Lionel Hutz

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About Lionel Hutz

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  1. Ah well, unfortunately, I do not have time for a proper response as an extra-long weekend is calling my name, and there is work yet to be done. I'll just say I disagree and return the courtesy of leaving you the last word. As always, thanks for the discussion!
  2. I’d like to correct something I wrote earlier. I previously stated that “Price reasonableness is a subjective determination.” When I stated that, I meant that a determination of price reasonableness would vary depending on the facts and conditions of the acquisition. I still believe that; however, that is not the proper use of the term “subjective.” The reasonable person standard is an objective, not subjective standard. In an objective standard, the personal beliefs of the party are irrelevant. What matters is what a typical person exercising ordinary prudence would find reasonable. On the other hand, a subjective standard considers the actual beliefs of the party when deciding whether he or she acted reasonably. See the following article for a discussion of The Objective Theory of Contracts. (http://scholarship.law.tamu.edu/cgi/viewcontent.cgi?article=1301&context=facscholar) which states: The Dimatteo article cited by Vern also makes this same point when it states: Further, I agree that when dealing with professionals, the reasonable person standard is elevated to that of a reasonable professional in that field. A professional has skills and abilities superior to the average person and is expected to utilize those skills/abilities when appropriate. So, for example, a doctor that treats a person with a broken leg will be held to the standard of a typical doctor exercising ordinary prudence, not just a typical person. So, to summarize up to this point: There is not a limit on what can be considered a reasonable price in all acquisitions; it will vary depending on the circumstances. In addition, the whims and subjective beliefs of a contracting officer are NOT considered in determining whether a price is reasonable. Rather, the decision must be viewed from the objective standpoint of a reasonable person. And finally, because we are dealing with professionals exercising skill in their chosen profession, the reasonable person standard is elevated to the standard of a reasonable professional. It seems, the disagreement lies in whether the hypothetical “reasonable professional“ should be the more specific “typical contracting officer,” or the more general “typical business person.” First, with regard to determining price reasonableness, contracting officers are not generally accepted as having skills and abilities superior to business people in private industry, such that they should be considered separate or held to a higher standard. There are highly skilled, intelligent and educated people in both the public and private sector. It may appear that the two groups are at odds in determining price reasonableness if you compare the price at which a typical business person would like to SELL to that which a typical contracting officer would like to PAY. But that is the wrong comparison because the circumstances are not the same (sell vs pay). Rather, the question to be asked is, whether under the same circumstances, a typical business person would PAY the price being evaluated for the needed goods or services. In other words, is the Government getting a worse deal than the private sector would get in the same situation? I see no reason to believe contracting officers, as a class, have superior abilities and make better price reasonableness determinations such that they should be held to a higher standard. Next, the rights and duties of a contracting officer are not inherently greater than that of a private business person. The US Supreme Court stated, “When the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.” Winstar v. United States, 518 U.S. 839, 895 (1996) (quoting Lunch v. United States, 292 U.S. 571 (1934)). When the Government wants to impose rules, obligations or standards on a contracting officer that are in addition to, or more strict than, the private sector (for example, restrictions on accepting gifts) it does so through specific statutes, regulations, and policy. Absent such a specific requirement, the actions of the Government and its contracting officers are governed by the law applicable to the private sector. Finally, the FAR already allows a contracting officer to rely on what a typical business person considers reasonable in the form of published market prices. See FAR 15.404-1(b)(2) (“The Government may use various price analysis techniques and procedures to ensure a fair and reasonable price. Examples of such techniques include… (iv) Comparison with competitive published price lists, published market prices of commodities, similar indexes…”) There is no caveat that private industry market prices support a determination of price reasonableness only if they also pass another more stringent level of scrutiny. Based on this, I believe that a contracting officer can conclude that a price is fair and reasonable if he or she determines that typical business person, with ordinary prudence, in the same circumstances, would pay the price.
  3. Jamal, I agree. When examining issues of “reasonableness” the law uses what is known as the “Reasonable Person” standard. It is most often associated with the law of Torts, but is equally applicable to contract law, when it is sometimes called the “reasonably prudent business person” standard. http://injury.findlaw.com/accident-injury-law/standards-of-care-and-the-reasonable-person.html When we talk about whether a price is reasonable, we are asking whether a reasonably prudent business person in a given situation would pay the price in question. This standard is reflected in the advice of the Director of Defense Pricing (quoted in my post above) when he states that the determination should be made from the point of view of “a reasonable businessman or business woman reviewing the data.” Under this standard, it is not be enough for the contracting officer merely to say, “The price is reasonable to me.” Nor is it required that the specific price be reasonable in all situations. Rather, the contracting officer must be able to say, “A typical business person, with ordinary prudence, in the same circumstances I am in, would be willing to pay this price.” When you see examples of unreasonable pricing, it is because it does not meet that criteria. Either, there are other equivalent options at better prices, or the government’s need is not great enough to pay the requested price and it is more prudent to simply go without. For example, under normal circumstances, a contracting officer is not going to be able to determine $10,000 to be a reasonable price for a coffee pot. It does not matter how much he or she subjectively loves coffee. Nor is it enough that an extravagant millionaire might purchase a $10,000 coffee pot as a luxury. There are many options when it comes to purchasing coffee pots, and a typical business person, with ordinary prudence under normal circumstances is not going to pay that price for a coffee pot. A good example in private industry is a television commercial. Without context, $4M for a 30 second commercial sounds unreasonable. And, if a local cable company demands $4M from Pepsi for a 30 second ad during a rerun of McHale’s Navy, it would be unreasonable. The need for any one ad is not that great, and there are other less expensive, equally effective opportunities to air commercials. A reasonably prudent business person would not pay that price. But if FOX demands $4M from Pepsi for a 30 second ad during the Super Bowl, it may be determined to be a reasonable price. The number of viewers plus the potential for ads to go viral and generate “buzz” make the return on that $4M purchase a much better deal. Considering prices at this year’s Super Bowl approached $5M, one might even think Pepsi was getting a good deal at only $4M. The product and price haven't changed, but the circumstances have. Tweak the scenario just a bit more and the price can become unreasonable again. Imagine a company that does not sell products to the general public and is operating at maximum capacity such that a Super Bowl commercial is not going to help generate sufficient revenue to justify the purchase. In that case, even the “bargain” rate of $4M is not a price that a typical business person with ordinary prudence would pay in those circumstances. Keep changing the circumstances, i.e., the data, and you can find multiple scenarios in which the same price for the same item is either reasonable or unreasonable from the point of view of an typical business person with ordinary prudence. If reasonableness of price did not depend on the specific facts of a procurement, then the Government could come out with a universal price list that capped the prices across all government contracts. The FAR recognizes the variable nature of the price reasonableness determination and puts that responsibility on the individual with the most knowledge of the circumstances of the procurement.
  4. There is no hard and fast definition. U.S. Supreme Court Justice Potter Stewart once famously penned (about defining pornography), "I shall not today attempt further to define the kinds of material I understand to be embraced within that shorthand description; and perhaps I could never succeed in intelligibly doing so. But I know it when I see it…" I think the FAR and GAO have taken a similar approach with the definition of a fair and reasonable price. See, for example, Matter of Nutech Laundry & Textiles, Inc., B-291739, February 10, 2003: Here you can see GAO essentially saying, it is up to a contracting officer to determine whether a price is reasonable, unless they think it is unreasonable. While they may render a decision on a case by case basis, they do not try to establish the outer boundaries of reasonableness. Even the Director of Defense Pricing, when discussing price reasonableness in the context of a Commercial Item purchase, does not establish a bright line rule. He writes, http://www.acq.osd.mil/dpap/policy/policyvault/USA007164-14-DPAP.pdf On the one hand, it would be nice to have more guidance, but on the other, the more you define and establish hard and fast definitions, the more you limit the discretion afforded to a contracting officer.
  5. Don, Ha ha. Believe me, I know that consistency is not a strong suit of the FAR Council. My statement was a reflection of a cannon of statutory and regulatory construction. See pages 15-16 of this CRS Report for Congress (pdf pages 19-20) (https://fas.org/sgp/crs/misc/97-589.pdf) : And I don't know that there is an organization more dysfunctional than Congress, yet that is how Courts and administrative bodies statutes and regulations. Yes, sometimes cannons of construction are legal fictions. But if the Courts and GAO use them, they're good enough for me. Finally, I'll just add one last quote from GAO: Granted, that is just one case. But it is a protest in which GAO examined the language of FAR 15.402(a), noted that it said "contracting officer," and concluded that it is a "fundamental requirement" that applies to "a government agency."
  6. Vern, We can agree to disagree. No problem. I enjoyed the discussion, thanks! My comments that follow are not directed at you or anything you have written. Cheers!
  7. Don, I understand and respect both yours and Vern's position. But, I think it is a stretch to say that the context of FAR 15.402 "clearly requires a different meaning" to the definition of contracting officer. In fact the express granting of waiver authority to the HCA in the FAR provisions you cited argues against your interpretation. Clearly the FAR Council knows how to grant the HCA authority to waive specific FAR requirements. If the FAR meant for the HCA to be able to waive the requirement of 15.402(a), it would have so stated in language similar to that you identified.
  8. The FAR says that a person with authority to enter into contract is a contracting officer. (FAR 2.101) Your basketball analogy is not accurate because it assumes (correctly) that there are other people that can be athletic but not play basketball. But that is not the case with contracting officers. People other than contracting officers cannot award contracts. The FAR states that “Contracts may be entered into and signed on behalf of the Government only by contracting officers.” (FAR 1.601) The word “only” couldn’t be any clearer. It does not say “Contracts may be entered into and signed on behalf of the Government only by contracting officers and other people with contracting authority.” When the boundaries of a group (contracting officer) are defined limited by a single characteristic (authority to contract), then the presence of that single characteristic (authority to contract) means the individual fits in that group. To paraphrase Vern’s analysis, in the context of the FAR definitions, all Agency Heads are contracting officers, but not all Contracting Officers are Agency Heads. Whether or not the Federal Circuit distinguishes between the terms “Agency Head” and “Contracting Officer” under the Contract Disputes Act (“CDA”) is a red herring. I agree that that in the context of the CDA, the term Contracting Officer does not include an Agency Head. But we are not dealing with the CDA. The CDA is a different statute with, contrary to your assertion, different definitions. Let me put the relevant portions one after the other, so the difference is clear. First the FAR definition: The FAR definition of a contracting officer is a person with authority to contract. It doesn’t matter how they got that authority. The FAR makes clear that an official can be a contracting officer by virtue of being in a designated position (FAR 1.601(a)), or by being appointed in accordance with Agency regulations (FAR 1.603). Next the CDA definition: This definition is clearly limited to those who have contracting authority arising out of their “appointment in accordance with applicable regulations.” It does NOT include those whose contracting authority arise out of the nature of their position, i.e., Agency Head or other high-level designated position. So, in Morton v. US, when the Federal Circuit held a restriction on an Agency Head does not apply to a contracting officer, it is because the CDA defined those terms to be mutually exclusive. No so in the FAR where the definition of contracting officer encompasses Agency Heads and other high-level designated officials. Based on this I conclude the FAR clearly and expresses contemplates that a contracting officer is anyone that has contracting authority and that the FAR 15.402(a) restriction applies to all contracting officers. Vern, I have to be honest, I’m not sure what you are talking about here. I never mentioned HCA’s in my post. Unless the HCA has deviation authority, he may not authorize payment of an unreasonable price (under FAR Part 15) regardless of whether he is a contracting officer or not. I’m glad that Vern agrees there is no express statutory or regulatory language that authorizes a contracting officer to pay an unreasonable price contrary to FAR 15.402(a). What if agency regulations are silent on the matter, as many (most?) are. Under Vern’s scenario, the mere fact that a contracting office has “referred” a stalemate to a higher authority has satisfied the regulatory requirement. Notice, the regulation does not require that the higher authority “resolve” or “dispose of” anything. It doesn’t even mandate documentation of the disposition, only that it “should” be documented. Does it make sense that a contracting officer, who himself cannot award a contract at an unreasonable price, can authorize another contracting officer under him to award the contract? “I can’t award the contract at that price. But, because you are one level below me and you asked me, sure go ahead, no problem. Just make sure you document it. Or not, if you can’t, no big deal.” I agree completely! But sometimes the academic issues are the most interesting.
  9. Good discussion! Let me refine my thoughts... “Contracting Officer” is defined in the FAR. It includes anyone “with authority to enter into … contracts and make related determinations and findings.” See FAR 2.101. Further, FAR 1.601 states, “Contracts may be entered into and signed on behalf of the Government only by contracting officers. In some agencies, a relatively small number of high level officials are designated contracting officers solely by virtue of their positions.” It seems pretty clear that when the FAR says “contracting officer” it means anyone with authority to contract on behalf of the government. Unless defined differently elsewhere, a mandatory FAR requirement directed at “contracting officers” is not limited to working level contracting officers. FAR 15.402 then states that contracting officers (i.e., anyone with authority to contract) “shall … Purchase Supplies and services from responsible sources at fair and reasonable prices.” Per FAR 2.101, “Shall means the imperative”; in other words, it is required. There is no exception in the regulation. Therefore, contracting officers, including high level agency officials, may not purchase supplies and services at an unreasonable price. UNLESS, as Matthew points out, a deviation is authorized. FAR 1.403 provides that an Agency Head may authorize an individual deviation. That authority is then delegable pursuant to agency procedures/regulations. In addition, the FAR requires that the contracting officer “document the justification and agency approval [of the deviation] in the contract file.” FAR 1.403. This documentation requirement fits in nicely with FAR 15.405’s requirement that “Disposition of the action should be documented.” FAR 15.405 does not list every potential “disposition” of a referral because there are a myriad of potential outcomes. The higher level authority could agree that the price is unreasonable and cancel the procurement; negotiate a lower price that is reasonable; determine the price is, in fact, reasonable; discuss changing the requirements with the requiring activity; refer the matter even higher in order to seek an individual deviation; etc. The fact that the FAR does not list every possible course of action available does not mean that a course of action otherwise prohibited is now authorized. Finally, Vern made a great point that this requirement is not found in Title 41 or 10; it is only a regulatory requirement. As such, it is limited to the scope delineated in the regulation. In this case, we are discussing a FAR Part 15 requirement that only applies to the award and modification of FAR Part 15 negotiated contracts, as well as “modifications to contracts awarded by sealed bidding.” FAR 15.400. In other words, it does not apply to the award of FAR Part 14 contracts, the award of contracts under FAR Part 13, or the modification of contracts awarded under FAR Part 13. Based on all of this, I conclude that contracts can be awarded at an unreasonable price; however, it is not FAR 15.405(d) that provides such authority. Either, there is no restriction in the first place (e.g., FAR Part 13), or a higher level authority must approve an individual deviation waiving the requirement of FAR 15.402. There may be others that think a higher level authority can always approve award at unreasonable prices and that a deviation is never needed. And as a practical matter, a contracting officer probably has little personal or professional exposure if a high level agency official tells him it is okay to award without an official deviation. But in the end, such a position is not supported by the language of the regulation.
  10. If I understand the situation correctly, the agency is requesting hourly labor rates but is not factoring in the estimated usage of each labor category when calculating the TEP. Such a method of calculating TEP is not acceptable as it does not reflect the expected cost to the government and could produce a misleading result. See for example the protest of R&G Food Service, Inc., d/b/a Port-A-Pit Catering, B-296435.4; B-296435.9. (http://www.gao.gov/decisions/bidpro/2964354.pdf) It states, in part: (Citations omitted.)
  11. Yes. Price reasonableness is a subjective determination. A higher level authority may have greater/different knowledge, perspective, or understanding that allows him or her to determine a price is reasonable in a certain situation. No. FAR 15.405 says nothing about authorizing purchases or providing exceptions to other FAR requirements. You can't just read an exception into the FAR because it seems practical to do so. The contracting officer or higher authority should find the price to be reasonable. Why would it be a lie? What is a determination of price reasonableness if not a subjective opinion? There is no mathematical equation that tells you something is reasonable or not. I'm not saying any price can be justified to be reasonable. But, as ji20874 explained above, what is unreasonable in one circumstance may be reasonable in another. And, in an extreme case where lives are on the line and only one product can save those lives, the contracting officer would have a lot of leeway to find an otherwise high price to be reasonable. I'd like to see the audit report that says x number of lives are only worth x number of dollars and paying more than that represented paying an unreasonable price. No, but a federal regulation stating that a contract "shall" be awarded at a fair and reasonable price is an express prohibition against awarding at an unreasonable price. If you want to argue that there is an exception to that requirement, the burden is on you to identify it. But, nothing in 15.405(d) suggests that it is providing such an exception.
  12. The portion I'm referencing is the exact portion that Jamaal asked about in the original question: I was explaining what that passage meant. You know, actually answering the question asked. I never said it authorized making a purchase at an unreasonable price. In fact, I said just the opposite:
  13. 15.305(a)(1) provides that "Normally, competition establishes price reasonableness." 15.403-1(b)(1) then states that obtaining certified cost and pricing data is prohibited when there is adequate price competition. The last sentence of paragraph (c)(1)(i)(B) is addressing the unusual situation where despite competition, the contracting officer finds the prices to be unreasonable. In such a case, the contracting officer must document the determination that the price is unreasonable and have that determination approved at a level above himself/herself. In other words, the higher level approval is not to permit award of a contract at an unreasonable price. Rather, it is to permit a contracting officer to find a price unreasonable despite the existence of otherwise adequate price competition.
  14. I'm not saying its prohibited, and I do not know what a court would decide. But, that would not be my practice. I just don't see the benefit and only potential downside. What if the contractor does object and the contracting specialist misfiles the letter, or the contracting officer forgets, or someone else does the debriefing? What if the contracting officer usually uses such a statement in the solicitation but the statement mistakenly gets deleted without his/her knowledge? If you really want to include line item/unit pricing in the debriefing, why try to rely on some type of an implied waiver that a court may or may not recognize? Simply and directly ask the awardee whether its pricing is confidential and/or a trade secret? The difference in treatment is in the language of the regulations. Part 14 requires the public reading of items and prices. Conversely, Part 15 debriefing procedures prohibit release of information exempt from disclosure under FOIA, including at times line item pricing. Whether that makes sense from a policy perspective, is a different question.
  15. I agree that in the context of a FOIA request you should not assume a unit price is, or is not, exempt. Redacting otherwise releasable information can lead to a FOIA law suit. That is why the FOIA regs provide for the submitter notice process where the third party gets to assert whether or not the info is trade secret/confidential business information. But in the context of a debriefing, there is no required submitter notice process. Nor do I think such a requirement should be added to the debriefing process. I've seen the "notice of intent to disclose unit pricing" in some solicitations. However, I would not want to be in the position of having to argue, without any affirmative statement by the contractor, that the contractor waived its statutory rights under the Trade Secrets Act. I'm not saying it wouldn't work, but until I see a see a federal court decision upholding such an implied waiver, you are risking potential financial liability. If you release unit pricing that is protect by the TSA, you have violated a statute with injuntive and monetary remedies (however unlikely it may be that they would be assessed). If you withhold unit pricing that turns out not to be confidential/trade secret, there is a much less risk/dowside. The adequacy of a debriefing is not a protestable issue.