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A thought came to my mind yesterday and I wanted to bounce it off the smart folks here.

Scenario: Source selection has concluded for a nine figure procurement. There are only two offerors, afferor A, the incumbent, and offeror B. Offeror B is the apparent winner. Immediately after award, could the government enter into an agreement with offeror A that, in return for a one time lump sum payment, offeror A would forgo its right to protest to GAO or COFC?

Additional questions:

- Could the government do this under Alternative Dispute Resolution at 33.214?

- Could the government do this to resolve a protest to the agency at 33.103?

 

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While I'm not one of the smart ones here, I'll chime in anyway.  This comes up from time to time in different contexts.  Are you asking whether, in response to a protest to the GAO by Offeror A, the Government could successfully raise as a defense to that protest the existence of a "settlement agreement"?  I couldn't find anything in the GAO's rules suggesting this represents a recognized defense to a bid protest, and the decisions certainly suggest it would scrutinize that settlement agreement very closely.  There are a number of restrictions on the Government's ability to close off existing avenues of legal redress in advance of the controversy being ripe.  For instance, there is a statute that prohibits the Government requiring as condition for award the use of mandatory arbitration.

What would the lump sum payment represent?

 

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If anyone is interested, while I was researching this morning, I found a reference to "Fedmail" in the RedBook chapter 3.

"Occasionally, an agency may pay money to protestors to withdraw protests simply so that the agency may proceed with its procurement operations. This practice is known as “Fedmail.” GAO, ADP Bid Protests: Better Disclosure and Accountability of Settlements Needed, GAO/GGD-90-13 (Washington, D.C.: Mar. 30, 1990), at 8, 30; Maj. Nathanael Causey and others, 1994 Contract Law Developments—The Year in Review, 1995 Army Lawyer 3 (1995), n. 50. Typically, the payment is for bid protest preparation expenses, including legal fees. GAO/GGD-90-13, at 31. Public policy favors the settlement of disputes, and agencies may settle protests and pay damages in the form of bid protest costs.71 Comp. Gen. 340 (1992). GAO does not oppose monetary settlements that reimburse a protestor’s bid preparation costs if an agency determines that it likely will be held responsible for such costs and is unable to correct the procurement. GAO/GGD-90-13, at 31. However, GAO stated in GAO/GGD-90-13 that there is no basis for any settlement that an agency may offer solely to avoid operational delays resulting from a protest."

So it seems like it is allowable in the right circumstance.

 

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10 minutes ago, govt2310 said:

Jacques, what statute prohibits the Government requiring as a condition for award the use of mandatory arbitration?

Title 5, United States Code, section 575(a)(3) states:

Quote

An agency may not require any person to consent to arbitration as a condition of entering into a contract or obtaining a benefit.

 

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4 hours ago, KeithB18 said:

Immediately after award, could the government enter into an agreement with offeror A that, in return for a one time lump sum payment, offeror A would forgo its right to protest to GAO or COFC?

"Immediately after award" suggests that this precedes the time the "agency determines that it likely will be held responsible for such costs and is unable to correct the procurement."

Thank you for referencing the February 1995 edition of The Army Lawyer.  One of that issue's references to Fedmail (1995 Army Law. 3, 51) includes the following:

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Settlement Agreements and Fedmail.--One concern of those individuals interested in the conduct of GSBCA protest activity is the occurrence of what is known as "Fedmail"--that is, an agreement whereby the government pays off a protester to abandon its cause of action without having secured any relief.  In ICF Severn, Inc. v. NASA, the board critiqued a settlement agreement in which the protester agreed to drop its protest in return for the agency agreeing to pay the vendor's protest costs.  Describing this arrangement as "Fedmail," the board refused to direct that payment be made from the Permanent Indefinite Judgment Fund.  In reviewing the protester's subsequent motion for reconsideration, the board, in even stronger language, described the agreement "as an intolerable situation" and denied the motion.

I appreciate Federal Data Corp. v. SMS Data Products Group, Inc., 819 F.2d 277 (Fed. Cir. 1999), doesn't support my hostility to "Fedmail."  Maybe it is enough to say there are strong prudential reasons to try to avoid going down this road. 

Another reference in the same article (1995 Army Law. 3, at 7) points out that the 103rd Congress wasn't very excited about this particular "procurement flexibility," and passed Section 1436 of FASA, requiring publicity of settlement agreements of protests before the GSBCA (back when it heard bid protests).

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2 hours ago, KeithB18 said:

Public policy favors the settlement of disputes, and agencies may settle protests and pay damages in the form of bid protest costs.71 Comp. Gen. 340 (1992).

This isn't the primary holding of the decision.  The decision is short and worth the read.  https://www.gao.gov/products/484261#mt=e-report  It begins:

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The Army has requested an advance decision concerning a proposed payment under an agreement between the Defense Supply Service Washington (DSS-W) and Storage Technology Corporation (StorageTek) settling a bid protest the firm filed with the General Services Administration Board of Contract Appeals (GSBCA or Board). We conclude that payment under the agreement should not be made.

After acknowledging Federal Data Corp., the appropriations law decision states, "We believe, however, that the authority of agencies to settle protests by paying money to protesters is not without limitation."  Paying merely to "avoid operational delays" isn't a good enough reason.  "We do not believe that in making appropriations available to an agency for the procurement of goods and services, Congress intended those funds to be available to allow the agency to obtain the withdrawal of a meritorious protest without taking appropriate corrective action."  (By the way, this quote also appears in Chapter 3 of the Redbook immediately following the language quoted by KeithB18.)

One research service summarizes the decision at 71 Comp. Gen. 340 as follows:

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Although agencies have authority to settle protest claims and pay breach of contract damages in form of bid or proposal preparation costs, payment to protester where agency chooses not to correct flawed procurement but decides to settle protest merely to avoid operational delays resulting from stay procedures is not proper; thus, admission by agency that it violated procurement regulation without explanation as to why taking corrective action is not feasible cannot be basis for settlement with protester, who agrees to withdraw its protest in return for payment of preparation and legal costs. Payment under Settlement Agreement Between Army and Storage Technology Corporation, 71 Comp. Gen. 340 (1992).

So I'm back to my original question, which is, "What would the lump sum represent?"

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Consider this.  An agency anticipates a protest and thinks there’s a 50% chance of prevailing.  They estimate costs to the Government with a protest and costs to the protestor which the government pays if it loses.   So they made an offer to not protest and reasonable  payment is justified as cost avoidance.  
 

Fedmail settlements were amazing. One company said they received a settlement check as one of several companies which was a surprise.  They only quoted a ballpark estimate and got paid without any supporting documentation.  

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Very interesting discussion and the references are great.  One thought I had on the idea is if pursued the buy in of the project/program folks would be an element that would be needed.   After all in a quick read of the references it appears program monies would have to fund the agreement.

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On ‎2‎/‎7‎/‎2020 at 5:01 PM, formerfed said:

Consider this.  An agency anticipates a protest and thinks there’s a 50% chance of prevailing.  They estimate costs to the Government with a protest and costs to the protestor which the government pays if it loses.   So they made an offer to not protest and reasonable  payment is justified as cost avoidance.  
 

Fedmail settlements were amazing. One company said they received a settlement check as one of several companies which was a surprise.  They only quoted a ballpark estimate and got paid without any supporting documentation.  

I appreciate that if one thinks of the Government as simply one of two parties to a private transaction, it makes sense that the "buyer" should be able to decide what is its economic self-interest and settle any case it wants at any stage in the process.

The Government is NOT a typical party, and Government purchases are NOT private transactions.  Judging from all the statutes governing federal contracting and FAR Parts 19 through 26, "cost avoidance" is simply one of many considerations.  Other considerations include "integrity, fairness, and openness."  FAR 1.102(b)(3).  Given how deep the Government's pockets are, allowing it to just buy its way out of litigation any time it wants undermines a tool toward ensuring at least some accountability.

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2 hours ago, Jacques said:

Given how deep the Government's pockets are, allowing it to just buy its way out of litigation any time it wants undermines a tool toward ensuring at least some accountability.

I share this concern.

If a protest will be problematic for a program's schedule, the single best thing to do is to start a little earlier -- build the hundred days into the schedule from the beginning.  Additionally, I hanem't seen any reporting of settlement agreements in GAO's annual reports.  If reporting exists, I could not find it required.

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Interesting prospect.  What would be the bona fide need to use appropriated dollars to pay an unsuccessful offeror not to protest?  How much of that 9-figure dollar award amount would be considered fair and reasonable to pay?  I would think that a company would at least want 7 figures.  Would that be good use of taxpayer money?  

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3 hours ago, ji20874 said:

Additionally, I hanem't seen any reporting of settlement agreements in GAO's annual reports.  If reporting exists, I could not find it required.

You wouldn’t see anything, especially if a protest is withdrawn.  Many of these situations also arise at either the informal level or agency protests

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5 hours ago, Desparado said:

What would be the bona fide need to use appropriated dollars to pay an unsuccessful offeror not to protest?

I appreciate that there is more nuance to this than I would want to admit.  After the Comptroller General published 71 Comp. Gen. 340, Congress passed FASA.  Section 1016 of FASA added 10 USC 2305(f), which provides:

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If, in connection with a protest, the head of the agency determines that a solicitation, proposed award, or award does not comply with the requirements of law or regulation, the head of the agency...may take any action set out in subparagraphs (A) through (F) of subsection (b)(1) of section 3554 of title 31; and...may pay costs described in paragraph (1) of section 3554(c) of title 31 within the limits referred to in paragraph (2) of such section.

(For civilian agencies, see FASA sec. 1066 and 41 USC 3708(b).)  The language of the statute does not literally provide that the agency is limited to paying the costs of filing and pursuing the protest or the costs of bid and proposal preparation in exactly the same circumstances as the GAO.  However, a prerequisite to paying under 10 USC 2305(f) is that the award "does not comply with the requirements of law or regulation."  Corrective action is normally the first step when a protest has merit, be it an agency protest or otherwise.  The GAO will recommend paying bid and proposal costs where appropriate corrective action may not be implemented.  Consider Daniel S. Herzfeld and Evan D. Wesser, Turning Silver Into Gold:  Recovering Protest Costs or Bid & Proposal Costs in Procurement Protests, 10 Briefing Papers 4 (March 2010), at 4 (citations omitted):

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Second, the GAO has allowed the recovery of bid and proposal costs where its recommended corrective action may not be implemented.  For example, where the protested contract is fully performed during the pendency of a GAO protest (presumably because the CICA stay either never came into effect or the agency successfully overrode the stay), the GAO will recommend the award of bid and proposal costs.  Also, the GAO has awarded bid and proposal costs where the protest challenges an award of a lease of real property that already has been executed.  Usually, long-term leases for real property with the Federal Government lack a termination for convenience clause, and the GAO will not read a termination for convenience clause into leases because, unlike other Government contracts, leases do not require that clause.  Finally, the GAO will award costs where an agency simply refuses to follow the GAO's recommended corrective action.

I think it would be a mistake to ignore the circumstances where the GAO recommends paying costs, and I think it would be a mistake to ignore corrective action when talking about the Government's power to pay appropriate costs.  FAC 90-32 implemented FASA section 1016 by amending FAR 33.102(b).

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3 hours ago, Retreadfed said:

Keith, why would you want to do this?  What government interest are you trying to protect or promote?

My initial interest was a scenario that I think is specifically prohibited, "operational delays." Depending on your appetite for risk, even if you thought you had a 90% chance of prevailing at GAO, you may choose to settle, if settlement were a real alternative. So the settlement offer would be something approximating what GAO would tell the agency to pay when the agency loses a protest.

Another scenario that I'm thinking about is a situation where an agency writes a solicitation provision that it can't comply with but doesn't realize it until after proposals are received.

But really I just wondered if it was possible or ever came up before.

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6 minutes ago, ji20874 said:

Are we talking about paying costs to a protester, or paying an unsuccessful offeror not to file a protest in the first place?

Sorry if I changed the OP's original fact pattern.  I thought the idea was to avoid a GAO protest by treating the negotiation of the settlement agreement as an agency-level protest.

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I tried to write something meaningful but this is as far as I got.  I don't have the time to go back so it ends, like this.

Formefed wrote:

On 2/7/2020 at 6:01 PM, formerfed said:

Consider this.  An agency anticipates a protest and thinks there’s a 50% chance of prevailing.  They estimate costs to the Government with a protest and costs to the protestor which the government pays if it loses.   So they made an offer to not protest and reasonable  payment is justified as cost avoidance.  

I had forgotten all about Fedmail.  I remember the March 1990 report mentioned above:  ADP Bid Protests: Better Disclosure and Accountability of Settlements Needed, GAO/GGD-90-13.   The report was requested by the Senate Chairman of the Subcommittee on Federal Services, Post Office, and Civil Service; Committee on Governmental Affairs. Back then, the GSBCA heard ADP bid protests.  That bid protest authority died with the abolishment of the GSBCA.  Fedmail allegations focused on ADP procurements.  I have no reason to believe that this issue is not anywhere else.  

GAO used contemporary press accounts to define what Fedmail is.  

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As defined by the press, Fedmail occurs when an agency pays a protester to withdraw its bid protest in order to avoid suspension of the protested procurement until a decision is rendered.

GAO did find that some Fedmail was occurring on about 10 percent of the awards and recorded the monetary amounts paid by the government and apparent winning offeror.  However, monetary payments do not consider a losing offeror blackmailing an apparent winning offer by asking for a piece of the action.

Fedmail/blackmail does, to some extent, exist in federal contracting.

GAO Recommended that

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Congress should amend the act’s provisions to require that (1) all terms of protest settlements be disclosed in the motion to dismiss filed at the Board or the notice of withdrawal filed with GAO;

In the Federal Acquisition and Stremlining Act of 1994 (FASA, P. L. 103-355) Section 1436 states

Quote

SEC. 1436. DISMISSAL AGREEMENTS.

Section 111(f)(5) of the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 759(f)(5)), as amended by section 1435, is further amended by adding at the end the following new subparagraphs:

"(D) Any agreement that provides for the dismissal of a protest and involves a direct or indirect expenditure of appropriated funds shall be submitted to the board and shall be made a part of the public record (subject to any protective order considered appropriate by the board) before dismissal of the protest. If a Federal agency is a party to a settlement agreement, the submission of the agreement to the board shall include a memorandum, signed by the contracting officer concerned, that describes in detail the procurement, the grounds for protest, the Federal Government's position regarding the grounds for protest, the terms of the settlement, and the agency's position regarding the propriety of the award or proposed award of the contract at issue in the protest.

"(E) Payment of amounts due from an agency under subparagraph (C) or under the terms of a settlement agreement under subparagraph (D) shall be made from the appropriation made by section 1304 of title 31, United States Code, for the pa3naient of judgments. The Federal agency concerned shall reimburse that appropriation account out of funds available for the procurement.".

When the GSBCA was abolished, that was the end of it.  I looked at GAO's annual reports and could not find any reporting of Blackmail payments.  

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I guess to summarize, at least from my perspective, a money settlement would be limited to proposal preparation costs, and, in very limited circumstances, the costs of pursuing the protest.  Perhaps more importantly, to pay any settlement requires acknowledging the agency failed to follow a procurement regulation.  The circumstances under which the Government can decline to take corrective action in the face of failing to follow a procurement regulation are limited.

@bob7947, for what its worth, in 1990, Sen. Levin introduced S. 3123, which was similar to FASA sec. 1436, except instead of applying just to the GSBCA, it applied to the GAO as well.  It died in committee.

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I was trying to come up with a way to defeat blackmail -- payments from the government to an offer to avoid a protest.  Watch it fall apart.  (This won't affect an offeror from blackmailing another.)

  1. Offeror A and B were competing on an important procurement.
  2. Offeror A is notified it looks like the apparent winner and B is an also ran.
  3. B threatens the agency with a GAO protest.
  4. The agency realizes it was a close competition and believes it followed all the rules.  The agency tells B that the requirement was urgent and compelling and in the public interest to get its needs supplied but A as quiuckly as possible.
  5. B protests to GAO under 31 U.S. C. § 3553(c)(1) which causes a CICA Stay.
  6. The Agency awards the contract to A and uses its finding of urgent and compelling and in the public interest under 31 U. S. C § 3553(c)(2) to continue performance on the contract.
  7. Offeror B goes to the Court of Federal Claims for a temporary restraining order and preliminary injunction.
  8. The Court of Federal Claims goes through its procedure and grants the preliminary injunction.
  9. All work stops on the contract.
  10. Checkmate.

How do you solve this?

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35 minutes ago, Jacques said:

for what its worth, in 1990, Sen. Levin introduced S. 3123, which was similar to FASA sec. 1436, except instead of applying just to the GSBCA, it applied to the GAO as well.  It died in committee.

In 1991, there was a bill in the House to amend FPASA and report on Contracting Blackmail.  It passed the House and died in Senate.  Other than FASA, I didn't find anything else.  

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