Our community blogs
Proving that an agency acted improperly in its source selection process can be a difficult task for any protester. In theory, for a best value tradeoff decision, the agency’s decision and the process to come to that decision seems easy: the agency does a tradeoff between cost and non-cost factors, and that which is most advantageous to the government is awarded. How hard could it be? And the decisions handed down by the Government Accountability Office (GAO) and the Court of Federal Claims (COFC) seem to confirm that it isn’t that hard, seeing as many cases challenging a best value decision are denied. This is, in large part, due to the discretion agencies are afforded in their source selection decisions. Whether an agency conducts discussions during the source selection process is one of many procurement factors that is left up to the agency’s discretion. But, every so often, a decision comes along to prove that there are limits to an agency’s discretion, and in this case, the agency’s discretion overstepped its bounds with its price reasonableness decision and the unjustified decision to not perform discussions.
In SLS Federal Services, LLC v. United States, No. 22-1215 (Fed. Cl. Jan. 10, 2023), the Naval Facilities Engineering Systems Command, or the Agency, issued a solicitation looking for indefinite delivery, indefinite quantity (IDIQ) contracts for global contingency construction. And what is global contingency construction? In this context, it means a construction contract that “can arise anytime and anywhere,” and, as you will soon see, knowing what it is becomes important a little bit down the road.
Under this solicitation, awards would be made to contractors whose offers represented the best value to the government, as determined through performing a best value tradeoff analysis, with cost being the most important factor. The terms of the solicitation required offerors to submit cost data, including hourly labor rates and indirect ceiling rates, but did not anticipate profit or an overall price. The Agency planned to analyze cost proposals for both cost and price reasonableness. Once the initial group of awardees was determined, they would later compete for “cost-plus-award-fee or firm fixed price task orders,” with the Agency intending to use firm fixed price task orders as much as possible. The solicitation conveyed, and the Agency reaffirmed, that it intended to make awards without discussions, but it reserved the right to conduct discussions if needed.
Offerors would be evaluated in three different phases. First, the Agency’s evaluation board would evaluate each factor independently. This included the cost factor as well as four non-cost factors: corporate experience, safety, small business utilization and participation, and past performance. The evaluation board would then make two reports; one report for cost factors, and, you guessed it, one for non-cost factors. The Agency’s advisory council then reviewed the board’s reports, consolidated that information into its own report, and then made recommendations to the source selection authority for offerors it believed should receive awards. The source selection authority then reviewed the recommendation. If the source selection authority agreed with the advisory council’s recommendations, and did not feel a need to conduct discussions, it would select the contractor or contractorss whose proposal was the best value to the government.
Award and GAO Protests
The Agency ended up making awards to six out of nine contractors who had submitted proposals. Following award, the protester, SLS, filed its protest to GAO based on the Agency’s decision to not conduct discussions and that the Agency had erroneously analyzed price reasonableness. As these things often go, the Agency opted to take corrective action “to address the evaluation of the proposals, including, but not limited to, price reasonableness.”
Don’t we all love a happy ending? Yes? Well, I’m sorry to inform you that we don’t have one here…yet.
Nearly a year after the Agency had filed its notice of corrective action, it once again made awards to the same six offerors. When reviewing the corrective action taken, for almost an entire year, the Agency removed an “inappropriate CPARS evaluation” and stated that “no additional amendments or requests for proposal revisions [were] made in the pursuance of th[e] corrective action.” SLS once again filed a protest with GAO. Due to disputes over document production in the second GAO protest, SLS then filed its protest with the Court of Federal Claims.
In protests that are submitted to COFC, the judge is looking at the agency’s actions to determine whether they were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” And here, COFC ultimately determined that the agency’s actions were arbitrary and capricious. It’s also important to note that, had the Agency been firing on all cylinders, it would have pointed out that the protester was too late to challenge what was technically the terms of the solicitation, thus waiving its price reasonableness argument (remember the profits missing from the price proposals?). This was eventually pointed out by an intervenor, but because the Agency did not point out the protester’s waiver of a challenge to the terms of the solicitation by not filing a protest prior to the date offers were due, in neither GAO protest nor in the COFC protest, the Agency thereby waived any defense it had to the price reasonableness issue, at least as far as it was considered a term of the solicitation. Protester: 1; Agency: 0.
Price Reasonableness Analysis
It is here where the protester’s arguments really get some traction. SLS’s protests challenged the Agency’s purported inability to conduct a price reasonableness analysis on offeror’s proposals because the Agency never asked for pricing information. Now, you may be thinking, “Sure they did! You just said cost was the most important factor in the evaluation.” And you would be right, I did. But cost and price are two different things, with cost representing the cost to the contractor, and price being what the contractor will charge the government for its products and/or services. In many cases, price reasonableness is then determined when looking at the difference between costs and price in relation to other offerors’ price proposals.
However, when the agency doesn’t require certified cost or pricing data, as here, “[the] agency ‘shall’ use price analysis” per FAR 15.404-1(a)(2). One way of doing this is comparing prices when adequate competition exists, which is permitted per FAR 15.404-1(b)(1). Because the Agency failed to address the missing price information as part of its corrective action, there was no way for it to evaluate price reasonableness. In response, the Agency claimed that it was impossible to evaluate firm fixed price proposals because of the nature of global contingency construction contracts (See? Here it is again!), and therefore conducted a price reasonable analysis in line with FAR 15.404-1(b), but that argument ultimately failed, with COFC finding that a price reasonableness evaluation cannot happen with no price information at all. Protester: 2; Agency: 0.
SLS’s protest of the Agency’s price reasonableness evaluation was not the only issue protested. SLS also protested the Agency’s decision to not conduct discussions even though DFARS 215.306, which is applicable here, “’create[s] a presumption in favor of’ discussions.” While not applicable in all federal government acquisitions, the DFARS state that “’contracting officers should conduct discussions’ ‘[f]or [defense contract] acquisitions with an estimated value of $100 million or more.’” The decision on this issue came down to the meaning of “should” within the applicable DFARS.
Both GAO and COFC decisions showed a history of a presumption in favor of discussions, with the requirement that the contracting officer document its reasoning for not conducting discussions. Although the Agency tried to defend its decision to not conduct discussions by its notice that it planned to make awards without discussions, that reason was not enough to satisfy the COFC because “agencies are ‘bound by the applicable procurement statutes and regulations,’” and DFARS 215.306 clearly required the Agency to either conduct discussions or justify its decision not to. Further, stating that the awardees were “clearly awardable” was not sufficient justification either because “an agency must ‘articulate a rational connection between the facts found and the choice made.’” Otherwise, the agency’s decision is arbitrary and capricious, which was exactly what COFC determined here. Protester: 3; Agency: 0.
Conclusion and Relief
In the end, the COFC determined that SLS was prejudiced by the Agency’s lack of pricing information that was required to conduct a price reasonableness decision and for the Agency’s decision to refrain from conducting discussions without proper justification. Correcting either one of those issues could have potentially left SLS in the competition, which is the very core of prejudice in federal contracting.
Since SLS was determined to have been prejudiced by the Agency’s actions, COFC looked to determine whether the protester’s request of a permanent injunction was appropriate. In doing so, COFC must weigh the “competing claims of injury” and the “effect on each party of the granting or withholding of the requested relief.” To do so, the courts must consider the following four factors:
(1) Whether the plaintiff succeeds on the merits;
(2) Whether the plaintiff will suffer irreparable harm without injunctive relief;
(3) Whether the “balance of hardships” favors the plaintiff; and
(4) Whether the injunction is in the public’s interest.
COFC’s final analysis determined each of these factors were in favor of SLS, and therefore enjoined the Agency from proceeding with performance of the contract.
Game, set, match.
You can read the entire decision here: SLS Federal Services, LLC v. United States, No. 22-1215 (Fed. Cl. Jan. 10, 2023).
Questions about this post? Email us. Need legal assistance? call at 785-200-8919.
Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.The post Third Time’s the Charm: Protest Sustained by COFC Due to Failure to Conduct Discussions and Flawed Price Reasonableness Evaluation first appeared on SmallGovCon - Government Contracts Law Blog.
- Read more...
- 0 comments
Last week, on March 9, 2023, in Percipient.ai, Inc. v. United States, the Court of Federal Claims held that Percipient.ai, Inc. (“Percipient”) had standing to protest a National Geospatial-Intelligence Agency (“NGA”) procurement called “SAFFIRE” intended to improve the agency’s production, storage, and integration of geospatial intelligence data. Percipient’s complaint, filed in January of this year, argued that SAFFIRE violates the statutory mandate at 10 U.S.C. § 3453 to procure commercial items “to the maximum extent practicable.” The Court’s conclusion that Percipient had standing to protest is notable because (1) NGA issued the SAFFIRE solicitation in January 2020 (over three years ago); (2) NGA awarded the SAFFIRE contract to CACI, Inc. – Federal (“CACI”) in January 2021 (over two years ago); and (3) Percipient never submitted a proposal in response to the solicitation.
The Government and CACI moved to dismiss Percipient’s complaint, arguing, among other things, that Percipient lacked standing to protest because it had not submitted a proposal and therefore was not an “interested party,” and because the protest—filed two years after contract award—was in fact a challenge to NGA’s administration of the SAFFIRE contract. The Government and CACI also argued that the protest was untimely under the Federal Circuit’s decision in Blue & Gold Fleet, L.P. v. United States, 492 F.3d 1308 (Fed. Cir. 2007), which generally requires that protests challenging the terms of a solicitation be filed before the proposal due date.
In response, Percipient acknowledged that it had not submitted a proposal in response to the SAFFIRE solicitation, and in fact could not have done so, because it did not meet the solicitation’s minimum requirements. Nonetheless, Percipient explained that its standing arose from the fact that the SAFFIRE solicitation required the awardee, post-award, to make a series of “make or buy” decisions with respect to certain computer software—software Percipient already provided commercially—and potentially conduct future procurements. Percipient argued its challenge was to NGA’s alleged failure to conduct adequate market research as to the commercial availability of that software (or require CACI to do the same) prior to allowing CACI to develop its own solution—a direct violation of § 3453, made “in connection with” the SAFFIRE procurement, which continued beyond NGA’s 2021 award of the contract to CACI. In sum, Percipient argued that but for NGA’s violation of § 3453, there would have been additional procurements to meet ongoing SAFFIRE requirements upon which Percipient could have bid. Against that framework, Percipient argued that its protest was not challenging NGA’s administration of CACI’s contract—an argument that, according to Percipient, if accepted, would give agencies carte blanche to ignore the requirements of § 3453—and was not barred by Blue & Gold, because it was not challenging the terms of the SAFFIRE solicitation.
In a short order serving as a precursor to a forthcoming opinion, the Court denied the Government’s and CACI’s motions to dismiss. The Court’s Order did not engage with the bulk of Percipient’s arguments, but concluded Percipient had standing because it had alleged a non-frivolous allegation of a violation of § 3453 by NGA “in connection with” the SAFFIRE procurement that precluded Percipient from being a prospective bidder in future agency procurements. The Court also held, without further explanation, that “on the present state of facts,” Percipient’s protest was not barred by Blue & Gold.
The Percipient decision serves as a helpful reminder that the Court’s Tucker Act bid protest jurisdiction does not necessarily end upon contract award, especially where the procurement implicates other statutory regimes that impose additional requirements on the Government. For that reason, potential protesters should engage with protest counsel upon identification of agency errors made “in connection with a procurement” —possibly even years after the contract award—to evaluate potential protest grounds and the jurisdictional hooks to get such claims before the Court.
The post Court of Federal Claims Holds Non-Bidder Has Standing to Protest Two Years After Contract Award appeared first on Government Contracts Legal Forum.
- Read more...
- 0 comments
Recent EntriesThe common theme of this month’s Law360 Bid Protest Roundup is a seemingly hot topic these days: joint ventures. One recent Government Accountability Office (“GAO”) decision and one recent U.S. Court of Federal Claims (“COFC”) decision both touch upon past performance issues related to joint ventures. The third decision, also a COFC decision, focuses on the requirement that joint ventures must be registered in SAM.gov at the time of proposal submission.
- Read more...
- 0 comments
Late last year, the United States Office of Management and Budget (OMB) published a memorandum, M-22-18, that required federal agencies to comply with the guidelines regarding ensuring the safety and integrity of third-party software on federal information technology systems. This memorandum applied to the use of firmware, operating systems, applications, cloud-based software and general software.
The memo requires federal agencies to comply with the National Institute of Standards and Technology (NIST) guidance, as detailed in President Biden’s cybersecurity Executive Order 14028, and stipulated that agencies “only use software provided by software producers who can attest to complying with the Government-specified secure software development practices, as described in the NIST Guidance.”
The memo instructed agencies to collect a standardized self-attestation form from all software contractors before deploying their products. Initially, each agency will identify the software and collect the self-attestations forms. The end goal is to create a government-wide central repository of all software-related information, to shore up any cybersecurity vulnerabilities.
I wanted to provide you with a brief update on where the NIH Information Technology Acquisition and Assessment Center (NITAAC) is in the self-attestation process and make you aware of some key dates that will impact your company.
NITAAC is working with the OMB to determine the formal agency posture on this matter. We also are working to finetune the process for our communications requirements, as it relates to collecting the self-attestation forms.
In the meantime, contractors should be aware of the following key dates:
- June 11, 2023: NITAAC deadline to collect self-attestation forms from critical software providers.
- September 14, 2023: NITAAC deadline to collect the forms from all software providers on the NITAAC networks.
- TBD: If needed, NITAAC will request a software bill of materials or other artifact(s) that demonstrate conformance with secure software development practices.
You will hear more from NITAAC as we get additional clarity, however, I wanted you to know you are not in this alone. I understand that this request presents several challenges on your end, in terms of staffing and the additional labor required to conduct and submit the self-attestations.
We face those same challenges at NITAAC. One of the biggest obstacles being faced on the federal level is that of time. The reality is that the government likely will not be able to produce and distribute the attestation forms in a timely manner. Unfortunately, if we cannot do so, this administrative burden will fall upon our contract holders, as you will then need to develop your own forms.
I can’t promise that this process will be smooth, as there are several variables at play, but what I can promise is that we will be as transparent as possible and will make it our business to provide you with timely and relevant updates.
I value our partnership and look forward to attesting the safety, integrity and security of all the software our contract holders provide to the federal government. This will become just one more example of the high-quality, best in class service agencies can expect from the NITAAC Contract Holders.
We will discuss this further on our next Contact Holders’ call.
To read the Executive Order, visit https://www.nist.gov/itl/executive-order-14028-improving-nations-cybersecurity. To learn more about the OMB Memo, visit https://www.whitehouse.gov/wp-content/uploads/2022/09/M-22-18.pdf.
- Read more...
- 0 comments
Cybersecurity-related FCA cases poised to increase as FCA enforcement ramps up
On February 7, 2023, the Department of Justice (DOJ) announced that settlements and judgments under the False Claims Act exceeded $2.2 billion during the 2022 fiscal year and that the government posted its second-highest number of settlements and judgments in a single year.
While most of that enforcement activity—about 77 percent—was aimed at the healthcare industry, DOJ’s press release highlighted the Department’s Civil Cyber-Fraud Initiative as well, noting that 2022 saw DOJ’s first settlement pertaining to the initiative, when a Florida-based medical services provider paid $930,000 to resolve allegations that it falsely represented that it had complied with contract requirements relating to the provision of medical services at State Department and Air Force facilities in Iraq and Afghanistan. Among other issues, the company’s representations involved the level of security of the electronic medical records system it agreed to utilize, with the government alleging that the defendant failed to disclose that it had not consistently stored patients’ medical records on a secure system, and instead put copies of some records on an internal, unsecured, network drive.
In July 2022, a second cybersecurity FCA action reached settlement, when Aerojet Rocketdyne agreed to pay $9 million to resolve FCA allegations that it misrepresented its compliance with cybersecurity requirements in certain of its federal government contracts. While a subsequent address by Brian M. Boynton, Principal Deputy Assistant Attorney General, noted a variety of ways to run afoul of the FCA under this initiative, the aforementioned cases arose from the specific cybersecurity stipulations in the respective government contracts.
The Civil Cyber-Fraud Initiative launched in October 2021 and uses the False Claims Act (FCA) to pursue cybersecurity-related fraud by government contractors and grant recipients. According to DOJ, the initiative would hold accountable those who put U.S. information and systems at risk by “knowingly providing deficient cybersecurity products or services, knowingly misrepresenting their cybersecurity practices or protocols, or knowingly violating obligations to monitor and report cybersecurity incidents and breaches.”
The initiative takes on even more significance—and likely even more compliance obstacles to navigate—given that the U.S. government has continued to install more and more reporting requirements for federal contractors. For example, in March 2022, Congress passed the Cyber Incident Reporting for Critical Infrastructure Act of 2022 (CIRCIA), which among other things mandates operators of critical U.S. infrastructure to report certain cyberattacks to the Cybersecurity and Infrastructure Security Agency (CISA) within 72 hours. The same critical infrastructure operators must also report ransomware payments to CISA within 24 hours.
Additionally, as with many FCA cases, the aforementioned cybersecurity initiative cases were spurred by qui tam actions from whistleblowers. According to DOJ, over $1.9 billion of the $2.2 billion in 2022 FCA settlements and judgments arose from lawsuits that were filed under the FCA’s qui tam provisions and pursued by either the government or whistleblowers. During the same period, 652 qui tams were filed—an average of more than 12 new cases every week—and the government paid out over $488 million to whistleblowers. This highlights the larger necessity for companies to maintain a stringent and comprehensive compliance program, complete with periodic assessments and, when necessary, enhancements. This includes clear reporting avenues, internal investigation mechanisms, and, when necessary, self-disclosures. Indeed, the DOJ recently announced new policies to encourage both voluntary self-disclosures and employee compensation tied to compliance, among other items. While the full scope and extent of both the Civil Cyber-Fraud initiative and the CISA’s reporting requirements will take time to be known, companies should begin taking steps now to ensure they are in position to comply.
- Read more...
- 0 comments
Recent EntriesMegan Mocho, Sean Belanger
- Read more...
- 0 comments
Recent EntriesLatest Entry
When The Last Dinosaur Turns Out the Lights!
In the middle of July 2023, Wifcon.com will begin its 25th year online, if I'm still alive and functioning. I'm Bob Antonio, I'm Wifcon.com, I'm 73 years old now, and I started Wifcon.com in 1998, before many of you were born. I'm well but I am mortal.
Over the years, I've met a handful of you in person including Vern Edwards, Ralph Nash and Joel Hoffman. Others I've met by accident include a Procurement Executive at the Department of Commerce when I was a member of the workaday world. That's it. I've simply been the man behind the curtain. I'm writing this because I want to share some of my thoughts about the changes in contracting that I've noticed.
Wifcon.com started when Steve Kelman was the Administrator of the Office of Federal Procurement Policy (OFPP). He was a vibrant leader who tried to make changes in procurement policy and tried to connect directly with contract specialists. One of the ways he connected with contract specialists was through a discussion board. When that discussion board died in 1998, Wifcon.com started its own Discussion Forum immediately. Many, if not all, of OFPP's users moved to Wifcon.com's Discussion Forum. Yes, if you look at Wifcon.com's Discussion Archives, you will notice that some discussions are over 20 years old. It seems to me that in the early years of the Wifcon Forum there were more seasoned contract specialists participating. I'm really not sure. On the other hand, there are many more industry members using the Wifcon Forum. Although the Wifcon Forum is viewed about 250,000 times a month, the users are mostly quiet with only a handful participating regularly. As the regular posters age and disappear, I don't know who will replace them. Participation is the lifeblood of discussion forums. Without active participation, discussion boards die. To try to enhance the Wifcon Forum, I have started adding specialized blogs that can provide feeds to Wifcon.com. In that way, I can provide them with silent and unpaid advertising while providing information to you.
Wifcon.com's Home Page and its daily update preceded the Discussion Forum by a few days in 1998. When I began the Home Page my goal was to provide important information faster to you than was available from other sources. In many cases, I have done that for most of Wifcon.com's life. At first, there was a good deal of information to publish. However, over the years, agencies published less and less useful information. Where OFPP was once vibrant in 1998 it is now comatose. It hasn't had an Administrator for years and I don't even check it anymore. Contracting information has always taken a back-seat to most anything else but the goveernment seems to have forgotten what it is altogether. Why pay attention to contracting with only hundreds of billions of dollars spent annually, with the defense of the nation depending on it, with the pandemic defeated by it? Forget us at your own risk. With the exception of the Departments of Defense and Energy, information from agancy sites is hard to find. To counter this lack of information, I have had to search for more and more sources to find contracting information. Since Wifcon.com is a one-person show, that additional time to find sources takes more and more of my time and I only have so much time in a day.
In 2008, Wifcon.com stopped for a week. I decided to quit. Instead, I converted it to a commercial site and accepted advertising. Until then, I paid all costs myself. The advertising increased until the pandemic and the business slowdown reduced advertising throughout the economy. I've lost advertisers as have some of the largest companies in the United States. I'm still covering my costs to maintain the site and now pay myself about $.10 (ten cents) an hour for my effort. That's down from a high of about $.25 (25 cents) an hour. Someone once told me that Wifcon.com was a labor of love. Maybe it's just a bad habit.
Over the next couple of months and before Wifcon.com's 25th anniversary, I hope to convert the outdated--non-discussion board--software to a current software that looks attractive. At that time, I will reduce the number of site pages from the current hundreds of pages to something manageable. Currently, the advertising on the Discussion Forum conflicts with the software used to operate the Forum. I also hope to hire someone to fix the flaws in the Disscussion Board software and to correct its conficts with my advertising.
Before I end, I want to thank my former and current advertisers, especially Vern Edwards, who also contributes articles for publication on the Discussion Forum and has written wonderful Articles over the years for Wifcon.com's main site. If you see something posted from him, read it, study it! Also, I would be remiss if I didn't thank the regular posters on the Disscussion Forum. Without them and all posters, the Discussion Forum would die. I cannot keep it alive, only you can. I just wish some of the thousands of lurkers would participate before it is gone.
There are times when I think of myself as a dinosaur from another era. I can neither explain to you nor to myself why I maintain this site. There are others you will find more interesting and knowledgeable on the Discussion Forums. However, I know they are aging as I am and they are mortal too. Take advantage of them while you can. Myself and the regular posters that you see on the Discussion Forum have one thing in common. We are all here to share our knowledge with those who ask and we do it for free. We have done that from the start of Wifcon.com. Quite often, I see a poster thanking those that respond to their question on the Discussion Forum. I like that and appreciate that.
Recent EntriesLatest Entry
Describing Contract Type: Watch What You Say
Consider the following exchange between two people:QuoteSpeaker 1 (asking Speaker 2): What type of car do you drive, foreign or domestic?
Speaker 2: I drive a red car.
Obviously, Speaker 2's answer is not responsive to Speaker 1's question. Speaker 1 wanted to know about a particular aspect of Speaker 2's car: its origin. Speaker 2 described a different aspect of his car: its color. While Speaker 2's statement about the color of his car may be true, it doesn't tell us anything about the origin of his car.
Easy enough, right? Ok, let's try another one. Consider the following exchange between two contract specialists:QuoteContract Specialist 1: Is Contract X a fixed-price or cost-reimbursement contract?
Contract Specialist 2: Contract X is an indefinite delivery contract.
Is Contract Specialist 2's answer responsive to Contract Specialist 1's question? No, the answer is no more responsive to the question than Speaker 2's answer was to the question of whether his car was foreign or domestic. Why? In this exchange, Contract Specialist 1 wanted to know about a particular aspect of Contract X: ts compensation arrangement. Contract Specialist 2 described a different aspect of Contract X: its delivery arrangement. While Contract Specialist 2's statement about the delivery arrangement of Contract X may be true, it doesn't tell us anything about the compensation arrangement of Contract X.
Make sense? If so, see if you can spot anything wrong with the following passage of an article on contract types that recently appeared in the December 2010 issue of Contract Management (see Government Contract Types: The U.S. Government?s Use of Different Contract Vehicles to Acquire Goods, Services, and Construction by Brian A. Darst and Mark K. Roberts):QuoteFAR Subparts 16.2 through 16.6 describe 11 different permissible contract vehicles. These vehicles can be subdivided into three different families:
- Fixed-price contracts,
- Cost-reimbursement contracts, and
- Other contract vehicles that can be used when the quantity of supplies or services cannot be determined at the time of award (i.e., indefinite delivery, time-and-materials (T&M), labor-hour (LH), and level-of-effort contracts) or where it is necessary for the contractor to begin performance before the terms and conditions of the contracts can be negotiated (i.e., letter contracts).
Do you see anything wrong? Notice that the first two "families" are categorized by compensation arrangement. However, the third family contains a mix of terms used to describe compensation arrangement (T&M/LH), delivery arrangement (indefinite delivery), the extent of contractor commitment (level-of-effort), and a unique term used to describe a contract that is not definitive (letter contract). The way this passage is written implies that an indefinite delivery contract, a level-of-effort contract, and a letter contract are necessarily different (belong to a different "family") from a fixed-price or cost reimbursement contract. However, an indefinite delivery contract or a level-of-effort contract will have a compensation arrangement. The compensation arrangement can be fixed-price, cost-reimbursement, T&M/LH, or some combination thereof. A letter contract may or may not have a compensation arrangement when it is issued. You could conceivably have a letter contract that had a cost-reimbursement compensation arrangement, an indefinite delivery arrangement, and that provided for level-of-effort orders. As such, the authors? categorization of contract types makes as much sense as categorizing cars into three families?foreign, domestic, and red.
Incentive Contracts? Not What You Think They Are
Consider the following simplified description of a compensation arrangement:QuoteThe buyer agrees to pay the seller $100,000 to provide a specified quantity of medical transcription services. If the accuracy of the transcriptions exceeds 99%, the buyer agrees to pay the seller an additional $5,000.
Does the preceding describe an incentive contract? Many would say yes, because the arrangement provides for an incentive--specifically, a performance incentive. However, that would be incorrect. Just because a contract contains an incentive does not mean that it is an incentive contract. FAR 16.202-1 contains the following statements in a description of firm-fixed-price contracts (similar statements pertaining to fixed-price contracts with economic price adjustment can be found at FAR 16.203-1.QuoteThe contracting officer may use a firm-fixed-price contract in conjunction with an award-fee incentive (see 16.404) and performance or delivery incentives (see 16.402-2 and 16.402-3) when the award fee or incentive is based solely on factors other than cost. The contract type remains firm-fixed-price when used with these incentives.
Further, FAR 16.402-1(a) states:QuoteMost incentive contracts include only cost incentives, which take the form of a profit or fee adjustment formula and are intended to motivate the contractor to effectively manage costs. No incentive contract may provide for other incentives without also providing a cost incentive (or constraint).
Thus, it's not enough for a contract to contain an incentive to be an incentive contract. It must contain a cost incentive (or constraint).
In the aforementioned Contract Management article, an endnote references FAR 37.601(3) and misinterprets this paragraph as--encouraging the use of incentive-type contracts where appropriate. Here's what FAR 37.601(3) actually says:QuotePerformance-based contracts for services shall include-
(3) Performance incentives where appropriate. When used, the performance incentives shall correspond to the performance standards set forth in the contract (see 16.402-2).
The authors have made the mistake of assuming that a contract that contained a performance incentive was necessarily an incentive contract. In fact, when acquiring services FAR 37.102(a)(2) states the following order of precedence:Quote(i) A firm-fixed price performance-based contract or task order.
(ii) A performance-based contract or task order that is not firm-fixed price.
(iii) A contract or task order that is not performance-based.
As shown above, a firm-fixed-price contract would take precedence over an incentive contract.
A Genuine Misunderstanding
In a discussion of additional contract types and agreements, the Contract Management article contained the following statement (which caused me to stop reading and start writing):QuoteT&M and LH contracts are varieties of indefinite-delivery contracts and provide procuring agencies with the flexibility to acquire recurring services or when the amount of the effort required to deliver an end-item is uncertain.
Huh? T&M/LH is a type of indefinite delivery contract? I'll let you readers ponder that one.
The article concludes with a plug for the authors-two-day course in, you guessed it, types of contracts. I will pass.
At the beginning of Fiscal Year 2008 John Krieger and John Pritchard, two professors at the Defense Systems Management College, Defense Acquisition University, were kicking around the topic of Acquisition Reform. They reflected on what Jim Nagle wrote in the Epilogue to A History of Government Contracting, "If someone were asked to devise a contracting system for the federal government, it is inconceivable that one reasonable person or a committee of reasonable people could come up with our current system. That system is the result of thousands of decisions made by thousands of individuals, both in and out of government. It reflects the collision and collaboration of special interests, the impact of innumerable scandals and successes, and the tensions imposed by conflicting ideologies and personalities."
They reflected that those thousands of decisions were like putting bandages on the acquisition, contracting and procurement processes. Every time a piece of legislation is passed to “fix” the acquisition process, it’s another bandage. Every time a change is made to the Federal Acquisition Regulation (FAR), it’s another bandage. Every time a change is made to the Defense Federal Acquisition Regulation Supplement (DFARS), it’s another bandage. Every time a procurement or contracting policy memorandum is issued, it’s another bandage.
They joked about that being a great visual aid for the classroom. (Remember classrooms, the places you went to learn before COVID-19?) And the joking became reality. They started with a golf ball, and added a bandage for each new law, executive order, regulation, guide handbook, etc. And it would grow, and grow, and grow. “Acquisition Reform and the Golf Ball” was born that day.
The story of the golf ball was chronicled each fiscal year, and reported in the National Contract Management Association’s Contract Management (CM) after the end of each fiscal year. That is each year up until the report on the results for Fiscal Year 2020, when CM declined the latest installment in the series. Although John and John sought publication elsewhere, there didn’t appear to be a good fit, which brings the latest iteration, “Acquisition Reform and the Golf Ball—A Baker’s Dozen,” to Wifcon.com. (See attachment.)
- Read more...
- 0 comments