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Koprince Law LLC

The ongoing federal movement to prevent fraud waste, and abuse in the contracting process continues. And as demonstrated in a recent federal court decision, the government retains its ability to refuse to pay a procurement contract tainted by fraud.

In the recent decision of Laguna Construction Company, Inc. v. Ashton Carter, Appeal Number 15-1291, the U.S. Court of Appeals for the Federal Circuit affirmed that a procurement contract tainted by violations of the Anti-Kickback Act is voidable under the doctrine of prior material breach.

In 2003, the government awarded Laguna Construction Company a contract to perform work in Iraq. Under the contract, Laguna received 16 cost-reimbursable task orders to perform the work, and awarded subcontracts to a number of subcontractors.

In 2008, the government began investigating allegations that Laguna’s employees were engaged in kickback schemes with its subcontractors. In October 2010, Laguna’s project manager pleaded guilty to conspiracy to pay or receive kickbacks, conspiracy to defraud the United States, and violations of the Anti-Kickback Act, which broadly prohibits prime contractors from soliciting or accepting kickbacks in exchange for awarding subcontracts. The project manager admitted that, for approximately three years, he allowed subcontractors to submit inflated invoices to Laguna, and profited from the difference.

In February 2012, three principal officers of Laguna were charged with receiving kickbacks for awarding subcontracts. The company’s Executive Vice President and Chief Operating Officer also was charged with conspiring to defraud the United States by participating in a kickback scheme from December 2004 to February 2009, which he pleaded guilty to in July 2013.

After performing work until 2015, Laguna sought payment of past costs. The government refused a portion of these costs alleging that it was not liable because Laguna had committed a prior material breach by accepting subcontractor kickbacks under the contract. The Armed Services Board of Contract Appeals agreed, stating that Laguna “committed the first material breach under this contract, which provided the government with a legal excuse not to pay [Laguna’s] invoices.”

Laguna appealed to the Federal Circuit.  Laguna argued, in part, that any alleged breach was not material because the Government may audit and reconcile costs, thereby “assur[ing] that the Government will incur no damages.”

The Federal Circuit explained that, the prior material breach doctrine, a contractor’s claim against the government may be barred when the contractor breaches the contract through “fraud-based” contract.”  The court further explained that its decision comported with the Supreme Court’s instruction “that the government must be able to ‘rid itself’ of contracts that are ‘tainted’ by fraud, including kickbacks and violation of conflict-of-interest statutes,” citing to the Supreme Court’s prior rationale that:

[E]ven if the Government could isolate and recover the inflation attributable to the kickback, it would still be saddled with a subcontractor who, having obtained the job other than on merit, is perhaps entirely unreliable in other ways. This unreliability in turn undermines the security of the prime contractor’s performance–a result which the public cannot tolerate, especially where, as here, important defense contracts are involved.

In this case, the court wrote that Laguna “committed the first material breach” by agreeing to accept kickbacks from its subcontractors. The court held that “[t]he Board properly determined that these criminal acts constituted material breach that may be imputed to Laguna, since both employees were operating under the contract and within the scope of their employment when they ‘manipulated the contracting process.'”  The court denied Laguna’s appeal, and affirmed the ASBCA’s decision.

This decision provides a cautionary example of one of the many risks involved in accepting kickbacks for awarding subcontracts. The Anti-Kickback Act continues to provide for criminal, civil, and administrative penalties–and some of those penalties were assessed against Laguna’s employees. But the Laguna case demonstrates that violations of the Anti-Kickback Act (and other fraud-based breaches of a government contract) also may excuse the government from paying a contractor’s claim for additional contract costs.

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Koprince Law LLC

A contractor was awarded more than $31,000 in attorneys’ fees and costs after a government agency unjustifiably refused to pay the contractor’s $6,000 claim–forcing the contractor to go through lengthy legal processes to get reimbursed.

A recent decision of the Civilian Board of Contract Appeals is a cautionary tale for government contracting officials, a few of whom seem inclined to play hardball with low-dollar claims, even when those claims are entirely justified.

The CBCA’s decision in Kirk Ringgold, CBCA 5772-C (2017) involved a contract between Kirk Ringgold, an individual, and the USDA.  Under the contract, the agency rented Mr. Ringgold’s property to use as a helipad during a forest fire.  Afterward, the agency “refused, for two weeks, to take responsibility for restoring the Ringgolds’ property to its original condition.”

Mr. Ringgold submitted an invoice for 15 days of holdover rent, in the amount of $6,000.  The USDA refused to pay.  Mr. Ringgold eventually filed an appeal with the CBCA.

The USDA initially filed briefs defending the appeal.  But finally, about 11 months after the dispute arose (and three months after Mr. Ringgold filed his appeal), the USDA agreed to settle for the full amount claimed–$6,000.

Mr. Ringgold then filed a request for attorneys’ fees and expenses under the Equal Access to Justice Act.  Mr. Ringgold sought fees for more than 200 hours of work performed by his four attorneys, as well as legal work performed by a summer law clerk.

The CBCA wrote that the initial denial of Mr. Ringgold’s invoice was “unreasonable and unjustified.”  Further, once the appeal was filed, the USDA made “substantially unjustified objections to jurisdiction and liability,” thereby “forc[ing] Mr. Ringgold’s lawyers to brief these points.”  Although the USDA ultimately agreed to settle for the full amount, this didn’t eliminate the costs Mr. Ringgold had already incurred because of the agency’s unreasonable conduct.

The CBCA noted that “the specific purpose of the EAJA is to eliminate for the average person the financial disincentive to challenge unreasonable governmental actions of this kind.”  The CBCA granted Mr. Ringgold’s request and awarded him $31,230.35 in attorneys’ fees and costs.

In my experience, most government officials go out of their way to treat contractors fairly.  Every now and then, though, my colleagues and I run into a contracting official who seems to have an unfortunate mindset when it comes to a small-dollar claim: “this one will be too expensive for the contractor to litigate–so let’s just see if they’ll eat it.”

As the Kirk Ringgold case shows, this can be a risky way for the government to do business.  Under EAJA, a contractor may be entitled to recover its attorneys’ fees and costs, even if those fees and costs far outstrip the value of the original claim.  Here, the USDA’s unjustified failure to simply pay Mr. Ringgold’s invoice ultimately cost the agency more than five times the value of that invoice.  Contracting officials, take note.

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Koprince Law LLC

So-called “common investments” affiliation under the SBA’s affiliation rules arises most frequently when individuals own common interests in at least two operating companies.  But common investments affiliation can also be based on common interests in real estate.

In a recent decision, the SBA Office of Hearings and Appeals held that the SBA had performed an inadequate size determination because the SBA Area Office asked the protested company about common investments in companies–but didn’t directly ask about common investments in real estate.

OHA’s decision in Size Appeal of Costar Services, Inc., SBA No. SIZ-5745 (2016) involved a NAVFAC solicitation for base operations support services.  The solicitation was issued as a small business set-aside under NAICS code 561210 (Facilities Support Services).

After evaluating competitive proposals, NAVFAC announced that Mark Dunning Industries, Inc. was the apparent awardee.  Costar Services Inc., an unsuccessful competitor, then filed a SBA size protest, alleging that MDI was affiliated with various other entities.

Among its allegations, Costar alleged that MDI’s owner, Mark Dunning, shared an identity of interest with Gregory Scott White under the common investments affiliation rule.  MDI contended, in part, that Mr. Dunning and Mr. White jointly owned interests in various real estate properties in Alabama.  Costar attached evidence supporting its contentions.  Costar argued that, because of the identity of interest, MDI was affiliated with companies controlled by Mr. White.

In the course of its size investigation, the SBA Area Office asked MDI whether “Mr. Dunning has any ownership interest or serve as a director or officer in any company with Mr. Scott White?”  MDI responded by stating that the only “business association” between the two men was joint ownership of White & Dunning, LLP, “which is an entity formed for the sole purpose of collecting rent for a single piece of property, a hunting cabin.”

The SBA Area Office determined that Mr. Dunning and Mr. White did not share an identity of interest under the common investments rule, and issued a size determination finding MDI to be an eligible small business for purposes of the NAVFAC procurement.

Costar filed a size appeal with OHA.  Among its contentions, Costar argued that the SBA Area Office had performed an incomplete investigation of the potential for common investments affiliation between Mr. Dunning and Mr. White.

OHA agreed.  It wrote that “[t]he Area Office did not directly inquire into whether Messrs. Dunning and White have common investments in entities that are not companies, nor ask MDI specifically to address” the Alabama properties identified by Costar.  OHA stated that the SBA Area Office had improperly accepted MDI’s responses “without further inquiry,” even though MDI’s representation that Mr. Dunning and Mr. White had no business relationship except their joint ownership of White & Dunning LLP “appear inconsistent with the evidence submitted by” Costar.  OHA granted Costar’s size appeal and remanded the matter to the SBA Area Office for a more thorough investigation of the potential identity of interest between Mr. Dunning and Mr. White.

Costar Services size appeal demonstrates, common investments affiliation need not be based on shared interests in operating companies.  Instead, as OHA suggested, such affiliation can also be based on shared investments in real estate.


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Koprince Law LLC

It’s a well-known aspect of federal contracting: if a contractor wishes to formally dispute a matter of contract performance, the contractor should file a claim with the contracting officer.

But if the contractor is working under a task or delivery order, which contracting officer should be on the receiving end of that claim—the one responsible for the order, or the one responsible for the underlying contract?

As a recent Civilian Board of Contract Appeals decision demonstrates, when a contractor is performing work under a Federal Supply Schedule order, a claim involving the terms of the underlying Schedule contract must be filed with the GSA contracting officer.

Consultis of San Antonio, Inc. v. United States, CBCA No. 5458 (March 31, 2017) involved an appeal relating to a task order award by the VA to Consultis under its GSA Federal Supply Schedule Contract, for various information technology services. During performance, one of Consultis’ employees raised concerns about wage rates, so the Department of Labor conducted an inquiry to determine the applicability of the Service Contract Labor Standards under the task order. The DOL found that, while the Service Contract Act was incorporated in Consultis’ GSA Schedule contract, the appropriate wage determinations were not. It therefore recommended that GSA and VA add them to the task order.

Both GSA and the VA initially declined to add the wage determinations to the task order. Some six months later, however, the VA’s contracting officer issued a unilateral modification that did so. About two months after that, Consultis requested a supplemental payment from the VA as a result of these wage determinations, saying that it would pay the increased wages as soon as the VA provided the payment. After additional correspondence, the VA’s contracting officer issued a “final decision” denying Consultis’ request, noting that compliance with the labor standards is a contractor’s responsibility. GSA’s contracting officer apparently was involved in this decision.

Consultis appealed this denial to the Civilian Board of Contract Appeals. But after a review of the appeal, the Board questioned whether the VA contracting officer’s final decision was sufficient to trigger the Board’s jurisdiction.

Specifically, the Board noted that “FAR 8.406-6 requires that disputes pertaining to the terms and conditions of contracts be referred to the schedule contracting officer for resolution . . . whereas disputes pertaining to performance may be handled by the ordering activity contracting officer.” The Board found that this provision required GSA’s contracting officer—not the VA’s—to decide Consultis’ claim:

Although the focus of this appeal is the applicability of the wage determinations to the task order contract, the resolution of that issue necessarily requires an examination of the terms and conditions of the schedule contract. . . . We are not persuaded that clauses mandated by statute in the FSS contract, including those mandating compliance with the SCLS, cannot be enforced if they are not expressly incorporated into the task order contract. The task order comes into existence under the schedule contract. . . . Whether the VA contracting officer merely made explicit (by issuing the modification) what the contract already requires is an issue of contract interpretation that is appropriate for consideration by the GSA contracting officer. At the very least, it is a mixed issue, involving both performance and contract interpretation, which . . . also requires a decision from the GSA contracting officer.

Because GSA’s contracting officer did not issue final decision, the Board ruled that it did not have jurisdiction to consider Consultis’ appeal. It therefore dismissed the appeal for lack of jurisdiction.

Though the principle that a contracting officer must first issue a final decision before a contractor may appeal that decision seems relatively straightforward, Consultis demonstrates that its real-world application is sometimes not. For disputes involving FSS contracts, contractors should consider which contracting officer—either the ordering agency’s or the GSA’s—should consider the claim; if the claim is not decided by the appropriate contracting officer, the Board will not have jurisdiction to consider any appeal.

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Koprince Law LLC

When issues arise in performance of a federal contract, a contractor may seek redress from the government by filing a claim with the contracting officer. However, commencing such a claim may result in an exercise of patience and waiting by the contractor.

The Contract Disputes Act, as a jurisdictional hurdle for claims over $100,000, requires a contractor to submit a “certified claim” to the agency. The CDA also requires the contracting officer, within sixty days of receipt of a certified claim, to issue a decision on that claim or notify the contractor of the time within which the decision will be issued.

That second part of the equation can lead to some frustration on the part of contractors. As seen in a recent Civilian Board of Contract Appeals decision, a contracting officer may, in an appropriate case, extend the ordinary 60-day time frame by several months.

In Stobil Enterprise v. Department Veterans Affairs, CBCA No. 5616 (2017), the VA awarded Strobil a contract to provide housekeeping and dietary services for an inpatient living program at a VA facility. After encountering contractual issues, Stobil initially filed a claim in the amount of $166,000. The VA denied this claim, and Stobil appealed. The CBCA dismissed Stobil’s appeal because the underlying claim hadn’t included the required certification.

Stobil then went back to the drawing board and filed a certified claim, “based on the same contracts and similar issues as those presented” in the first claim. But the certified claim was in the amount of $321,288.20, plus a whopping $2.3 million in interest. Stobil filed its certified claim on November 28, 2016.

By way of a January 27, 2017 letter, the contracting officer notified Stobil that the contracting officer would issue a decision on the certified claim by March 31, 2017. According to the contracting officer, the decision would be issued about four months after Stobil had filed its claim–or about twice as long as the 60-day time frame set forth in the CDA.

Apparently frustrated with the delay, Stobil requested the CBCA direct the contracting officer to issue its decision sooner. The CBCA declined this request.

In its rationale, the CBCA noted that the CDA doesn’t require a contracting officer to issue a decision within 60 days, but instead provides the contracting officer the option of notifying the contractor of the time within which the decision will be issued. The CDA doesn’t provide an outer limit on the period in which the decision may be extended beyond 60 days. Instead, the question is whether the delay was reasonable in light of the specific facts and circumstances of the case.

The CBCA continued:

Typically, in evaluating undue delay and reasonableness [of the date proposed by the contracting officer for issuance of a decision on a claim], a tribunal considers a number of factors, including the underlying claim’s complexity, the adequacy of contractor-provided supporting information, the need for external technical analysis by experts, the desirability of an audit, and the size of and detail contained in the claim.

The CBCA explained that while the VA had previously issued a decision on Stobil’s claims involving similar matters,”Stobil nearly doubled the amount of its claim from its former appeal . . . and is also now seeking around $2.3 million in interest.” This is, the CBCA said, “by no means a slight up-tick in money sought, such that the contracting officer should be able to rely primarily on whatever documentation Stobil previously submitted” with its initial claim. The CBCA agreed with the VA that with the significantly increased monetary demand and possibility of new items requiring review, the contracting officer was not “unduly delayed” in issuing a decision. The CBCA concluded that the VA’s timeline for issuing a decision on the certified claim was “reasonable, constituting only a modest delay.”

It’s commonly understood that a claim filed pursuant to the Contract Disputes Act must be decided within 60 days. But as the Stobil Enterprise case demonstrates, agencies have the discretion to extend the 60-day period significantly, provided that the extension is deemed “reasonable.” Here, the contracting officer essentially doubled the underlying 60-day period, but was guilty of nothing more than a “modest delay.” Contractors availing themselves of the claims process should be prepared to play the waiting game.

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Koprince Law LLC

Populated joint ventures will no longer be permitted in the SBA’s small business programs, under a new regulation set to take effect on August 24, 2016.

The SBA’s major new rule, officially issued today in the Federal Register, will be best known for implementing the long-awaited small business mentor-protege program.  But the rule also makes many other important changes to the SBA’s small business programs, including the elimination of populated joint ventures.

Under current law, a joint venture can be either populated or unpopulated.  A populated joint venture acts like an actual operating company: it brings employees onto its payroll, and performs contract using its own employees.  An unpopulated joint venture, on the other hand, does not use its own employees to perform contracts.  Instead, an unpopulated joint venture serves as a vehicle by which the joint venture’s members can collectively serve as the prime contractor, with each joint venture member performing work with its own employees.

The SBA’s new regulation changes the definition of a joint venture to exclude populated entities.  The revised regulation, which will appear in 13 C.F.R. 121.1o3(h), defines a joint venture, in relevant part, as follows:

For purposes of this provision and in order to facilitate tracking of the number of contract awards made to a joint venture, a joint venture: must be in writing and must do business under its own name; must be identified as a joint venture in the System for Award Management (SAM); may be in the form of a formal or informal partnership or exist as a separate limited liability company or other separate legal entity; and, if it exists as a formal separate legal entity, may not be populated with individuals intended to perform contracts awarded to the joint venture (i.e., the joint venture may have its own separate employees to perform administrative functions, but may not have its own separate employees to perform contracts awarded to the joint venture).

In its commentary explaining the change, the SBA focused on joint ventures between mentors and proteges, both in the 8(a) mentor-protege program and the SBA’s new small business mentor-protege program.  The SBA stated that “a small protege firm does not adequately enhance its expertise or ability to perform larger and more complex contracts on its own in the future when all the work through a joint venture is performed by a populated separate legal entity.”  SBA further explained:

If the individuals hired by the joint venture to perform the work under the contract did not come from the protege firm, there is no guarantee that they would ultimately end up working for the protege firm after the contract is completed.  In such a case, the protege firm would have gained nothing out of that contract.  The company itself did not perform work under the contract and the individual employees who performed work did not at any point work for the protege firm.

Although the SBA’s commentary focused almost exclusively on mentor-protege joint ventures, the regulatory change appears in the SBA’s size regulations, which apply both inside and outside of the new small business mentor-protege program.  It appears, therefore, that populated joint ventures will not only be impermissible for mentor-protege joint ventures, but will also be impermissible for joint ventures between multiple small businesses.

In my experience, most small government contractors already prefer unpopulated joint ventures, largely because of the administrative inconveniences associated with populating a limited-purpose entity like a joint venture.  Nevertheless, a not-insignificant minority has long preferred the populated joint venture form.  Come August 24, 2016, those contractors will have to say goodbye to the possibility of forming new populated joint ventures for set-aside contracts.

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Koprince Law LLC

Businesses controlled by brothers were presumed affiliated under the SBA’s affiliation rules.

In a recent size determination, the SBA Office of Hearings and Appeals held that a contractor was affiliated with companies controlled by its largest owners’ brother, even though the companies had only minimal business dealings.  OHA’s decision highlights the “familial relationships” affiliation rule, which can often trip up even sophisticated contractors–but the decision, which was based on a March 2016 size determination request, did not take into account changes to that regulation that went into effect a few months later.

OHA’s decision in Size Appeal of Quigg Bros., Inc., SBA No. SIZ-5786 (2016) arose from a HUBZone Program application submitted by Quigg Bros., Inc..  On March 30, 2016, the HUBZone Program office asked that the SBA Area Office conduct a size determination on Quigg Bros. to determine whether the company was a small business in its primary NAICS code, 237310 (Highway, Street, and Bridge Construction).

The SBA Area Office determined that Quigg Bros. was owned by six related individuals. The two largest shareholders were John Quigg and Patrick Quigg.  The SBA Area Office determined that all six of the owners, including John Quigg and Patrick Quigg, controlled Quigg Bros.

The SBA Area Office then proceeded to examine potential affiliation with various other entities.  As is relevant to this post, William Quigg–the brother of John Quigg and Patrick Quigg–controlled three companies: Root Construction Inc. (RC), Barrier West, Inc. (BW), and Cottonwood, Inc.  These companies were identified as “related parties” in Quigg Bros.’ financial statements.  When the SBA asked for an explanation, Quigg Bros. stated that “ecause we have loaned money to these entities our CPAs feel they are related.” However, Quigg Bros. pointed out, William Quigg was not an owner or officer of Quigg Bros., nor were John Quigg or Patrick Quigg involved as owners or officers of RC, BW, or Cottonwood.

The SBA Area Office issued a size determination finding Quigg Bros. to be affiliated with various other entities, including RC, BW and Cottonwood.  The SBA Area Office stated that companies controlled by close family members are presumed to be affiliated.  Although the presumption of affiliation may be rebutted, the SBA Area Office apparently found that the loans between Quigg Bros. and the other three companies (as well as other business dealings between the brothers) precluded Quigg Bros. from rebutting the presumption.  As a result of its affiliations, Quigg Bros. was found ineligible for admission to the HUBZone Program.

Quigg Bros. filed a size appeal with OHA.  Quigg Bros. highlighted the fact that none of its owners had any ownership interest in RC, BW or Cottonwood.  Quigg Bros. also pointed out that William Quigg was not an owner or officer of Quigg Bros.  Additionally, Quigg Bros. stated, the business dealings between the companies were minimal, and the companies did not share any officers, employees, facilities, or equipment.

OHA wrote that “SBA regulations create a rebuttable presumption that close family members have identical interests and must be treated as one person.”  The challenged firm “may rebut this presumption by demonstrating a clear line of fracture between family members.”

In this case, “the Area Office correctly presumed that William Quigg shares an identity of interest with his brothers, and afforded [Quigg Bros.] several opportunities to rebut this presumption.”  However, “the record reflects various business dealings between the brothers and their respective companies, including both contracts and loans, as well as join investments” in two other companies.  These circumstances “undermine [Quigg Bros.’] claim of clear fracture, as OHA has recognized that ‘where there is financial assistance, loans, or significant subcontracting between the firms,’ and ‘whether the family members participate in multiple businesses together’ are among the criteria to be considered in determining whether clear fracture exists.”

OHA also found that the SBA Area Office did not err by failing to undertake a company-by-company analysis to determine whether Quigg Bros. was affiliated with each of the individual companies controlled by William Quigg. Citing prior decisions, OHA wrote that “if a challenged firm does not rebut the presumption of identity of interest between family members, all of the family members’ investments are aggregated.” OHA upheld the SBA Area Office’s size determination, and denied the size appeal.

In Quigg Brothers, the size determination request came in March 2016, so OHA applied the SBA’s then-existing rules on family relationships.  It’s worth noting, however, that the SBA adjusted those rules in a rulemaking effective on June 30, 2016.  The SBA’s affiliation rule now states:

Firms owned or controlled by married couples, parties to a civil union, parents, children, and siblings are presumed to be affiliated with each other if they conduct business with each other, such as subcontracts or joint ventures or share or provide loans, resources, equipment, locations or employees with one another. This presumption may be overcome by showing a clear line of fracture between the concerns. Other types of familial relationships are not grounds for affiliation on family relationships. 

The plain text of the new rule suggests that–unlike in Quigg Bros. and prior OHA cases–the primary focus of the regulation may be on the businesses, not the family members.  In other words, the company-by-company analysis OHA rejected in Quigg Bros. might be required moving forward.  Additionally, unlike in prior cases, the new regulation suggests that the presumption doesn’t arise in the first place unless there is a close family relationship and the companies in question conduct business with one another.

Make no mistake: family relationships are still a viable basis of affiliation under the SBA’s revised regulations.  But it remains to be seen how the new regulation will affect OHA’s analysis in future cases.

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Koprince Law LLC

SDVOSBs, rejoice! Kingdomware Technologies has unanimously won its Supreme Court battle against the VA.  The Court has held that the VA’s “rule of two” is mandatory and applies to all of the VA’s contracting determinations.

I’ll have much more analysis up on SmallGovCon in the coming hours.  For now, congratulations to Kingdomware–and all SDVOSBs and VOSBs!

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Koprince Law LLC

When I went out for pizza with my family the other night, the only number that mattered to me when I got the check was the bottom-line price. It didn’t matter to me what the price for each pizza or each lemonade was, as long as the total price was within my budget.

For an agency evaluating a proposal for reasonableness in a fixed-price setting, the same holds true: it is the bottom-line price that matters, not the individual items that add up to the bottom-line price. The GAO recently had the opportunity to review this concept in a bid protest decision.

The question of whether a contractor’s price is “fair and reasonable” (that is, not too high) is a cornerstone of federal contracting. This holds true for simplified acquisitions under FAR Part 13, for which FAR 13.106-3(a) requires the contracting officer to determine that the prospective awardee’s price is fair and reasonable.

But when an agency requests prospective offerors to provide pricing for multiple line items, does the price for each line item have to meet the “fair and reasonable” standard? The GAO’s recent decision in David Jones, CPA PC, B-414701 (August 25, 2017) provides some answers.

The David Jones case concerned an RFQ issued by the VA under FAR Part 13. The VA sought a contractor to provide investigations into Equal Employment Opportunity claims for the VA. Each of the bidders was required to submit prices for conducting EEO claims investigations for five different line items, corresponding to five different types of EEO cases for five different years, for a total of 25 line items.

David Jones, CPA PC submitted a bid. In its evaluation, the VA determined that the price for one of DJCPA’s 25 line items was not fair and reasonable. The VA excluded DJCPA from the competition.

DJCPA protested, arguing that the VA’s price reasonableness determination was improper. DJCPA contended that the VA failed to consider “the relationship between CLINs” and “the fact that DJCPA’s prices for all but one CLIN were lower than the agency’s benchmarks.”

The GAO agreed with DJCPA. It found that the VA was required to consider whether the high price on one of the 25 line items in the proposal “would result in an unreasonably high price overall.” Because the VA “engaged in no analysis whatsoever to assess whether there was a risk that the the protester’s h igh price on the single line item in question would result in the government paying an unreasonably high price” overall, the GAO sustained the protest.

Getting back to my pizza example, if I complained to my family that one item (say, the cheese pizza) on the receipt was too expensive, but that I was fine with the overall cost, they would think I was being silly. It is the overall price that I have to pay for, so that is the price that truly matters. The same holds true for a contract evaluated under price reasonableness.  If the bottom-line price is reasonable, it may not matter whether one of the individual line items is priced too high.

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Koprince Law LLC

The Service Contract Act requires contractors to pay certain provide no less than certain prevailing wages and fringe benefits (including vacation) to its service employees. The amount of vacation ordinarily is based on an employee’s years of service—and service with a predecessor contractor counts. The FAR’s Nondisplacement of Qualified Workers provision, in turn, requires follow-on contractors to offer a “right of first refusal” to many of those same incumbent employees.

A follow-on contractor is to be given a list of incumbent service personnel, but that information ordinarily isn’t available at the proposal stage. So what happens when a follow-on contractor unknowingly underbids because it isn’t aware how much vacation is owed to incumbent service personnel? The answer, at least in a fixed-price contract, is “too bad for the contractor.”

So it was in SecTek, Inc., CBCA 5036 (May 3, 2017)—there, the Civilian Board of Contract appeals held that a contractor must pay employees retained from the incumbent nearly $170,000 in wage and benefit costs based on its underestimate of those costs in its proposal.

In 2015, the National Archives and Records Administration issued a request for quotations to provide security services at two NARA buildings. This solicitation fell under the Service Contract Act and also included the FAR’s the Nondisplacement of Qualified Workers clause (FAR 52.222-17). In other words, the successful contractor had to provide a right of first refusal to qualified service employees, and honor years of service incurred by those employees with the predecessor contractor.

The solicitation included a wage determination that informed offerors that incumbent employees’ benefits were defined in part under a collective bargaining agreement. Under this agreement, the predecessor contractor had agreed to provide its employees with the following levels of vacation time:

  • 2 weeks, for employees with 1-4 years of service;
  • 3 weeks, for employees with 5-14 years of service; and
  • 5 weeks, for employees with 15+ years of service.

Before submitting its final quote, SecTek asked whether the government would provide a list of the incumbent contractor’s security officers, including their seniority, before proposals were submitted. The government did not, citing the FAR’s provision that this list must instead be provided after award.

Without this list, SecTek was forced to guess the amount of vacation that would be due incumbent personnel. SecTek estimated that the average length of service for incumbent personnel was only three years and provided 80 hours of vacation time for all guards.

SecTek’s fixed price offer was $40,918,522.84. It was awarded the contract and, ten days later, was given a seniority list of the predecessor contractor’s service employees.

After award, SecTek learned that some of the incumbents service employees were owed more than 80 hours of vacation, given their seniority. So SecTek sought an equitable adjustment of its contract for this vacation time, totaling nearly $170,000. NARA denied this request, saying that it fully complied with the FAR’s requirements in disclosing the seniority list.

SecTek then filed a formal certified claim seeking a contract adjustment. After NARA refused to timely respond, SecTek appealed the deemed denial to the Civilian Board of Contract Appeals.

The issue, on appeal, was relatively straightforward: did NARA’s failure to provide SecTek with a seniority list of the incumbent contractor’s service employees before contract award entitle SecTek to a price adjustment reflecting those employees’ true vacation time? According to SecTek, the government’s refusal to provide this information precluded it from knowing the actual level of vacation pay that it would be required to pay the incumbent contractor’s employees; had it been provided this information, it could have priced its offer accordingly.

The Board denied SecTek’s appeal, finding that NARA did not violate any FAR provision by refusing to provide the incumbent contractors’ seniority levels before the award. Just the opposite, in fact:

Although information about the seniority of the predecessor contractor’s employees may have been helpful in estimating the level of benefits extended to those employees, this does not mean that the information must be, or even could have been, provided in advance of the contract award. . . . The Government . . . is not entitled to request the list [from the incumbent contractor] until thirty days prior to the expiration of the contract. In addition, the Government is not permitted to release the seniority list to the successor contractor until after contract award. The Government furnished the seniority list to SecTek on August 28, 2014—ten days after contract award and in full compliance with the FAR requirement.

Because NARA could not have properly provided SecTek with the incumbent contractor employee seniority list before the award, it did not bear any responsibility for SecTek’s low estimate of incumbent employee vacation time. The Board noted that the contract had been awarded on a fixed-price basis, and that “the general rule in fixed-price contracting is that, in the absence of a contract provision reallocating the risk, the contractor assumes the risk of increased costs not attributable to the government.” Here, SecTek “bore the risk that its cost projections might prove to be insufficient,” and SecTek alone was on the hook for the additional vacation time costs.

Through no fault of its own, SecTek underestimated the amount of vacation time due incumbent employees (which it was required to make make good faith efforts to hire) and, as a result, must absorb nearly $170,000 in additional benefit costs. SecTek, Inc.  shows that when the Service Contract Act and Nondisplacement of Qualified Workers provisions intersect on a fixed-price contract, the result can be harsh.

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Koprince Law LLC

Asking new employees to sign arbitration agreements is common in the commercial business world. But it can be a big no-no in government contracting.

In a recent bid protest decision, GAO sustained a protest where a Reston, Virginia company required its proposed key personnel to sign binding arbitration agreements.  In other words, requiring key personnel to arbitrate employment disputes cost the original awardee a $41 million contract.

The problem with doing so, according to the decision in L3 Unidyne, Inc., B-414902 (Oct. 16, 2017), is that it seems to have been contrary to the Fiscal Year 2010 Defense Appropriations Act.

Defense appropriations bills, which are passed by Congress annually, serve the primary purpose of funding the Department of Defense for the upcoming fiscal year. But it is common practice for lawmakers to use the opportunity to introduce a number of policy concerns, or occasionally bizarre pet projects, into a bill that they know will pass.

According to L3 Unidyne, the 2010 Act precludes the expenditure of funds on any federal contract in excess of $1 million, unless the contractor agrees not to enter into a binding arbitration agreement for certain types of employment claims, including discrimination claims under title VII of the Civil Rights Act of 1964. The 2010 requirement has been incorporated into the DFARS, where contracts will contain the clause at DFARS 252.222-7006 (Restrictions on the Use of Mandatory Arbitration Agreements).

The procurement in question sought various services in connection with the Navy’s towed sonar array. The Navy issued the solicitation to holders of the Seaport-e IDIQ contract. The work was to last a maximum of two years. Importantly, the solicitation required offerors to provide letters of intent from proposed key employees.

The Navy received several proposals, only one of which was found technically acceptable, that of Leidos, Inc. of Reston, Virginia. The Navy announced that Leidos had won the award at an evaluated cost of $41.4 million.

One of the unsuccessful offerors, L3 Unidyne, Inc., of Norfolk, Virginia, filed a protest. It argued that Leidos had required key employees to sign arbitration agreements contrary to the 2010 Defense Appropriations Act, and that the Navy failed to evaluate Leidos’ proposal for compliance.

The evidence showed that Leidos had required four proposed key employees to sign arbitration agreements as a condition of employment. Leidos’s submitted letters of intent for the employees included the following language: “All new hires and rehires of Leidos must execute an Arbitration Agreement prior to commencement of employment.”

GAO sustained the protest, holding:

As noted, the record shows that four of Leidos’s key employees were proposed as contingent hires. Each of them executed a letter of intent agreeing to accept employment with Leidos, and each of those letters of intent expressly conditioned the individual’s employment on execution of an arbitration agreement. As the protester correctly notes, there is no evidence in the record to show that the agency ever meaningfully considered whether or not the Leidos proposal complied with the statutory requirements described above in light of the terms of the letters of intent.

GAO added that the Navy “could not properly have considered the Leidos proposal awardable without resolving whether or not the arbitration agreements here violate the statutory prohibition.”

What is unclear from the case is why L3 relied solely on the 2010 appropriations bill, rather than DFARS 252.222-7016 or more recent statutory authority. There are no dates in the opinion, but it is fair to assume that the solicitation came out in 2017, maybe 2016 at the earliest. It is hard to imagine it reaching all the way back to 2010. It is possible, but again unclear from the case, that L3 cited the 2010 bill because that was in effect when the parties received the underlying Seaport-e contract. Regardless, GAO noted that “Although the provision to which the protester refers related to fiscal year 2010 funds, Congress repeatedly has reenacted identical provisions, most recently in the Consolidated Appropriations Act, 2017 . . . .”

Thus, GAO recommended that the Navy go back and “determine as an initial matter whether the Leidos proposal violates the statutory prohibition against requiring individuals to enter into arbitration agreements as a condition of employment.” GAO also recommended that the Navy pay L3 its costs, including attorneys’ fees—which, if this result is any indication, were probably very well-earned.

The L3 Unidyne case is an important reminder to defense contractors that they may be prohibited from requiring employees or independent contractors to sign mandatory arbitration agreements covering certain claims. Contractors would be wise to review their practices, and adjust them if necessary, before the issue comes to light in a bid protest with a contract hanging in the balance.

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Koprince Law LLC

When we write about bid protest decisions on SmallGovCon, odds are that we’re writing about a GAO decision. For good reason: GAO is the most common forum protesters bring bid protests.

But SmallGovCon readers also know there’s another possible forum for protests: the Court of Federal Claims.

The GAO publishes an annual bid protest report with statistics about the number and effectiveness rate of protests, among other things. But until very recently, we didn’t have much hard data about the frequency and efficacy of COFC protests. The recently-released RAND bid protest report changed that, by including a deep dive on DoD bid protests at COFC.

Let’s take a look.

RAND’s report answers several major questions relating to COFC protests.

How many protests are filed at COFC? From the beginning of 2008 through mid-2017, there were approximately 950 bid protests filed at the Court. These protests were split fairly evenly between DoD protests and non-DoD protests. Although this seems like a lot, the report shows that, based on the total number of acquisitions over this same time period, the frequency of protests at COFC is similar to that at GAO: less than 0.025% of contracts are actually protested. Or, as the report put it, “very few procurements are protested at COFC.”

Who is filing these protests? It would be logical to assume that large businesses are more likely to incur the expense of filing a COFC protest. Not so: the top 11 DoD contractors (by revenue) filed just ten protests between 2008 and 2016—and seven of these were filed by one company. Given this dearth, RAND concludes that “protests at COFC are not part of standard business practice at these firms.” Instead, RAND found that 58% of COFC protests are filed by small businesses.

Which agencies are protested the most? Of DoD agencies, the Army was most frequently protested at the COFC (about 41 percent of all DoD protests at the COFC). The Defense Logistics Agency was the least-protested (only about 9 percent of DoD protests at the COFC).

Which procurements are being protested? Only the largest solicitations out there, right? Surprisingly not. Although the size of contracts protested varies greatly, the average value of protested procurements is only about $1.1 million. A surprisingly large number of COFC protests, moreover, were for contracts valued less than $100,000—about 3.5%.

How long do COFC protests take? Unlike GAO, the Court doesn’t have a hard deadline to resolve protests. Even still, the majority are resolved very quickly: according to RAND, about 75% of COFC protests are resolved within 150 days. The average resolution took 133 days, while the median was 87 days. RAND was quick to caution, however, that some protests may take “considerably longer” depending on the issues involved and whether the Court’s decision is appealed.

Are COFC protests effective? Unfortunately for potential protesters, the RAND report has some discouraging information: out of 459 DoD protests analyzed, only 9% were sustained by the Court. Disappointed protesters appealed the Court’s decisions in about 12% of these protests and, of those, roughly one-fifth eventually earned a sustain.

Does this data suggest that the COFC is hostile to bid protests, or that protesting to the Court isn’t worth it? Absolutely not. Just like with GAO protests, the Court will sustain a protest if it determines the agency made a prejudicial error in its evaluation.

In my opinion, this comparatively-low sustain rate instead confirms the need for better communication between offerors and agencies, including more-thorough debriefings. It’s no secret that providing more information to offerors will reduce protests—including protests before the Court. In fact, we often talk to disappointed offerors who are considering protests mainly because the agency hasn’t adequately explained its evaluation decisions.

It’s also worth noting that many COFC protests are filed after the protester has lost at GAO. (The reverse isn’t true: a losing protester at the Court cannot turn around and file at GAO). This means that some of the protests on the Court’s docket have already been reviewed and rejected by GAO—and thus, the overall strength of the COFC protest pool may be weaker than at GAO.

Finally, as we’ve pointed out various times here at SmallGovCon, the key metric from a protester’s perspective isn’t the sustain rate, but the effectiveness rate—that is, the combination of “sustain” decisions plus voluntary agency corrective actions. At GAO, the effectiveness rate of protests has been above 40% for years, even though the sustain rate is much lower (17%, for example, in Fiscal Year 2017). Corrective actions happen at the COFC too, but the RAND Corporation didn’t have data on how often. As with the GAO, it would be a mistake to evaluate the effectiveness of COFC protests based solely on the sustain rate.

* * *

RAND’s report provides interesting—and surprising—information relating to COFC protests. In the right circumstances, these protests can be an important tool for government contractors (including small businesses) to earn a contract award.

If you’re considering a bid protest, give us a call to discuss your options.

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Koprince Law LLC

Contracting officers have wide discretion to determine that a business can perform the work in question—even if the business is about to enter bankruptcy.

In a recent GAO protest, an unsuccessful offeror challenged just such a determination, saying that there is no way the awarded business could perform because it was nearly bankrupt. But according to the GAO, so long as the agency considered the pending bankruptcy, it was not improper to make an award.

The case, SaxmanOne, LLC, B-414748 (Aug. 22, 2017), involved a motorcycle safety and training contract for the U.S. Marine Corps. The USMC wanted not only motorcycle training, but also dirt bike, all-terrain, recreational off-highway, and driver improvement training at 15 Marine Corps installations across the United States.

After evaluating competitive proposals, the USMC gave the award to Information Science Consulting, Inc., a Manassas, Virginia, company. SaxmanOne, LLC, also a Manassas company, protested.

SaxmanOne took issue with the technical evaluation, the past performance, and the price evaluation, all of which GAO considered and ultimately rejected.  But for our purposes, it is the challenge to the contracting officer’s responsibility determination that was the key part of the protest. In finding the awardee responsible, SaxmanOne argued that the USMC ignored the awardee’s debts and pending bankruptcy.

In the decision, GAO noted that, in general, it does not review affirmative responsibility determinations. But, it will when it the agency ignored information that “by its nature, would be expected to have a strong bearing on whether or not the awardee should be found responsible.”

Pending bankruptcy almost certainly satisfies the definition of information that would be expected to have a strong bearing on whether or not the awardee is responsible. Looking good for the protestor, right?

Ah, but here’s the rub: the question is not whether or not such information exists, nor is the fact alone enough for GAO to sustain the protest. The question is whether the agency considered this information or ignored it.

Here, GAO said: “The record demonstrates that the contracting officer considered the awardee’s alleged debts and pending bankruptcy litigation.”

According to GAO, the contracting officer thoroughly investigated the awardee’s financial resources, contacted the awardee’s current clients to see whether debt or pending bankruptcy would have any effect on performance, and reviewed the Federal Awardee Performance and Integrity Information System, which confirmed the awardee had no history of failing to pay subcontractors.

GAO said that was enough: “Given this level of detail, we do not find that the agency ignored either the awardee’s alleged debts or any pending bankruptcy litigation.”  The GAO denied the protest.

So, in summation, because the USMC knew about the bankruptcy, and it factored into the responsibility decision, GAO did not see it as an abuse of discretion. Given the relatively thorough investigation the contracting officer undertook, it sounds as though the USMC truly was not worried about this particular contractor performing.

As SaxmanOne shows, agencies have tremendous discretion in making responsibility determinations. When it comes to a financial responsibility matter, the key question is not whether relevant information exists, but whether the contracting officer considered (or ignored) that information.

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Koprince Law LLC

Ordinarily, whether an offeror’s proposed personnel actually perform under a contract is a non-protestable matter of contract administration. But GAO will consider the issue when an offeror proposes personnel that it did not have a reasonable basis to expect to provide during contract performance in order to obtain a more favorable evaluation. Such a “bait and switch” amounts to a material misrepresentation that undermines the integrity of the procurement and evaluation.

That’s exactly what happened in a recent protest, where the GAO disqualified the awardee from competition after determining that its proposal misrepresented the incumbent employees’ availability to continue working under the contract.

At issue in Patricio Enterprises, Inc., B-412738 et al. (May 26, 2016) was a task order solicitation to provide support for five product management teams for the Marine Corps’ Program Manager, Infantry Weapons Systems. Patricio and Knowledge Capital Associates (“KCA”) were each incumbents for some of these requirements under different existing task orders. The solicitation combined those services and contracts into one procurement.

The solicitation had three evaluation criteria: Management and Staffing Capability, Past Performance, and Price. The first (and most important) factor was comprised of two subfactors (Management and Staffing Capability). Under the Staffing Capability subfactor, offerors were required to provide a detailed approach to staffing that met the PWS requirements, and to provide detailed information (such as labor qualifications, proposed labor categories, and organizational structure) for its key personnel and other staff. The agency would then evaluate this subfactor by reviewing the “capabilities, qualifications, and experience of each offeror’s proposed key personnel” and the processes, resources, and organizational structure necessary to support the PWS tasks. The Government would also evaluate the offeror’s “approach to providing staffing necessary to achieve full performance by month five[.]”

Patricio and KCA timely submitted offerors, which were rated equally under the Management and Staffing Capability and Past Performance factors. Because KCA’s price was almost $5 million less than Patricio’s, KCA was named the awardee.

After Patricio’s attorneys obtained a copy of KCA’s proposal (probably as part of the Agency Report responding to Patricio’s initial protest), Patricio challenged KCA’s staffing approach. KCA, in short, touted its ability to begin work on “day one without missing a beat[.]” KCA further promised 100% staffing on “the very next day” following expiration of the existing support contracts.

KCA’s aggressive transition plan was based in part on KCA’s representations that it would employ incumbent personnel under its award. KCA went so far as to claim it had “signed contingent offers for select personnel” working for other companies (including Patricio) under incumbent contracts, and that these individuals “will be available at the immediate start of the Task Order.”

These representations, though, were (at best) misleading. Patricio produced sworn statements from its employees that were specifically named in KCA’s proposal, in which each person “stated that he or she had not been contacted by the awardee regarding potential employment for the PM IWS task order prior to the time for submission of proposals.”

In its own comments, KCA did not dispute these sworn declarations. Instead, KCA justified its proposal on the basis of discussions with Patricio employees, which led KCA to believe that the Patricio personnel identified in its proposal “would likely be willing to work for KCA in the event it was awarded the task order.” KCA claimed that its reference to “signed contingent offer letters” was misunderstood: according to KCA, this reference simply meant that the letters were prepared and signed by KCA’s president, not that the prospective personnel had signed them (or were even aware of them).

GAO found KCA’s reference to “signed contingent offers” and “signed contingent employment letters” to be an attempt to mislead the agency about KCA’s readiness to perform. GAO wrote that these references “appear[] purposefully crafted to convey that there had been communications with the individuals in question.” KCA’s apparent intent to later attempt to hire these individuals did not excuse this misrepresentation because “regardless of KCA’s intent to hire the individuals named in the proposal, the proposal misrepresented the commitment of the non-KCA employees to work for the awardee.”

KCA’s misrepresentation, moreover, impacted the Marine Corps’ evaluation. According to GAO, KCA earned a strength for its staffing approach and transition approach, which was based in part on KCA’s “approach to providing personnel, including key personnel, who would be capable of performing the work, and would be available at the start of performance.” Absent KCA’s pledge to provide incumbent staffing, it is unlikely that it would have been assessed such a strength.

GAO sustained Patricio’s protest. It also recommended that KCA be excluded from the competition:

[E]xclusion of an offeror from a competition is warranted where it made a material misrepresentation in its proposal and where the agency’s reliance on the misrepresentation had a material effect on the evaluation results. As our Office has stated, where an offeror’s material misrepresentation has a material effect on a competition, the integrity of the procurement system “demands no less” than the remedy of exclusion.

Patricio serves as a cautionary reminder: though offerors might want to increase their chances of award by hyping (or puffing) their abilities, going too far might amount to material misrepresentations. Here, the GAO found that KCA crossed the line–and deserved to be excluded.

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Koprince Law LLC

The period of performance under a government contract, measured in “days,” meant calendar days–not business days, as the contractor contended.

In a recent decision, the Armed Services Board of Contract Appeals applied the FAR’s general definition of “days” in holding that a contractor had not met the contract’s performance schedule.

The ASBCA’s decision in Family Entertainment Services, Inc., ASBCA No. 61157 (2017) involved an Army contract for grounds maintenance services at Fort Campbell, Kentucky and the surrounding area.  The contract was awarded to Family Entertainment Services, Inc. in May 2015.

(Side note: Family Entertainment Services apparently performed the contract under a “doing business as” name; IMC. That was probably a good call on the contractor’s part, because “Family Entertainment Services” doesn’t exactly conjure up mental images of landscaping).

The government subsequently issued a task order to FES.  The task order specified that mowing services would be completed every 14 days.  However, FES was unable to consistently provide the mowing services within 14 calendar days.

In August 2015, the government terminated a portion of the contract for convenience.  FES then filed a claim for $81,692.34.  FES argued, in part, that the government had not properly computed the performance schedule, which FES said should have been measured in business days, not calendar days.  The Contracting Officer denied the claim, and FES appealed to the ASBCA.

At the ASBCA, FES argued that the contract’s use of the term “days” was ambiguous, and should be meant to refer to business days.  The ASBCA disagreed.

The ASBCA noted that the contract included FAR 52.212-4 (Contract Terms and Conditions–Commercial Items).  That clause incorporates FAR 52.202-1 (Definitions), which states, in relevant part: “[w]hen a solicitation provision or contract clause uses a word or term that is defined in the Federal Acquisition Regulation (FAR), the word or term has the same meaning as the definition in FAR 2.101, in effect at the time the solicitation was issued . . . .”

FAR 2.101 succinctly says: “Day means, unless otherwise specified, a calendar day.”

Applying the FAR provisions in question, the ASBCA wrote that “there is only one reasonable way to interpret the contract.”  FES’s “opinion that ‘day’ should mean ‘work day’ is not a reasonable interpretation of the contract.”

The ASBCA denied the appeal.

The definition of “day” can make all the difference when it comes to various deadlines under which contractors must operate.  The FAR 2.101 definition doesn’t apply in every setting.  For example, FAR 33.101 includes some important nuances when it comes to protests and claims.  And, of course, the contractor and government can always contractually agree to a different definition, including a definition based on business days.

That said, oftentimes there is no other relevant FAR provision, and no agreed-upon contractual definition.  In those cases, as Family Entertainment Services indicates, the definition in FAR 2.101 will likely apply–and that means calendar days.

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Koprince Law LLC

A contractor did not file a proper certified claim because the purported “signature” on the mandatory certification was typewritten in Lucinda Handwriting font.

A recent decision of the Armed Services Board of Contract Appeals highlights the importance of providing a fully-compliant certification in connection with all claims over $100,000–which includes, according to the ASBCA, the requirement for a verifiable signature.

The ASBCA’s decision in ABS Development Corporation, ASBCA Nos. 60022 et al. (2016) involved a contract between the government and ABS Development Corporation, Inc. for construction work at a shipyard in Haifa, Israel.  During the course of performance, ABS presented seven claims to the Contracting Officer, five of which are at issue here.

In each of the five claims in question, ABS sought compensation of more than $100,000.  Each of the five claims contained a certification using the correct language from the Contract Disputes Act and FAR 52.233-1.  The “Name and Signature” line of each claim was written “in what appears to be Times New Roman font.”  Above the “Name and Signature” line of each claim the name “Yossi Carmely” was typed “in Lucinda Handwriting font, or something similar.”  Yossi Carmely was listed on the certifications as a Project Manager.

The government did not act on these claims.  A few months after the claims were filed, ABS appealed to the ASBCA, treating the government’s lack of response as “deemed denials” of the claims.

The government moved to dismiss the appeals for lack of jurisdiction.  The government argued that the certifications “were not signed by anyone, because electronically typed ‘signatures’ of Yossi Carmely are not signatures at all.”

The ASBCA noted that “[a] claim of more than $100,000 must be accompanied b y a signed certification by an individual authorized to bind the contractor with respect to the claim . . ..”  Further, “[t]he Board cannot entertain an appeal involving a claim of more than $100,000 unless the claim was the subject of a signed certification.”  An unsigned certification “is a defect that cannot be corrected.”

The Board explained that a signature “is a discrete, verifiable symbol that is sufficiently distinguishable to authenticate that the certification was issued with the purported author’s knowledge and consent or to establish his intent to certify, and therefore, cannot be easily disavowed by the purported author.”  The ASBCA continued:

Here, we are not confronted with an issue of “electronic signatures”; rather, we are confronted with several typewritings of a name (presumably typewritten by electronic means), purporting to be signatures.  However, a typewritten name, even one typewritten in Lucinda Handwriting font, cannot be authenticated, and therefore, it is not a signature.  That is, anyone can type a person’s name; there is no way to tell who did so from the typewriting itself.

The ASBCA granted the government’s motion to dismiss for lack of jurisdiction.

The FAR’s claim certification requirement appears to be simple and straightforward, but the ASBCA’s case law (and that of other Boards) is littered with examples of cases dismissed because the contractor omitted the certification or didn’t get it right.  As the ABS Development Corporation case demonstrates, even in our electronic age, a purely typewritten signature doesn’t suffice, notwithstanding the font selected.

One final, and rather ironic, note: the last page of the ASBCA’s decision contains a certification from the Board’s Recorder, attesting that the decision is a true copy.  The Recorder’s signature line is blank.

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Koprince Law LLC

The government can terminate a contract when the Department of Labor has made a preliminary finding of non-compliance with the Service Contract Act, even if the contractor has not exhausted its remedies fighting or appealing the finding.

The 3-0 (unanimous) decision by the Armed Services Board of Contract Appeals in Puget Sound Environmental Corp., ASBCA No. 58828 (July 12, 2016) is troubling because it could result in other contractors losing their contracts based on preliminary DOL findings–perhaps even if those preliminary findings are later overturned.

The Puget Sound decision involved two contracts under which Puget Sound Environmental Corporation was to provide qualified personnel to accomplish general labor tasks aboard Navy vessels or at naval shore leave facilities. Both contracts included the FAR’s Service Contract Act clauses.

Under that first contract, PSE ran into SCA issues. DOL investigated and PSE entered into a payment plan to remedy the alleged violations.

The Navy, knowing about the payment plan, nevertheless entered into another contract with PSE to provide similar services. The second contract, like the first, was subject to the SCA.

Early into the performance of the second contract (referred to as Task Order 9) during the summer of 2011, DOL began a new investigation into PSE. DOL’s investigation ultimately concluded that PSE owed its workers over $1.4 million on both contracts for failure to pay prevailing wage rates, and failing to provide appropriate health and welfare benefits and holidays to its covered employees. DOL made some harsh claims, including that PSE had classified skilled maintenance and environmental technicians as laborers and had issued health insurance cards to employees who were stuck with large medical bills after they found the cards were not valid.

During the investigation, on September 1, 2011, DOL wrote to the Navy contracting officer and informed the contracting officer of DOL’s preliminary findings. A week later, the contracting officer emailed PSE and told it that the Navy “no longer has need for the firewatch/laborer services provided under task order” 9, and that the Navy was terminating the contract for convenience. That same day, as would eventually come out in discovery, the contracting officer had written an internal email stating that he was concerned about awarding PSE another task order because of the supposed likelihood that PSE would “commit Fraud against [its] employees[.]”

Five days later, PSE agreed to allow the Navy to transfer funds due on Task Order 9 to DOL to be disbursed as back wages. Shortly thereafter, on September 15, PSE and the Navy mutually agreed to terminate the contract for convenience. The Navy issued no further task orders, but awarded a bridge contract for the same services to another contractor in October of that year.

Just under two years later, on May 17, 2013, PSE submitted a certified claim under the Contract Disputes Act, claiming lost revenue of $82.4 million (based on five years worth of revenue on the contract) and asked for 4% of that number, or $3.3 million in damages. The contracting officer never issued a final decision on the claim, so PSE treated this as a deemed denial and on August 9, 2013, appealed the decision to the ASBCA.

On May 12, 2014, DOL’s Office of Administrative Law Judges reviewed the findings of the DOL investigation and concluded that DOL was right to assess the $1.4 million in back pay. The Office of Administrative Law Judges determined that PSE should be debarred for three years. PSE appealed the decision to the Administrative Review Board, which affirmed the ALJ. PSE indicated that it would appeal the ruling in federal court, although it had not done so by the time the ASBCA ruled on PSE’s appeal.

At the ASBCA, both PSE and the Navy moved for summary judgment. PSE primarily argued that the Navy terminated the contract in bad faith. PSE said that the contracting officer rushed to judgment and that the termination for convenience was effectively a termination for default, relying on the use of the word “fraud” in the contracting officer’s internal email as evidence of animus.

The ASBCA said: “Whether fraud was the best word choice is not the issue before us; the undisputed facts show that the contracting officer had a good faith basis for concluding that PSE failed to pay its employees in accordance with the contracts and that it had deceived those employees by leading them to believe that they had health insurance when, in fact, they did not.” The ASBCA denied PSE’s motion for summary judgment, and granted the Navy’s motion.

While the facts of the case are interesting, they’re not all that unique; DOL investigates and prosecutes alleged SCA violations with some frequency. What’s troubling about the Puget Sound case is that the Navy unceremoniously terminated a contractor well before any of the new allegations were fully adjudicated and before PSE had the opportunity to contest DOL’s preliminary findings.

Although PSE could still prevail in federal court, the preliminary findings were confirmed by DOL’s ALJ and Administrative Review Board. But preliminary findings are just that–preliminary–and sometimes are overturned. The ASBCA’s decision therefore begs the question: what if a future contractor is terminated based on a preliminary DOL finding that is later overturned? Does Puget Sound Environmental mean that that contractor would have no remedy?

It’s certainly a possibility. That said, some there may be ways for other contractors to distinguish Puget Sound Environmental.

For one thing, PSE had already agreed to pay back wages on an earlier contract, of which the contracting officer was aware. That earlier settlement likely influenced the contracting officer’s decision; had the DOL’s preliminary findings on task order 9 stood in a vacuum, the contracting officer might have allowed things to play out.

Additionally, in reaching its conclusion, the ASBCA wrote that “PSE has not provided us with any evidence that DOL is wrong (and that the contracting officer’s reliance on DOL is actionable.” For example, the ASBCA said, “with respect to the allegation that PSE failed to pay health and welfare benefits, if DOL was wrong and PSE had paid for those benefits, it would have been relatively simple to establish this. But, PSE has failed to provide any such evidence.” In a case where DOL’s preliminary findings were overturned, the contractor would have strong evidence that those preliminary findings were wrong–and hopefully, that it was unreasonable for the contracting officer to rely on those findings.

There is an old legal adage that “hard cases make bad law,” which means that when judges allow themselves to be persuaded by sympathy, they make bad decisions. The same can be true when the parties involved elicit little sympathy, as may have been the case here–by not providing evidence that it had actually complied with the SCA, PSE wasn’t likely to win many points with the ASBCA’s judges.

That said, the next appellant who comes before the ASBCA with a similar issue may be able to demonstrate that it did, in fact, comply with the SCA, and that DOL’s preliminary findings were wrong. If so, it remains to be seen how the ASBCA will view the termination of that appellant’s contract.

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Koprince Law LLC

They say that two things in life are guaranteed – death and taxes – and status as a federal contractor may not exempt one from the latter, according to a recent Armed Services Board of Contract Appeals decision.

In Presentation Products, Inc. dba Spinitar, ASBCA No. 61066 (2017), the ASBCA held the contractor was liable to pay a state tax, and the government had no duty to reimburse the contractor. The problem arose from the fact that the contractor did not incorporate state tax costs into its proposed price, despite being required to pay the taxes under the terms of the contract and applicable state law.

Under the terms of the firm fixed-price contract, Presentation Products Inc. (doing business as Spinitar) was to provide the Army with installation of a video conferencing system in Fort Shafter Flats, Hawaii. The solicitation included FAR 52.212-4 (Instructions to Offerors–Commercial Items), which provides, in paragraph (k): “Taxes. The contract price includes all applicable Federal, State, and local taxes and duties.”

Hawaii places a general excise tax (or GET) on businesses rather than a sales tax on customers, which is not automatically waived when the customer is the federal government. The GET is an excise tax imposed on the gross revenues of businesses “derived from the privilege of doing business in Hawaii.” Under Hawaii’s GET, businesses are not required to collect GET from their customers, but may pass it on to customers upon agreement by the customer.

Seemingly under the belief the contract would not be subject to Hawaii’s GET, Spinitar’s proposal stated “[t]he above prices do not include any applicable sales taxes. Hawaii’s GET tax reimbursement policy implemented for federal purchases will be utilized.” The contract incorporated the terms of the solicitation, including FAR 52.212-4(k).

Upon commencing performance of the contract, Spinitar learned the goods and installation services being provided were subject to Hawaii’s GET of 4.5 percent, amounting to $7,624.14. Spinitar submitted a claim to the contracting officer, arguing that it should be reimbursed by the federal government. The contracting officer denied Spinitar’s claim.

In appealing its case to the ASBCA, Spinitar relied on the fact that it expressly noted in its price proposal that it had not included the GET in its price and that “Hawaii’s GET tax reimbursement policy implemented for federal purchases will be utilized.” Therefore, Spinitar argued, the government should reimburse Spinitar for the GET payment.

The ASBCA wrote that Spinitar “appeared to be surprised to learn from conversations with the Hawaii Department of Taxation that the GET exemption for goods sold to the federal government would not apply” to its contract. Spinitar was wrong, and “[t]he government is not liable for Spinitar’s mistake.” The ASBCA denied Spinitar’s appeal.

Government contractors often assume that all goods and services provided to the federal government are exempt from state taxes. Not so.

While this is a very complex area of law, Spinitar demonstrates that there is no blanket “federal contractor exemption” from state taxes. Accordingly, prior to submitting a proposal, federal contractors should do their homework and learn whether the contract they are bidding on will be subject to applicable state taxes. Failure to do so could leave the contractor responsible for taxes not included within the contractor’s proposed pricing–and the government won’t be liable for the contractor’s mistake.

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The Armed Services Board of Contract Appeals can order an agency to “speed up” its decision on a certified claim if the contracting officer’s anticipated time frame is unreasonably slow.

In a recent case, the ASBCA ordered a contracting officer to issue a decision approximately eight weeks earlier than the contracting officer planned to do so. The ASBCA’s decision highlights a little-known provision of the Contract Disputes Act, which entitles a contractor to request that an appropriate tribunal order an agency to hasten its decision on a claim.

In Volmar Construction, Inc., ASBCA No. 60710 (2016), the U.S. Army Corps of Engineers awarded Volmar a contract to renovate and repair buildings on Joint Base McGuire-Dix-Lakehurst in New Jersey. Volmar submitted eight certified claims to the  contracting officer via letter dated May 19, 2016, seeking money and extensions of time. The substance of the claims had all been previously submitted to the contracting officer in earlier written demands, the earliest of which dated back to January 29, 2016.

In July 2016, the contracting officer sent Volmar granting the relief sought in one of the certified claims. In a separate letter, the agency stated that final decisions on the remaining claims would be issued on or before March 31, 2017 – roughly 13 months after Volmar’s original claim submission.

Shortly after receiving the government’s notice, Volmar filed a petition with the ASBCA. Volmar sought an order compelling the contracting officer to issue a quicker decision on Volmar’s remaining certified claims.

The ASBCA noted that, under the Contract Disputes Act, when the agency receives a claim, the contracting officer must either issue a decision on the claim within 60 days or “notify the contractor of the time within which a decision will be issued.” Although there is no hard rule as to how far beyond 60 days the decision may be issued, the contracting officer’s decision “shall be issued within a reasonable time . . . taking into account the size and complexity of the claim and the adequacy of the information in support of the claim provided by the contractor.” Whether a contracting officer’s time frame is reasonable is determined on a case-by-case basis.

The Board stated that a contractor isn’t without recourse if the agency intends to unreasonably delay its decision. Instead, the CDA provides that “a contractor may request the tribunal concerned to direct a contracting officer to issue a decision in a specified period of time, as determined by the tribunal concerned . . ..”

In this case, Volmar argued that the March 31, 2017 date was unreasonable. The ASBCA agreed. It wrote that “[t]he government has had Volmar’s original submissions for well over seven months and has had Volmar’s claims for well over four months.” Although becoming familiar with Volmar’s claims could be time consuming for the assigned contracting officer, the ASBCA noted that “internal staffing matters are not one of the factors used to determine a reasonable time under the CDA.” The ASBCA ordered the contracting officer to issue a decision no later than January 13, 2017–approximately eight weeks earlier than the contracting officer had anticipated.

As Volmar Construction demonstrates, a contractor is not completely without recourse when an agency intends an unreasonable delay in its decision on a claim. Instead, as Volmar did here, the contractor can petition the appropriate tribunal for an order requiring the contracting officer to speed up his or her decision.

Justine Koehle, a law clerk with Koprince Law LLC, was the primary author of this post.

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Federal construction contracts incorporate the FAR’s payment and performance bonding requirements as a matter of law, even if the solicitation omits these bonding provisions.

In a recent Armed Services Board of Contract Appeals decision, K-Con, Inc., ASBCA Nos. 60686, 60687, a contractor ran headlong into construction bonding issues when the Army demanded payment and performance bonding for two of its construction contracts despite there being no bonding requirements in either of the contracts. According to the ASBCA, the bonds were required anyway.

K-Con involved two Army procurements for the construction of a laundry facility and communications equipment shelter at Camp Edwards in Massachusetts. The solicitations were both posted through the GSA’s eBuy system. The Contracting Officer inadvertently used Standard Form 1449 (Solicitation/Contract/Order for Commercial Items) despite the procurement being for construction services. As a result, neither of solicitations included provisions requiring payment or performance bonding.

K-Con, Inc. submitted proposals and was awarded both contracts on October 10, 2013. Before work began on either project, the Army requested that K-Con obtain performance and payment bonding. K-Con, however, was unable to obtain the necessary bonding, and proposed an alternative solution. Negotiations progressed slowly. On September 20, 2015—two years after the contract was awarded—K-Con finally obtained the requested bonding. K-Con subsequently completed the contract.

As a consequence of having performance delayed two years, K-Con was forced to pay more for labor and materials than it originally anticipated in its bid. After completing the construction work, K-Con submitted a request for equitable adjustment under each contract. Between the two REAs, K-Con sought a total of $116,336.56. K-Con argued it was entitled to the upward adjustment because performance bonding was not a requirement in either of the original solicitations.

The ASBCA’s discussion of the facts glosses over what happened next. Apparently, however, the Army rejected the REAs, and took the position that bonding had been required by law, even if it wasn’t specified in the solicitations or contracts. Since an REA is not a claim (and the ASBCA lacks jurisdiction over an appeal of a denied REA), the Army must have treated the REAs as claims, or K-Con must have refiled its REAs as claims–the decision doesn’t specify. One way or another, though, the dispute ended up at the ASBCA.

In resolving the case, the ASBCA turned to the longstanding contracting doctrine first developed in G.L Christian & Associates v. United States, 320 F.2d 345 (Ct. Cl. 1963)—the so called Christian doctrine. As the ASBCA explained, “nder the . . . Christian doctrine, a mandatory contract clause that expresses a significant or deeply ingrained strand of public procurement policy is considered to be included in a contract by operation of law.”

In the case of the FAR’s bonding provisions, the ASBCA found that both prongs of the Christian doctrine were met.

First, FAR 28.102-1 requires payment and performance bonding be obtained by contractors for almost all construction contracts exceeding $150,000. FAR 28.102-1 implements a federal statute formerly known as the Miller Act, and currently codified at 40 U.S.C. 3131-3134. When FAR 28.102-1 applies, the solicitation and contract are required to contain the clause at FAR 52.228-15, which imposes the contractual requirement for payment and performance bonds. Because of this legal framework, the ASBCA ruled that “FAR 52.228-15 was a mandatory clause in the contract.”

Second, the ASBCA concluded payment and performance bonding was a “significant component of public procurement policy.”

The ASBCA explained that, with respect to payment bonds, “[a] principal underlying purpose of the payment bond provision is to ensure that subcontractors are promptly paid in full for furnishing labor and materials to federal construction projects.” In particular, “the Miller Act provides subcontractors on federal construction projects with the functional equivalent of a mechanic’s lien available to subcontractors on non-federal projects.” Because the government is immune from most lawsuits, “mechanics’ liens cannot be placed against public property.”

The purpose of a performance bond is to “assure that the government has a completed project for the agreed contract price.” The performance bond “provides protection to the government in situations where the prime contractor defaults in the performance of work or is terminated for default.”

The ASBCA concluded both types of bonding were deeply ingrained features of federal procurement policy. As such, the second prong of the Christian doctrine was satisfied.

The ASBCA held that “the bonding requirements set forth in FAR 52.228-15 were considered to be included in the contracts by operation of law pursuant to” the Christian doctrine. The ASBCA denied K-Con’s appeals.

As K-Con demonstrates, the Christian doctrine allows the government to apply mandatory FAR provisions to contractors even if those provisions were inadvertently omitted in the solicitation. It is thus wise for offerors to carefully review the provisions of a solicitation for the specific terms that the offeror should expect to find. If a particular omission seems too good to be true, odds are it is–and it may be better to raise the issue before proposals are submitted than risk the application of the Christian doctrine down the road.

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Recently, there’s been a lot of discussion about the fact that the GAO bid protest “effectiveness rate” was a sky-high 47% in FY 2017.

But, somewhat under the radar, contractors did even better at the Armed Services Board of Contract Appeals.  According to the ASBCA’s annual report, contractors prevailed (in whole or in part) in 57.6% of FY 2017 ASBCA decisions.

The annual report reveals that the ASBCA decided 139 appeals on the merits in FY 2017.  Of those merit-based decisions, “57.6% of the decisions found merit in whole or in part.”

If 139 sounds like a low number, it is–many more appeals were resolved without a merits-based decision.  The report states that the ASBCA dismissed 539 appeals in FY 2017.  Although one might think that a contractor loses when the appeal is dismissed, that often isn’t the case.  As the ASBCA points out, “ in the majority of cases, a dismissal reflects that the parties have reached a settlement.”

The report doesn’t provide additional details, but in my experience, a settlement typically results in the contractor getting at least some of what it wants.  In other words, many of the dismissed appeals would likely be best classified as “wins” (or at least partial wins) for the appellants.

The FY 2017 numbers aren’t an outlier.  The ASBCA’s prior annual reports show a history of appellants prevailing more than half the time in merit-based decisions dating back at least ten years.

Unlike bid protests, the appeals process hasn’t been the subject of political scrutiny in recent years.  But, like bid protests, ASBCA appeals are surprisingly successful on a percentage basis.


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The VA cannot buy products or services using the AbilityOne List without first applying the “rule of two” and determining whether qualified SDVOSBs and VOSBs are available to bid.

Today’s decision of the U.S. Court of Federal Claims in PDS Consultants, Inc. v. United States, No. 16-1063C (2017) resolves–in favor of veteran-owned businesses–an important question that has been lingering since Kingdomware was decided nearly one year ago.  The Court’s decision in PDS Consultants makes clear that at VA, SDVOSBs and VOSBs trump AbilityOne.

The Court’s decision involved an apparent conflict between two statutes: the Javits-Wagner-O’Day Act, or JWOD, and the Veterans Benefits, Health Care, and Information Technology Act of 2006, or VBA.

As SmallGovCon readers know, the VBA states that (with very limited exceptions), the VA must procure goods and services from SDVOSBs and VOSBs when the Contracting Officer has a reasonable expectation of receiving offers from two or more qualified veteran-owned companies at fair market prices.  Last year, the Supreme Court unanimously confirmed, in Kingdomware, that the statutory rule of two broadly applies.

The JWOD predates the VBA.  It provides that government agencies, including the VA, must purpose certain products and services from designated non-profits that employ blond and otherwise severely disabled people.  The products and services subject to the JWOD’s requirements appear on a list known as the “AbilityOne List.”  An entity called the “AbilityOne Commission” is responsible for placing goods and services on the AbilityOne list.

But which preference takes priority at VA? In other words, when a product or service is on the AbilityOne list, does the rule of two still apply?  That’s where PDS Consultants, Inc. enters the picture.

The AbilityOne Commission added certain eyewear products and services for four Veterans Integrated Service Networks to the AbilityOne List.  VISNs 2 and 7 had been added to the AbilityOne List before 2010.  VISNs 2 and 8 were added to the AbilityOne list more recently.

PDS filed a bid protest at the Court, arguing that it was improper for the VA to obtain eyewear in all four VISNs without first applying the rule of two.  The VA initially defended the protest by arguing that AbilityOne was a “mandatory source,” and that when items were on the AbilityOne List, the VA could (and should) buy them from AbilityOne non-profits instead of SDVOSBs and VOSBs.

But in February 2017, just two days before oral argument was to be held at the Court, the VA switched its position.  The VA now stated that it would apply the rule of two before procuring an item from the AbilityOne list “if the item was added to the List on or after January 7, 2010,” the date the VA issued its initial regulations implementing the VBA.  For items added to the AbilityOne List beforehand, however, no rule of two analysis would be performed.

(As an aside–the VA seems to be making a habit of switching its positions in these major cases).

The parties agreed that the VA’s new position mooted PDS’s challenges to VISNs 6 and 8, which would now be subject to the rule of two.  But what about VISNs 2 and 7?  PDS pushed forward, challenging the VA’s position that it could issue new contracts in those VISNs without performing a rule of two analysis.  PDS argued, in effect, that nothing in the VBA allowed products added to the AbilityOne List before 2010 to somehow be “grandfathered” around the rule of two.

Judge Nancy Firestone agreed with PDS:

The court finds that the VBA requires the VA 19 to perform the Rule of Two analysis for all new procurements for eyewear, whether or not the product or service appears on the AbilityOne List, because the preference for veterans is the VA’s first priority. If the Rule of Two analysis does not demonstrate that there are two qualified veteran-owned small businesses willing to perform the contract, the VA is then required to use the AbilityOne List as a mandatory source.

Judge Firestone pointed out that under the VBA, “the VA must perform a Rule of Two inquiry that favors veteran-owned small businesses and service-disabled veteran-owned small businesses ‘in all contracting before using competitive procedures’ and limit competition to veteran-owned small businesses when the Rule of Two is satisfied.”  Citing Kingdomware, Judge Firestone wrote that “like the [GSA Schedule], the VBA also does not contain an exception for obtaining goods and services under the AbilityOne program.”  Judge Firestone concluded:

[T]he VA has a legal obligation to perform a Rule of Two analysis under the VBA when it seeks to procure eyewear in 2017 for VISNs 2 and 7 that have not gone through such analysis – even though the items were placed on the AbilityOne List before enactment of the VBA. The VA’s position that items added to the List prior to 2010 are forever excepted from the VBA’s requirements is contrary to the VBA statute no matter how many contracts are issued or renewed.

Judge Firestone granted PDS’s motion for judgment and ordered the VA not to enter into any new contracts for eyewear in VISNs 2 and 7 from the AbilityOne List “unless it first performs a Rule of Two analysis and determines that there are not two or more qualified veteran-owned small businesses capable of performing the contracts at a fair price.”

The apparent conflict between JWOD, on the one hand, and the VBA, on the other, was one of the major legal issues left unresolved by Kingdomware.  Now, as we approach the one-year anniversary of that landmark decision, the Court of Federal Claims has delivered another big win for SDVOSBs and VOSBs.

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Joint venture partner or subcontractor?  An offeror’s teaming agreement for the CIO-SP3 GWAC wasn’t clear about which tasks would be performed by joint venture partners and which would be performed by subcontractors–and the agency was within its discretion to eliminate the offeror as a result.

A recent GAO bid protest decision demonstrates that when a solicitation calls for information about teaming relationships, it is important to clearly establish which type of teaming relationship the offeror intends to establish, and draft the teaming agreement and proposal accordingly.

Here at SmallGovCon, my colleagues and I discuss teaming agreements and joint ventures frequently.  As important as teaming is for many contractors, one might think that the FAR would be overflowing with information about joint ventures and prime/subcontractor teams.  Not so.  Most of the legal guidance related to joint ventures and teams is found in the SBA’s regulations.  The FAR itself is much less detailed.  FAR 9.601 provides this definition of a “Contractor Team Arrangement”:

“Contractor team arrangement,” as used in this subpart, means an arrangement in which—

(1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or

(2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.

So, under the FAR, a Contractor Team Arrangement, or CTA, may take two forms: a joint venture (or other partnership) under FAR 9.601(1), or a prime/subcontractor teaming arrangement under FAR 9.601(2).  The details of how to form each arrangement are left largely to guidance established by the SBA.

Let’s get back to the GAO protest at hand.  The protest, NextGen Consulting, Inc., B-413104.4 (Nov. 16, 2016) involved the “ramp on” solicitation for the NIH’s major CIO-SP3 small business GWAC IDIQ.  The solicitation included detailed instructions regarding CTAs.  Specifically, the solicitation provided that if an offeror wanted its teammates to be considered as part of the evaluation process, the offeror’s team needed to be in the form prescribed by FAR 9.601(1), that is, a joint venture or partnership.  In contrast, the solicitation provided that, for prime/subcontractor teams under FAR 9.601(2), only the prime offeror would be evaluated.

NextGen Consulting, Inc. submitted a proposal as a CTA.  NextGen identified three teammates: WhiteSpace Enterprise Corporation, Twin Imaging Technology Inc., and the University of Arizona.  The teaming agreement specified that NextGen and WhiteSpace were teaming under FAR 9.601(1), whereas Twin Imaging and the University were teaming with the parties under FAR 9.601(2).

The teaming agreement identified “primary delivery areas” for each teammate.  With respect to the 10 task areas required under the solicitation, NextGen was to handle overall contract management and related responsibilities for task areas 2 and 4-10, WhiteSpace was assigned task area 1, Twin Imaging was assigned task area 3, and the University was assigned task areas 1, 4, 5, and 10.  In its proposal, NextGen referred to the capabilities of “Team NextGen” for all 10 task areas.

The NIH found that because the teaming agreement distributed the task areas without regard for whether the teaming relationship fell under FAR 9.601(1) or FAR 9.601(2), it was impossible for the agency to distinguish between the two types of teammates.  The NIH concluded that the resulting confusion about the roles and responsibilities of the parties made it impossible for the NIH to evaluate the proposal in accordance with the solicitation’s requirements–which, of course, called for the evaluation only of FAR 9.601(1) teammates.  The NIH eliminated NextGen from the competition.

NextGen filed a bid protest with the GAO, challenging its exclusion.  NextGen argued that the NIH unreasonably excluded its proposal based upon a misintepretation of the teaming agreement.  NextGen contended that, taken as a whole, the teaming agreement was clear.  NextGen pointed out that the teaming agreement specifically identified itself and WhiteSpace as FAR 9.601(1) teammates, and specifically identified Twin Imaging and the University as FAR 9.601(2) teammates.

The GAO disagreed.  It noted that “the solicitation required that a CTA offeror submit a CTA document to clearly designate a team lead and identify specific duties and responsibilities.”  Contrary to NextGen’s contentions, “[t]he record shows that as a whole, NextGen’s CTA provided conflicting information as to who the team lead was, and failed to clearly identify the specific duties and responsibilities of the team members.”  GAO pointed out that NextGen’s proposal used the term “Team NextGen,” which “did not provide any indication as to what the specific duties and responsibilities of the team members were.”

Joint venture agreements and prime/subcontractor teams are very different arrangements.  As the NextGen Consulting protest demonstrates, it is important for an offeror to understand what type of teaming arrangements it is proposing, and draft its teaming documents and proposal accordingly.

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A solicitation’s evaluation criteria are tremendously important. Not only must offerors understand and comply with those criteria in order to have a chance at being awarded the contract, but the agency must abide by them too. Where an agency does not, it risks that a protest challenging the application of an unstated evaluation criteria will be sustained.

So it was in Phoenix Air Group, Inc., B-412796.2 et al. (Sept. 26, 2016), a recent GAO decision sustaining a protest where the protester’s proposal was unreasonably evaluated under evaluation criteria not specified in the solicitation.

At issue in Phoenix Air Group was a Department of the Interior solicitation seeking commercial electronic warfare aircraft test and evaluation services for the Department of the Navy, at various locations throughout the United States. Under the solicitation, the successful offeror was to provide the turbo-jet aircraft, flight and ground crews, and electronic technicians needed to conduct flight operations consistent with military standards in the form the electronic warfare testing missions under a single IDIQ contract.

Sections A and B of the solicitation provided detailed technical requirements for the scope of work. Together, these sections required offerors to propose at least five specifically-identified aircraft that would accommodate specific modifications to allow them to tow certain equipment behind them and meet several stated performance aspects.

Evaluations would be conducted under a two-step approach. First, proposals would be reviewed for acceptability—basically, to make sure that the offeror had assented to the solicitation’s terms, provided all information requested, had not taken exception to requirements, and proposed aircraft that met the minimum aircraft requirements. For those proposals deemed technically acceptable, Interior would then conduct a best value tradeoff evaluation of each offer’s capability and its total evaluated price.

The offeror capability evaluation was based on three subfactors, the most important of which (and the one pertinent for this post) was the aircraft operations capability subfactor. Under the solicitation, Interior was to assess this subfactor for “the performance risk associated with an offeror’s capability to perform the commercial aircraft services” described in Sections A and B.

Interior’s evaluators established a go/no-go checklist for assessing compliance with Sections A and B. The evaluators then assigned Phoenix Air Group several weaknesses and two deficiencies, relating to its failure to submit a property management plan and include weight and balance checks performed on its submitted aircraft information forms. Interior awarded the contract to one of Phoenix Air’s competitors.

Phoenix Air protested the evaluation and award, arguing (among other things) that the aircraft operations capability evaluation relied on unstated evaluation criteria. Phoenix Air said that the solicitation “instructed offerors to discuss general topics such as ‘overall management, maintenance, and pilot capabilities,’ ‘plans for conducting the flight services,’ and their ‘capability to provide the required storage and maintenance of Government furnished property.’” Phoenix Air’s proposal met all of these requirements by providing general narratives as to each. But instead of following this evaluation criteria, Interior graded proposals based on their “specific commitments to particular specifications, such as whether the proposal contained a property management plan, and whether the offeror responded to each of over 100 specification requirements in RFP Sections A and B.”

GAO wrote that “[a]n agency may properly evaluation considerations that are not expressly identified in the RFP if those considerations are reasonably and logically encompassed within the stated evaluation criteria, so long as there is a clear nexus linking them.” However, “an agency may not give importance to specific factors, subfactors or criteria beyond that which would reasonably be expected by offerors reviewing the stated evaluation criteria.”

GAO wrote that “[w]e do not think that a reasonable offeror should have understood from the stated evaluation criteria, or from the information requested in the offeror capability form, that specific responses to each of the specifications in RFP Sections A and B and a property management plan were important proposal elements.” Because Interior’s application of these unstated evaluation criteria significantly lowered Phoenix Air’s score, the GAO sustained Phoenix Air’s protest.

Complying with a solicitation’s stated evaluation criteria is critical, for both offerors and the agency. And as Phoenix Air Group shows, an agency’s unreasonable departure from those criteria can lead to a sustained protest.

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A major tenet in government contracting is that agencies enjoy broad discretion in identifying their needs and developing the most appropriate solicitation to satisfy them. Though broad, this discretion is not unlimited. If challenged, an agency must demonstrate that its specifications are reasonably necessary to meet its needs and are not unduly restrictive of competition.

GAO recently affirmed this principle in Pitney Bowes, Inc., B-413876.2 (Feb. 13, 2017), when it sustained a protest challenging a solicitation’s requirements as being unduly restrictive of competition.

The Pitney Bowes bid protest involved a solicitation issued by the Internal Revenue Service, seeking quotations for document processing and mailing equipment for its National Distribution Center in Bloomington, Illinois. Specifically, the solicitation called for four PS200 folder/inserters and four PS200 high capacity feeders. The Statement of Work then modified the requirements for the folder/inserters to include, among other things, a “high capacity sheet feeder with a capacity of up to 1000 [sheets] per feeder with the capability of loading on the fly.”

Pitney Bowes filed a protest challenging this modification, claiming it was unduly restrictive of competition. Pitney’s sheet feeders did not have the capability of being loaded “on the fly.” But Pitney argued that the same continuous operation would be achieved by its plan to use two high capacity sheet feeders (each holding 1000 sheets). This approach, Pitney argued, would allow the machine to alternate between feeders to provide a continuous operation and avoid system interruption.

GAO reiterated that “the determination of an agency’s needs and the best method to accommodate them is primarily the responsibility of the procuring agency, since its contracting officials are most familiar with the conditions under which supplies, equipment and services have been employed in the past and will be utilized in the future.” But if a protester challenges a solicitation specification as being unduly restrictive of competition (either by challenging the nature of the requirement itself or the agency’s need for the restriction), “the procuring agency has the responsibility of establishing that the specification is reasonably necessary to meet its needs.” GAO will evaluate the agency’s purported justification for reasonableness—“that is, whether it can withstand logical scrutiny.”

The IRS sought to justify its requirement for 1000 sheet feeders capable of on-the-fly loading by focusing on their ability to provide continuous operation. GAO did not find these arguments convincing. To the contrary, it found that the IRS had not established that Pitney’s proposed solution would require any more employee time or attention than the restrictive specification requirement. GAO also noted some possible benefits from Pitney’s proposed solution—for example, one sheet feeder could run the machine if the other needed to be turned off for repair, thus helping to meet the IRS’s goal of continuous operation. In short, GAO held, the IRS failed to justfy “why a requirement for load-on-the-fly capability is necessary, when a different approach may be able to achieve the same results.”

GAO sustained Pitney’s protest and recommended the IRS amend the solicitation’s requirements.

Pitney Bowes highlights the intersection of two key tenets in government contracts: that an agency has broad discretion to identify its needs and how to best meet them, and that, ordinarily, agencies must procure goods and services using full and open competition. These two tenets, however, don’t always line up; where they conflict, GAO will review a solicitation’s requirements to make sure that they are reasonable and not unduly restrictive of competition.

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