants of jurisdiction to any other tribunal that would extend to contract actions against Commonwealth agencies for nonmonetary relief."

We begin with the doctrine of sovereign immunity, because we agree with GTECH that it plays an important role under the Procurement Code, which is designedly structured to accord immunity, subject only to specific and limited exceptions.

The constitutionally-grounded, statutory doctrine of sovereign immunity obviously serves to protect government policymaking prerogatives and the public fisc. To a degree, it has been tempered to recognize the rights and interests of those who may have been harmed by government actors, and/or, in the contract arena, to remove a substantial disincentive for private individuals to pursue government contracts.

Understandably, some immunity applications may be distasteful to those who may discern government wrongdoing, or at least unremediated collateral injury to private concerns resulting from governmental policy changes. In light of the constitutional basis for the General Assembly's allocation of immunity, however, the area implicates the separation of powers among the branches of government also crafted by the framers.

Thus, in absence of constitutional infirmity, courts are not free to circumvent the Legislature's statutory immunity directives pertaining to the sovereign.

We recognize that some decisions of this Court may suggest that immunity is not squarely a jurisdictional matter. Notably, at the federal level at least, however, sovereign immunity is considered a core jurisdictional concern. The language of the Pennsylvania Constitution itself seems consistent with such perspective, as it relegates to the General Assembly the power to specify the manner and designate the courts in which suits against the Commonwealth may be brought.
While more general clarification of the relationship between sovereign immunity and jurisdiction may be appropriate in the arena at large, for present purposes, we regard sovereign immunity as a jurisdictional concern vis-à-vis the Procurement Code.

In this respect, we agree with GTECH that — as a matter of jurisdiction — if the General Assembly has not specifically provided by statute for such nonmonetary relief in a claim arising from a contract entered into by a Commonwealth agency under the Procurement Code, then either the claim is within the exclusive jurisdiction of the Board of Claims or it is barred by sovereign immunity.

Based on the above, we conclude that the Commonwealth Court erred in interpreting Section 1724(d) so broadly as to sanction original-jurisdiction actions in a judicial tribunal over nonmonetary claims against the Commonwealth. To the contrary, nonmonetary claims against the Commonwealth are cognizable only to the extent they fall within some "specific[]" waiver or exception to immunity. As explained, no such waiver or exception is found in Section 1724(d) of the Procurement Code, and neither the Commonwealth Court nor SGI has identified any other salient and specific waiver provision within which to bring SGI's claims.

This next case is from Guam, and one in which I had involvement at the administrative review level. An appeal of the administrative review tribunal, the Office of Public Accountability, was taken to the Superior Court, which dismissed the action on sovereign immunity grounds. The Guam Supreme Court upheld the result. (Again, there are other issues for which you need to refer to the linked case report.)

As background, for most of the history of the Guam Procurement Act, many if not most appeals to the court were by way of a writ or either mandamus or review, but also by way of an ordinary civil action. Writs are entitled to an expedited review as a "special proceeding". Civil actions take their turn and grind slowly through the system. Nothing frustrates the public, let alone the government and bidders, more than a long, drawn-out review process, especially when needed services or supplies are at stake. And, of course, big money is usually involved when a case is so important to be taken to court.

In the years leading up to this case, there were Superior Court cases, seemingly inconsistent, dismissing a civil action on the basis that a writ must be sought, or dismissing a writ on the basis that a civil action was required. One decision said, of appeals from the administrative tribunal, that not all such appeals were created equally, and if the appeal involved the merits it should be by civil action, but if procedural rules, then by writ. The appeal in this case was framed as a civil appeal, lodged as a special proceeding, and argued it should be treated as a writ of review.

The Supreme Court ruled the statutory waiver of sovereign immunity required a civil action rather than a writ. It reasoned that Guam law distinguishes between writs and civil actions, and that the waiver of sovereign immunity in 5 GCA § 5480(a) expressly referred to an "action", thus it held a "civil action" was required. It found that, since no parties were named (or necessarily required under a writ of review), the Superior Court appeal failed as a civil action. It held, that, to invoke the waiver of sovereign immunity, the appeal must be brought against the Territory of Guam or other named agency in a civil action.

The case is :

 Town House Dep't. Stores, Inc. v Dep't. of Educ., 2012 Guam 25.

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