Jump to content

Reprocurement Costs for Procurement Conducted Prior to Termination?


rios0311

Recommended Posts

Question

Has anyone come across a case where the COFC or one of the BCAs sustained or awarded reprocurement costs for a procurement that was conducted in anticipation of needing to terminate a contract; i.e., before the contract was terminated?

Scenario

The agency enters into contract A for a critical system. After its partial implemention and placement into operation, any lapse in the system's operation would lead to disastrous consequences for the agency. Although the system is deployed with some core functionality, the contractor is still working to complete the configuration of all of the system's features and capabilities in order to fully implement the system. During the course of the contractor's configuration and implementation of the system,  the contractor begins to demonstrate deficient performance. Its lack of diligence and repeated failures indicate that the agency cannot be assured of the contractor's performance.

The agency begins to consider whether it may need to terminate contract A if the contractor does not complete the system's implementation by the contract's completion date. However, the agency recognizes that it cannot terminate the contract without having a backup (replacement) system configured and ready to be placed into operation in the event that it determines that it needs to terminates the contract.

The agency conducts a new procurement and enters into contract B for a backup system and successfully implements the system, but does not place it into operation. Shortly thereafter, contractor A defaults, so the agency places the backup system into operation, the CO terminates contract A and assesses reprocurement costs (against contractor A) for the cost of contract B's implementation phase. The CO assesses reprocurement costs on the principle that it would not have had to incur costs on a second procurement for a backup system if contractor A had fulfilled its obligations.

The agency's risk mitigation strategy to award a second contract for a backup system seems reasonable based on the contractor's deficient performance and the contractor's eventual default seems to validate the agency's decision to procure a replacement system as a precautionary measure. But how likely is the agency to prevail in recouping reprocurement costs for contract B, which the agency awarded prior to terminating contract A?

Is anyone familiar with a similar case, or with any case in which reprocurement costs were assessed for a procurement conducted prior to terminating a contract?

Link to comment
Share on other sites

I am not familiar.

It seems to me that the Government's decision to contract with B was for the Government's own benefit and protection as a risk mitigation strategy, and those costs can't be styled as excess reprocurement costs.  At least, this would be true for the base period costs on contract B.  Are you asking about the entirety of contract B's costs as excess costs, or just the excess costs in the option exercises.

Since successful performance is so important, I wonder if the agency would require a performance bond from A?  See FAR 28.103-2(a)(3).

Here's a possible approach:  Imagine a single solicitation that results in two awards, A and B, where A is the best value offer and B is the next-best value offer, and both contracts have a base CLIN 001 and an option CLIN 101 -- both A and B start work on CLIN 001 -- if A is successful, you exercise A's option for CLIN 101 -- if A is not successful but B is, you exercise B's option for CLIN 101.

Link to comment
Share on other sites

Thank you, ji20874. There are no excess costs that would result from exercising the options because pricing on those services is similar on both contracts. The agency is only looking at the implementation (base period), because those were costs the agency should not have had to incur again. But you might be right in that the agency may not be able to recover them. Your possible approach seems reasonable too. The agency didn't anticipate being in that situation, so they did not plan for it.

Link to comment
Share on other sites

Quote

Is anyone familiar...with any case in which reprocurement costs were assessed for a procurement conducted prior to terminating a contract?

While I'm not following your scenario, if you haven't read Nash & Cibinic, Administration of Government Contracts, Chapter 10, section V.E.1, I encourage you to do so.  While I don't have the latest edition, in the Third Edition, at 1035, this section begins as follows:

Quote

In order to assess costs, the Government must show that the contract on which such costs were incurred was intended to be a reprocurement.  As long as this intent is shown, it is not necessary that the reprocurement contract be awarded after the termination.

(emphasis added).  It then cites to Olean Case Corp., GSBCA 4673, 78-1 BCA ¶ 12,905 and Foster Refrigerator Corp., ASBCA 32059, 88-1 BCA ¶ 20,398 as support for this conclusion.

Link to comment
Share on other sites

I agree with Jacques.  The replacement contract can be a contract already in existence when a contract is terminated for default.  Further, I also am having trouble following your scenario.  What do you mean by "a new implementation of a replacement system"?  Acquiring a system and implementing a system are two different things to me.  A little more detail and clarity would be helpful.

Link to comment
Share on other sites

Jacques, this is incredibly helpful. Thank you. To both you and Retreadfed, I edited my original post in hopes of making it clearer. I deleted some details that perhaps didn't matter much, so I hope it makes better sense now. In any event, your responses provided me with what I needed. Much appreciated!

Link to comment
Share on other sites

These situations are fun and interesting speculating what’s might happen.  On the surface, it seems contract B could be considered the reprocurement.  However, in practice,  these things generally have lot of surprises as they get played out.

For starters, contractors take termination for default very seriously.  It’s a nail in their coffin as far as getting new work.  Assessing excess reprocurement costs is adding salt to a wound.  Invariably these end up appealed.  Lots of details and new information come out through discovery, deposition, testifying, etc.  Contractors spend lots of money on the best lawyers.  They find things no one thought of before.  Usually they exploit weaknesses in the governments position.  

In a situation like described here, it’s often easy to claim government actions or inactions caused implementation delays and issues.  The fact that your agency awarded another contract might backfire and lawyers say that demonstrates the government acknowledges difficulty in successful performance and that wasn’t disclosed in the solicitation phase.  I’m just making these up but these are the kind of issues that often arise.

 

Link to comment
Share on other sites

For anyone that followed this thread last year, I thought I'd provide an update on how it ended. After issuing the termination notice and claim for reprocurement costs, the contractor challenged the termination at the Civilian Board of Contract Appeals. For context, the primary reason for terminating the contract for cause was because the contractor failed to deliver a working system within the 30-day extension the CO provided after having re-established the delivery schedule. The issue of re-establishing the delivery schedule was discussed separately on this Wifcon thread: 

 

Unfortunately, despite spending countless hours researching court/board decisions, legal blogs and other references, and drafting a series of notices to ensure our termination was procedurally solid, our attorneys did not believe they would prevail in court. They recommended we settle with the contractor. Part of the draft settlement agreement required the contractor to return a small portion of the amount we paid. Unfortunately, the contractor also demanded a satisfactory past performance rating in CPARS. Ultimately, we decided to walk away from the partial refund and instead converted the termination into a termination for convenience and gave the contractor a past performance rating that accurately reflected their performance.

From the date of termination, settlement discussions, to the Reviewing Official finalizing the evaluation in CPARS, the entire process took a year. There were some significant lessons learned from the contracting process on this procurement that got us to the point of having to terminate the contract. But there were also some lessons learned about the termination process itself. Among them:

1. Ensure that your attorneys and leadership are onboard and ready to support a termination for cause or default before embarking on that path.

2. Maintaining a strong working relationship with your attorneys will make it more likely that they will be willing to go to bat for you when the time comes.

3. Be aware of how time consuming it can be to build a case to support a termination for cause. Drafting lengthy notices and compiling documents and correspondence for a Rule 8 file for your attorneys is not a pleasant way to spend several weekends.

4. Sometimes in contracting, it doesn't matter how right you believe you are, or how strong a case you think you have against a contractor. The interests of the agency may dictate pursuing a different course of action. As a leader, you'll need to get behind that course of action.

 

In the end, contract B provided us the system we needed with all the required functionality and has performed beautifully to date.

 

 

Link to comment
Share on other sites

Guest
This topic is now closed to further replies.
×
×
  • Create New...