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I have a situation with a recently awarded multiple award contract.  This award was made on the basis of lowest price, technically acceptable and there were a few technically acceptable offerors that did not receive the award due to price.  Three days after the awards were fully executed, one of the awardees stated that they could not do business with our agency because a few of their clients who were adverse to agency would not sign a waiver for them to work with the Agency. 

 

In the solicitation, there are disclosure requirements for the offerors regarding organizational conflict of interest and the offeror is required to certify whether it is aware or not aware of any potential organizational conflict of interest and the disclosure statement shall describe how any such conflict can be avoided, neutralized, or mitigated.  The awardee did state in their proposal that they did represent clients that were adverse to the Agency, but did not believe such representation would preclude them from representation of the Authority and if given the opportunity, they would obtain waivers from these clients.  I sent the contract to them to review, sign and send back to me to fully execute and gave them three days to do so, in that time, this awardee made no mention of the inability to obtain waivers from their adverse clients.  So, when they signed the contract, they signed it knowing they had not obtained the waivers as they disclosed they would need to do in order to avoid, mitigate or neutralize organizational conflict of interest.   

 

So, my question is, can this contract be considered void ab initio?  I have found a few GAO cases that discusses void ab initio. They are from the 70s and 80s and the scenarios aren’t necessary exactly the same, but each have stated the position that once a contract comes into existence, even if improperly awarded, it should not be canceled, that is, regarded as void ab initio, unless the illegality of the award is “plain” or “palpable.”  As stated in another GAO case, Warren Brothers Roads Company v. US, the test of plainly or palpably illegal award is whether the award was made contrary to statute or regulation because of some action or statement by the contractor was on direct notice that the procedures being followed were inconsistent with statutory or regulatory requirements.  If the test is not met, a contract may not be canceled, but can only be terminated for the convenience of the Government.  Would the awardee knowingly signing a contract when their organizational conflict of interest not being mitigated, neutralized or avoided constitute as passing the test?

 

Thanks in advance for your help!

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Violation of a statute or of a regulation having the force and effect of law is the prerequisite to invalidation of a contract. What such statute or regulation do you think was violated by award of the contract?

Don't respond with a long description or explanation of anything. Cite the specific statute or regulation.

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Why do you want to void the contract? Did you ask the Contractor if they agree that the contract be cancelled by mutual agreement at no cost to either party? If not how do they intend to perform it? I am not on Government side of contracts so I am curious about your approach, and your reaction to my proposed solution.

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Hopefully, this will help bkl14, myself, and others answer Vern' question:

How do you best identify a regulation that has the force and effect of law? Within FAR how do you know if a section, subsection, paragraph, etc. has the force and effect of law?

Is it as simple as identifying if a passage implements a statutory requirement or executive order? If yes, I believe this can be found in the rule making process by using citations in CFR and the Federal Register. (If FAR does not state that a passage is pursuant to statute or executive order)

As I understand it, not all of FAR has the force and effect of law. For example, does FAR 4.102, Contractor’s signature, have the force and effect of law? (Accardi doctrine aside)

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A particular regulatory requirement need not be based on an explicit statutory requirement in order to have the force and effect of law. See G.L. Christian and Assocs., 160 Ct. Cl. 56 (1963). The key distinction is between legislative rules and interpretive rules. See Preminger v. Secretary of Veterans Affairs, 632 F.3d 1345 (Fed. Cir. 2011):

Quote

Generally, legislative rules requiring notice and comment are those that “effect a change in existing law or policy or which affect individual rights or obligations.” Paralyzed Veterans, 138 F.3d at 1436. Legislative rules have the “force and effect of law” and have binding effect outside the agency. Splane, 216 F.3d at 1064. In contrast, interpretive rules, for example, “clarify or explain existing law or regulations.... ‘[A]n interpretative statement simply indicates an agency's reading of a statute or a rule. It does not intend to create new rights or duties, but only reminds affected parties of existing duties.’ ” Paralyzed Veterans, 138 F.3d at 1436 (quoting Orengo Caraballo v. Reich, 11 F.3d 186, 195 (D.C.Cir.1993)).

If an agency has rule making authority, and if it promulgated a particular rule in accordance with proper rule-making procedure, then the particular rule likely has the force and effect of law even though no statute explicitly requires it.

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A termination for default (or cause) sounds like the right step.

The contract is valid.  The contractor is unwilling to honor its obligations.

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21 hours ago, bkl14 said:

I have a situation with a recently awarded multiple award contract.  This award was made on the basis of lowest price, technically acceptable and there were a few technically acceptable offerors that did not receive the award due to price.  Three days after the awards were fully executed, one of the awardees stated that they could not do business with our agency because a few of their clients who were adverse to agency would not sign a waiver for them to work with the Agency. 

In the solicitation, there are disclosure requirements for the offerors regarding organizational conflict of interest and the offeror is required to certify whether it is aware or not aware of any potential organizational conflict of interest and the disclosure statement shall describe how any such conflict can be avoided, neutralized, or mitigated.  The awardee did state in their proposal that they did represent clients that were adverse to the Agency, but did not believe such representation would preclude them from representation of the Authority and if given the opportunity, they would obtain waivers from these clients.  I sent the contract to them to review, sign and send back to me to fully execute and gave them three days to do so, in that time, this awardee made no mention of the inability to obtain waivers from their adverse clients.  So, when they signed the contract, they signed it knowing they had not obtained the waivers as they disclosed they would need to do in order to avoid, mitigate or neutralize organizational conflict of interest.   

T for D? Well, maybe. Preferable, perhaps, to void ab initio. But... what I quoted above is a very muddled account. It's practically worthless. I wouldn't make a decision of any kind without a LOT more, and better, information from someone who knows the rules.

I'm not sure what he means by "adverse." Does he mean averse?

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Unless ... the Agency was induced to make the award based on a fraudulent representation "The awardee did state in their proposal that they did represent clients that were adverse to the Agency, but did not believe such representation would preclude them from representation of the Authority and if given the opportunity, they would obtain waivers from these clients."

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I agree that no one can prescribe a definitive solution based on the very short initial posting.  But based on what I read, I would encourage consideration of a T4D.  I don't like it when contracting officers award contracts and then let contractors off the hook for performance solely because they (the contracting officers) want to be nice.  Here, the contractor seems to be failing to honor its promises.  The contractor could honor its promises by dropping its other clients?

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3 hours ago, here_2_help said:

"The awardee did state in their proposal that they did represent clients that were adverse to the Agency, but did not believe such representation would preclude them from representation of the Authority and if given the opportunity, they would obtain waivers from these clients."

That's not fraud.

The contractor may have been stupid, even irresponsible, but unless the agency has been hurt the best course might be a no-cost T4C. Why did the agency make an award before the offeror obtained waivers?

A T4D is likely to result in litigation. Why bother, unless there is something to be recovered or gained?

What about a poor past performance report? They were under contract. They didn't perform.

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Vern,

No argument from me. The question for the trier of fact would be whether the offeror had a reasonable basis to believe that its clients would grant a waiver. That's a difficult question to answer and it would be better for the parties to settle their differences out of court.

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Note that the OP stated that this contract was one of a series of multiple award contracts.  We do not know if these were IDIQ contracts, but if they were and no orders were issued to this contractor, where is the default?

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I don't know the answer to Retreadfed's question. But it seems to me that the government was harmed because it wanted three suppliers of these services and ended-up with only two. Does the awarding Agency have the ability to issue a no-cost T4C and then award to the next highest offeror? I don't know. But that approach, or one like it, seems like the most logical way to proceed.

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Termination for the Government's convenience?  This sounds like a termination for the contractor's convenience.  However, I understand that a no-cost T4C might be an action in lieu of default.  But I want the original poster to get off his or her "plainly or palpably illegal award" horse -- there is no illegal award, based on what has been written here -- the contractor made promises that it now chooses not to keep -- I want the original poster (assuming he or she is a contracting officer) to get on the horse of doing his or her job of protecting the Government's interest in the awarded contract and respecting correct principles.  If he or she considers T4D and then decides on no-cost T4C, I'm okay with that.  If he or she seeks a no-cost T4C to excuse the contractor from its obligations or to avoid hurting the contractor's feelings, the outcome will appear the same but will based on a poor premise.  In either case, a failing CPARS record should be made -- but wait, that might hurt the contractor's feelings.

H2H, a T4D would allow for immediate award to the next in line offeror.

 

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15 hours ago, Retreadfed said:

Note that the OP stated that this contract was one of a series of multiple award contracts.  We do not know if these were IDIQ contracts, but if they were and no orders were issued to this contractor, where is the default?

They would run afoul of FAR 52.216-22, right?

Quote

(b) Delivery or performance shall be made only as authorized by orders issued in accordance with the Ordering clause. The Contractor shall furnish to the Government, when and if ordered, the supplies or services specified in the Schedule up to and including the quantity designated in the Schedule as the “maximum.” The Government shall order at least the quantity of supplies or services designated in the Schedule as the “minimum.”

Government has to order at least the minimum, Contractor has to perform up to the max . . .

 

 

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Apso, you are correct in what you wrote.  However, my question was premised on the notion that no orders had been issued.  Until an order is issued, the contractor has no performance obligation.  Therefore, where is the default if the contractor has no current performance obligations? 

One thing no one has mentioned here is the possibility of anticipatory repudiation of the contract by the contractor.  That possibility should be explored.  Also, we do not know if getting the waivers was a condition precedent to the contractor's performance obligations.  If it was, perhaps there is no contract.  There is a lot we do not know from bkl14's one sided account.

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A contractor may be in default based on anticipatory repudiation.  If a contractor has declared its intent not to comply with the contract terms, a termination for default at that time may be appropriate -- it is not necessary to wait for the actual failure to occur.

From the 2014 Contract Attorneys Deskbook (chapter 25, Contract Terminations for Default):  "Each party to a contract has the common-law right to terminate a contract upon actual or anticipatory repudiation of the contract by the other party."  https://www.loc.gov/rr/frd/Military_Law/pdf/CAD_2014_Ch25.pdf

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1 hour ago, Retreadfed said:

Until an order is issued, the contractor has no performance obligation. 

That's not true. The contractor need not deliver specified supplies or perform specified services unless and until an order is issued, but a contractor has several obligations under miscellaneous contract clauses that it must satisfy even if no work is ordered. Among other things, a contractor is obligated to accept orders. That obligation presupposes the issuance of orders. How about FAR 52.222-26, Equal Opportunity? Is a contractor required to comply only with respect to orders? That's not what the clause says.

If there were no obligation of any kind under an IDIQ contract until an order were issued, there would be no need for consideration, and an IDIQ contract would be nothing more than a basic ordering agreement.

If a contractor notifies the government that it will not accept any orders, even if no orders have been issued, then there is the possibility of an anticipatory breach. See "Anticipatory Repudiation: We're Out Of Here," The Nash & Cibinic Report (March 1991).

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Vern, you are correct concerning the misc. obligations of a contractor under an indefinite delivery contract.   The concern raised by bkl14 was the contractor's potential refusal to provide "representation of the Authority," whatever that means.    As you seem to agree, such representation would not be required until an order is issued. 

 

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I don't know what the OP was talking about. I'm not sure the OP knew.

It sounded like the contractor had clients who objected to its doing business with the government and it had wanted to clear it with them before it signed a contract. It appears that it signed a contract, and now it wants out. Well, if it is under contract and it wants out it can get of it only by persuading the government to let it off the hook or by breaching, either by saying it will not accept orders or by actually refusing an order. Either way, it's a breach and subjects the contractor to T4D.

You asked, "Where is the default?" I think that's where it is.

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If it's a multiple award contract, I'd assume they need to compete for the orders.  If they don't want the contract, how many competitions do you think they will win? They may be obligated to perform a minimum quantity.  Faced with a T4D they likely would find a way to do the minimum.  After that, you are missing one of the firms you hoped would compete for the work.  One of the worst contracts to be in is one where the other party doesn't want to be there.  Personally, I'd just T4C and move on and find a way to bring in additional firms. 

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Sorry for the delay. I tried to be vague with the details so I did not lead anyone back to the procurement itself.  Hopefully, I can clarify the confusion below without being too detailed.

The procurement is for legal advisory services.  The offeror represents clients that are adverse to the Agency to which I work for, which they refer to as "the Authority."  The contractor didn't say they weren't going to fulfill the Government's obligation, they can't.

As I stated in the original post, the contractor signed the contract without obtaining waivers from all of their clients.  The contractor's state bar rules state, in part, that a conflict of interest may exist before representation is undertaken, in which even the representation must be declined, unless a lawyer obtains the informed consent of each client.  This language suggests the offeror should have declined to represent the Agency unless it first obtained the required waivers.   The offeror plainly stated in its conflict of interest plan that it identified certain conflicts and if it received an opportunity for award,  the offeror would need a formal waiver from existing clients.  While the offeror might have been overly optimistic about receiving those waivers, there is little question that the offeror knew that they had to be obtained, and arguably, should not have accepted a contract award without first obtaining the waivers.  Accordingly, the offeror seems to have been on direct notice that the procedures followed in making the award were inconsistent with the applicable state bar ethics rules.  At no point did the contractor make mention of not being able to obtain the waivers when they sent back the signed contract to be fully executed. When signing the contract award, to be in compliance with their own state bar rules, it certifies that the conflict of interest had been mitigated, which allowed the CO to award in accordance with FAR 9.504 (e). 

When the contractor responded three days after execution of the contract, as explained in the original post, they admitted to not being able to obtain waivers from all of their existing clients, which is a clear violation of their state bar rules.  To be considered void ab initio, the contract does not have to be in violation of a procurement regulation.  Now, whether the state bar rules constitute a valid regulation that the contractor was on direct notice of, for purpose of determining whether the award is void ab initio isn't entirely clear because the state bar rules don't regulate the procurement process per se, however, FAR 9.504 (e) and agency specific COI provisions do, and it seems fairly plan on their face that award shall not be made when unresolved conflict exists.

I hope this clears things up, sorry for the muddy explanation.

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Based on this set of facts, how did the contracting officer make an affirmative finding of responsibility?

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This is in no way helpful to you, but I think you could have found them non-responsible during the pre-award phase due to a 'cannot render impartial advice'-type organizational conflict of interest.

I had a follow-up question regarding Vern's T4C suggestion, which springs from my paranoia.  If the Government sends a T4C notice to the Contractor without ordering the minimum, can the Contractor then request payment of the minimum?  Is there a "stand-off", and if so, how would one resolve? 

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20 minutes ago, Retreadfed said:

Based on this set of facts, how did the contracting officer make an affirmative finding of responsibility?

The CO found them responsible because they signed the contract, indicating that their organizational conflict of interest had been mitigated.  The conflict does not pertain to what we are requiring the contractor to do, it is an organizational conflict that is internal, not related to the work, but only an issue because the contractor wants to represent an Agency to which its clients are in litigation against or have been in litigation against, hence the term adverse.

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