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Delivery Orders Not Binding? Huh?

By Don Mansfield

· 10,501 views

I read something that I found remarkable in the recently published GAO decision Master Lock Company, LLC, B-309982.2, June 24, 2008. Bob posted the decision on the Wifcon home page. The protester argued that the agency's evaluation of the awardee's past performance should have taken into account the fact that they had declined a delivery order under a different IDIQ contract. In response, the agency argued that a delivery order was not binding and the GAO agreed. Here's an excerpt:

"During the course of this protest, Master Lock also argued that the agency?s evaluation of Evergreen?s past performance was unreasonable. As discussed above, Evergreen declined to accept order No. 2745, which was issued under a different contract. DLA acknowledges that it did not consider these events in its evaluation of Evergreen?s past performance. AR at 8. The agency contends, however, that it was not required to do so because the submission of a quote by a vendor under an ID/IQ contract does not result in a binding obligation. Thus, the agency argues, because Evergreen did not accept the order, there was no contract performance for the agency to evaluate.

The agency
is correct
that neither the submission of a quote by a vendor
nor the issuance of an order
by an agency results in a binding contractual obligation. Rather, the government?s order represents an offer that the vendor may accept either through performance or by a formal acceptance document. M. Braun, Inc., B-298935.2, May 21, 2007, 2007 CPD ? 96 at 3."

[italics added].

However, the case that the GAO cited as support for their position did not deal with a task or delivery order under an IDIQ contract--it was a purchase order using simplified acquisition procedures. There's a big difference. FAR 16.506 requires the inclusion of the clauses at FAR 52.216-18, Ordering, 52.216-19, Order Limitations, and 52.216-22, Indefinite Quantity, in an IDIQ contract. Here's what the Indefinite Quantity clause says regarding the contractor's obligation to perform:

"Delivery or performance shall be made only as authorized by orders issued in accordance with the Ordering clause.
The Contractor shall furnish to the Government, when and if ordered, the supplies or services specified in the Schedule up to and including the quantity designated in the Schedule as the 'maximum.'
The Government shall order at least the quantity of supplies or services designated in the Schedule as the 'minimum.'"

[bold added].

Now, what in this required FAR clause would give the contractor the right to decline an order, provided that the order complies with the Ordering and Order Limitations clauses? I don?t see it.

The decision includes the following statements further on in an attempt to clarify:

"Although the work required under any task or delivery order will only become a binding obligation on the parties if the vendor accepts the order, the underlying ID/IQ contract may itself have obligations. For example, a contract may require a vendor to accept orders placed by the agency within certain parameters.?

This is conceptually incorrect. IDIQ contracts do require (not ?may?) the contractor to accept orders placed by the agency within certain parameters (stated in the Ordering and Order Limitations clauses). The only instance where a contractor?s acceptance of a task or delivery order would matter would be if the agency?s order was not within the stated parameters in the Ordering and Order Limitations clauses. Furthermore, an arrangement where the Government was required to order a minimum quantity and the contractor would not be required to perform would arguably lack consideration and, thus, not be an enforceable contract.

The main problem with this decision is that it characterizes the exception to the rule (i.e., situations where the contractor may decline a task or delivery order under an IDIQ contract) as the rule itself. It also fails to recognize the distinction between purchase orders made in the open market and task and delivery orders under IDIQ contracts.

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    Thomas Warren

    Members

    I understand your point, but what about an order under a multiple award contract? Though the clause is required for MATOCs, I don't conceptually understand the concept in that framework. A contractor would not be required to accept an offered task order; rather, the MATOC holders may compete within the parameters of the fair opportunity task order process outlined in the soliciation. The language in the Order Limitations Clause makes far more sense in the context of a requirements contract or a SATOC, but less so in a MATOC. Is it your opinion that the government can demand that a MATOC holder accept a task order if it is within the proper parameters of the ordering limits and the Order Limitations clause? What then of fair opportunity (I am making the assumption that an exception is not applicable)?

    I have always had a hard time understanding the language in the Order Limitations clause in the context of multiple award IDIQ contracts, so any insight you can provide on this would be appreciated.

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    • Don Mansfield

    Members

    I understand your point, but what about an order under a multiple award contract? Though the clause is required for MATOCs, I don't conceptually understand the concept in that framework. A contractor would not be required to accept an offered task order; rather, the MATOC holders may compete within the parameters of the fair opportunity task order process outlined in the soliciation. The language in the Order Limitations Clause makes far more sense in the context of a requirements contract or a SATOC, but less so in a MATOC. Is it your opinion that the government can demand that a MATOC holder accept a task order if it is within the proper parameters of the ordering limits and the Order Limitations clause? What then of fair opportunity (I am making the assumption that an exception is not applicable)?

    I have always had a hard time understanding the language in the Order Limitations clause in the context of multiple award IDIQ contracts, so any insight you can provide on this would be appreciated.

    Mr. Warren,

    If a contract contains the Indefinite Quantity clause (FAR 52.216-22), then the contractor is required to perform if the Government issues a task or delivery order, provided the Government complies with the Ordering (FAR 52.216-18) and Order Limitations (FAR 52.216-19) clauses. This requirement is in no way conditioned on the method the Government uses to select the contractor for an order under a MATOC (i.e., competitively or noncompetitively). So to answer your question, if the Government issued an order to a MATOC holder, they would have to perform whether the Government provided each offeror a fair opportunity to compete for the order or issued the order noncompetitively.

    If the Government issued an order to a MATOC contractor noncompetitively and no exception to fair opportunity applied, I don't know if that would then give that contractor the right to refuse the order. While other MATOC contractors could potentially file a claim or protest for the Government's failure to provide a fair opportunity, I have a hard time imagining what the MATOC contractor who received the order could argue. I would be surprised to see such a claim or protest.

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    • Thomas Warren

    Members

    I may have been a little unclear with the language I chose to use, and I appreciate the response.

    If the Government issues a task order notice and requests proposals (under the procedures outlined in the solicitation) and no MATOC holder submits a proposal, then there has been no offer or acceptance yet, right? (Contrasted with the situation when the Government merely issues a task order to a SATOC holder, for instance). If, however, MATOC holder "A" submits a proposal and the Government issues it a task order, then under the provisions of the Order Limitations clause MATOC holder "A" cannot then refuse the order.

    I guess the point is that under the language in the Order Limitations clause, if all MATOC holders refuse to submit a proposal on a task order (one that is within the O.L. clause), the Government can essentially issue one of the MATOC holders a task order and require performance? Essentially, the moment the Government actually issues a compliant order, the contractor holding the IDIQ is bound to perform. So the distinction I see is this: under a MATOC, a contractor is not required to respond to the order notice, but when it does (or if the Government then issues the order), it must perform.

    Please let me know if I am misunderstanding your point. Thanks, Tom.

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    • Don Mansfield

    Members

    I guess the point is that under the language in the Order Limitations clause, if all MATOC holders refuse to submit a proposal on a task order (one that is within the O.L. clause), the Government can essentially issue one of the MATOC holders a task order and require performance? Essentially, the moment the Government actually issues a compliant order, the contractor holding the IDIQ is bound to perform.

    Correct.

    So the distinction I see is this: under a MATOC, a contractor is not required to respond to the order notice, but when it does (or if the Government then issues the order), it must perform.

    Correct, with a caveat. Some MATOCs may require contractors to submit proposals in response to task order solicitations.

    In theory, the Government could hold a task order competition, receive proposals from all MATOC holders except contractor A, then issue an order to contractor A on a noncompetitive basis (provided one of the exceptions to fair opportunity applied) and contractor A would have to perform.

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    • TAP

    Members

    Indefinite Delivery contracts for services and construction typically contain negotiated line items or otherwise contain ordering language that require negotiation, such as submission of a proposal in response to a RFP. Absent a negotiated price, contractor?s proposal, or agreement on quantities which require negotiation (as appropriate), how could such an order be binding?

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    • Don Mansfield

    Members

    TAP,

    I don't think an order that did not contain a price or quantity (minimum information required by FAR 16.505(a)(6)) would be binding unless the contractor agreed to accept such orders in the contract. For example, I have seen IDIQ contracts that contain a special clause whereby the contractor agrees to accept undefinitized orders.

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    • TAP

    Members

    Don,

    I'm thinking about an order that would contain price and quantity information required by FAR 16.505(a)(6), but wasn't negotiated per the ordering language of the contract. In other words, the KO issues an order based on the Government estimate, as opposed to a negotiated price or agreement on IDIQ quantities for example. Could this be binding?

    Thanks!

  • Quote

    • Don Mansfield

    Members

    Don,

    I'm thinking about an order that would contain price and quantity information required by FAR 16.505(a)(6), but wasn't negotiated per the ordering language of the contract. In other words, the KO issues an order based on the Government estimate, as opposed to a negotiated price or agreement on IDIQ quantities for example. Could this be binding?

    Thanks!

    TAP,

    I don't think that such an order would be binding. What you describe seems more like a purchase order than a task or delivery order.

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