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Darby8001

Termination of Requirements Contract

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Don, I wasn't trying to pick a fight, I was trying to find a middle ground between termination for convenience and asserting a defense of fraud. I hoped the idea of illegality (absence of CO authority to award to other than an 8(a) participant) might answer the mail, but I haven't had any luck. Don, you used the "bad faith" language, not me; I assume you know something I don't. If I inferred a distinction you didn't intend, and that "bad faith" is the same as "intentional misrepresentation," mea culpa.

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Black's Law Dictionary, 8th ed., defines "bad faith" as follows: "Dishonesty of belief or purpose."

The Government Contracts Reference Book, 3d ed., defines it as follows: "Acting with malice or intent to harm the other party to a contract."

Black's defines "fraud" as follows:

1. A knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment... 2. A misrepresentation made recklessly without belief in its truth to induce another person to act... 3. A tort arising from a knowing misrepresentation, concealment of material fact, or reckless misrepresentation made to induce another to act to his or her detriment... 4. Unconscionable dealing; esp., in contract law, the unfair use of the power arising out of the parties' relative positions and resulting in an unconscionable bargain.

According to Cibinic & Nash, Formation of Government Contracts, 3d ed., 74 - 76:

The most drastic consequence of a contract made in violation of a statute or a regulation with the force and effect of law is that the Government ha the right to avoid the contract. Such contracts have been variously described as "void ab initio."... Government avoidance is limited to clear-cut violations of statutes or regulations.

* * *

Following avoidance, the contractor may not recover under the contract. Further, the contractor may be denied any compensation if fraud or other criminal conduct by the contractor was involved.

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I was interpreting 'bad faith' as 'lack of good faith,' as in, a breach of the implied covenant of good faith and fair dealing. I was wrong.

I suspect reasonable minds might differ on how clear-cut the violation was. Here, I would offer that you need to look to the entire context of the 8(a) program and all the reporting requirements that go along with it. The facts as I understand them is that this contractor was engaged in a scheme to create the appearance that his business continued to qualify under the 8(a) program. I don't have a lot of sympathy for him, but I obviously don't have all the facts and context. My point is, just because the 8(a) rules are complex, doesn't mean there are not "clear-cut" violations of them, and when a business decides to take the benefits of the program, and then goes out of its way to create the appearance of multiple businesses, it is reasonable to hold them to a standard that requires them to have a fair understanding of the program that they are "gaming." I'm trying to parse the mental state requirements here. A "clear-cut" violation (I would suggest) doesn't requiring showing what the contractor actually knew, but what it should have known; while a finding of fraud does require showing an intentional misrepresentation.

I'm curious what others think of whether illegality is a possible defense here, short of invoking a defense of fraud. I may be trying to slice this thing too thinly. It may be that, implicit in any finding that the contract award involved a clear-cut illegality, one would have to conclude that the contractor engaged in fraud.

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Jacques,

I know you weren't trying to pick a fight and I didn't mean to come across as hostile.

As far as your illegality argument, it is legal for the CO to award a contract to the SBA under the 8(a) program. That's what happened here.

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Be more specific. What particular term or condition?

Don and Darby8001,

I accidently answered the question Don intended for Darby8001. I thought you meant it for me based on my reply.

I looked at it with my blackberry and got confused with the small screen.

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Vern ? Back when this was going on I couldn?t find a ruling on it one way or the other. But, in the end my opinion was no.

To continue the story?..What I did do was deny the termination settlement proposal in its entirety and informed the contractor of their right to submit a claim. The contractor did just that and submitted a certified claim to the ASBCA. Since I had never issued a final decision the board remanded the issue back to the agency to issue a final decision.

Now, I would like to pose one final question. Do you as a CO feel it proper to pay out claimed T4C cost on this contract? Forget about any fraud or misdoings. Assume only a mistake on the part of the contractor was made. The government still needs the service and if the contractor was 8(a) they would still have the contract.

Maybe I am over simplifying or to harsh but it is hard for me to swallow the government paying out for the mistakes of a contractor.

In the end I don?t think there is a definite right or wrong answer. How the members of the Wifcon board would have handled the scenario?

I issued a final decision denying the entire claim. Since then I have accepted a position at another agency and my prior agency settled the matter before the ASBCA ruled on it.

I think this one would have been a good one to go to the board as I am interested how they would view it.

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As a CO, I would not want to pay anything on the termination settlement. I know that Don found the cases that he did, but I have read the cases and would still be willing to fight it out. I would not want to yield based on a 40 year old decision. But the lawyer who argues the case for you at the board has to believe in it and be willing to try a new argument.

However, almost any attorney will tell you that if you can settle for reasonable terms, then you should, rather than risk a trial.

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You could have kept the contract despite the incorrect size status ? it is still a valid contract. It seems that by going the T for C route you opened yourself up to termination settlement costs. Whether they are entitled to termination costs has nothing to do with their size representation. I think if we took the incorrect size element and other emotions out of this thread, the advice from this forum on a termination settlement would have been much different. It seems to have tainted the discussion.

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You could have kept the contract despite the incorrect size status ? it is still a valid contract. It seems that by going the T for C route you opened yourself up to termination settlement costs. Whether they are entitled to termination costs has nothing to do with their size representation. I think if we took the incorrect size element and other emotions out of this thread, the advice from this forum on a termination settlement would have been much different. It seems to have tainted the discussion.

Whynot

I have to disagree the statement to keep the contract size

(Greystones Consulting Group, Inc., B-402835, June 28, 2010)

and

(Alliance Detective & Security Service, Inc., B-299342, April 13, 2007)

"We view it as inconsistent with the integrity of the procurement system and the intent of the Small Business Act, 15 U.S.C. ?? 631-657a (2006), for an agency to allow a firm to continue performing a contract where the firm was determined after award to be other than small, unless there are countervailing reasons for allowing the award to remain in place. See, e.g., ALATEC, Inc., B-298730, Dec. 4, 2006, 2006 CPD ? 191 at 5-6."

Additionally I would say the size determination is relevant to the discussion as that is the sole reason for the termination. Keep in mind I have previously said "Forget about any fraud or misdoings. Assume only a mistake on the part of the contractor was made."

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Did SBA or OHA direct you to cancel the contract as a result of the protest? What remedy did they specify in the decision?

FAR 19.302(k) appears to indicate that incorrect size representation does not necessarily invalidate a contract.

Perhaps, since performance by the contractor does not appear an issue ? you could have let the contract expire at the end of the base year.

I don?t see how a T4C settlement can be denied because of a size misrepresentation ? maybe that is why after your agency settled with the contractor. There is nothing in the T4C clause that you could use. You would have to T4D.

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Whynot, FAR 19.302(k) is solely about rerepresentations. I don't think it says that a contract set aside for award to a small business that is originally awarded to a contractor that is other than small is valid.

FAR 6.204(a) provides, as an exception to the requirement of full and open competition, that "contracting officers may limit competition to eligible 8(a) contractors." This doesn't say that COs may limit competition to contractors who CLAIM to be eligible 8(a) contractors. While I don't think that any contract that is the subject of a successful size protest is void or voidable; I am curious why the contractor should be entitled to T4C damages, especially if it made a negligent size representation.

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In the end I don?t think there is a definite right or wrong answer. How the members of the Wifcon board would have handled the scenario?

I would not have terminated the contract. SBA appeal decisions received after award do not apply to the pending acquisition. FAR 19.302(i) states:

An appeal from an SBA size determination may be filed by any concern or other interested party whose protest of the small business representation of another concern has been denied by an SBA Government Contracting Area Director, any concern or other interested party that has been adversely affected by a Government Contracting Area Director?s decision, or the SBA Associate Administrator for the SBA program involved. The appeal must be filed with the?

Office of Hearings and Appeals

Small Business Administration

Suite 5900, 409 3rd Street, SW

Washington, DC 20416

within the time limits and in strict accordance with the procedures contained in Subpart C of 13 CFR 134. It is within the discretion of the SBA Judge whether to accept an appeal from a size determination. If the Judge decides not to consider such an appeal, the Judge will issue an order denying review and specifying the reasons for the decision. The SBA will inform the contracting officer of its ruling on the appeal. The SBA decision, if received before award, will apply to the pending acquisition. SBA rulings received after award shall not apply to that acquisition.

The GAO decisions that you cited recommend termination in the absence of countervailing circumstances. If the SBA decides to consider an appeal, that is a countervailing circumstance. Consider Tiger Enterprises, Inc. B-292815.3; B-293439, January 20, 2004

We previously have found, in circumstances such as these, where a timely size protest has been filed, there is no appeal of the SBA?s size ruling, and there are no countervailing circumstances that would weigh in favor of allowing the large business concern to continue performance, that termination of the awardee?s contract is appropriate. Adams Indus. Servs., Inc., B-280186, Aug, 28, 1998, 98‑2 CPD ? 56; Diagnostic Imaging Tech. Educ. Ctr., Inc., B-257590, Oct. 21, 1994, 94-2 CPD ? 148 at 2-3. In the absence of countervailing reasons, we view it as inconsistent with the integrity of the Small Business Act, 15 U.S.C. ?? 631-657a, for an agency to permit a large business, which was ineligible under the terms of the solicitation, to continue performance. Adams Indus. Servs., Inc., supra.

From what you have told us, I don't believe that you were required to terminate the contract.

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FAR 6.204(a) provides, as an exception to the requirement of full and open competition, that "contracting officers may limit competition to eligible 8(a) contractors." This doesn't say that COs may limit competition to contractors who CLAIM to be eligible 8(a) contractors. While I don't think that any contract that is the subject of a successful size protest is void or voidable; I am curious why the contractor should be entitled to T4C damages, especially if it made a negligent size representation.

I am curious, too. I didn't expect to find what I found in the court and board decisions.

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Wynot ? I don?t know if you will find a situation in a size challenge where the SBA will recommend termination. Correct me if I am wrong but I believe (although I haven?t done the research) that their rulings on this issue are merely the size of the company.

Don-

While the FAR does allow for continued performance on post award size challenges the SBA regs (which the board view as controlling) do not.

See - Adams Indus. Servs., Inc., B-280186, Aug, 28, 1998

?While FAR ? 19.302(j) treats size status protests received after award of a contract

as having no applicability to that contract, SBA's regulations, which we view as

controlling in this area, provide that "[a] timely filed protest applies to the

procurement in question even though a contracting officer awarded the contract

prior to receipt of the protest." 13 C.F.R. ? 121.1004©. Moreover, in the absence

of countervailing reasons, we view it as inconsistent with the integrity of the

competitive procurement system and the intent of the Small Business Act, 15 U.S.C.

?? 631-657a (1994), for an agency to permit a large business, which was ineligible

under the terms of the RFQ, to continue to perform. Diagnostic Imaging Tech.

Educ. Ctr., Inc., supra.?

As for the Tiger case and the issue of whether or not there is an appeal. I have to disagree with your interpretation of the case. I would agree that it would not be appropriate to terminate a contract that is currently under appeal. There is a chance they could win the appeal. However, if the appeal has already happened and the appellate was unsuccessful I do not think the appeal would safe guard them from termination. Otherwise wouldn?t everyone appeal?

Also, I don?t think the case is considering the OHA?s decision to hear the appeal a countervailing reason. A countervailing reason is there is another offer that would have and could have been given the award.

I guess you all raise good points and in the end we must agree to disagree. I come here to read the good, well thought out discussions. I am glad I finally stopped lurking and got involved in one.

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It was a valid contract and the initial purchase order you awarded under it was valid. You chose to terminate the contract but not the purchase order. You had two options - T4C or T4D. You chose T4C. Any contract can be T4C at any time for no reason at all. T4C allows the terminated contractor to collect costs as a result of the termination - termination settlement. My point is that there is not a third flavor of termination - (T4C and not collect costs as a result of the termination - no termination settlement).

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Don-

While the FAR does allow for continued performance on post award size challenges the SBA regs (which the board view as controlling) do not.

See - Adams Indus. Servs., Inc., B-280186, Aug, 28, 1998

?While FAR ? 19.302(j) treats size status protests received after award of a contract

as having no applicability to that contract, SBA's regulations, which we view as

controlling in this area, provide that "[a] timely filed protest applies to the

procurement in question even though a contracting officer awarded the contract

prior to receipt of the protest." 13 C.F.R. ? 121.1004?. Moreover, in the absence

of countervailing reasons, we view it as inconsistent with the integrity of the

competitive procurement system and the intent of the Small Business Act, 15 U.S.C.

?? 631-657a (1994), for an agency to permit a large business, which was ineligible

under the terms of the RFQ, to continue to perform. Diagnostic Imaging Tech.

Educ. Ctr., Inc., supra.?

Nothing in FAR 19.302 states that size status protests received after award do not apply to the instant contract. This is what FAR 19.302(d) states about the applicability of a protest:

In order to affect a specific solicitation, a protest must be timely. SBA?s regulations on timeliness are contained in 13 CFR 121.1004. SBA?s regulations on timeliness related to protests of disadvantaged status are contained in 13 CFR 124, Subpart B.

This statement is not qualified by "unless an award has already been made."

I think that you are confusing the rule about the applicability of SBA rulings on size status appeals with the rule on the applicability of size status protests. Two different things.

As for the Tiger case and the issue of whether or not there is an appeal. I have to disagree with your interpretation of the case. I would agree that it would not be appropriate to terminate a contract that is currently under appeal. There is a chance they could win the appeal. However, if the appeal has already happened and the appellate was unsuccessful I do not think the appeal would safe guard them from termination. Otherwise wouldn?t everyone appeal?

Also, I don?t think the case is considering the OHA?s decision to hear the appeal a countervailing reason. A countervailing reason is there is another offer that would have and could have been given the award.

First, just because an offeror files an appeal doesn't mean the SBA will hear it. See FAR 19.302(i):

It is within the discretion of the SBA Judge whether to accept an appeal from a size determination. If the Judge decides not to consider such an appeal, the Judge will issue an order denying review and specifying the reasons for the decision. The SBA will inform the contracting officer of its ruling on the appeal. The SBA decision, if received before award, will apply to the pending acquisition. SBA rulings received after award shall not apply to that acquisition.

If the Judge decides not to hear the appeal, then the determination of the SBA Government Contracting Area Office is final. However, if the SBA Judge decides to hear the appeal, then the size status of the offeror is undecided. If the SBA Judge rules that an offeror is other than small and that ruling is received before award, then the offeror is other than small for the pending acquisition. If the SBA Judge rules that an offeror is other than small and that ruling is received after award, then the ruling applies to future acquisitions (i.e., the offeror is not "other than small" for the pending acquisition).

All of the GAO decisions that I have read that recommend termination because an offeror has been found to be other than small make a point of stating that the size status protest is not under appeal. I have not found any decisions that recommend termination based on an SBA ruling (on an appeal) received after award, probably because such rulings do not apply to the pending acquisition.

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All of the GAO decisions that I have read that recommend termination because an offeror has been found to be other than small make a point of stating that the size status protest is not under appeal. I have not found any decisions that recommend termination based on an SBA ruling (on an appeal) received after award, probably because such rulings do not apply to the pending acquisition.

Here is a case that was appealed. The facts leading up are not exactly the same but it answer your point about appeals.

Spectrum Security Services, Inc., B-297320.2; B-297320.3, December 29, 2005

?In conclusion, we find that, in the absence of countervailing reasons, it is inconsistent with the integrity of the Small Business Act, 15 U.S.C. ? 631 et seq., to permit a large business, which was ineligible under the terms of the solicitation, to continue to perform the contract. In this regard, a formal size determination by SBA becomes effective immediately and remains in full force and effect unless and until reversed by SBA?s OHA, 13 C.F.R. ? 121.1009(g)(1), and here OHA has affirmed the determination that Ahuska is not a small business concern.?

And later

?We recommend that Ahuska?s contract be terminated and that the agency consider award to Spectrum or the other small business offeror.?

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Here is a case that was appealed. The facts leading up are not exactly the same but it answer your point about appeals.

Spectrum Security Services, Inc., B-297320.2; B-297320.3, December 29, 2005

?In conclusion, we find that, in the absence of countervailing reasons, it is inconsistent with the integrity of the Small Business Act, 15 U.S.C. ? 631 et seq., to permit a large business, which was ineligible under the terms of the solicitation, to continue to perform the contract. In this regard, a formal size determination by SBA becomes effective immediately and remains in full force and effect unless and until reversed by SBA?s OHA, 13 C.F.R. ? 121.1009(g)(1), and here OHA has affirmed the determination that Ahuska is not a small business concern.?

And later

?We recommend that Ahuska?s contract be terminated and that the agency consider award to Spectrum or the other small business offeror.?

Good find. I should have read the SBA regulations, they are much clearer. The FAR says the size determination is "final" "unless appealed" and the SBA regs say the determination is "effective and in full force" "unless reversed by OHA."

You started a very thought-provoking discussion. I hope you continue to participate in the forum.

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