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GAO's latest MCS Decision


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#1 Velhammer

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Posted 16 September 2009 - 09:44 AM

I'm a little confused about a statement made in the latest MCS decision (B-401472): "FAR sect. 17.207(f) further states that to meet the requirements of FAR Part 6, regarding full and open competition, the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract. The option to extend the contract here under FAR clause 52.217-8 was not evaluated as part of the initial competition, so that the exercise of this option amounts to a contract extension beyond the scope of the contract, and therefore effectively constitutes a new procurement."

It is clear that the agency did not exercise the option to extend services within the timeframe stated in the original contract. But I'm not sure if the GAO is saying (without specifically saying) that the extension was not authorized under 52.217-8, so this becomes a new procurement subject to Part 6 requirements. If so, no real disagreement. However, it appears that the GAO is taking issue with the idea that the agency exercised an "unevaluated option." I do not see how an option under the extension of services clause could be evaluated as part of the initial competition. Presumably, no one sets out with the intent of ever having to exercise the extension of services clause. As such, I've never seen pre-pricing of options specifically for the extension of services clause. I think the requirements of 17.207(f) are met because the clause already establishes that the services will be performed within the limits and at the rates specified in the contract subject to any adjustments due from changes in the wage determination; so the amount is "reasonably determinable from the terms of the basic contract" which would have been evaluated as part of the initial competition.

Am I reading this wrong or is there something else I haven't considered?

#2 parkerr

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Posted 16 September 2009 - 02:03 PM

I thought this case was somewhat astounding myself. Maybe GAO was trying to find a way to take jurisdiction in this case so that it could "right" a wrong, who knows, but the logic doesn't make a whole lot of sense. I think, Velhammer, that you are correct in your assertion that the inclusion of the right of the Government to extend services under 52.217-8 is not "evaluated" in the sense that separately priced option periods are evaluated, since the pricing on an extension of services under 52.217-8 is set with reference to the agreed upon contract prices in effect at the time it is exercised. The two cases cited by the GAO for the proposition that "[T]he option to extend the contract here under FAR clause 52.217-8 was not evaluated as part of the initial competition, so that the exercise of this option amounts to a contract extension beyond the scope of the contract, and therefore effectively constitutes a new procurement" don't really support that proposition. In Laidlaw, the agency awarded an interim contract, and then, after award, modified the contract to add 52.217-8. The vendors competing for the interim would not have been able to apprehend that an extension might be in the offing, so clearly, such an extension would have been outside of the scope of the interim contract as originally solicited. The extension of services exercised in Techno-Sci did not occur pursuant to 52.217-8 and was most definitely a new procurement.

I don't put much stock in the argument that the extension in MCS was a "new procurement" because the exercise of the extension took place inside the 30-day window and it was therefore "not authorized." When the Government failed to exercise the right to extend by providing at least a 30-day notice, it lost its right to unilaterally do so, but the fact that DAV did not complain and allowed the extension to be exercised in any case does not somehow make the extension beyond the scope such that it is a new procurement. At least, that's the way I see it.

I made sure to provide a copy of the decision to the contracting officers I advise, and we will be looking at ways to document contract files to better ensure the viability of our right to extend under 52.217-8. Would have been nice if GAO had elaborated on what constitutes an "evaluation" of the option to extend services.

#3 formerfed

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Posted 16 September 2009 - 03:00 PM

I hope the agency asks GAO for a reconsideration and GAO gets another chance to look at this. If this stands, it's going to cause some real strange propsal evlauations.

#4 parkerr

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Posted 16 September 2009 - 03:14 PM

And, by the way, the Army FAR Supplement, Section 5117.204, "Addition of option clause or quantities to contracts after award" provides that "Modification of contracts to incorporate option clauses or additional option quantities after award is a noncompetitive action and cannot be done without prior approval in accordance with FAR 6.304. Such requests must be documented to give the reason for the proposed modification and the potential impact of disapproval."

The argument that the extension of services in the MCS case was noncompetitive just doesn't make sense. Amen to a request for reconsideration!

#5 Vern Edwards

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Posted 18 September 2009 - 02:01 AM

I do not see how an option under the extension of services clause could be evaluated as part of the initial competition. Presumably, no one sets out with the intent of ever having to exercise the extension of services clause. As such, I've never seen pre-pricing of options specifically for the extension of services clause. I think the requirements of 17.207(f) are met because the clause already establishes that the services will be performed within the limits and at the rates specified in the contract subject to any adjustments due from changes in the wage determination; so the amount is "reasonably determinable from the terms of the basic contract" which would have been evaluated as part of the initial competition.


Neither FAR, DFARS, nor AFARS provide instructions about the pricing of the 52.217-8 option. The clause itself says:

The Government may require continued performance of any services within the limits and at the rates specified in the contract. These rates may be adjusted only as a result of revisions to prevailing labor rates provided by the Secretary of Labor.


What are the "rates specified in the contract"? I think many COs assume that they are the rates in effect during the performance period in which the option is exercised. But there is no basis for that interpretation in FAR or in the language of the clause itself. The clause says only "the rates specified," which suggests that the contract should expressly state something specific. Silence on the matter does not "specify" rates. Would silence warrant an interpretation that the rates applicable to the period currently in effect apply to 52.217-8 extensions? I would argue not. Unwarranted assumptions based on the fact that you haven't seen anything else are just that. Contracting officers (and agency lawyers) are supposed to think things through and avoid such problems for their agencies. But who knows what a board of court would say. If the parties agree that the contract is to be extended at the rates then in effect, then the contract should say so explicitly. In that case, express evaluation of the rates would be pointless, since they could not change the offerors' relative price or cost positions in the competition. But a CO could write a special clause to specify monthly rates for 52.217-8 extensions, require offerors to propose rates, and include those rates in the price evaluation. In such a case, the rates could affect competitive price standings. (But see FAR 17.206(a). Is it "likely" that the government will exercise those options? If not, then FAR suggests that evaluation would be inappropriate.)

In my opinion, if the contract provides for extension under 52.217-8 at the rates applicable to the period in which the option is exercised, then explicit evaluation of those option prices could not affect the price standings of the offerors or the outcome of the competition. I suppose that a CO could go through the pointless exercise in order to satisfy the GAO.

Unless I missed it, the Major Contracting Services decision does not say how the Army contract was priced. If the Army contract provided for 52.217-8 pricing on the basis of prices already in effect (which would be my bet), then the Army should reject the GAO's recommendation on grounds that it is harebrained. If, however, the contract stipulated hourly rates specifically for the 52.217-8 option, such that the offerors had to propose such rates, then the Army should have evaluated those rates, and the GAO decision is sound. What I would like to know is why the Army thought it had to prepare a sole source justification.

By the way, Velhammer, why do you say it's clear that the agency did not exercise the option within the timeframe stated in the contract? The contract said: "within 30 days of contract expiration." The contract expired on May 31 and they exercised the option on May 14. Why is that late?

#6 Velhammer

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Posted 18 September 2009 - 08:23 AM

Vern:
To answer your question, I took the "within 30 days of contract expiration" to be a deadline (i.e. they had to exercise the extension NLT 1 May), rather than a window (they can exercise between 2 May and 31 May). Why? Probably because that is the way 52.217-9 is laid out. (I'll go ahead and flog myself for making another "unwarranted assumption")

#7 Vern Edwards

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Posted 18 September 2009 - 08:43 AM

I think the language of 52.217-8, as written in the Army contract, is interesting. According to the GAO, the contract expired on May 31. "Within 30 days of contract expiration" could have meant at any time between May 2 and June 30. The boards and courts have interpreted 52.217-8 literally in the past. I wonder what the Army meant? And why did they prepare a sole source justification?

#8 Velhammer

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Posted 18 September 2009 - 09:14 AM

Vern:

Could you expand on what you mean by "the boards and courts have interpreted 52.217-8 literally in the past".

As for why the Army prepared the sole source, I would suspect it was a CYA move that in hind-sight hurt more than it helped. I wouldn't be surprised if that decision was made at the HCA level with the urging of legal counsel. MCS was clearly inquiring about the status and this contract was already on the sky-line.

#9 Vern Edwards

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Posted 18 September 2009 - 10:57 PM

Vern:

Could you expand on what you mean by "the boards and courts have interpreted 52.217-8 literally in the past".

Yes, there have been at least three cases dealing with interpretation and application of the 52.217-8 clause:

1. Arko Executive Services, Inc. v. U.S., 78 Fed.Cl. 420 (Fed.Cl. Sep 12, 2007), aff'd on appeal, Arko Executive Services, Inc. v. U.S., 553 F.3d 1375 (Fed.Cir. Jan 21, 2009).

2. Griffin Services, Inc., ASBCA 52280, 02-2 BCA ? 31943 (2002).

3. American Contract Services, Inc., ASBCA 46788, 94-2 BCA ? 26,855, aff'd on recons., 94-3 BCA ? 27,025, aff'd on appeal, American Contract Services, Inc. v. Widnall, 53 F.3d 348 (Fed.Cir. Apr 20, 1995).

I wrote about them for The Nash & Cibinic Report, see "WHEN THE GOVERNMENT CAN CHOOSE AMONG OPTIONS: Let The Contractor Beware" (June 2007) and "POSTSCRIPT: WHEN THE GOVERNMENT CAN CHOOSE AMONG OPTIONS" (November 2007). I'm now writing about the Major Contracting Services decision.

FAR 52.217-8 is a tricky little clause. COs are routinely inserting it in contracts without thinking through all of its implications. Contractors aren't thinking it through, either.

#10 parkerr

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Posted 21 September 2009 - 04:57 PM

The way that 52.217-8 was written in the MCS case ("within 30 days ...) is pretty much the way I've always seen it written (and I work for the Army). Additionally, I've always taken the phrase "within the limits and at the rates specified in the contract" to mean that the terms, conditions, rates and so forth in effect at the time of exercse of the option would apply to the extension period. The Court in Arko appears to agree with that proposition. So does the Board in Griffin Services. Am I missing something here?

#11 Vern Edwards

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Posted 22 September 2009 - 07:08 AM

I think the clause can be read in different ways, and that it is up to the parties to express their intent. I suspect that most parties interpret it the way that you do--the "rates" are those in effect at the time the option is exercised. That creates obvious problems when it comes to evaluating the option, since it is not clear at the time of evaluation when the option will be exercised, so it cannot be known what rates to evaluate.

It is one of the most interesting clauses in the FAR, because of its apparent simplicity and latent complexity. Thinking about it is a pleasure.

#12 Don Mansfield

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Posted 25 September 2009 - 11:17 AM

I think that GAO's decision assumes that when the offeror proposed its rates for each year, it did not consider the prospect of the Government requiring extended performance at those rates pursuant to FAR 52.217-8. Why is that the correct assumption? How does GAO know that the offeror didn't consider extended performance at its proposed rates when preparing its offer?

Let's assume the offeror did consider the prospect of extension when it proposed its rates and the Government evaluated those rates in the initial competition. How could one argue, then, that the rates in effect during the option period were not "evaluated as part of the initial competition" and that the exercise of the option did not comply with FAR Part 6?

A very questionable assumption by GAO.

#13 Vbus

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Posted 25 September 2009 - 11:55 AM

I think that GAO's decision assumes that when the offeror proposed its rates for each year, it did not consider the prospect of the Government requiring extended performance at those rates pursuant to FAR 52.217-8. Why is that the correct assumption? How does GAO know that the offeror didn't consider extended performance at its proposed rates when preparing its offer?

Let's assume the offeror did consider the prospect of extension when it proposed its rates and the Government evaluated those rates in the initial competition. How could one argue, then, that the rates in effect during the option period were not "evaluated as part of the initial competition" and that the exercise of the option did not comply with FAR Part 6?

A very questionable assumption by GAO.

I'm not sure that was GAO's assumption. I believe that GAO was simply being anal about their interpretation of FAR 17.207(f ) that states that the option must have been evaluated as part of the initial competition. It would be as easy as looking under the Price Evaluation tab in the contract file. I can imagine a line of questioning like: "You may have evaluated the base and option period rates, but did you include the total price of the option at 52.217-8 (in any form) in your overall price evaluation? No? Then how can you state in a written determination for the contract file that the option was evaluated as part of the initial competition?"

In my opinion, if the contract provides for extension under 52.217-8 at the rates applicable to the period in which the option is exercised, then explicit evaluation of those option prices could not affect the price standings of the offerors or the outcome of the competition. I suppose that a CO could go through the pointless exercise in order to satisfy the GAO.

I agree with that opinion. But I don't know how you even could include a total price for the option in an overall price evaluation since the option could be exercised after any period of the contract and for any time frame up to 6 months.

If you agree with the premise that the option at 52.217-8 is not considered evaluated unless it is somehow included in the overall price evaluation, than rather than go through the pointless exercise of trying to come up with a consistent way of applying it in an evaluation, I think a better remedy is to simply make the determination at 17.206(b ) that "evaluation would not be in the best interests of the Government". That written determination would need to be approved one level above the CO.

Another remedy might be to include a statement in your RFP to the affect: "The Government will consider the option at 52.217-8 to have been evaluated through the evaluation of rates proposed for all contract periods."

Another remedy might be for COs to simply ignore GAO... assuming COs are aware of this case at all.

#14 Don Mansfield

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Posted 25 September 2009 - 02:47 PM

I think a better remedy is to simply make the determination at 17.206(b ) that "evaluation would not be in the best interests of the Government". That written determination would need to be approved one level above the CO.

I don't see how that would be a remedy. When it came time to exercise the option, the CO would still have to comply with FAR Part 6 (which they didn't do if they didn't evaluate the option during the initial competition).

Another remedy might be to include a statement in your RFP to the affect: "The Government will consider the option at 52.217-8 to have been evaluated through the evaluation of rates proposed for all contract periods."


Or, "Offerors shall consider the prospect of the Government extending performance pursuant to FAR 52.217-8 when proposing rates for each contract period."

#15 Vbus

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Posted 25 September 2009 - 03:24 PM

I don't see how that would be a remedy. When it came time to exercise the option, the CO would still have to comply with FAR Part 6 (which they didn't do if they didn't evaluate the option during the initial competition).

Hmm... sounds like a Catch-22. If you follow the strict interpretation of 17.207( f) then you can't exercise any option if you didn't evaluate it prior to award.

#16 formerfed

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Posted 25 September 2009 - 03:50 PM

I don't see how that would be a remedy. When it came time to exercise the option, the CO would still have to comply with FAR Part 6 (which they didn't do if they didn't evaluate the option during the initial competition).

Or, "Offerors shall consider the prospect of the Government extending performance pursuant to FAR 52.217-8 when proposing rates for each contract period."


That might be the answer. As long as the CO took those prices into consideration in the full potential contract lifecycle, it should be okay.

But it could be tricky. Assume offeror A and B have virtually identical evalauted prices over a base and four option years periods (60 months). Offeror A's initial prices are lowest in the base year and each subsequent year's proposed prices increase. Offeror B proposes the same rates for all five years. How do you evaluate the extension?

At first this decision bothered me. Now it doesn't because this situation happening again in a real situation is slim. The extension is used mostly for an unforeseen delay in recompeting. The solicitation gets structured to include the full period of performance the government wants and needs. If you have a 5 year need, the RFP gets structured for 5 years of proposed pricing. The government's intent is to then do a new contract before the five years are up if there's still a need. That's what should be evaluated. The extension is a safety net. If it's needed, it gets exercised. Anyone proposing on the new award is made aware of it and knows they are in contention for a new award and wouldn't protest. That's why we haven't seen a protest like this before. It's an anomaly.

#17 Don Mansfield

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Posted 25 September 2009 - 04:28 PM

But it could be tricky. Assume offeror A and B have virtually identical evalauted prices over a base and four option years periods (60 months). Offeror A's initial prices are lowest in the base year and each subsequent year's proposed prices increase. Offeror B proposes the same rates for all five years. How do you evaluate the extension?

Tell the offerors that, when proposing rates for any given period, they are to assume that the Government will extend performance for an additional six months past that period at the rates proposed for that period. Make it a wash.

#18 formerfed

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Posted 25 September 2009 - 04:32 PM

Tell the offerors that, when proposing rates for any given period, they are to assume that the Government will extend performance for an additional six months past that period at the rates proposed for that period. Make it a wash.


Then that's the answer. I think that language would stand up in this case situation.

#19 dtes

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Posted 25 September 2009 - 04:43 PM

Given the broad impact GAO?s decision here, the strange timing of it (Why now? Doesn?t the fact pattern here occur 10,000+ times/year?), and GAO?s decision to interpret the FAR?s language so narrowly. I wonder if GAO believes its closing a ?hole? in procurement. That is: is it suggesting to the FAR Council that it change something about the FAR; or, for Congress to change CICA as it relates to 52.217-8?

#20 Vern Edwards

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Posted 27 September 2009 - 09:50 AM

I don't buy Don's assumption theory. I think Vbus nailed it: "I believe that GAO was simply being anal about their interpretation of FAR 17.207(f) that states that the option must have been evaluated as part of the initial competition." That, along with GAO's current obsession with the small business rules and its own notion of socio-economic justice led it to look for a way to sustain the protest.

All the same, we have to deal with the FAR, and the GAO has it right. You have to evaluate an option or prepare a J&A in order to exercise it without competition. A determination that evaluation is not in the government's interests will not let an agency off the hook in that regard.

The obvious and simplest solution is to say that the option will be priced at the rates in effect when the option is exercised and that for evaluation purposes the rate will be the monthly rate of the last year of performance (final option year) times six and adding the total to the contract price. An alternative would be to have each offeror propose option rates. That would be more complicated.

Arguably, the prospect of exercising the option is too speculative to warrant evaluation. See FAR 17.206(a).

A better solution in the long run would be for the FAR councils to say that the option is not to be evaluated and may be exercised without competition. While they're at it, they ought to rewrite the clause, which, as written, is ambiguous. There is practically no hope that the councils will do either of those things.

The agency should reject GAO's recommendation.




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