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

Canberra outsourcing deal quadruples to $390 million

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Beyond the scope of the literal words of the law

Sunport remodeling audit shows holes in Albuquerque bid process

An internal audit of remodeling work at the Albuquerque airport shows the city skirted violating the letter of its own procurement rules, but raised questions about whether Sunport and administration officials brushed past the spirit of those guidelines.

The audit, completed October 26, said there’s no language in city code or bidding rules that prohibits a decision by the administration of Mayor Richard J. Berry to turn another planned construction project into a lucrative change order for Enterprise Builders Corporation.

The administration told the Albuquerque City Council that the project had been scheduled for a competitive bid. Making it a change order avoided that process and gave Enterprise the sole chance to price out the construction work. The administration began negotiating the cost of the change order before it awarded the contract for the initial work. The work covered by the change order was entirely separate from the original job.

“By treating additional work that nearly doubled the total project cost as a change order rather than a separate project,” the audit said, “the city has caused the overall integrity of the procurement process to be questioned by the appearance of a conflict of interest.”

There is a common law concept in contracting law, usually expressly mirrored in procurement regulations applicable to government contracting, that applies to a change of quantity or price or other essential term which goes "beyond the scope" of the contract or field of competition as unenforceable. In essence, it says to allow such a change is to hold that the original contract did not fully express the agreement of the parties to satisfy contract formation requirements, and/or is unenforceable to unilaterally change the contract under "illusory" contract principles.

This rule is expressed in the federal acquisition rules as well as the American Bar Association's Model Procurement Code and Regulations. New Mexico is, I believe, a state that has adopted the ABA MPC. It is also an accepted principle of government contracting expressed in many different legal and regulatory decisions.

The facts expressed in this article, which I accept at face value for the purpose of this case study, raise high vermilion flags of blatant disregard of the concept.

For another post that similarly highlighted excuses for skirting procurement laws, see See no evil:

In Wyoming, competitive bidding is required by law for major procurements exceeding $7,500 or $20,000 for an elected official. However, by obtaining a bid waiver, officials can skirt the requirement. And, as the records search showed, they often do. Regardless, officials maintain that there is nothing nefarious about how often the waiver loophole is utilized.

In a statement, Gov. Matt Mead said his administration follows “the spirit and letter” of the law and noted that the bid waivers are publicly posted online.

The spirit, and often the letter, of the procurement law might be found in the principle of limiting the scope of the contract, or field of competition when dealing with the solicitation process, if one were to look.

Mastering "master contracts"

Park board 'could have done things differently,' Budig says

The Cincinnati Park Board has been using existing city contracts intended for routine maintenance to do major projects for “as much as a decade,” Park Board Chairman Otto Budig said in an interview on Thursday.

Such “master agreements” have become a point of contention after City Manager Harry Black and Patrick Duhaney, the city’s chief procurement officer, revealed on Tuesday that the parks department had not done a fresh round of competitive bidding when it built Smale Riverfront Park and instead funneled most the work to vendors with the already-existing contracts. Those contracts are rebid periodically, Budig noted. [The periodicity was not mentioned in the article.]

That practice, Black and Duhaney said, potentially put the city at financial risk because the contractors did not have the performance bonds required in the city’s code. It has since been halted, they wrote. Asked whether the practice extends back through the past several city administrations, Budig said, “There’s no question about that. The park board had been working successfully in dealing with these projects that had come up from time to time.”

“The board was informed, as this project moved along, the various aspects that were being completed. I don’t think any of us had questioned whether the staff had taken this to the bidding floor or whether it was a continuation of a process that had taken place for some time.” “If we were to follow that (bidding) process to its conclusion, with the inevitable pauses that occur in the city framework … we would have ended up with a mudhole for the All-Star Game,” he said.

Park board members did not know that the Smale work was being procured using the master agreements, said Budig. “It was not necessarily an error of commission but an error of omission,” Budig said. [An error is an error; negligent actions have the same effect as negligent omissions. This is disingenuous.]

And in a related article: Park director’s fate up to board following allegations

All but $519,118 of at least $15 million in construction work on the park was done by using existing city contracts with firms that were intended for ongoing routine maintenance and repair of city buildings, according to Chief Procurement Officer Patrick Duhaney’s memo. The contracts are known as “master agreements.”

“[T]hey were not structured for or put in place for new construction or renovation work of the scale and scope of the SMR Park project,” Duhaney wrote. “[T]he city is inadequately protected with respect to the performance bonds in place for Smale Riverfront Park." The 12 contracts used to build the park came with about $1.7 million in performance bonds when at least $15 million in work was done, leaving a little more than $13 million in work unprotected by bonds.

On the parks’ website a statement attributed to the Cincinnati Park Board maintained the park board “followed city purchasing regulations by using existing competitively bid master agreements previously awarded by the city. “The board did extensively use city ‘master agreements,’ which are periodically awarded by the city for a range of construction, repair and maintenance services, to build parts of SPR (Smale Riverfront Park)," the statement says. “[T]hese contractors had previously been vetted and approved by the city as being the most advantageous and the best price for their services.”

Mayor John Cranley blamed the situation on the previous city manager, Milton Dohoney. “There was a culture of using these master service agreements,” Cranley said. “We don’t know the extent to which all of the other departments have done this. Clearly, it was wrong. We put an end to it in the middle of last year.”

Cranley added that he believed the park board members were "shocked" to find out about the department’s practices. "I’m confident they did not know,” Cranley said.

Here on Guam, an analogous form of "master agreement" has been revealed.

FestPac faces financial challenges less than 70 days away

With less than 70 days until the start of the Festival of Pacific Arts, the amount of community donations for the cultural event is about $1.7 million short of projections. Nathan Denight, FestPac committee chairman, said the event is short of the expected funding. A budget from 2013 showed the event would get $2 million in donations, but it currently has about $300,000 — $1.7 million short, he said. Sen. Tina Muna Barnes, D-Mangilao, the committee’s finance chairwoman, said the government of Guam has committed $5 million to the event through various legislative bills.

Rose Ramsey, the festival’s director, said the priority for funding would be for the main FestPac area of Paseo and the schools housing delegates. Monica Guzman, Council on the Arts and Humanities Agency chairwoman, which is overseeing the programming of the event, asked Ramsey to release funding in a timely matter. “Well, it took you weeks to submit your budget,” Ramsey responded. Guzman said price quotations have been submitted, but the amount of time the approval process takes for the release of funds is too long. “I don’t know what to do. We need the money,” she said.

And one lawmaker is concerned that festival organizers have been awarding large contracts for services without going through a procurement process. Sen. Rory Respicio, D-Agana Heights, brought up concerns over the contract with Adztech, the event’s coordinator, and whether or not local procurement law is being followed. “This is taxpayers’ money,” he said. “It’s like you found a way to circumvent the procurement law,” he said.

Denight said the Office of the Attorney General approved the request for proposals for the contract with Adztech and went through the procurement process with CAHA so it shouldn’t be an issue. However, the committee said, it would talk to Adelup’s legal counsel or the AG’s office on the issue to get an opinion.

FestPac faces another hitch

According to the Adelup officials, during their meeting with the OAG, the attorney general stated that her office had reviewed the events manager procurement and contract and approved both. “She also stated that the contract allows for the private contractor to procure needed goods and services without going through additional government procurement,” a statement from Adelup said. But yesterday, the AG said the contract approved by her office was limited to the $800,000 that was negotiated with the event manager.

The AG also stressed that procurement beyond this limitation could not be conducted through the contract with the events manager.

A.G. Reccomends That GVB Handle Millions in FESTPAC Procurement

Last week the A.G. told the FESTPAC committee and the Department of Chamorro Affairs that they could not funnel some $4.2 million dollars in tourist attraction funds through a company that won the bid to be the FESTPAC event coordinator because that company's contract was only for $800 thousand dollars.

The FESTPAC money was given to the Department of Chamorro Affairs who awarded the $800 thousand dollar event coordinator contract to Adztech. The problem is they need to spend some $4.2 million dollars for FESTPAC. But GVB's board will have to meet to decide whether or not they will handle these funds. "So tomorrow is our board meeting. So I’ll bring up the OPA and the A.G.'s suggestion that these funds come back to GVB," said FESTPAC Committee Chairman Nate Denight.

It's not yet certain if GVB will take on this responsibility however as they turned the funds over to the Department of Chamorro Affairs at the recommendation of their auditors Deloitte and Touche. If the money does go back to GVB Denight says they will likely use their existing event coordinators RIMS and Tropical Productions.

It looks like Mr. Denight has been taking taking a page from the Cincinnati Park Board's playbook if he intends to use existing contracts to bolt on to them the FestPac project, or the events management contract.

There are many issues involved here, chiefly, making changes to a contract and solicitation beyond the scope of the contract and the field of competition. One Guam Superior case, for instance, disallowed an extension of an existing contract on the ground that "the change results from side stepping the purpose and protection of the bidding process". (L.P. Ganacias Enterprises, Inc., dba Radiocom vs. GIAA and Guam Cell Communications, CV 1787-00.)

I have not looked deeply into this, but there is another issue that seems in need of resolution. The FestPac contract for the events manager was made through the auspices of the Department of Chamorro Affairs, whose purposes and powers are set out in its enabling statute, 5 GCA Chapter 87. 

Although promoting FestPac seems fairly enough to fall with the limited purposes of the DCA (5 GCA § 87103), it does not clearly appear that the powers assigned to DCA (5 GCA § 87104) include the power to acquire services.

Among its laundry list of powers, the acquisition powers given to DCA include the specific powers: to acquire real property (§ 87104(f)); to acquire any property of historical or cultural importance (§ 87104(g)); to construct, equip, operate and maintain buildings and equipment (§ 87104(l); to acquire any tangible personal property (§ 87104(t)); and finally, to acquire any intangible personal property (§ 87104(u)). In short, DCA is given express authority to acquire supplies and construction.

But procurement under Guam's law has a broader scope. Procurement law is also intended to apply to the expenditure of government funds via a contract for the acquisition of services. (5 GCA §§ 5004(b) and 5030(o))  And, there is no express power given to DCA to acquire services in its enabling statute. It has the power to "employee persons to provide professional, clerical and technical assistance", subject to the civil service law (§ 87104(j)), but no express power to contract to acquire such services from non-employees.

It does not appear that DCA had the authority necessary to procure the events manager in the first place.  And if it simply delegates its power to spend FestPac funds to GVB, or anyone else, the power of delegation is limited to transferring only such power as the person delegating possesses. DCA cannot create the procurement power to acquire services by delegation.  And, it appears at first blush that GVB does not have the express power to acquire services, either.  (12 GCA § 9105.)

But, so what, right? Maybe, but consider the ENFORCEMENT OF PROPER GOVERNMENT SPENDING Act, 5 GCA Chapt 7.

Any officer, agent, contractor, or employee of the Executive Branch of the government of Guam who is charged with ... the spending of money belonging to the territory of Guam, including the Governor and Lt. Governor of Guam, stands in a fiduciary relationship to the people of Guam in regard to the management of public money. (§ 7102)

Any taxpayer who is a resident of Guam shall have standing to sue the government of Guam and any officer, agent, contractor, or employee of the Executive Branch of the government of Guam for the purpose of enjoining any officer, agent, contractor, or employee of the Executive Branch of the government of Guam from expending money without proper appropriation, without proper authority, illegally, or contrary to law, and to obtain a personal judgment in the courts of Guam against such officers, agents, contractors, or employees of the government of Guam and in favor of the Government of Guam for the return to the Government of Guam of any money which has been expended without proper appropriation, without proper authority, illegally, or contrary to law. (§ 7103)

The masters of spending government funds through acquisition contracts need to first master the laws of procurement.

The tenacity - and audacity - of incumbent legacy

Although not part of the ABA Model Procurement Code which is Guam's model for its own Procurement Act, 5 GCA 5210, which summarizes the various authorized procurement methods, says "(a) Unless other wise authorized by law, all territorial contracts shall be awarded by competitive sealed bidding [except as authorized by other specified procurement methods. (b) Nothing in this Section requiring competitive bidding shall prohibit the development of specifications which require compatibility with existing supplies, equipment or data processing systems."

On the face of it, such compatibility seems rational enough. The Guam drafters of this provision thought so, commenting "In the past, some problems have arisen due to the requirement for competitive bidding for equipment which should have been, but was not, compatible with existing equipment. The reason alleged was that the lowest bidder had to be chosen. Of course, the proper writing of specifications could have prevented the problem and Subsection (b) makes clear that compatibility may be a legitimate part of the specifications."

Fortunately, the provisions on specifications, in Article 4 of the procurement law, is not part of "this Section", so are not, on the face of the provision, restricted by it, and the provisions of Article 4 are replete with requirements for competition, saying nothing of compatibility. This become important when one stops to consider that compatibility is a substitute for legacy, old school technology and creative destruction.

Which brings me back to yet another Motorola case, this one decided by the federal GAO, related to Motorola's lock on the radio communications market. As always, read the cases and articles in the original, and don't rely on my creative destruction of them in my rendering.

Matter of: Harris IT Services Corporation B-411699; B-411796, October 2, 2015

Harris IT Services Corporation protests the terms of two requests for proposal issued by the Department of Justice, Federal Bureau of Investigation (FBI), to acquire land mobile radio (LMR) equipment through the issuance of a single delivery order under each RFP. Harris maintains that both of these RFPs improperly contemplate the issuance of a single, second-tier, indefinite-delivery, indefinite-quantity (IDIQ) instrument (labelled by the FBI as a delivery order), under which the agency will place subsequent delivery orders for this equipment without providing Harris a fair opportunity to compete for those orders, in violation of the statute authorizing the use of multiple-award IDIQ contracts. Harris also argues that the RFPs contemplate the issuance of orders that potentially exceed the scope of the underlying multiple-award IDIQ contract program, and include unduly restrictive specifications.

We sustain the protests.

Both solicitations have been issued under the Department of Homeland Security’s (DHS) tactical communications (TacCom) IDIQ multiple award contracts program and competition has been limited to concerns that previously have been awarded contracts under the DHS TacCom program. The underlying DHS TacCom multiple award IDIQ contract program solicitation contemplated the award of IDIQ contracts for a full array of communications equipment and services ("commodity products, infrastructure and services"). "DHS seeks to establish a multi-vendor approach to implementing fully interoperable solutions to support mission critical, public safety communications." In effect, the equipment to be purchased using the TacCom program is required to employ open systems architecture so that each contractor’s equipment will “interoperate” with equipment manufactured by other concerns.

The current RFPs represent the FBI’s second attempt to meet its requirements for the equipment being solicited. The first attempt sought the award of a sole-source contract for these requirements, and supported its solicitation with a justification and approval ("J&A"; aka "determination")) document maintaining that only one source--Motorola--was capable of meeting its requirements. After protests, this approach was abandoned.

This is the second attempt. RFP 68 is for the acquisition of “subscriber base radio” LMR equipment and is valued at approximately $200 million. RFP 81 is for the acquisition of infrastructure LMR equipment and is valued at approximately $135 million. Both RFPs contemplate the issuance of what the FBI characterizes as a single delivery order for a base year, with 4 one-year options.

The Federal Acquisition and Streamlining Act of 1994 (FASA) provided agencies with express authority to award task and delivery order type contracts. Broadly speaking, the statutory and regulatory framework favors the award of multiple task or delivery order contracts for the same requirements, rather than the award of a single task or delivery order contract for an agency’s requirements.

The drafters of this federal law said the use of task order contracts for advisory and assistance services and establishing a requirement that solicitations for such contracts shall ordinarily provide for multiple awards and for fair consideration of each awardee for task orders issued under the contracts; indiscriminate use of task order contracts for broad categories of ill-defined services unnecessarily diminishes competition and results in the waste of taxpayer dollars; in many cases, this problem can effectively be addressed, without significantly burdening the procurement system, by awarding multiple task order contracts for the same or similar services and providing reasonable consideration to all such contractors in the award of such task orders under such contracts; and, all federal agencies should move to the use of multiple task order contracts, in lieu of single task order contracts, wherever it is practical to do so.

[Similarly, see Guam procurement regulations: 2 GAR 3122(b): A multiple award is an award of an indefinite quantity contract for one or more similar supplies or services to more than one bidder or offeror when the territory is obligated to order all of its actual requirements for the specified supplies or services from those contractors. A multiple award may be made when award to two or more bidders or offerors for similar products is necessary for adequate delivery, service, or product compatibility.]

The statutory and regulatory framework contemplates that, where an agency is issuing task or delivery orders using a multiple-award IDIQ contract program, it is not required to engage in full and open competition, and may instead confine its competition to firms that have been awarded an underlying multiple-award IDIQ contract. However, those same provisions require agencies to give each contractor that has been awarded a contract a “fair opportunity” to be considered for each task or delivery order in excess of $3,500, and to provide for “enhanced competition” for orders in excess of $5.5 million. Finally, each task or delivery order must specify all of the services to be performed or all the property to be delivered under the order.

Harris first argues that the RFPs impermissibly call for the issuance of what amounts to IDIQ instruments to the successful contractor for a 5-year period. The protester maintains that the RFPs effectively remove the agency’s requirements from further competition for an extended period and amount to an impermissible “downselect” to a single vendor. Harris maintains that this is inconsistent with the terms of the underlying TacCom contracts, as well as applicable statutes and regulations which, the protester maintains, require the FBI to permit all of the eligible TacCom vendors to compete for every delivery order that the FBI may issue to meet its requirements.

The FBI explains that it elected to take this approach to meet its ongoing and future, geographically diverse, requirements in the most streamlined manner possible. According to the agency, its approach will allow it to avoid individually having to compete potentially dozens of delivery orders for varying quantities of equipment over a 5-year period. According to the agency, the latter approach--competing potentially dozens of separate delivery orders--“would place an enormous administrative burden on the FBI.” Legal Memorandum at 5. The agency states that its approach will result in substantial savings of both time and money over the contemplated 5-year period of the delivery orders.

As set forth below [sorry: you're going to have to read the case decision], we conclude that the FBI’s solicitations contemplate the award of what, in effect, would amount to single, multi-year, second-tier IDIQ instruments that are not permitted under the requirements discussed above. The FBI’s contemplated award of a 5-year second-tier IDIQ instrument to a single contractor is inconsistent with the requirements of the applicable statutes and FAR provisions regarding what constitutes a “delivery order.” Those requirements are, at a minimum, that the delivery order be defined as to quantity, place of delivery and schedule.

[Compare Guam's definition of an "incremental" contract, which is distinct from the "multiple award" contract mentioned earlier, in 2 GAR 3122(a). An incremental award is an award of portions of a definite quantity requirement to more than one contractor. Each portion is for a definite quantity and the sum of the portions is the total definite quantity required. An incremental award may be used only when awards to more than one bidder or offeror for different amounts of the same item are necessary to obtain the total quantity or the required delivery. The right to make such an award and the criteria for award shall be stated in the solicitation. Thus, multiple awards, for indefinite quantities, and incremental awards, for definite quantities, are limited to cases where awards to more than one contractor are necessary to obtain the total quantity of the required delivery.]

In essence, the two orders contemplated under these RFPs will deprive all the other TacCom contractors of a fair opportunity to compete for each of the delivery orders that will be issued in the future, despite their aggregate value of approximately $335 million. We therefore sustain this aspect of Harris’s protest.

Harris also maintains that the RFPs impermissibly include a period of performance that exceeds the period of performance of the underlying TacCom contracts. In this connection the FBI’s RFPs contemplate the issuance of delivery orders until August 31, 2020 (whereas the TacCom contracts only allow for issuance of delivery orders until March 25, 2019), and contemplate fulfilling those delivery orders by August 31, 2021 (whereas the TacCom contracts contemplate fulfilling all delivery orders by May 25, 2021). The FBI notes in connection with this allegation that both RFPs incorporate the terms of the underlying TacCom IDIQ contracts and provide that, in the event of a conflict, the terms of the underlying TacCom contracts control. According to the agency, to the extent its RFPs specify a period of performance longer than that contemplated under the TacCom contracts, the terms of the TacCom contracts supersede the terms of its RFPs.

We agree with Harris that the RFPs seek impermissibly to increase the scope of the underlying TacCom contracts. As noted, the agency does not deny that its contemplated delivery schedules vary from, and increase the period of performance beyond, the terms of the underlying TacCom contracts. Rather, the FBI merely asserts that the terms of the TacCom contracts will supersede the inconsistent terms of its solicitations. However, the fact remains that the RFPs expressly contemplate a period of performance longer than the period of performance included in the TacCom contracts.

In addition, and more fundamentally (as discussed above), neither RFP includes a maximum quantity, but, rather, specifies only an estimated quantity. As we conclude above, there essentially is no limit on the quantities the agency could order under the second-tier IDIQ instruments contemplated by the RFPs. It follows that the agency could order quantities that exceed not only the estimated quantities specified in the RFPs, but also the maximum value of the underlying TacCom contracts. In view of the foregoing, we conclude that the FBIs RFPs contemplate delivery orders that potentially are beyond the scope of the underlying TacCom contracts. We therefore sustain this aspect of Harris’s protest.

As a final matter, Harris’s protests that certain specifications are unduly restrictive and are designed to result in the award of the delivery orders to Motorola. Because we recommend below that the agency cancel the RFPs and consider alternatives to how it intends to meet its requirements, we need not consider these allegations in great detail. Nonetheless, we discuss several obvious solicitation requirements that even the agency concedes call for Motorola-specific products.

RFP 68 requires that all radios provided be compatible with a standards based radio system called “SmartNet.” In a similar vein, RFP 68 calls for providing radios that can be reprogrammed using “over-the-air-rekeying” when used with a “key variable loader.”

Harris maintains that these requirements are proprietary to Motorola and that, for all intents and purposes, they limit competition under RFP 68 to products made by Motorola. Harris also maintains that specifying such requirements is inconsistent with the overarching requirement of the TacCom contracts to provide equipment that is interoperable and that meets the P25 open architecture standards.

The agency does not challenge Harris’s fundamental assertion, but nonetheless maintains that these requirements are necessary in order for the radios that it acquires to meet the agency’s needs for data security, and in order for them to be useable with state and local law enforcement entities that still use legacy radio systems that depend on the Motorola-proprietary standards specified.

Where an agency seeks to issue a task or delivery order to acquire items peculiar to one manufacturer, it must execute a J&A in support of its specification for the task or delivery order, unless it has otherwise executed a J&A for other than full and open competition. Here, the agency concedes that it has specified Motorola-specific requirements. However, the record does not include the required J&A, and the agency has offered no explanation regarding its failure to execute such a J&A.

The agency previously attempted to meet its requirements on a sole-source basis, but concluded that the J&A prepared in connection with that acquisition was inadequate to support its attempted sole-source acquisition of Motorola products. Here, the agency again is attempting to acquire Motorola-specific products, but has not executed the required J&A, or even, for that matter, explained or demonstrated why it is not required to execute the J&A. Under the circumstances, we conclude that the RFPs include specifications for products that are specific to Motorola, and that the agency has failed to justify its inclusion of such requirements. We agree with Harris that the agency’s attempt to acquire Motorola-specific equipment appears fundamentally inconsistent with the underlying interoperability objective of the TacCom IDIQ contract program.

We recommend that the FBI cancel the solicitations.

Contract changes to accommodate changes in economic conditions in delayed performance require new procurement

This case from England involved a Development Agreement made between a local council and a developer. As usual, I only give a partial report of the case, and you must read it in its entirety at the link for context, accuracy and fullness (there is much of interest and importance left out here). If you would like a quicker analysis of it, read this article: Winchester property development case highlights changeable 'material variations' test under procurement rules.

The Council, as owner of various freehold and leasehold sites in the city centre, entered into a "Development Agreement relating to a site at Broadway/Friarsgate Winchester" with Thornfield Properties (Winchester) Limited (the Developer) on 22 December 2004. On 9 February 2009, the Council granted planning permission for the redevelopment scheme by the developer designated in 2004, but thereafter, due to economic conditions affecting the concerned area, the original developer went into administration and the project was ultimately sold to a third party.

The Development Agreement WAS varied on a number of occasions, namely on 22 October 2009, on 10 December 2010 and on 30 January 2014, and many changes were made from the original agreement, making it more profitable to the developer. The variations to the development agreement, inter alia, allowed the Council to request that the affordable housing be provided off-site or by way of a commuted sum. The parties to the Development Agreement had also agreed in an exchange of letters that the Council would not take advantage of its ability to terminate the Agreement.

Restrictive procurement practices by public bodies (in particular, entering into contracts only with preferred domestic contractors) does not allow for fair competition between firms from other member states and may result in market distortions. The Council ought to have complied with the procurement requirements, but did not do so, in reliance on mistaken legal advice. Instead it entered into an agreement with Thornfield Properties because it had a pre-existing commercial relationship with Stagecoach to redevelop its bus station on the site. No other contractors were considered. It is now too late to challenge the lawfulness of the Development Agreement on this basis.

it is agreed that the question whether or not the variations to the Development Agreement were so substantial as to require a new procurement procedure is to be determined by reference to the case law.

The leading textbook, Arrowsmith: The Law of Public and Utilities Procurement (3rd ed.), sets out the principles at paragraph 6.267:

"Another issue to consider is when a proposed extension, renewal or modification to an existing arrangement amounts to a new "contract" under the 2004 Public Sector Directive and Public Contract Regulations 2006. When this is the case a contracting authority may not simply place the work with the existing contracting party, but must award it using a new procedure under the directive/regulations. This issue is not currently dealt with by explicit provisions in the directive/regulations. However, the principle that amendments to an existing contract may be regarded as a new contract needing a new procedure has been established and elaborated in the case law of the CJ, most notably in the case of Pressetext.

A key reason for this principle relates to the purpose of the legislation of ensuring that work is awarded in accordance with transparent procedures to prevent discrimination. If the contract awarded is later changed, there is a risk that such changes are made for discriminatory motives (for example, to award the firm more work or allow it to operate under easier terms) and that national firms, in collusion with the contracting authority or otherwise, may be able to obtain an advantage in the award procedure by tendering favourable terms in the expectation that they will be changed after conclusion of the contract. Changes to concluded contracts can also potentially undermine any policy that contracts should be undertaken by the best tenderer in order to develop the single market. If this is considered as an objective of the directive, rules to limit changes to concluded contracts are also appropriate from this perspective, on the basis that the existing contracting partner may not be the best firm to perform the revised contract. Changing a contract also potentially violates the equal treatment principle that can support such objectives. From a national perspective, changing a contract without a competition for the revised contract raises value-for-money issues as the change is made without considering whether other economic operators can offer value for money and without the terms being fixed under the pressure of competition."

The leading case is Case C-454/06 Pressetext Nachrichtenagentur GmbH v. Republik Österreich [2008] ECR I-4401. The CJEU held:

34. In order to ensure transparency of procedures and equal treatment of tenderers, amendments to the provisions of a public contract during the currency of the contract constitute a new award of a contract within the meaning of Directive 92/50 when they are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract (see, to that effect, Case C-337/98 Commission v France [2000] ECR I-8377, paragraphs 44 and 46).

35. An amendment to a public contract during its currency may be regarded as being material when it introduces conditions which, had they been part of the initial award procedure, would have allowed for the admission of tenderers other than those initially admitted or would have allowed for the acceptance of a tender other than the one initially accepted.

36. Likewise, an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered. This latter interpretation is confirmed in Article 11(3)(e) and (f) of Directive 92/50, which imposes, in respect of contracts concerning, either solely or for the most part, services listed in Annex I A thereto, restrictions on the extent to which contracting authorities may use the negotiated procedure for awarding services in addition to those covered by an initial contract.

37. An amendment may also be regarded as being material when it changes the economic balance of the contract in favour of the contractor in a manner which was not provided for in the terms of the initial contract.

Thus, the test to be applied is whether the variations to the contract "are materially different in character from the original contract and, therefore, such as to demonstrate the intention of the parties to renegotiate the essential terms of that contract" (paragraph 34). Any material difference has to be assessed by comparing the contract as originally entered into and the contract after variation.

Both counsel agreed that the likelihood of other economic operators bidding for the contract, had it been advertised as amended, ought to be considered as part of the test in paragraph 34 of Pressetext, reflecting its underlying purpose of ensuring equal opportunity for economic operators. Both counsel agreed that the reference in paragraph 35 to "allowing" other tenderers to be admitted or tenders accepted should be broadly construed. It could include a range of possibilities, for example, where operators had been deterred from applying by the less favourable terms but were interested in applying under the improved terms, or where threshold conditions had been relaxed, enabling more operators to qualify.

Contrary to Mr Elvin's submission, I consider that an increase in potential profitability for the economic operator can be a material variation for the purpose of the Pressetext test. Although paragraph 37 can be read as limited to the economic balance as between the contracting parties, where (as here) the court is considering a development contract or a concession contract, the commercial value will be judged by the potential profits to be obtained from third parties, not the awarding authority. The financial terms between the parties remain relevant but they are not the only consideration.

Mr Elvin submitted that, in order to succeed, the Claimant had to identify other economic operators who would have wished to bid for the contract, and would have had a realistic prospect of success. He pointed to the use of the "would" in paragraph 35 of Pressetext rather than "might". He also relied upon the judgment of Andrews J. in Edenred, at:

"There is much to be said for the approach taken by Coulson J. [in AG Quidnet Hounslow LLP v Hounslow LBC [2012] EWHC 2639 (TCC)] of requiring evidence that someone beside the original bidders would have bid for the contract, because the EU procurement rules are designed to protect against real, not hypothetical distortion of competition. However, I do not need to decide the point, because even if one approaches the question on the basis that a hypothetical bidder has been shut out of the bidding process by the absence of reference to the subject-matter of the proposed amendment, it seems to me that in principle that must necessarily be a realistic hypothetical bidder – i.e. the evidence must demonstrate that there would be someone else who would have been ready, willing and able to bid and who would have wished to have done so if the opportunity had been made clear, but who did not do so because it was not."

Mr Palmer did not object to the requirement of a "realistic hypothetical bidder" but he submitted that Pressetext and other CJEU cases on the procurement Directives did not require firm evidence of an alternative potential bidder in order to satisfy the test in paragraph 34 of Pressetext. In my view, Mr Palmer's analysis is correct.

I agree with Mr Palmer's submission that Andrews J.'s approach to the evidence reflected the particular facts in Edenred, where there had recently been a full tendering process and so the unsuccessful bidders and those who had expressed an initial interest could all be identified. The Claimant in this case is in a more difficult position, as no tendering process has ever been carried out, and so he cannot identify any actual or potential bidders who were deterred or disadvantaged. The requirement suggested by Mr Elvin would have the undesirable consequence of placing a Defendant who fails to comply with any procurement requirements in a better position than one who does.

In R (Law Society) v Legal Services Commission [2007] EWCA Civ 1264, the Court of Appeal was concerned with legal aid contracts which had been awarded by the Legal Services Commission to solicitors without a competitive bidding process. The Court concluded that the contract did not meet the requirements of transparency under the 2004 Directive and the 2006 Regulations. Lord Phillips LC said, at [80]:

"We consider that the principle of transparency will not be satisfied in the present context if uncertainty as to the nature and effect of the amendments that may be made deters, or is liable to deter, some potential service providers from entering into the contract."

Thus, the court made its assessment, at least in part, on the basis that the amendments deterred or were liable to deter potential service providers.

In my judgment, the task of the court is to apply the test in Pressetext on the evidence before it. Evidence of actual or potential bidders may assist but it is not a pre-requisite. Here the Claimant relies on evidence of the commercial appeal of this development contract to potential developers, and the significantly more favourable terms offered in 2014, compared with 2004. In my judgment, the Claimant has to satisfy the Court, on the balance of probabilities, that a realistic hypothetical bidder would have applied for the contract, had it been advertised, but he is not required to identify actual potential bidders.

The evidence demonstrates that the variations to the Development Agreement contract were made because the Council accepted the Developer's representations that the project was not viable on the original contractual terms, and therefore it would not proceed. It is evident that, in order to save the project, the parties did re-negotiate the terms of the contract. Although I recognise that the subject-matter of the contract remains the same, in my view, the varied contract is materially different in character to the original contract.

The most significant difference is that, overall, the varied contract is considered by the contracting parties to be viable for the Developer, whereas they consider the original contract to be unviable. Overall, I consider that, had this variation been in place in 2004, the contract would have been of significantly greater commercial value to potential bidders. A potential bidder could not have anticipated this change; nor was it anticipated or provided for in the contract. In my view, this is a major change to the contract.

The discussion of the issues in this case would be familiar to most students of procurement on the other side of The Pond, which is an odd statement to make by me, being entirely out in the middle of The Other Pond. The need for a new procurement here was related to changes beyond the scope of the contract ("an amendment to the initial contract may be regarded as being material when it extends the scope of the contract considerably to encompass services not initially covered") and outside the field of competition ("the likelihood of other economic operators bidding for the contract, had it been advertised as amended, ought to be considered"), two familiar concepts here.

I do, though, take small issue with the statement in the article quoted at the beginning of this post, that "changes to the economic viability of property development schemes over time could influence whether re-procurements by local authorities are necessary when changes to property development contracts are made to account for the changed economic conditions". It must be considered that the primary, if not only relevant, focus is on the nature of the changes actually made to the contract, not the cause (economic viability of the property development schemes over time).

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

Apologies to Arlo Guthrie.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Small service contractors deserted by OASIS?

Is OASIS too complex?

GSA released the RFPs for the next-generation One Acquisition Solution for Integrated Services (OASIS) contract on July 31. The contract was designed to be a one-stop management and consulting, professional engineering, logistics, and finance services contracting vehicle that would provide more uniformity and less redundancy.

GSA said it worked closely with industry to draft the RFPs. But, in doing all that spade work, some industry stakeholders said the GSA produced RFPs that are innovative but possibly a little too complex. Roger Waldron, president of the Coalition for Government Procurement, cited a vendor-scoring table as an example of needless complexity. While providing detailed criteria that could be useful, its 15 categories of evaluation that use 40 specific questions to award points for favorability might be too much information for some to digest.

On the other hand, said Alan Chvotkin, executive vice president and general counsel at the Professional Services Council, the table provides a "self-test, or open book test for companies" that want to bid on the contract. "It will eliminate some of the mystery around their actual capabilities." With various pools of potential providers, the selection and contracting process isn't as straightforward as ordering off of a schedule, Chvotkin said. "Ordering agencies will have to do some work" in drawing up contracts under OASIS. "There are some advantages over ordering off a schedule, but this is not the easiest multiple award vehicle to work with."

Larry Allen, president of Allen Federal Business Partners, predicted the detailed responses would serve a useful purpose: they'll "make it obvious to companies whether they should bid or go no-bid."

Procurement controversies -- Estonia

Estonia has an interesting public procurement law, delegating almost all details to a regulatory scheme. See the unofficial English translation here. Read that (pretty short and sweet) and you too will know everything I know about the subject.

I do not write to explain or opine on Estonian or any other law, only to use factual situations, as they appear in the articles cited and then cut, paraphrased and rearranged to my liking, as "teachable moments" to compare and contrast Guam's ABA Model Procurement Code based laws and regulations. So, turning now to the controversy du jour,

Furniture maker accuses Tax Board of bias in public procurement

Estonian furniture maker AJ Tooted is disputing the public procurement for supplying furniture for the new main office of the Tax and Customs Board. AJ Tooted won the first procurement held in March submitting the cheapest offer of 800,000 euros.

Then, in May, the Tax Board’s work environment council inspected the existing working conditions and found that the workplaces of several employees did not comply with ergonomic requirements.

By the end of May, the Tax Board had cancelled the first procurement and announced a new call to tender. AJ Tooted has now disputed the decision to cancel the first procurement.

Last week the dispute panel of public procurement announced that the tender documents of the second tender were partly illegal because they were too specific. Among others, the Tax Board is demanding that the frame must be made of 12mm birch, that the seat must be exactly 700 mm wide and that the manufacturer must submit compliance certificates.

The only furniture maker that complies with such requirements is Estonian furniture giant Standard that, for instance, is the only one who has certificates required by the tax board. Other companies don’t have not obtained compliance certificates for tailor-made furniture. A representative of the tax authority said that such strict requirements were necessary so that all bidders can understand them in the same way.

I have to say I am a bit puzzled by the facts stated. Is AJ Tooted, for instance, complaining that the specifications were too narrowly drawn, prejudicing its bid or award? Or is the Tax Board saying it wants to rebid the contract because it got the specs all wrong to begin with? Either of these scenarios, or others that may be speculated, offer analytical exercises.

For purposes of this post, though, I just want to make a simple assumption, even if it is not the situation they're facing in Estonia. I will assume that AJ Toot, who won the award, is complaining about the cancellation of the bid because the furniture "giant" Standard is behind the cancellation of the award. And I will assume that its furniture did not in fact meet the meet the "ergonomic requirements" of the work environment council.

What I point to under this scenario is the difference between a solicitation dispute and a contract dispute, and of course, I discuss this in the context of Guam's law, not Estonia's. The basic rubric is, can a competing bidder complain, after award, that the winning bidder did not deliver the goods the solicitation documents specified?

Guam law would usually say no. It distinguishes between disputes concerning the method of source selection, the solicitation or the award of a contract (5 GCA § 5425) from a contract dispute (§ 5427). As a general rule, competing bidders may be aggrieved and protest the solicitation, but have no standing in a contract dispute. Thus, if the contractor did not provide precisely the thing that was specified, that is an issue between the government and the contractor alone, as the only two parties who are "privy" to the contract. Under contract law generally, the government has the right to accept the nonconforming goods, but in doing so reserves the right to claim damages arising from the nonconformity.

But the situation could be different if the facts are altered: it depends on the degree of non-conformance. If the goods the government accepts are materially "beyond the scope" of what was solicited, the acceptance of them relates back to the integrity of the process, and may be treated as a fault of the solicitation process. 

Here, AJ Toot was not prejudiced by the overly restrictive specifications, and it would be unfair to penalize it for providing, substantially, what it was the government ordered. 

If the government nevertheless decides that it cannot continue to use the equipment its own specifications required because of the ergonomic requirements, it should first elect to terminate the contract before rebidding, under the termination for convenience clause and procedure Guam law allows.  In that case, AJ Tooting would at least be compensated for certain damages, including some of the profit it was expecting, offset by any damages caused by nonconforming goods delivered (which I have only assumed in this scenario).

Cleaning up the mess on your own dime

DOJ warns of fallout in Army-KBR contract dispute

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

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

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

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

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

Private contract law imitating public contracting?

The case is often made, in Guam and the US anyway, that government contracting should be more like private contracting. In Canada, at least according to the following account by Paul Emanuelli, who has already featured beneficially in this blawg, it seems government contracting is providing principles either "found" in common law contracts or implied there.

In the US, it is well settled that, in government contracting, any change made to the contract terms beyond the "scope of the contract" should necessitate a new solicitation. On the other hand, I am not aware of any private law of contract case coming to any similar conclusion; the freedom of parties to contract is usually paramount. Any potential contractor bidding on a private contract does so with little safeguards: let the bidder beware.

Not so in Canada, so it seems (and this may be a good thing, no?).

Courts prohibit changes to contracts after bids are submitted by Paul Emanuelli

In its decision in Protec Installations v. Aberdeen Construction Ltd., the British Columbia Supreme Court found that the owner was not allowed to make changes to the tender call rules or negotiate material changes to the contract after the close of bidding.

The case involved a tender call for the construction of a mall in Richmond, British Columbia. With full knowledge of the low bidders’ price, the second-lowest bidder entered into post-bidding negotiations with the owner and submitted a revised bid for $5,000 less than the low bid. That bidder was awarded the contract. The low bidder sued.

The court found that the owner was not allowed to cut the low bidder out of the process while permitting a competitor to re-negotiate the terms of the deal and re-tender its price. The court found that the low bidder was prejudiced by the post-close indulgences granted to the competing bidder and awarded the low bidder damages.

Similarly, in its decision in Health Care Developers Inc. v. Newfoundland, the Newfoundland Court of Appeal recognized that an owner’s good faith duties include the duty to avoid varying the terms of the awarded contract from the terms contained in the tender call.

The case involved a tender call for the construction of health facilities and other buildings. The Court of Appeal noted that “In respect of the decision to award a contract other than that contemplated by the tender call, the trial judge found this was also a violation of the common law principles of contract.”

The Court of Appeal agreed, finding that the need to award a contract that is consistent with the contract contained in the tender call is one of the primary implied duties that applies under the duty of fairness and good faith

As this case confirms, any post-bidding changes to the awarded contract can undermine the integrity of the formal bidding process and the equal footing upon which all bidders are entitled to compete.

Furthermore, in its June 1996 decision in Emery Construction Ltd. v. St. John’s Roman Catholic School Board, the Newfoundland Court of Appeal also found that a privilege clause does not allow an owner to award a contract that varies from the Contract B contained in the tender call.

The case involved a tender call for the construction of a new school. The low bidder was bypassed in favour of the second-lowest bidder. The low bidder sued.

The Court of Appeal stated that the school board was not permitted to use its privilege clause to apply undisclosed award criteria or vary the terms contemplated in the tender call: such clauses do not permit the owner to choose among bidders on the basis of criteria not disclosed to the bidders nor does it permit the owner to award something other than contract B.

Whilst these cases seem to be about private contracts (the first involving a shopping mall and the third involving a private Catholic school), the rationale for the holding seems, on the other hand, to be derived, as quoted from the Newfoundland case, from and for government contracting:

The doctrine of good faith is applicable in this case, the necessity for its application to government tendering to “protect the integrity of the bidding system” was expressed in Kencor and I need not state the principle more broadly than that it is a part of the law of tendering for Government contracts.

I would be interested to know for certain that the scope of contract principle is being applied to private contract bids. Given its basis in "good faith", a concept that has yet to find firm roots in US contract law generally (especially beyond the Uniform Commercial Code), I'd be skeptical about relying on it in the US.

But I would encourage pushing the envelope. If private owners truly ask private bidders to go to cost and bother of bidding on projects, at the very least, there should be some kind of promissory estoppel to prevent the kinds of injustices the Canadian cases seem to mitigate.

Competing for non-compete business

The discussion point here is this The Washington Post article (excepted: use link for full read), which is a kind of business case analysis presented by a university business professor:

The complexity of bidding for government contracts

The Scenario: A prominent agency of the U.S. federal government issued a Request for Solutions (RFS) for a high-profile, multi-year project in the agency’s historic office building in the District. The agency was seeking the design and installation of an integrated information technology network. Competing bids would be assessed for technical competency and price.

The building, a short walk from the White House, covered three city blocks and housed 4,000 employees. Because the various units of the agency operated independently, computer networks within the building were both physically and technically isolated from one another. With no shared information system, the units were forced to use the Internet to transmit data back and forth. Cabling and networking equipment were scattered throughout the building, snaking across open floors, sitting on desks, stacked in coat closets. Reassigning personnel often meant reinstalling cable at considerable expense.

The RFS sought firm fixed-price bids to address these problems. The RFS specified that contractors would have to take care to preserve the historic nature and character of the 1.8-million-square-foot building (e.g., the roof’s terra cotta tiles) while working around the staff.

The uncertainties surrounding the building and what would be necessary to preserve it cast a long shadow over the bidding process. Dragon’s best estimate was that it would probably cost about $11 million to do the work. It did, however, believe there was the potential for follow-on work that was outside the scope of the currently proposed contract. The exact extent of this work was unclear.

Each year, Dragon submitted anywhere from 50 to 100 competitive bids ranging from $500,000 to millions of dollars. Its win rate approached 30 percent. Most contracts were bid based on cost and generally included a 5 to 15 percent profit.

The Resolution: Dragon Systems bid aggressively. It lost money on the initial contract but made a considerable amount of money on the follow-on work, which was largely completed on a time-and-materials (non-bid) basis. It guessed correctly that once it got into the building, it would uncover a lot of other work that needed to be done and that because of its familiarity with the historic building it would be the preferred supplier.

Having successfully completed more than 60 such contracts, the firm had developed a solid reputation among government officials such as Tom Coolidge, director of a government computers and telecommunications station. Coolidge favored contracts with Dragon because it always provides “us with dependable people at a reasonable cost.”

The Lesson: Bidding on contracts requires an evaluation not only of the costs and margins of the specified work, but also a careful analysis of how it changes the probability that you will get future work. That is not easy to do, but it is necessary in order to make reasonable profits in the world of government contracting.

There are other lessons here as well.

One is the illustration that the more you do well in government contracting, the more you do well at government contracting. It's the incumbency effect, an effect which, if carried far enough, degrades the competitive spirit intended to be part of the US Competition in Contracting Act.

The Washington Post ran an article on this aspect of government contracting a few years ago, with a tone of disparaging aggravation:

Costs Skyrocket As DHS Runs Up No-Bid Contracts

The project started in 2003 with a $2 million contract to help the new Department of Homeland Security quickly get an intelligence operation up and running.

Over the next year, the cost of the no-bid arrangement with consultant Booz Allen Hamilton soared by millions of dollars per month, as the firm provided analysts, administrators and other contract employees to the department's Information Analysis and Infrastructure Protection offices.

By December 2004, payments to Booz Allen had exceeded $30 million -- 15 times the contract's original value. When department lawyers examined the deal, they found it was "grossly beyond the scope" of the original contract, and they said the arrangement violated government procurement rules. The lawyers advised the department to immediately stop making payments through the contract and allow other companies to compete for the work.

But the competition did not take place for more than a year. During that time, the payments to Booz Allen more than doubled again under a second no-bid arrangement, to $73 million, according to internal documents, e-mail and interviews.

When Booz Allen finally faced competition last year, Homeland Security had broken the work into five contracts. In total, those contracts were worth more than $50 million over a year's time.

Booz Allen won them all.

The arrangements with the McLean consulting firm, one of the nation's largest government contractors, illustrate a transformation in the way the federal government often gets its work done: by relying on private, sometimes costly consultants to fill staffing shortfalls in federal agencies.

Contracting specialists said companies are increasingly being called upon to handle duties once considered appropriate only for government workers. And because the number of federal procurement workers responsible for overseeing spending has not kept pace, the spending on such contracts often soars far beyond approved estimates, the specialists said.

Another lesson is that the usual limitation on offering no-bid work beyond the scope of the original contract is facing practical limitations in the new era of primarily service-oriented government contracts. As a practical matter, it is becoming apparent that the scrutiny of the scope of service contracts is not as strict as the scope of supply contracts.

In theory they should be treated the same, but the age-old reticence to second-guess contracting officers is leading to the point where, in practice, the scope of contract rule is being swallowed by a service contract exception. (I hasten to note that the deferential standard of review found in federal cases is not universal. For instance, the Guam Public Auditor has a de novo standard of review. See, also, 5 GCA § 5245 and discussion of that statute in the Guam Procurement Process Primer.)

The traditional use of the scope of contract limitation on so-called flow-on work is illustrated by the recent Court of Federal Claims case, as reported by the Wolter Kluwer website Federal contracts training center:

Order Was Beyond Scope of FSS Contract

An order for mobile medical units was improper, according to the Court of Federal Claims, because the order included items that were outside the scope of the awardee's Federal Supply Schedule contract.

The government issued an FSS request for quotes for mobile operation and procedure room trailers after conducting sole source negotiations with the protester, which did not hold an FSS schedule contract. After the closing date, but prior to award, the government allowed the awardee to add three types of mobile surgical trailers to its FSS contract.

The government maintained the modification involved in-scope changes to trailers already on the awardee's FSS contract. According to the government, so long as an item is on the FSS contract at the time of the order, the award is proper.

The court found this approach would "allow targeted pre-selection of contractors outside the FSS system, which is inconsistent with the FSS system, as well as the general goals of fair and open competition espoused in the [Competition in Contracting Act] ...." At a minimum, the government violated the spirit of CICA.

Further, a comparison of the original and modified trailers showed the modified trailers were new item

s that should have been added to the awardee's schedule before it submitted a quote. Unlike the original trailers, the modified trailers had integrated equipment necessary for performing surgery, taking x-rays, and sterilizing medical equipment. Also, the original trailers did not have air filtration systems, sterile environments, plumbing, or the internal wiring necessary for a surgical room. Further, the modified trailers required 240 days --as opposed to 125 days --of turnaround time, and the awardee's schedule modification request included more than 75 pages of technical specifications and design detail.

The "sheer volume" of the modification request, along with the awardee's concession it was adding a completely "new item" to the schedule, further illustrated the awardee had offered non-FSS items in response to the RFQ.

This case shows how prepared reviewing bodies are to count things, to measure them, to compare them. Other cases illustrate the failure to find bright lines in specifications and scope of work for services contracts.

The traditional statement of the tests use are in the Emergent BioSolutions Inc. GAO Comptroller General's decision, B-402576, June 8, 2010.

The case involved services (R&D)leading to development of a product: The RFP contemplated the award of one or more cost-plus-fixed-fee contracts for the continued advanced development, testing, and production of rPA anthrax vaccine. The RFP included Federal Acquisition Regulation (FAR) clause 52.243-2, Changes–Cost Reimbursement (Alternate V), applicable to research and development contracts. The RFP also stated that the purpose of the procurement was to continue the advanced development and production of an rPA vaccine, suitable for licensure, to protect the general United States population against inhalation anthrax when administered in an immunization series of not more than three doses.

In determining whether a modification triggers the competition requirements under CICA, we look to whether there is a material difference between the modified contract and the contract that was originally awarded. Engineering & Prof'l Servs., supra, at 4; AT&T Commc'ns, Inc. v. Wiltel, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993). Evidence of a material difference between the modification and the original contract is found by examining changes in the type of work, costs, and performance period between the contract as awarded and as modified. Overseas Lease Group, Inc.,
B-402111, Jan. 19, 2010, 2010 CPD para. 34 at 3; Atlantic Coast Contracting, Inc.,
B-288969.2, June 21, 2002, 2002 CPD para. 104 at 4. We also consider whether the solicitation for the original contract adequately advised offerors of the potential for the type of changes found in the modification, and thus whether the modification would have materially changed the field of competition. See DOR Biodefense, Inc.; Emergent BioSolutions, supra; Atlantic Coast Contracting, Inc., supra.

The result in that case was a finding that modifications to the contract were not beyond the scope of the contract.

Other statements regarding the scope of contract rule are in WorldWide Language Resources, Inc., B-299315.7; B-299315.8, August 12, 2010:

MEP’s contract, as initially awarded, included a 5-year ordering period (through September 2012) with a total ordering ceiling of $703 million. At the time of award, the agency estimated that it would need approximately 3,000 linguists to support the military’s operations in Afghanistan.

In the years subsequent to MEP’s award, the military’s need for linguists has exceeded the numbers estimated by INSCOM. Presently, MEP’s contract supports approximately 6,826 linguists at up to 200 locations in Afghanistan. Id. at 3.

The agency identifies two specific events which have spurred the significant growth in the linguist requirement. The first was an August 2009 review of the U.S. Afghanistan strategy directed by the President. Based on this review, the estimated requirement increased to 5,000 linguists per year in anticipation of greater U.S. involvement in Afghanistan. Id. The second event was the “surge” decision of December 2009, which provided for sending an additional 30,000 U.S. forces to Afghanistan by the end of the summer in 2010. This surge of U.S. forces has driven the need for linguists to their current levels since they are an integral component of the expanding U.S. combat operations in Afghanistan.

Prior to the events of August and December 2009, INSCOM, in May 2009, initiated the process of planning for the competitive award of a new contract for the linguist requirements in Afghanistan. In August 2009, it became apparent to INSCOM that the funding needed under MEP’s current contract would exceed the contract ceiling sooner than originally planned due to the increasing need for linguists. INSCOM estimated that the ceiling would be reached in March 2010. Contracting Officer’s (CO) Statement at 2. INSCOM therefore began to plan for the competitive award using a streamlined schedule.

Because MEP’s contract was imminently reaching its $703 million contract dollar ceiling, on March 18, INSCOM modified the contract to increase the ceiling amount by $78.5 million. This modification was supported by a J&A stating that only MEP was in a position to provide the required linguist services in Afghanistan without interruption or degradation.

Upon learning of the agency’s modification of MEP’s contract to increase the contract ceiling by an additional $679 million, WorldWide filed this protest arguing that the modification is contrary to the competition requirements mandated by CICA.

Due to the criticality of the linguist services to U.S. operations in Afghanistan, the agency concluded that it needed to maintain the linguist services without interruption. INSCOM was also advised by the Chief of Intelligence for the International Security Assistance Force in Afghanistan that the method chosen to obtain the services should avoid any additional strain on military resources given the significant build-up of U.S. troops in Afghanistan in connection with the “surge,” which the J&A characterizes as “one of the largest movements of troops and material since World War II.”

Even assuming that there were in fact firms capable of meeting the agency’s needs, and that some form of limited competition could be held, INSCOM concluded that conducting such a competition and transitioning to a new contractor would not be practicable given the limited time until the anticipated March 2011 award. In this regard, INSCOM explained that the process of issuing a solicitation, obtaining proposals, conducting an evaluation, and making an award would take approximately 6 to 8 months. With the projected follow-on contract scheduled for award by March 2011, the bridge contract would have a performance period of only
3 to 5 months and would require a transition period with an estimated cost of
$30 million, if the contract were awarded to a firm other than MEP. INSCOM also indicated that conducting the limited competition would likely delay its implementation of the long-term solution--the award of the follow-on contract based on full and open competition--due to the need to conduct two procurements simultaneously using the same contracting personnel with the requisite expertise. Id. at 6. INSCOM also considered the disruption to the U.S. mission associated with a need for multiple linguist contractor transitions during “a period of high operational stress”--one for the bridge contract award and a separate transition for the March 2011 award--and concluded that the potential need for multiple transitions militated against conducting a limited competition.

WorldWide challenges the modification of MEP’s contract to increase the contract ceiling by $679 million, arguing that the modification was outside the scope of MEP’s underlying contract and therefore constitutes an improper noncompetitive award in contravention of the competition requirements established by CICA, specifically, 10 U.S.C. § 2304(f)(1)(C) (2006).

To the extent the agency has justified its actions based on a finding that only MEP can meet the agency’s interim need for linguists--a conclusion disputed by the protester--WorldWide asserts that the noncompetitive extension of MEP’s existing contract was attributable to a lack of advance procurement planning, which is also precluded by CICA. 10 U.S.C. § 2304(f)(5).

CICA requires that an agency obtain full and open competition in its procurements through the use of competitive procedures. 10 U.S.C. § 2304(a)(1)(A). Exceptions are provided under CICA, however, where (among other specified exceptions) there is only one responsible source able to meet the agency’s requirements, 10 U.S.C.
§ 2304(c)(1).

CICA also provides that noncompetitive procedures may not be used where agency contracting officials failed to perform advance planning. 10 U.S.C.
§ 2304(f)(5); HEROS, Inc., B-292043, June 9, 2003, 2003 CPD ¶ 111 at 6; New Breed Leasing Corp., B-274201, B-274202, Nov. 26, 1996, 96-2 CPD ¶ 202 at 6. Our Office has recognized that the requirement for advance planning does not mean that such planning must be completely error-free, but, as with all actions taken by an agency, the advance planning required under CICA must be reasonable. Barnes Aerospace Group, B-298864, B-298864.2, Dec. 26, 2006, 2006 CPD ¶ 204 at 4-5.

As a general rule, our Office will not consider protests against contract modifications, since they involve matters of contract administration and are beyond the scope of our bid protest function. See 4 C.F.R. § 21.5(a) (2010); DOR Biodefense, Inc.; Emergent BioSolutions, B-296358.3, B-296358.4, Jan. 31, 2006, 2006 CPD ¶ 35 at 6. An exception to this general rule is where a protester alleges that a modification is beyond the scope of the original contract, as WorldWide argues in this case, since, absent a valid sole-source justification, the work covered by the modification would be subject to the competition requirements established under CICA. Engineering & Prof’l Servs., Inc., B-289331, Jan. 28, 2002, 2002 CPD ¶ 24 at 3.

The agency and the intervenor argue that modifying MEP’s contract to increase the contract ceiling by $679 million is not outside the scope of MEP’s underlying contract. In this regard, they principally assert that the increase in the ceiling level does not change the type of work required under the contract and offerors could have reasonably anticipated a modification to increase the contract ceiling. WorldWide maintains that the magnitude of the increase in the dollar ceiling implicitly reflects a change in the nature of the agency’s original requirement and the basis of the original competition, and therefore renders the modification outside the scope of the original award.

As discussed below, we do not need to decide the question of whether the modification is within the scope of MEP’s contract because, even assuming that it was not, the agency properly supported the modification with a reasonably based J&A under 10 U.S.C. § 2304(c)(1).

In the business study presented above, there is a stunning admission (at least a representation) against interest that the contractor is bidding at or below cost, seeking work outside the scope of the original contract. That is undoubtedly a model adopted by many other contractors.

But simply because there is a trend toward eliminating the scope of contract restriction, most particularly emerging in the context of the responses to terrorism at home and in the Middle East, the rule has not be entirely abrogated, as the following Comptroller General decisions note, and as summarized by Wifcon.com:

Poly-Pacific Technologies, Inc., B-296029, June 1, 2005:

the agency states that in the absence of a viable recycling option, it modified the contract to allow for disposal consistent with EPA regulations. The agency argues that the government's ultimate need for plastic media and the obligation to comply with EPA regulations regarding the handling of the SBM have not changed and, thus, the modification was proper.

We disagree with the agency's view that the modification does not materially change the requirements of the contract or result in a fundamental change to the nature of the work. The original solicitation sought proposals that required offerors to both lease plastic media and recycle the resulting SBM in compliance with regulations, and offerors were thus required to propose technical solutions and pricing for both the lease and recycling components of the work. The fact that the agency still requires plastic media for its equipment needs and still requires removal of the SBM from its facilities does not afford the agency unlimited latitude to modify the way in which it contracts to meet those requirements.

An agency may not modify a contract by changing or relaxing requirements where the resulting work is fundamentally different from the work anticipated by the original solicitation. Marvin J. Perry & Assoc. , supra , at 4-5; Avtron Mfg., Inc. , supra , at 4-5.

Evidence suggesting that proposals submitted on the basis of a modified contract's relaxed requirements could result in more competition and lower prices generally weighs in favor of finding that the contract modification was improper. Avtron Mfg., Inc. , supra , at 5.

Saltwater Inc.--Reconsideration and Costs, B-294121.3; B-294121.4, February 8, 2005:

the competitive award to Saltwater was based upon a 1-year contract extending through June 30, 2004 with a 1-year option to June 30, 2005. However, the award to NWO was for a 6-month contract period from July 1, 2004 toDecember 31, 2004, with an option to extend the contract 1 year, i.e. , to December31, 2005, which Commerce has exercised. Because the period of performance under NWO's contract extends beyond June 30, 2005, it is inconsistent with the basis for the competition and therefore improper. See Tennessee Valley Serv. Co. , B188771, Dec. 8, 1977, 77-2 CPD 442. That is, the extension of NWO's contract beyond June30, 2005 constitutes an improper sole-source, since it was not supported by a J&A.

Wifcom.com collects a number of court as well as Comptroller General decisions concerning the scope of contract, and a read of all of them is suggested.