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Conversion of Contractor Owned & Operated Facility to Government Leased Facility

By John Ford on Monday, April 17, 2000 - 04:55 pm:

Vern and Joel have hit on points I was thinking of. Who owns the land on which the prison is being built? If the contractor owns the land, how do you intend on acquiring that? Is it covered by the contract? If not, you may have a takings issue. The same applies to the structure itself. If the contractor "owns" it although it is under construction, if you change the contract to government ownership, you again raise the spector of a taking.

By Eric Ottinger on Monday, April 17, 2000 - 11:03 am:

Scott & Vern,

I meant that that my questions were "dumb." By that I meant only that I was asking tedious and obvious questions.

Many apologies for any confusion.

I think an advisor opinion would be the way to go, if you can.


By joel hoffman on Monday, April 17, 2000 - 10:50 am:

Scott, agree this is an interesting question.

I believe for a change to be "in-scope", pursuant to the "Changes Clause", it must be a matter that the Government can unilaterally direct. A "change" cannot depend on whether or not the Contractor agrees to it. The Contractor would not have the choice not to lease the facility if it were "in-scope." Happy Sails! Joel

By Scott Stermer on Monday, April 17, 2000 - 10:44 am:


Thanks, I have written a similar opinion, quoting the exact same cases and problems with the authority issues. It is kinda a gray area. It would have to be scored by OMB in our budget request and must get Congressional approval.


By Vern Edwards on Monday, April 17, 2000 - 10:31 am:


Your question of whether it would be within the scope of the contract to change from contractor-owned and operated to government-owned and contractor-leased is likely to draw a wide range of conflicting opinions in this forum. I agree with you that the change would be significant, but I cannot say whether or not the change would be within scope.

Here are some things to think about:

There are three perspectives and two standards of analysis when it comes to "scope" questions. The perspectives belong to (1) the boards of contract appeals, (2) the General Accounting Office, and (3) the Federal courts. The standards of analysis are: (1) within the scope of the contract and (2) within the scope of the original competition.

The boards and courts get involved when the government and the contractor disagree whether a change is within the scope of the contract, and they have tended to take a liberal view of scope in such cases.

The GAO and the courts get involved when a firm other than the contractor complains that the change is outside the scope of the original "procurement" or "competition."

The Federal Circuit Court of Appeals has said:

"A modification generally falls within the scope of the original procurement if potential bidders would have expected it to fall within the contract's changes clause."

AT&T Communications, Inc. v. WilTel, Inc., 1 F.3d 1201 (1993).

If we take the court literally, then changing the relationship in the way that you described probably would not be within the scope of the original procurement, since it does not sound like something that would be covered by the changes clause.

The GAO has said:

"In determining whether a modification triggers the competition requirements in CICA, we look to whether there is a material difference between the modified contract and the contract that was originally awarded. Id.; see AT&T Communications, 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 any changes in the type of work, performance period, and costs between the contract as awarded and as modified. MCI Telecomms. Corp., supra, at 7-8. We also consider whether the solicitation for the original contract adequately advised offerors of the potential for the type of change found in the modification, CAD Language Sys., Inc., B-233709, Apr. 3, 1989, 89-1 CPD 342 at 4, or whether the modification is of a nature which potential offerors would reasonably have anticipated at the time of the original award. American Air Filter Co.--DLA Request for Recon., 57 Comp. Gen. 567, 573 (1978), 78-1 CPD 443 at 9-10."

In my opinion, neither of these quotes answers your question conclusively; but they suggest that the change might be beyond the scope of the competition because (a) it is not something covered by the changes clause and (b) it seems unlikely that the original competitors would have anticipated it. But who knows? I haven't seen the original RFP. If the change did, in fact, have only a small impact on the contract price then the GAO or a court might decide that the change is within scope.

You could ask the GAO for an advisory opinion.

One final thought: Government acquisition of real property is governed by statutes and by regulations other than the FAR. See, for example, 40 U.S.C. 255. Before you attack the scope issue you might want to examine the more fundamental issue of whether or not BOP has the authority to acquire the ownership of the property and what laws and regulations you would have to comply with to do so. You might find that there are also issues of Congressional authorization or appropriation.

Your question was not dumb. In fact, I found it very interesting.


By Eric Ottinger on Monday, April 17, 2000 - 09:44 am:


Yes, I think you have gone from a service contract to an acquisition contract. (Leasing is a form of acquisition.)

I would agree that that is too much of a change in scope.

I think you need help from a smart lawyer. I doubt the argument that the dollars haven't changed would be very effective with the Comp. Gen.


By scott stermer on Monday, April 17, 2000 - 08:18 am:


The contract is for a contractor owned and operated correctional facility (prison) to house federal inmates. The contract is performanced-based. The contract was awarded under best value, trade-off. The contractor is currently building the facility. I am being asked if we can modify the contract to lease facility, the contractor would still operate it. The contract term is 3 year base period, with 7 one year option periods (10 years) Currently, we do not have the authority to enter into a lease of this size, without GSA involvement.

I feel this type of modification is outside the scope of the original competition, it should not be done. However, there are some who believe the value of the contract will remain the same, so in sense we are only clairfying the contract. I disagree with that, I feel we most likely would have entered into a lease for a 20 year term, contractors could have gotten better financing for the term and the Government cost would be less. Also, it might have changed our "best value" decision.

I am not looking for answers just some feedback, if someone thinks this type of change can be done, I want know that....so I can provide an accurate analysis.


By Vern Edwards on Saturday, April 15, 2000 - 04:47 pm:


Please confirm:

The current contract calls for the contractor to build a facility, which the contractor will own, and then use the facility to provide services to the Government. Is that correct?

Now, someone would like to modify the contract so that the contractor will still build the facility, but the Government would own it and then lease it back to the contractor to use to provide the services. Is that correct?

Is the facility a prison?

By Scott Stermer on Friday, April 14, 2000 - 11:24 am:

The facility is under construction, and owned by the contractor. What I have been asked to do, is modify the exisitng contract, to incorporate a lease of the facility, contractor would still operate the facility.

I think the modification falls beyond the scope of the original competition. There is some diifference on that matter


By joel hoffman on Friday, April 14, 2000 - 10:45 am:


1. Is this a "COCO" facility?

2. Please explain what you mean by the question can you modify the contract "to lease the facility"? Contractor leases it? to whom? for what- same purpose?
Thanks! Happy Sails.......

By Eric Ottinger on Friday, April 14, 2000 - 10:45 am:


Dumb question.

Under the current contract, who has title to the facility? Has the Government inspected and accepted? Who will lease from whom?


By scott p. stermer on Friday, April 14, 2000 - 10:14 am:


A year ago I awarded a performanced based service contract which called for the contractor to construct and operate the facility. Recently, I have been asked if we could modify the contract to lease the facility.

The original solicitation contained no leasing options.

If anyone can provide me some feedback I would really appreciate it.