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An incumbent contractor won a protest at GAO recently where it argued that the awardee’s labor rates were too low, because they were lower than the rates the incumbent itself was paying the same people.
GAO faulted the agency for concluding that the awardee’s price was realistic without checking the proposed rates against the incumbent rates. In other words, GAO told the agency to start at the obvious place—the compensation of the current employees.
The decision in SURVICE Engineering Company, LLC, B-414519 (July 5, 2017) involved a price realism analysis of rates proposed for workers to provide engineering, program management, and administrative services at Eglin Air Force Base. (Steve Koprince blogged about the unequal evaluation component of this case here.)
The solicitation called for a fixed-price labor-hour contract and required offerors to submit a professional compensation plan. The Air Force said it would evaluate the plan pursuant to FAR 52.222-46, which includes a price realism component.
Price realism, for the uninitiated, is an evaluation of whether an offeror’s price is too low. In the context of a fixed-price labor hour contract like the Air Force solicitation, “this FAR provision anticipates an evaluation of whether an awardee understands the contract requirements, and has proposed a compensation plan appropriate for those requirements.”
The Air Force initially concluded that the price proposed by Engineering Research and Consulting Inc., or ERC, was too low, comparing the price to “Government estimates.” But after discussions and revisions, the agency decided that the revised salary ranges were acceptable. The Air Force awarded the contract to ERC.
The protester, SURVICE Engineering Company, LLC, as the incumbent, obviously knew what it was currently paying the employees who were doing the work. SURVICE figured that the only way ERC could have proposed such a low price was to slash compensation. In fact, ERC had proposed exactly that, but still said it would retain many of the incumbent personnel. (GAO has previously noted that proposing to capture incumbents but pay lower rates brings up obvious price realism concerns.)
SURVICE argued that the evaluation was unreasonable because the agency did not evaluate the complete plan, did not compare the plan to incumbent rates, and still found ERC’s proposal acceptable.
GAO agreed, stating that “the record is silent as to whether, in the end, any of ERC’s rates were lower than incumbent rates but nevertheless acceptable to the Air Force.”
It concluded, “the Air Force did not reasonably compare ERC’s salaries to incumbent salaries, a necessary step to determine whether the proposed salaries are lower than incumbent salaries. Accordingly, we find that the agency failed to reasonably evaluate whether ERC offered ‘lowered compensation for essentially the same professional work,’ as envisioned by FAR provision 52.222-46. We therefore sustain this aspect of [SURVICE]’s protest.”
SURVICE won this aspect of the protest because GAO faulted the Air Force for not taking an obvious step, but it is also a good reminder that seeking to underbid the competition by slashing incumbent pay rates can raise significant price realism concerns.
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NDAA Provision Requires Federal Procurement Through ‘Online Marketplaces’
A provision contained in the National Defense Authorization Act for Fiscal Year 2018 (NDAA), H.R. 2810, covers “Procurement Through Online Marketplaces.” Section 801 of Act requires the Administrator of the General Services Administration (GSA) to establish for government-wide use a program to procure products through online marketplaces for the purposes of expediting procurements while ensuring reasonable pricing of commercial products.
The GSA Administrator is required to carry out this program by the issuance of more than one contract with more than one online marketplace provider.
Although the program will be available government-wide, the Act specifically directs the Secretary of Defense to (shall) use the online Marketplaces, as appropriate, in the purchase of commercial products.
The Act also provides criteria for use in establishing Federal online marketplaces under the program:
- is used widely in the private sector, including in business-to-business e-commerce;
- provides dynamic selection, in which suppliers and products may be frequently updated, and dynamic pricing, in which product prices may be frequently updated;
- enables offers from multiple suppliers on the same or similar products to be sorted or fileted based on product and shipping price, delivery date, and reviews of suppliers or products;
- does not feature or prioritize a product of a supplier based on any compensation or fee paid to the online marketplace by the supplier that is exclusively for such featuring or prioritization on the online marketplace;
- provides the capability for procurement oversight controls, including spending limits, order approval, and order tracking;
- provides consolidated invoicing, payment, and customer service functions for all transactions;
- satisfies requirements for supplier and product screening requirements of the Act; and
- collects information necessary to fulfil the order information requirements of the Act
The Act includes requirements for supplier and product screening.
Products procured through the Federal online marketplace will be deemed to have satisfied competitive procurement requirements if there are offers from two or more suppliers of such a product or similar product with substantially the same physical, functional, or performance characteristics on the online marketplace. Procurements consummated using the online marketplace will be deemed an award of a prime contract for purposes of goals under the Small Business Act. Nothing in the Act shall be construed as limiting the authority of a department or agency to restrict competition to small business concerns.
NDAA passed the U.S. House of Representatives on July 14, 2017. The U.S. Senate agreed to a motion to proceed with action on July 25, 2017.
About the Author:
Wayne Simpson is a seasoned former Federal executive and acquisition professional who is also a highly-motivated and demonstrative small business advocate, with nearly 38 years of Federal Civilian Service with the U.S. Department of Veterans Affairs (VA), and its predecessor organization, the Veterans Administration.
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A signal feature of source selection under FAR Part 15 as conducted today is solicitation and evaluation of “technical” (and/or “management”) proposals. Although FAR 2.101 conflates proposals with offers, that attributes more dignity to “technical” proposals than they deserve.
Under FAR Part 15, contracts are formed through offer and acceptance. Offers are promises—prospectively binding commitments to act or refrain from acting in a specified way. “Technical” proposals are packages of information, the specific content of which depends on the instructions in RFPs. “Technical” proposals may contain promises, to be sure, but if they do they also contain illusory promises and nonpromissory statements: assertions of fact, descriptions, estimates, statements of expectation and contingent intention, sales pitches, and so forth.
In most cases the various kinds of statements in proposals are so intermingled and worded as to make it hard to distinguish between what is being promised and what it not. As explained by one commentator:Quote
The meaning of an “offer” for contract purposes is well settled. FAR Part 2 defines an “offer” as “a response to a solicitation that, if accepted, would bind the offeror to perform the resultant contract.” This accords with the commercial meaning of an offer, defined as “the manifestation of willingness to enter into a bargain, so made as to justify another person in understanding that his assent to that bargain is invited and will conclude it.” Both the GAO and the [Court of Federal Claims] have used this commercial definition to determine whether a government contract has been created.
In accord with the general rule for commercial contracts as expressed in the Restatement [(Second) of Contracts] and the FAR definition, the offer in a government contract consists of (1) a proffer of terms, i.e., performance specifications and clauses, consistent with those specified in the solicitation, and (2) the price specified by the offeror. If the Government selects an offer for award, it forms a contract by accepting the terms, including the price, of the offer….
The FAR does not define the word “proposal,” and the definition of “offer” [in FAR 2.101] fails to distinguish between the two terms, stating that “responses to requests for proposals (negotiation) are offers called ‘proposals.”’ However, proposals in response to a solicitation frequently contain much more than what is within the legal concept of an offer, as that term is used in contract law and defined in the FAR. The response may include other proposal information, such as past performance data, the qualifications of proposed key personnel, capability descriptions, and cost estimates not to be incorporated into any subsequent contract.
See also the Restatement (Contracts) Second § (2)(1):Quote
A promise is a manifestation of intention to act or refrain from acting in a specified way, so made as to justify a promise in understanding that a commitment has been made.
And § 2, Comment e:Quote
Illusory promises; mere statements of intention. Words of promise which by their terms make performance entirely optional with the “promisor” whatever may happen, or whatever course of conduct in other respects he may pursue, do not constitute a promise. Although such words are often referred to as forming an illusory promise, they do not fall within the present definition of promise. They may not even manifest any intention on the part of the promisor. Even if a present intention is manifested, the reservation of an option to change that intention means that there can be no promisee who is justified in an expectation of performance.
So when an agency awards a contract to an offeror, it will not be contractually entitled to everything that is in the winner’s “technical” proposal. It will be entitled only to that offeror’s performance as its contractor and to what that offeror promised to do or deliver.
Unfortunately, what is so often found in “technical” proposals is the product of what is little more than an essay-writing contest. That is because essays are what agencies instruct offerors to submit. Consider the following proposal preparation instruction in an RFP for sign language interpreter services:Quote
NON-COST/PRICE EVALUATION CRITERIA
Factor 1: Technical Approach - Offeror will be evaluated on interpreter service involving unusual or unique problems demanding creative approach and solutions. Offerors will be evaluated on problem solving alternative approaches and recommended solutions. Offeror should address the following topics relative to your overall approach:
· Demonstrate the company’s knowledge of current trends in the Deaf Community and interpreting profession;
· Demonstrate the ability to provide services in all location within five business days of award of the contract;
· Demonstrate your scheduling process to meet the scope of this contract;
· Demonstrate the ability to provide the community building activities and trainings;
· Demonstrate bills are current, complete, timely and accurate.
Factor 2: Personnel (Staffing) - Offerors academic, technical, and professional qualifications of interpreting staff are the most important aspects of personnel. Offeror must demonstrate the ability to obtain sufficient subject matter experts with recognized industry expertise to understand the technical factors. The Offeror shall present resumes, limited to two (2) pages each, representing the qualifications and certifications of the interpreters who will be assigned to this contract to provide core services. Resumes for Key Personnel and Non-Key Personnel shall address the following topics relative to the Contractors overall approach:
· Demonstrate the ability to provide interpreters with various interpreting styles as indicated in the RFP
· Demonstrate your staffing to meet criteria 1 of this contract.
· Demonstrate your staffing to meet criteria 2 of this contract.
Those instructions do not call for promises. They call for “demonstrations”, i.e, persuasive descriptions of various things, i.e., a sales pitch. Even if incorporated into a contract, they will not bind the contractor if not written as promises.
The “technical” proposal approach to source selection, in which offerors describe (but do not necessarily promise) how they intend to do this or that during contract performance and submit various plans for facets of performance—such as systems engineering, safety management, staffing, use of agile software development techniques, task order management, cost control, schedule control, risk management, and quality assurance—is in widespread use in source selection. Such content usually is not subjected to a thorough legal analysis. Instead, “technical” evaluators with no legal training read offerors’ submissions and judge them largely on subjective bases. The evaluators react to what they read by tagging certain statements in proposals as “strengths,” “weaknesses,” or “deficiencies” and assigning what they consider to be an appropriate adjectival rating—outstanding, good, acceptable, marginal, unacceptable, and the like—much like a professor grading a college test essay. The result of this method of source selection is decisions that are based on what is essentially advertising copy. Such proposals may not have high predictive value, and such practices do not ensure that the Government will be entitled to, or will receive, “best value.”
The value to which the Government will be entitled will be obtained, if at all, from the things that the agency will be entitled to receive under contract. What it will be entitled to receive is (a) fulfillment of the promises the winning offeror made and (b) competent performance by that offeror. Thus, the proper things to evaluate are not essays in “technical” proposals, but offerors and their offers (promises). The offerors and their offers are the proper objects of evaluation. Evaluation of offers determines the value that each offeror promises. Evaluation of offerors determines the likelihood that each offeror will deliver on its promises. Source selection planners must ensure that evaluations are based on the attributes of offerors and their offers and not merely on creative writing. When offers include descriptions of the products to be delivered or the services to be performed, they must be the objects of “technical” evaluation, but they should also be the objects of a legal analysis to determine whether the statements in them constitute promises and to detect vagueness, ambiguity, and loopholes, intentional or otherwise.
When planning a source selection the first thing an agency must decide is what to evaluate, i.e., what are to be the objects of its evaluation. In common parlance and according to the FAR, agencies evaluate proposals. But such parlance is based on a misconception. Proposals are not the things to be evaluated. They are merely packages of information. The things to be evaluated are offerors and their offers. Unfortunately, rather than thinking matters through on the basis of clear concepts and sound principles, many agencies take a cut-and-paste approach to source selection, uncritically borrowing schemes used in past acquisitions and cutting and pasting text from past RFPs. The result is that many half-baked ideas and poor practices are deeply embedded in acquisition culture and are passed on to future generations of acquisition personnel through on-the-job training. Regrettably, acquisition culture and the bid protest system are very forgiving, despite catastrophes. No one knows how such practices have affected the value actually received from contract outcomes.
The solution to these problems begins with better understanding and thinking, better source selection planning, and better choices of evaluation factors for award.
 See FAR 2.101 definition of “offer”: Offer’ means a response to a solicitation that, if accepted, would bind the offeror to perform the resultant contract. Responses to invitations for bids (sealed bidding) are offers called ‘bids’ or ‘sealed bids’; responses to requests for proposals (negotiation) are offers called ‘proposals’; however, responses to requests for quotations (simplified acquisition) are ‘quotations,’ not offers.”
 Restatement ( Second) of Contracts § 2(1) and § 24, Comment a.
 Shearer, “How Could It Hurt To Ask? The Ability To Clarify Cost/Price Proposals Without Engaging in Discussions,” 39 Pub. Cont. L.J. 583, 596–97 (Spring 2010) (footnotes omitted).
 See Edwards, “Streamlining Source Selection by Improving the Quality of Evaluation Factors,” 8 N&CR ¶ 56; and Edwards, “Still Waiting for a Reformed and Streamlined Acquisition Process: Another Essay-Writing Contest,” 22 N&CR ¶ 47, asserting that source selection too often is based on essay-writing contests.
 See Jacobs Tech., Inc., v, United States, 131 Fed. Cl. 430 (2017); EDC Consulting, LLC, Comp. Gen. Dec. B-414175.10, 2017 CPD ¶ 185.
Congratulations! You Submitted Your Incurred Cost Proposal. But is it Adequate?
If your company has flexibly priced or time-and-materials federal contracts that contain the Allowable Cost & Payment clause (FAR 52.216‐7), you are required to file an Incurred Cost Proposal (also known as an Incurred Cost Submission) within six months of the end of your fiscal year. For calendar year companies, the June 30th deadline just passed.
If you submitted your ICP on time, congratulations! It is imperative to submit your ICP promptly unless you obtain a waiver.
If you missed the deadline, time is of the essence! The Defense Contract Audit Agency will provide a single late notification letter when an Incurred Cost Proposal is 30 days late. If your ICP is still outstanding six months after the deadline, the DCAA will refer your contract to the Defense Contract Management Agency for audit.
Keep in mind that timeliness alone will not protect you from increased scrutiny. If the DCAA deems your proposal inadequate, it also may refer your contract to the DCMA for audit.
Many contractors prepare their ICPs in house. This may be a good option if your staff includes an experienced cost accountant and contracts compliance expert who stays on top of the complex and changing regulations that apply to ICP submissions. These may include annual changes to FAR regulations, the proposal adequacy checklist, the ICP format and the expectations of government auditors.
In most cases, however, small and medium-sized businesses can’t justify the expense of keeping a contracts specialist on staff. Just as they hire experts to prepare their tax returns, they bring in an experienced contracts compliance accountant to prepare their ICPs. Here are just a few of the reasons to consult an ICP expert:
- An expert stays current with the latest Federal Acquisitions Regulations and all of the requirements for preparing adequate Incurred Cost Proposals.
- Hiring an expert may cost less than you would pay an inexperienced accountant to navigate the intricate requirements for developing and submitting an ICP.
- An expert knows which expenses are allowable and which are not, protecting your submission from rejection.
- An expert knows how to classify expenses, making it easier to prepare Incurred Cost Reports, saving time at the end of the year
- An expert knows how to classify labor costs in a way that the government recognizes, which can save staff time and protect against findings when your contract is audited.
If you missed the deadline or have any doubts about the adequacy of your Incurred Cost Proposal, start working on a solution as soon as possible. You’ll find more detailed information about the ICP preparation process in our January blog post.
Questions about the ICP and your federal contract? We’re here to help! Reach out to Robert@LeftBrainPro.com or call (614) 556-4415. With more than 14 years of Department of Defense contract and accounting experience for both Fortune 500 and small to mid-sized businesses, he has extensive experience classifying costs, creating reports, working with clients to prepare ICPs and navigating audits.
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In the 1973 futuristic mystery thriller Soylent Green there’s an exchange between Detective Thorn (Charlton Heston) and Hatcher (Brock Peters):
Det. Thorn: Ocean's dying, plankton's dying . . . it's people. Soylent Green is made out of people. They're making our food out of people. Next thing they'll be breeding us like cattle for food. You've gotta tell them. You've gotta tell them!
Hatcher: I promise, Tiger. I promise. I'll tell the Exchange.
Det. Thorn: You tell everybody. Listen to me, Hatcher. You've gotta tell them! Soylent Green is people! We've gotta stop them somehow!
Acquisition Reform is like Soylent Green, it’s people. I don’t mean the Congresscritters, like Representative Thornberry and Senator McCain, and their Committees. I don’t mean the Administrator of the Office of Federal Procurement Policy, whoever he or she may turn out to be. I don’t mean the acquisition and procurement policy wonks in the Pentagon and elsewhere.
This past week (i.e., 14 – 20 May 2017) was a big week for the professional acquisition reformers:
The Advisory Panel on Streamlining and Codifying Acquisition Regulations issued the “Section 809 Panel Interim Report” (May 2017). Read the 60 page report, and formulate your own opinion if it will fix the problems in Government acquisition. Frankly, I think it will take more than getting rid of the $1 coin requirement, but I could be wrong.
Representative William McClellan "Mac" Thornberry introduced H.R. 2511 “To amend Title 10, United States Code, to streamline the acquisition system, invest early in acquisition programs, improve the acquisition workforce, and improve transparency in the acquisition system.” The short title on that would be ‘‘Defense Acquisition Streamlining and Transparency Act’’. (sic) Read the 80 page resolution, and formulate your own opinion if it will fix the problems in Government acquisition. [If we have Representative Thornberry, can Senator McCain be far behind? (Or, is that FAR behind?)]
A (moderately) reliable source has told me that the Department of Defense will be leaving Better Buying Power behind, now that Mssrs. Carter and Kendall are gone. But, wait, acquisition reform has not been abandoned. Apparently, it will go on, but now as “Continued Acquisition Reform.” Presumably that will be abbreviated as “CAR.” Continued Acquisition Reform should not be confused with Continuous Acquisition Reform nor Continued Acquisition Reform, nor Continuous Process Improvement, for that matter, those would all be bygone days.
The professional acquisition reformers have time and again passed legislation and issued regulations to “fix” the acquisition process. This fiscal year (2017) Title VIII (i.e., Acquisition Policy, Acquisition Management, and Related Matters) of the National Defense Authorization Act (NDAA) had 88 sections. The year before, 77 items. And, yet, Representative Thornberry and Senator McCain believe there is a need for a lot more acquisition reform legislation this year. Title VIII has included over 500 sections over the last ten years, but we still need more. What we have at issue here is what is referred to as the Law of the Instrument. Although he was not the first to recognize the Law, Abraham Maslow is probably the one best remembered for articulating it, "I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail." For those of us on the receiving end of the Congressional output that would be, “I suppose it is tempting, if the only tool you have is a legislation, to treat everything as if it were a bill." I suspect, although I cannot be positive, that most, if not all, of the folks doing the legislating have never had to use the Federal Acquisition Regulation (FAR) to buy anything. If they had, they would not be nearly so cavalier in tossing around statements about how bad the acquisition process is, and how more legislation is the answer.
Will such legislation solve the acquisition problem? According to the Honorable Frank Kendall the answer is a resounding “NO.”Quote
Frank Kendall, then undersecretary of defense for acquisition, technology and logistics (USD(AT&L)), condemned, or “slammed,” or “blasted,” such legislation.
Frank Kendall, who has served as the Pentagon's top weapons buyer since October 2011, blasted Congress's acquisition reform efforts, which he said almost inevitably create more bureaucracy and regulation.
Kendall called legislative action “an imperfect tool to improve acquisition results.”
“It is not a good instrument to achieve the results that I think the Hill is after, but they keep trying,” he said. “To be honest, I believe that as often as not, what they do does not help. In some cases, it has the opposite effect.”
Bloomberg Federal Contracts Report, “Outgoing DOD Weapons Buyer Slams Congress’ Acquisition
But, in all fairness, it’s not just them. Since we last had a reissuance of the FAR in March 2005, the FAR Council has brought us 95 Federal Acquisition Circulars (FACs) to update and expand the FAR. Since we last has a reissuance of the Defense Federal Acquisition Regulation Supplement (DFARS) in January 2008, the Defense Acquisition Regulations Council has brought us 211 Defense FAR Supplement Publication Notices (DPNs). With all of that, there are still dozens of open FAR and DFARS cases yet to be heaped on our plate. Although legislation may have been a major root cause of much that change activity, we can probably offer some of our “thanks” to the President, OMB, OFPP, GAO, Boards of Contract Appeals and Courts. Admittedly, now and again, a good idea actually gets slipped into the regulations. [Note: The number of FACs and DPNs issued in 2017 was artificially suppressed as a result of Executive Order 13771 – Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs. The two councils (i.e., FAR Council, Defense Acquisition Regulations Council (DAR Council) and the Civilian Agency Acquisition Council (CAA Council)) withheld publication of a large number of cases while policies and procedures were “sorted out.”]
[Note: Refer to Augustine’s Laws, Law Number XLIX: Regulations grow at the same rate as weeds.]
And, if that were not enough, we have institutional acquisition reform (e.g., policy letters, memoranda, directives, instructions, guidebooks, handbooks, manuals). Everyone seems to want to get into the act in one way or another. It is interesting to note, however, that the “perpetrators” of this institutional acquisition reform do not see it in the same light as acquisition reform legislation.
But, I recognize the lesson that King Canute was trying to teach when, in the apocryphal anecdote, he had his throne taken to the sea and ordered the tides not to come in. They did anyway. Legislators will legislate, it’s what they do. Regulators will regulate, it’s what they do. Policy makers will policymake, it’s what they do. None of them will willingly give up their rice bowls.
Let’s get back to Soylent Green.Quote
“Acquisition improvement is going to have to come from within. It is not going to be engineered by Hill staffers writing laws for us,” Kendall said. “It's going to be done by people in the trenches every day, dealing with industry, trying to get incentives right, trying to get the performance right, trying to set up business deals and enforce them, set reasonable requirements in our contracts.”
Bloomberg Federal Contracts Report, “Outgoing DOD Weapons Buyer Slams Congress’ Acquisition Fixes,” Andrew Clevenger, January 17, 2017
Better Buying Power (BBP)? The Honorable Mssrs. Carter and Kendall were responsible for BBBP, in all its iterations. Did that rise up from the trenches? Or, was it handed (or pushed) down from above? Isn’t this a bit like the pot calling the kettle black? If you will permit the adding of a single letter to a line of Hamlet by William Shakespeare, "The laddy doth protest too much, methinks."
[Note: Refer to Augustine’s Laws, Law Number L: The average regulation has a life span one-fifth as long as a chimpanzee's and one-tenth as long as a human's, but four times as long as the official's who created it.]
Well, whichever way you look at it (i.e., upside, downside, sidewise) it is all more work for the acquisition professionals that must do the daily work of buying supplies and services for the Government. If you want to have an idea of how all of this acquisition reform weighs us down, then take a look at William Blake’s illustration “Christian Reading in His Book” for John Bunyan’s The Pilgrim's Progress. It will depend on how many pixels the image you find has, but it looks to me that he is reading the FAR.
Who are the Soylent Green? Not the policymakers, but the people in the trenches, doing the hard work of acquisition on a daily basis, day in and day out, week in and week out, month in and month out, year in and year out. The contract specialist, contract negotiator, contract administrator, cost or price analyst, purchasing agent or procurement analyst just trying to get the job done. These are, for the most, part the unsung heroes and heroines of acquisition reform. These are the ones who, through innovation and personal initiative reform that acquisition process, one acquisition at a time. And, if we are lucky, or clever, are able to pass successes along to others.
As acquisition professionals, we must pass on our successes, and failures, to others, so that they may join in the fruits of success, and avoid the pitfalls of failure. You cannot count on “Lessons Learned,” alone. How often do lessons learned go unread and unlearned? You cannot count on “Best Practices,” alone. How often do best practices, go unread and unpracticed? Share with others. Share quickly. Share often. Share wherever you can.
A final thought.Quote
So what is to be done? By and large the answer to that question is well understood—in fact, many friends of mine such as former Deputy Secretary of Defense David Packard; the head of the Skunk Works Kelly Johnson; Air Force General Bennie Schriever; Admiral Wayne Meyer and Army General Bob Baer, among others, were providing the answer decades ago. What is required is simply Management 101. That is, decide what is needed; create a plan to provide it, including assigning authority and responsibility; supply commensurate resources in the form of people, money, technology, time and infrastructure; provide qualified leadership; execute the plan; and monitor results and strenuously enforce accountability. Ironically, little of this requires legislation—but it does require massive amounts of will . . . from all levels of government. Unfortunately, many of the problems are cultural—and it is difficult to legislate culture. But there is much that could be done.
Views from the Honorable Norman R. Augustine
The Acquisition Conundrum
DEFENSE ACQUISITION REFORM: WHERE DO WE GO FROM HERE? A Compendium of Views by Leading Experts, STAFF REPORT PERMANENT SUBCOMMITTEE ON INVESTIGATIONS UNITED STATES SENATE (October 2, 2014)
The absolute final thought. I’m sorry, I can’t help myself. I don’t care about King Canute: Don’t legislate. Don’t regulate. Just leave us alone to do our work as best we can.
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Of all areas in contracting, the one often taken most for granted, yet of vital importance, is that of the prime contractor/subcontractor relationship. We all know how much the requirements, contractual specifications, terms and conditions, and funding on a prime contract flow down the supply chain, but this flowdown doesn’t just happen. Although some may argue it’s as easy as placing clauses into a subcontract, it more complex than that. Subcontracting can exponentially increase the complexity of whatever product or service is to be delivered to the ultimate customer.
For all the attention placed on the customer and prime contract, all these same complex issues, and more, are placed on firms managing both ends of the subsequent subcontracting relationships at each successive tier. These firms may be competitors with each other in some respects, yet working for one another in other respects. Prime and subcontractors must develop tools and systems for tracking performance, compliance, and results—not only of themselves, but of each other. Creating these processes, systems, and documents defines their relationship and responsibilities. Determining the terms and conditions of what the prime needs—including what, how, where, and when—must be precisely articulated to ensure the sub delivers exactly what the prime customer asked for (as defined in the prime’s solicitation, the sub’s proposal, and subsequent (proper) communications).
Within both federal and commercial contracting, competitive pressures and expectations continue to dramatically increase. In most cases, everyone has increasing alternatives to go elsewhere if needed to get their requirements met. The prime customer, as we know, is obligated to flow down certain expectations, and to manage the increased pressures “downhill.” Within federal contracting, increased oversight and review of the managing of subcontracts or purchasing has increased from the contracting office to the Defense Contract Management Agency.
As in all things, this comes down to people. While many of these activities lend themselves to automation, much also requires the ever-growing need for professionals with interpersonal skills—particularly relationship building. Hard and so-called “soft” skills (or competencies) such as contract management, pricing, written and verbal communication, knowledge of technology, research, finance, marketing, or general business acumen—as well as adaptability to change—are competencies no firm can short-change in the people that ensure this is done internally, or in representing itself to the outside business world.
Subcontracting, supply chain, or purchasing managers; buyers, contract specialists, pricing specialists, estimators, or category managers—whatever the title, they are interrelated within the same overall profession. Whether on the buying or selling side, the prime or the subcontractor, the top-tier or several layers down the supply chain, this is as important a relationship and imperative a technical expertise as ever there was in how our economy is driven.
Within small businesses, it can be well argued that these activities are everyone’s responsibility. Whether it’s someone working in finance, information technology, law, or business development; even the CEO needs to understand and perform parts or all of these subcontract management functions.
So what are you waiting for? The business that you may help thrive or just survive may be your own. Good Luck!
Michael P. Fischetti
National Contract Management Association
NCMA invites you and your colleagues to attend SubCon Training Workshops—NCMA’s new training event for subcontracting professionals—March 30–31, 2017, in Dulles, VA; offering four workshops, each with six sessions to choose from. Participants can choose their own schedule or come for two full days of training and networking. Learn more at www.ncmahq.org/subcon17.
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In early 1977, Gordon Wade Rule (Rule) sat in a chair in a corner of a conference room at the Naval Material Command reading a document that I had prepared about his negotiations on the CGN-41, a nuclear-powered guided missile cruiser. Days earlier, I was among a group that was briefed by a staff member of Admiral Hyman Rickover (Rickover), the Director of the Naval Nuclear Propulsion Program. Although, the briefing was supposed to be about the CGN-41 negotiation, we were treated to a 3-hour lecture on how the Navy's shipbuilders were trying to "pin the rose" on Rickover. In this case, pinning the rose had nothing to do with the shipbuilders asking the Admiral to a prom.
When I began writing this blog entry, I had planned to include only the work I had done decades ago for the Chairman, House Committee on Armed Services. That work involved Rule's negotiation of Modification 31 to the contract that included the CGN-41, the eventual USS Arkansas. I wanted you to figure out if the modification that Rule signed was done in a manner that would allow it to survive a court test. It took 2 courts to decide that question so it wasn't as easy as it sounded. Unfortunately I read too much surrounding material and I realized that I was taking Rule's actions out of the context in which they happened back in the 1970s. So, I added a bit more information. You will see Rule as the contracting officer, Rickover as a program officer interfering with the contracting officer, Senator William Proxmire apparently acting for Rickover and himself, and Deputy Secretary of Defense William P. Clements, Jr. (Clements) trying to resolve the shipbuilding claims problem in any manner he could. You cannot choose sides on this one. All characters, including government agencies and shipbuilders, were trying to manipulate and influence anyone that became involved with the CGN-41. It seemed as if sides were drawn by identifying the enemy of an individual's enemy.
A Brief Introduction to the Shipbuilding Claims Era
In the early 1970s, cost overruns and shipbuilders' claims had become a major problem. By 1976, it had reached epidemic proportions with $1.9 billion in shipbuilder claims. The shipbuilders, the Navy, the Department of Justice, and Rickover were in a war. In the case of the CGN-41, Newport News Shipbuilding and Drydock Company was the industry player.
Clements wanted to settle the ship claims problem with the use of P. L. 85-804. A June 21, 1976, Business Week article explains his early effort. The excerpt below is a quote from the article entitled: The Shipbuilders Balk at 40 Cents on the Dollar. The article explained that Clements had planned to settle $1.9 billion of shipbuilding claims against the Navy for "between $500 million and $700 million" but that plan fell fiat with the Navy's shipbuilders. He explained that "the shipyards are giving me trouble." The article further described:Quote
On Apr. 30 Clements informed both the Senate and the House Armed Services Committees of his unusual plan to clear up long-pending claims, which he said are largely responsible for the "acrimonious and adversarial environment that now marks Navy-shipbuilders business relations." He promised the legislators a progress report on June 10. At the same time, he predicted privately that he would have the claims situation wrapped up by that date.
The settlements would be under terms of Public Law 85-804, enacted by Congress in the early 1960s to enable the Defense Dept. to modify contracts when it is in the interest of national defense. The law was amended in 1973 to require that Congress be notified prior to use of the law for any modification exceeding $25 million and be given 60 days to disapprove.
Clements intended to use this program to bypass traditional, drawn-out appeals board procedures and to wipe the slate clean of the massive extra dollar amounts demanded by shipbuilders to compensate them for such things as Navy-ordered design changes, late delivery of government-furnished equipment, and higher-than-anticipated inflation rates. But at midweek Clements was far short of his goal. The two shipyards with the bulk of the outstanding claims were reluctant to accept his offer of roughly 40¢ on the dollar in immediate cash.
A lot of money. Tenneco Inc.'s Newport News Shipbuilding & Dry Dock Co. filed the largest of the outstanding claims-some $894 million. After meeting Wednesday morning with Clements, Newport News President John P. Diesel said: "We have failed. We can't get together on money, and the Navy has not done a damn thing about changing contracting procedures."
After failing to reach a settlement himself, Clements called Navy management to his office for a meeting of the status of shipbuilding claims. Nothing had been accomplished by them either. He then focused on the CGN-41. The work on this ship had been stopped by Newport News because of issues it was having with the Navy. The contract was in court and work had started again under the condition that the Navy negotiated in good faith with Newport News to resolve the issues. The court's time limit for good faith negotiations was running out and something had to be done. Since the CGN-41 contract was in court, the Department of Justice was required to play a part in the review of any settlement proposed to the court.
This is where our story begins. I have added the dates on which the actions occurred so that you can follow. All facts are based on documents that I had reviewed in the 1970s or documents that I recently reviewed. I needed to limit the length of this entry so I added enough information to give you a flavor of the times. Sometime in the future, I may write a larger article. Rule was appointed as a special contracting officer on the CGN-41 to resolve the issues that the Navy and the Secretary of Defense could not accomplish. Undoubtedly he knew he was heading into a mighty storm that might harm him.
Contract Modification P00031 To CGN-41: Chronology of Events
July 13, 1976: Clements held a meeting to discuss Navy shipbuilding claims. Among those in attendance were:
- Deputy Secretary of Defense (Clements)
- Consultant to the Deputy Secretary of Defense
- Assistant Secretary of the Navy (Installations and Logistics) (ASN (I & L))
- Chief of the Naval Material Command (NAVMAT)
- Vice-Chief of the Naval Material Command (NAVSEA)
- General Counsel of the Navy, and
- Gordon Rule, Director, Procurement Control and Clearance Division, Naval Material Command. (Rule)
In regard to the Newport News claims, a member of the meeting quoted Clements as saying that he was "irrevocably committed to solving this problem; unlike Admiral Rickover." Clements then asked the Navy officials why they had not reformed the contract, indicating that if they would not, he would. He then stated that he wanted to see four changes incorporated in the CGN-41 contract: (1) a new escalation clause; (2) a new "changes" clause; (3) a new ceiling price; and (4) a new delivery date. (emphasis added)
During the meeting it was agreed that Rule would become negotiator for the CGN-41. He was to report directly to the Chief, NAVMAT and the Vice Chief, NAVMAT was to meet with Clements each day at 9:15 a.m to report on the progress of the negotiation.
July 14, 1976: Rule telephoned Newport News to explain that he had been assigned principal negotiator on the CGN-41 and requested a meeting.
July 15, 1976: Newport News was contacted by a consultant to Clements who explained Rule's authority. Rule and Newport News held their first meeting.
July 16, 1976: The Assistant Secretary of the Navy (Installations and Logistics) wrote to the Chief, NAVMAT informing him that the Chief would be responsible for the direct discussions between Rule and Newport News. Rule would be the principal negotiator and Rule would be assisted by NAVSEA and the Navy General Counsel, as required.
July 16, 1976: Rule sent a memo to Clements describing his first meeting with Newport News. As a note, he mentioned that he intentionally did not contact the Navy's Supervisor of Shipbuiliding, Conversion and Repair (SUPSHIPS), Newport News.
July 19, 1976: Rule sent a memo to the Deputy Commander for Contracts, NAVSEA asking for brief descriptions of what the Navy considered as key issues for negotiation and the Navy's negotiating position so he could develop his own negotiation position.
July 28, 1976: The Vice Chief, NAVMAT and a consultant to Clements held discussions with Newport News. Areas discussed were: when the CGN 41 problems would be solved, ceiling price, and escalation provisions.
August 10, 1976: Rule telephoned Newport News and requested a meeting in Washington on August 12,1976.
August 12, 1976: During a meeting in Washington between Rule and Newport News, Newport News left a general outline for negotiations.
August 12 and 13, 1976: The Vice Chief, NAVMAT asked Rule about the August 12 meeting so he could inform Clements. Rule explained that Newport News had delivered a proposal and he did not approve of it.
August 17, 1976: Rule telephoned Newport News and requested a negotiating session to be held on August 20, 1976.
August 19, 1976: The Deputy Chief of Naval Material (Procurement and Production) issued Rule an appointment as Contracting Officer with "unlimited authority with respect to negotiations with Newport News."
August 20, 1976: Negotiations were held between Rule and Newport News.
August 23, 1976: The Vice Chief, NAVMAT and Rule met with Clements to brief him on the August 20th negotiations. According to Rule, Clements' comment on the negotiations was "fine." After the meeting with Clements, Rule received a note from the Chief, NAVMAT to meet him in the Office of the Assistant Secretary of the Navy (Installations and Logistics). Among those attending were:
- Assistant Secretary of the Navy (Installations and Logistics),
- Chief, NAVMAT,
- Vice Chief, NAVMAT,
- Rule, Director, Procurement Control and Clearance Division, Naval Material Command,
- Commander, NAVSEA,
- Deputy Commander for Contracts, NAVSEA,
At this meeting, the Chief, NAVMAT ordered Rule to describe the results of the August 20 negotiations.
August 24, 1976: Rickover wrote to the Chief, NAVMAT that he had heard a rumor of a settlement on the CGN-41 between Rule and Newport News. Rickover commented point-by-point about the rumored settlement and said such a settlement "would show that the Government will not require Newport News to honor its contracts." Rickover recommended that anyQuote
settlement be referred formally to the Naval Sea Systems Command for review and comment by knowledgeable personnel directly responsible for the work in question. In this regard I [Rickover] will be glad to provide assistance based on my own knowledge of the events in question.
August 24, 1976: Senator William Proxmire wrote to the Attorney General, Department of Justice expressing concerns about Gordon Rule's views on the CGN-41 negotiations and telling the Attorney General:Quote
I understand that the Department of Justice has sole responsibility within the Government for approving out-of-court settlements involving Government matters under litigation. I assume that the Justice Department will review any such settlements proposed by the Navy in the CGN-41 case. However. in view of the importance of the CGN-41 case to the overall shipbuilding claims problem, I request that you direct the Navy to keep you fully informed of any negotiations and that you review any settlement offer to ensure that it is on sound legal ground and in the public interest before the Government becomes a party to it.
August 25, 1976: Newport News telephoned Clements and read a prepared press release. The consultant to Clements said he and Clements approved of the press release, an excerpt of which stated: "The parties have agreed to sign a definitive contractual document embodying the negotiated agreement for the construction of the CGN-41." Later that day, the Assistant Secretary of the Navy (Installation and Logistics) telephoned Newport News, informed them that he was perturbed by the Newport News press release and stated that the Navy would issue its own press release stating that agreement had been reached in principle but that the matter was to be reviewed by higher authority. On this same date the Navy issued a press release explaining an "agreement in principle" was being drafted for review and approval. (Emphasis added)
August 26, 1976: The Chief, NAVMAT sent Rickover a response to his August 24, 2016 letter stating:Quote
From your many, years in government service I know you realize that business sensitive negotiations should not be influenced by sources outside of the designated negotiating parties, and that a broadly distributed letter from you, such as reference (a) [August 24, 1976 memo from Rickover described above], cannot help but cause perturbation in the negotiating process, disrupting the efforts of the assigned negotiator.
The Chief, NAVMAT further wrote: For reasons such as this, you must stand apart from these negotiations unless the technical areas regarding naval nuclear reactors become involved.
August 27, 1976: Rickover responded to the Chief's, August 26, 1976 letter to him. In response to the wide distribution he used for his letter of August 24, 1976, Rickover explained that:Quote
I felt obliged to inform them of what I had heard. I am sure you are not implying that it is improper for me to call such matters to the attention of those responsible, and point out potential problems. To remain silent would be analogous to not warning my mother that she was about to fall off a cliff.
He used the same distribution list for this 6-page letter as he did in his August 24, 1976 letter.
August 30, 1976: Newport News met with Rule in Washington and delivered the first draft of Modification P00031.
The Chief, NAVMAT sent a letter to Rule explaining that, prior to a binding agreement on the CGN-41, the elements of the agreement must be submitted to the Chief, NAVMAT for review and approval. The review was to be conducted by the Vice Chief, NAVMAT, the Deputy Chief, NAVMAT (Procurement and Production), the NAVSEA Deputy Commander for Contracts; and the General Counsel for the Navy. Mr. Rule was to provide the proposed contract modification, the business clearance justifications, and other supporting papers for review prior to signature by the contracting officer.
Gordon Rule forwarded a draft memorandum to the Chief, Naval Material that summarized his negotiations with Newport News.
August 31, 1976: The General Counsel of the Navy noted the Rule draft memorandum and told Rule of the General Counsel's responsibility to review the summary of negotiations. Additionally, the General Counsel requested more information to support Rules' summary.
September 1, 1976: Rule sent a summary of his negotiations to the Chief, NAVMAT.
September 3 1976: In response to the August 31, 1976 memo from the Navy General Counsel, Rule sent him additional information supporting his summary of negotiations. He also provided a copy of the first draft of Modification P00031.
September 14, 1976: Members of Rule's and Newport News negotiating teams and DCAA auditors met in Washington to discuss provisions in the first draft of Modification P00031. DCAA was asked to review certain provisions of the proposed modification.
September 16, 1976: The Attorney General, Department of Justice, responded to Senator Proxmire's August 24th letter by writing:Quote
Your letter requests that I direct the Navy to keep me fully informed of any negotiations and that I review any settlement offer to insure that it is on sound legal ground and in the public interest. The Justice Department intends to review any proposal and/or papers before submission to the court. We would request the court to approve any settlement only if we are satisfied that it is on sound legal ground and in the public interest.
September 20, 1976: NAVSEA's Deputy Commander for Contracts and a member of the "review team" submitted his analysis of the first draft to the Vice Chief, NAVMAT. This analysis was not made available to Rule.
September 24, 1976: DCAA submitted its analysis of certain provisions of the first draft to a member of Rule's negotiating team.
September 27, 1976: Newport News delivered a second draft of the modification to Rule and Rule requested DCAA to review the draft.
[September 28, 1976: Clements wrote a letter to the Attorney General, Department of Justice, commenting on the August 24 letter of Senator Proxmire. In regard to Rule, he wrote:Quote
Senator Proxmire in his letter suggests that Mr. Gordon Rule is not impartial and that he might not act in the Government's interest but would so act as to undermine the Government's ability to enforce contracts. This is a serious charge by the Senator and defames both the character and competence of Mr. Rule. As I have indicated, it was at my suggestion that Mr. Rule was appointed by the Navy as the senior negotiator in the CGN-41 matter. I know Mr. Rule's background and work experience during his years as a Navy procurement official, and I am familiar with his current work as the CGN-41 negotiator. I consider Senator Proxmire's remarks regarding Mr. Rule ground-less, ill-tempered and unworthy of a member of the U.S. Senate.
In regard to the Department of Justice's review of the CGN-41 negotiation, he said: "Let me assure you that we in DoD have no intention to by-pass or withhold from your department any information which you determine that your department needs in connection with legal proceedings under the court order."
September 28, 1976: DCAA submitted its analysis of the second draft to Rule.
October 4, 1976: NAVSEA submitted its estimate of the cost of the draft modification. Rule rejected the NAVSEA estimate.
October 5, 1976: Rule submitted a memorandum to the Chief, NAVMAT for his approval. It included the estimated dollar impact of his negotiated settlement. For those in contracting, it would be similar to a negotiator's memorandum. The Navy General Counsel sent its analysis of the information supplied by Rule to the Attorney General. In the memorandum, Rule noted that a member of his negotiating team could not complete an analysis he requested because of interference from Rickover and his staff. However, he was able to devise a workaround to complete his cost estimate of the modification for the Chief's review and approval.
October 7, 1976: Newport News carried a third draft of the proposed modification to Rule. The cover letter from Newport News attached to the modification said "I have executed the enclosed modification on behalf of the company and request you immediately return a fully executed copy."
Rule took a copy of the cover letter to the Chief and Vice Chief, NAVMAT in the afternoon. He returned to his office and received a letter from the Chief, NAVMAT telling him that neither he nor his review group had a copy of the proposed modification that accurately reflected the results of Rule's efforts. Final review had not been completed and the proposed modification could not be consummated before the review was done.
According to Rule, he thought about the CGN-41 negotiation effort all afternoon after he met with the Chief and Vice-Chief, NAVMAT. He explained in a deposition that he:Quote
could see what was happening to this whole negotiated settlement. I knew the object of the negotiation. I knew why I had been picked to negotiate a settlement pursuant to the order of the court, which I had done. I could see the Rickover-Proxmire, et al., influence at work everywhere.
And I decided those things all-those things all ran through my mind-I wasn't unmindful of the roadblocks and the lack of cooperation that I had gotten and was getting from the office of General Counsel. When my Contracting Officers statement was turned over to the Office of General Counsel for their review, they then asked me for substantiating documents. I gave them those documents . . . . They were requested by Admiral Lascara [Vice Chief, NAVMAT] to please not write anything until we can get together and discuss this: Let's at least discuss it. Rule had said one thing. Now, review it and let's get together and discuss it before you write anything. They never did. They wrote a 85-page document. They had lawyers working their butts off. They wrote an 85-page document and turned it over to the Department of Justice. And I don't know what it says today. They won't tell me. These are my own lawyers that are supposed to be helping me. They've never told me what was in there. Well, on the 7th of October when these things ran across my face, before my eyes, I said: Something's got to be done. I'm a Contracting Officer. I've got the authority. Now-I'm going to sign the goddam thing. And I signed it.
October 8, 1976: The Vice Chief, NAVMAT called Rule into his office at 8:22 a. m. He gave Rule a letter dated October 7, 1976 that explained that he did not have authority to sign the modification. Rule explained he had signed it and the Vice Chief requested Rule to give him all signed copies. Rule refused but said he would give them to Clements. The Vice Chief then left for his 9:15 am meeting with Clements. Rule returned to his office dictated a transmittal letter imposing two conditions upon the modification and gave Newport News a copy. The Vice Chief, NAVMAT called Rule into his office and told him that the Undersecretary of the Navy would keep all executed copies of the modification but Rule told him that he already had signed it. He returned to his office, signed the transmittal sheet, and handed it to Newport News at 10 A. M. Shortly afterward at 11:50 a. m., Rule was notified that his appointment as contracting officer was rescinded.
March 8, 1977: The District Court for the Eastern District of Virginia ruled that:Quote
There was a meeting of the minds of the parties on August 20, 1976; there is adequate consideration to support this compromise agreement; and failure to provide cost of pricing data does not invalidate the agreement. We find that Deputy Secretary of Defense Clements, who initiated the negotiation efforts, has approved the compromise agreement.
February 27, 1978: The United States Court of Appeals, Fourth Circuit ruled thatQuote
We vacate this order [District Court's above] because we conclude that the parties' negotiators did not settle the case orally and because the Attorney General, whose approval was essential, rejected the terms that were ultimately reduced to writing.
I always thought that the FAR Matrix was a good idea that was poorly executed. To begin with, it's notorious for containing errors. Second, most of the entries in the "Principle Type and/or Purpose of Contract" columns are "A", Required when applicable, which means you have to look up the prescription anyway. Lastly, the matrix isn't going to tell you if your agency deviates from the FAR prescription, which DoD does a lot. As such, I created a matrix that I think overcomes these problems.
A few things about the matrix:
- It contains every provision and clause in the FAR, DFARS, and in DoD Class Deviation memoranda.
- It doesn't have any "Principle Type and/or Purpose of Contract" columns except for a Commercial Items column.
- It contains the actual prescription of the provision or clause. For readability, I removed the number and title of the provision or clause in the block and just wrote "use this provision..." or "use this clause..." The identifying information for the provision or clause is already contained in the row.
- For DoD, it contains additional instructions for the use of FAR clauses that is contained in the DFARS or in a class deviation. This information appears in bold. If you work for a civilian agency, just ignore what's in bold.
- In the "IBR" column (Incorporation by Reference), there are no "N" entries for "no", with the exception of the provisions and clauses prescribed at FAR 52.107. This may cause some people to freak out, so I'll explain. FAR 52.102(c) states:
Agency approved provisions and clauses prescribed in agency acquisition regulations, and provisions and clauses not authorized by Subpart 52.3 to be incorporated by reference, need not be incorporated in full text, provided the contracting officer includes in the solicitation and contract a statement that—
(1) Identifies all provisions and clauses that require completion by the offeror or prospective contractor;
(2) Specifies that the provisions and clauses must be completed by the offeror or prospective contractor and must be submitted with the quotation or offer; and
(3) Identifies to the offeror or prospective contractor at least one electronic address where the full text may be accessed.
Thus, if the FAR Matrix contained a "Y" in the IBR column, my matrix will also contain a "Y". If the FAR Matrix contained an "N" in the IBR column, or the provision or clause came from the DFARS or a DoD class deviation, then my matrix will contain a "Y*". The key at the top of the matrix contains an explanation for the "Y*" entry. If you're wondering how to incorporate a provision or clause that contains fill-in material or something the offeror must complete, see FAR 52.102(a) and FAR 52.104(d).
You can see the matrix on the DAU Acquisition Community Connection. I'm open to suggestions for making it better. Also, I would like to think that it doesn't contain any errors. However, if you spot one please let me know. As an incentive, I will add your agency's provisions and clauses (the ones in Title 48 of the CFR) to the matrix if you point out a mistake.
Recent EntriesLatest Entry
The long-standing principle that the federal government had the same implied duty of good faith and fair dealing as any commercial buyer was put in jeopardy by a 2010 decision of the U.S. Court of Appeals for the Federal Circuit, Precision Pine & Timber, Inc. v. U.S., 596 F.3d 817 (Fed. Cir. 2010). There a panel of the court adopted a narrow rule seemingly limiting application of the principle to situations where a government action was “specifically targeted” at the contractor or had the effect of taking away one of the benefits that had been promised to the contractor. Although the decision concerned a timber sales contract not a procurement contract, when I wrote it up in the May 2010 Nash & Cibinic Report (24 N&CR ¶ 22), I expressed the fear that the reasoning would be subsequently applied to procurement contracts.
My fear was realized in a construction contract case, Metcalf Construction Co. v. U. S., 102 Fed. Cl. 334 (2011). In that decision, the judge described eggregious conduct on the part of the government officials that would have been held to be a breach of the implied duty of good faith and fair dealing under many earlier cases. However, the judge held that under the Precision Pine standard, the contractor had not proved that the actions were specifically targeted at the contractor. In the February 2012 Nash & Cibinic Report (26 N&CR ¶ 9), I criticized this decision but stated that I believed that even if the decision was affirmed on appeal, most contracting officers would not take this as a signal that the proper way to administer contracts was to abuse the contractor.
Fortunately, a panel of the Federal Circuit has reversed the decision, Metcalf Construction Co. v. U. S., 2014 WL 519596, 2014 U.S. App. LEXIS 2515 (Fed. Cir. Feb. 11, 2014). The court held that the lower court had read Precision Pine too narrowly and that “specific targeting” was only one example of the type of conduct that could constitute a breach of the implied duty of good faith and fair dealing. Importantly, the court also rejected the government’s argument that this “implied duty” only could be found when it was footed in some express provision of the contract. The court concluded that the correct rule was only that the express provisions of a contract had to be examined to ensure that they had not dealt with the conduct of the government; for if they had, they would override the implied duty.
This leaves us in a tenuous position with regard to the views of the Federal Circuit. We have one panel in Precision Pine stating a narrow rule, another panel in Metcalf Construction stating the traditional rule, and a third panel in Bell/Heery A Joint Venture v. U.S., 739 F.3d 1324 (Fed. Cir. 2014), ruling in favor of the government because the contractor had not alleged facts showing that the government had “engaged in conduct that reappropriated benefits promised under the contract” (which is part of the Precision Pine reasoning). Thus, it is difficult to state where the judges of the Federal Circuit stand. Hopefully, the court will agree to take either Metcalf Construction or Bell/Heery to the full court for an en banc review of the issue.
I’ve never been sure why the Department of Justice has so vigorously argued that the government should not be held to the same standards of conduct as a commercial buyer. Of course, persuading the courts and boards that a narrower standard should be applied to the government is a way to win litigated cases. But, in my view, encouraging abusive or non-cooperative conduct hurts the government as much as it hurts its contractors. I have taught for many years that in the long run the government benefits from actions that show industry that it is a fair contracting partner. A line of published judicial decisions that demonstrates that the government is not such a partner is one more of the many messages that tell companies they should sell to the government only when they can find no other customer. Surely, this is not the message that government agencies in need of products and services on the commercial marketplace want to convey to companies that can provide those products and services.
Many years ago when I came to Washington to work in the field of government contracting, I concluded that there was one major advantage to being on the government side of the negotiating table. That advantage was that I was under no pressure to extract money from the contractor by unfair bargaining or unfair contract administration. To me fairness was an integral part of the job of a government employee. I still believe it and teach it. Thus, no matter what the outcome of the good faith and fair dealing litigation, I will continue to urge government employees that fair treatment of contractors is the only way to go.
Ralph C. Nash
When I get older, losing my hair
Many years from now . . . .
When I'm Sixty-Four
John Lennon, Paul McCartney
Shortly after we celebrate our country's independence on July 4, 2013, Wifcon.com will end its 15th year on the internet. With much help from the Wifcon.com community, I've raised a growing teenager. When I started, I was 49 and my hair was so thick that I often shouted ouch or some obscenity when I combed it. Wifcon.com has existed in 3 decades and parts of 2 centuries. During that period, I've updated this site for every work day--except for the week or so when I called it quits. I remember the feeling of relief. I thought it was over. However, many of you convinced me to bring it back. Yes, just when I thought I was out, many of you pulled me back in.
As I mentioned in an earlier post, someone once told me that Wifcon.com was my legacy. I once had great hopes for a legacy. Perhaps, a great saxophone player belting out a solo in front of thousands of fans and seeing them enjoying themselves. Instead, here I sit in my solitude looking for news, decisions, etc., to post to the home page. For many years, my dog Ambrose kept me company. Now, my dogs Blue Jay and Lily stare at me and look for attention. With my sights now set realistically, I accept that Wifcon.com is my legacy. It's the best I could do.
Every now and then, I receive an e-mail from someone thanking me for Wifcon.com. They tell me how it helped their careers. These e-mails keep me and Wifcon.com going.
Send me a postcard, drop me a line,
Stating point of view
Indicate precisely what you mean to say
Yours sincerely, wasting away
Give me your answer, fill in a form
When I'm Sixty-Four
John Lennon, Paul McCartney
The thoughts in these e-mails won't let me quit. I still search each night for something to add to the site in hopes that it will increase your knowledge. If I find something new, I still get excited. Often, it feels like a self-imposed weight around my neck. What started as a release for my imagination has evolved into a continuing and daily addition to the contracting community. In the evenings, it is as if I'm Maillardet's automaton. I head over to my office, sit before the computer, and update. Then I send the updated pages to Virginia where it is accessed from around the world. Maybe I'm addicted to Wifcon.com; maybe I was born with the Wifcon.com gene.
If you haven't added the numbers, I'm 64 now. Wifcon.com and I are showing our age. I can comb the top of my head with my fingers. The ouches and other obscenities caused by my once thick hair are gone. A recent upgrade to the discussion forum requires that I turn the "compatibility mode" off on my browser. In that mode, I realized that Wifcon.com is ugly. I have current software for the needed future redo of this site.
I am Wifcon.com; Wifcon.com is me. It is my legacy and my albatross. As always, thank you for your support.
You'll be older too,
And if you say the word,
I could stay with you.
When I'm Sixty-Four
John Lennon, Paul McCartney