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Is it possible legally to award two requirements contracts for the same requirement, promising each contractor approximately 50% of the work?

In JRS Management, B-401524.2, GAO held that:

A requirements contract is formed when the seller has the exclusive right and legal obligation to fill all of the buyer's needs for the goods or services described in the contract. The promise by the buyer to purchase the subject matter of the contract exclusively from the seller is an essential element of a requirements contract. A solicitation will not result in the award of an enforceable requirements contract where a solicitation provision disclaims the government's obligation to order its requirements from the contractor and therefore renders illusory the consideration necessary to enforce the contract.

“All of the buyer’s needs.”

”Exclusively from the seller.”

This language seems unambiguous: to be legally enforceable, ALL of the work associated with a specific requirement must be promised to a single contractor. And yet FAR 52.216-21 (Alternate III) allows for the work to be split 50/50 between a large and small business:

(c) The Government’s requirements for each item or subitem of supplies or services described in the Schedule are being purchased through one non-set-aside contract and one set-aside contract. Therefore, the Government shall order from each Contractor approximately one-half of the total supplies or services specified in the Schedule that are required to be purchased by the specified Government activity or activities. The Government may choose between the set-aside Contractor and the non-set-aside Contractor in placing any particular order. However, the Government shall allocate successive orders, in accordance with its delivery requirements, to maintain as close a ratio as is reasonably practicable between the total quantities ordered from the two Contractors.

Since business size has nothing to do with the concept of illusory promises, I see no reason why the same construct stated in 52.216-21 (Alternate III) couldn’t apply to any two businesses if the proper verbiage is included in the contract. I found two other Wifcon discussions that address this topic that don’t come to any strong conclusions. But to me it seems pretty clear that a promise to equitably divide the same work between two requirements contracts must be enforceable. 

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This is from FAR 16.503.  It states the preference for multiple awards that also apply to requirements contracts.

Quote

      (b) Application.

(1) A requirements contract may be appropriate for acquiring any supplies or services when the Government anticipates recurring requirements but cannot predetermine the precise quantities of supplies or services that designated Government activities will need during a definite period.

 (2) No requirements contract in an amount estimated to exceed $100 million (including all options) may be awarded to a single source unless a determination is executed in accordance with 16.504(c)(1)(ii)(D).

A requirements contract is a form of indefinite delivery contract.  Contracts must contain some form of consideration to the contractor as GAO notes.  With an indefinite quantity type, consideration is met through the guarantee of a minimum.  With a requirements type, consideration is the promise to buy everything from the contractor.  In this case, consideration is the promise to buy from a pool of contractors.

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9 hours ago, formerfed said:

In this case, consideration is the promise to buy from a pool of contractors.

Formerfed, would you say that the pool has to be limited to a small number of contractors in order for consideration to apply?  For example, could GSA make its schedule contracts requirements contracts using this authority?

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At the heart of this issue is the question: “what constitutes sufficient consideration?” 
 

If indeed a promise to give part of a job to one contractor and a part to another is sufficient, then it’s hard to imagine that there would be any limitation based on the quantity of contractors you’re giving the work to (unless you’ve divided it to such an extent that it’s deemed token consideration, I suppose). It seems that how the distribution of work is described and executed will be key to determining the sufficiency of consideration. (For example, will a work distribution plan actually result in the apportionment promised?)

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I did a single acquisition for three requirements contracts once -- one for each of three geographic regions (east coast, west coast, and midwest).  

This differs from the original poster's situation.  I think a promise of "approximately one-half of the total supplies or services specified in the Schedule" to each of two contractors is reasonable (using the partial set-aside model as an example).  But why?  Why are two contractors necessary?  I understand the case for two requirements contracts in a partial set-aside, where maybe small business cannot provide all of the requirement so we allow them to provide half.  If not partial set-aside, why have two requirements contracts?  Is it for industrial mobilization reasons?  Market segmentation reasons?

3 hours ago, Retreadfed said:

For example, could GSA make its schedule contracts requirements contracts using this authority?

I don't think so -- there would be no benefit in doing so, and GSA's FSS schedules are not mandatory as a general rule.  If there are a hundred contractors on a schedule, who wants to promise each contractor 1/100th of the work?

Edited by ji20874
to add Why? questions...
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The following comment and response was contained in the final rule for FAR Case 2008-006 (75 FR 13416):

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Comment 14. “Clarify Requirements Clause.” The commenter states that, without additional implementation language, it is assumed that without a determination under FAR 16.504(c)(1)(ii)(D), it will be a violation of FAR to issue requirements contracts over $100 million. The commenter further states that it is assumed that all contracts over $100 million will be multiple-award IDIQ contracts under FAR 16.504(c)(1)(ii)(D). If the assumptions are correct, the commenter requests additional clarifying language Start Printed Page 13419in FAR 16.503 to state that requirements contracts are not authorized over $100 million unless a determination is granted. In addition, if the intent is to allow multiple-award “requirements” contracts, the commenter requests that an alternate to FAR 52.216-21 be added to the ruling that defines how a multiple-award requirements contract will be implemented.

Response: The Councils do not believe a change to FAR 52.216-21 is required as a result of this rule. The FAR does not preclude single-award task- or delivery-order requirements contracts over $100 million, it just requires a written determination by the head of the agency. FAR 16.503(b)(2) already states that requirements contracts are not authorized over $100 million unless a determination is granted. The Councils amended the language at FAR 16.503(a) to clarify that requirements contracts are awarded to one contractor. This change is made to dispel the implication at FAR 16.503(b)(2) that a multiple-award requirements contract may be awarded. See also response to Comment 12.

 

https://www.federalregister.gov/documents/2010/03/19/2010-5989/federal-acquisition-regulation-far-case-2008-006-enhanced-competition-for-task--and-delivery-order

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2 hours ago, Don Mansfield said:

Jeez. What an absolute mess of a section!! Two comments in response:

1. The drafters still haven’t “dispelled the implication” because there is a clause (52.216-21 (Alternate III)) that expressly provides permission to award two requirements contracts for the SAME work. (I suppose their counterargument would be that small business interests outweigh the interest in having a single requirement contract. To what end, who knows?)

2. I would still feel comfortable awarding multiple requirements contracts under a scenario such as the one ji mentioned, which is supported by the holding in JRS Management, B-401524.2. 

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4 hours ago, ji20874 said:

But why?  Why are two contractors necessary?  I understand the case for two requirements contracts in a partial set-aside, where maybe small business cannot provide all of the requirement so we allow them to provide half.  If not partial set-aside, why have two requirements contracts?  Is it for industrial mobilization reasons?  Market segmentation reasons?

In my case, because the customer seeks redundancy to mitigate against performance risk should one contractor fail or default. 

And the reason for a requirements contract rather than an IDIQ is because we need to place many orders every day with little ability to know what the requirement will be next week. Competing orders (which exceed the SAT) would create delay and waste. 

I can think of no other way to marry their need for redundancy with their need for rapid-fire ordering as unpredictable requirements arise.

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4 hours ago, FrankJon said:

Jeez. What an absolute mess of a section!! Two comments in response:

1. The drafters still haven’t “dispelled the implication” because there is a clause (52.216-21 (Alternate III)) that expressly provides permission to award two requirements contracts for the SAME work. (I suppose their counterargument would be that small business interests outweigh the interest in having a single requirement contract. To what end, who knows?)

2. I would still feel comfortable awarding multiple requirements contracts under a scenario such as the one ji mentioned, which is supported by the holding in JRS Management, B-401524.2. 

In the context of FAR subpart 16.5, "multiple award" implies multiple contracts with the same scope. At least that's how the FAR Councils seem to be using the term.

I wouldn't describe what you have in mind as "multiple-award". I think what you're describing is a split award.

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28 minutes ago, Don Mansfield said:

In the context of FAR subpart 16.5, "multiple award" implies multiple contracts with the same scope. At least that's how the FAR Councils seem to be using the term.

I wouldn't describe what you have in mind as "multiple-award". I think what you're describing is a split award.

Can you clarify, Don? It sounds like you're saying ji's "regional" approach is a split award, and to your mind acceptable. I agree. This seems clear based on case law.

But how would you describe the situation described by 52.216-21 (Alternate III)? Surely that must be multiple award, right? I'm not trying to be pedantic here. I would love to find a way to apply the flexibility of that clause to the large businesses in my situation and I'm looking for any plausible explanation to account for the apparent glaring contradiction that the clause creates.

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9 hours ago, Retreadfed said:

Formerfed, would you say that the pool has to be limited to a small number of contractors in order for consideration to apply?  For example, could GSA make its schedule contracts requirements contracts using this authority?

Funny you mentioned this.  A long time ago, GSA Schedules were requirements contracts and all mandatory for GSA use.  Many were also mandatory on some other agencies (varied depending upon the commodity).  When not mandatory on specific agencies, use was optional and the scope contained similar language.  A GSA lawyer described them as a hybrid requirements/indefinite quantity contract. 

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15 minutes ago, FrankJon said:

Can you clarify, Don? It sounds like you're saying ji's "regional" approach is a split award, and to your mind acceptable. I agree. This seems clear based on case law.

But how would you describe the situation described by 52.216-21 (Alternate III)? Surely that must be multiple award, right? I'm not trying to be pedantic here. I would love to find a way to apply the flexibility of that clause to the large businesses in my situation and I'm looking for any plausible explanation to account for the apparent glaring contradiction that the clause creates.

Yes, I think ji's regional approach is fine. I just wouldn't call it "multiple-award".

I don't see what's described by 52.216-21, Alt. III as multiple-award, because each awardee gets half the requirement. That's different than each awardee getting a contract for potentially the whole requirement. 

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11 hours ago, FrankJon said:

I can think of no other way to marry their need for redundancy with their need for rapid-fire ordering as unpredictable requirements arise.

Two or more single-award IDIQs or BOAs?

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4 hours ago, Jamaal Valentine said:

Two or more single-award IDIQs or BOAs?

I don’t think so. BOAs wouldn’t address my efficiency issue, as I’d still need to follow competition and posting requirements. 

Based on my reading of 16.5 trying to award two or more single award IDIQs to share the work would be an even more tenuous argument than awarding two or more requirements contracts. I’m going to have a battle either way. I think there’s a clearer argument for setting up this arrangement with requirements contracts. 

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Same process as with a partial set-aside -- the work description and contract scope statements can be identical...  The "approximately equal" division of work among the two need not be decided pre-award, but may be administered by the contracting officer post-award through issuance of orders in a manner that half of the work goes to one, and half to the other.

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17 hours ago, FrankJon said:

I don’t think so. BOAs wouldn’t address my efficiency issue, as I’d still need to follow competition and posting requirements. 

Based on my reading of 16.5 trying to award two or more single award IDIQs to share the work would be an even more tenuous argument than awarding two or more requirements contracts. I’m going to have a battle either way. I think there’s a clearer argument for setting up this arrangement with requirements contracts. 

Probably right on the BOA aspect. I really wish the FAR Councils would rewrite FAR 5.202(a)(6) or (11).

However, I think a careful read of FAR 16.504(c)(1)(ii)(B)* could lead to a single-award path, but you know your agency better than I do.

*assuming you don’t reach FAR 16.504(c)(1)(ii)(D)(1)

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23 hours ago, ji20874 said:

Same process as with a partial set-aside -- the work description and contract scope statements can be identical...

Are your sure?....Your contention was that the needs could be ordered via alternating orders.   It appears such would be in conflict with what is provided for in the following FAR subpart, as emphasized.   I agree with the concept of a split requirements contract discussed in this thread but "alternating orders" becomes a scope issue and using alternating orders does not seem to provide for "distinct" portions for a partial setaside.   I would be interested in seeing the wording that would delineate the work for two separate requirements contracts for the same work that would further divide the work into distinct portions to allow alternating orders pursuant to partial setaside.

19.502-4 Partial set-asides of multiple-award contracts.

      (a)In accordance with section 1331 of the Small Business Jobs Act of 2010 ( 15 U.S.C. 644(r)(1)), contracting officers may, at their discretion, set aside a portion or portions of a multiple-award contract, except for construction, for any of the small business concerns identified at 19.000(a)(3) when—

           (1)Market research indicates that a total set-aside is not appropriate (see 19.502-2);

           (2)The requirement can be divided into distinct portions;

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15 minutes ago, C Culham said:

I would be interested in seeing the wording that would delineate the work for two separate requirements contracts for the same work that would further divide the work into distinct portions to allow alternating orders pursuant to partial setaside.

Easy -- just tailor the Alt III text...

  • The Government’s requirements for each item or subitem of supplies or services described in the Schedule are being purchased through one non-set-aside contract and one set-aside [two requirements] contract[s]. Therefore, the Government shall order from each Contractor approximately one-half of the total supplies or services specified in the Schedule that are required to be purchased by the specified Government activity or activities. The Government may choose between the set-aside Contractor and the non-set-aside [either] Contractor in placing any particular order. However, the Government shall allocate successive orders, in accordance with its delivery requirements, to maintain as close a ratio as is reasonably practicable between the total quantities ordered from the two Contractors.
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1 hour ago, ji20874 said:

Easy -- just tailor the Alt III text...

Well I understand the approach but I not convinced it is appropriate.  To your latest suggestion "tailoring" of 52.216-21 by my read is not allowed, unless of course one were to follow the FAR deviation process.  Also I actually believe the FAR contemplated "one contractor" for a requirement (scope) that can not be otherwise divided into distinct portions for a partial set-aside. Likewise, convoluting "partial set-aside" to procure the same need through separate contracts that do not have distinct portions does not seem to follow the idea contemplated by the FAR Part 19 nor the SBA regulations.  

All said I have done requirements based on geographic area but I have not then subdivided the geographic area (via a partial set-aside) further but I could see where I might do that for say something like Olympic National Park garbage service where there was a part of the park where there were lots of SB's and another part where there were not, or in other words distinct portions.  However to simply have a need for the garbage service and to ensure redundancy risk you create a partial set-aside with the true intent that actually one contract could handle the whole affair seems a hollow determination in my view. 

Maybe for the "split" (really two awarded) requirement contracts you ought to tell it like it is - the promise ought to be for contract 2 that if contractor 1 cannot perform the work then contractor 2 gets the work until such time as contractor 1 can perform the work.  

 

 

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