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Negligent Negotiations Theory

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I thought I would share an interesting emerging legal theory called "Negligent Negotiations." Here's a link to the article I read about the theory, written by Nick Solosky (Fox Rothschild).

You can follow the link and ignore everything else I will type in this post.


For those who don't want to follow the link or read his brief article, here are the basics. (Just my interpretation of his article.)

1. Government conducts Part 15 procurement

2. Government negotiators fail to comply with 15.306(d)(3) by failing to conduct meaningful negotiations. Specifically, the government fails to point out concerns or deficiencies with contractor's proposal and thus leads to contractor incurring additional costs during performance.

Crazy? Perhaps. We'll have to see.

The author points to two cases where the theory was advanced. In the first case at the ASBCA (Chugach Federal Solutions, ASBCA No. 61320, 19-1 BCA), the contractor argued that the government's breach of its duty to conduct meaningful negotiations led to additional performance costs because it had to meet the agency's actual expectations; apparently, the agency (allegedly) knew what it wanted and it knew the contractor's staffing plan fell short. Motion to dismiss denied. In the second case at the CBCA (Hamstra Chical, 20-1 BCA 37654), the Board denied the appeal.


I'm interested to see how/if this theory takes hold.



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I think a distinction between Chugach Federal Solutions (ASBCA) and Hamstra Chico (CBCA) may be based upon specific facts of each case. in addition, the Chugach case concerned the government’s defense motions for summary judgement, not a decision on the merits of the claim itself. I think.

I was unable to open the page link for Hamstra Chico LLC but found it embedded in another article at .https://pubkgroup.com/law/cbca-refuses-to-reform-contract-to-correct-an-alleged-deficiency-not-identified-during-discussions-hamstra-chico-llc-v-department-of-veterans-affairs-cbca-6669/

It wasn’t clear whether or not there was enough information for the VA to know if Hamstra did not include electricity in its proposal. 

The decision noted that Hamstra had included a component of electricity in its initial proposal, which apparently was still in its final revised proposal, after numerous rounds of discussions. There are hints that Hamstra Chico’s electricity cost component  was lower than that of its competitors. The instructions for the proposal prep said that the government would pay directly fir utilities.  However, that directly conflicted with another statement in the RFP that the contractor should directly bear the cost of electricity. It isn’t clear whether the government would have known whether or not the proposal assumed and included contractor furnished electricity costs in its proposal.

After receipt of proposals, the government issued an amendment, which Hamstra acknowledged, that eliminated the conflicting statement that the government would directly purchase electricity. Hamstra never changed its initial price for electricity in its subsequent proposal price revisions. There is no record that the government noted a deficiency or error in the utility pricing or whether it should have.

In Chugach Federal Solutions, the source selection evaluation record did directly note a significant weakness for insufficient staffing levels.

I think that the CBCA description of the actual facts is not clearly written. And the various articles concerning that Decision are equally unclear about what was actually in Hamstra Chico’s price proposal for electricity.

One other point concerned whether or not the parties had to agree on each cost element or whether the the overall cost was “reasonable”. The CBCA mentioned that. However, I’ve thought that the coverage in 15.405 was related to give and take price negotiations than evaluating the reasonableness a competitive price for price “discussions”. 

And - technically, concerns about a low price are referred to as realism of a price, not “reasonableness”.  Everyone wants to make distinctions about the differences between reasonableness (high) and realism (low) - but here the CBCA appeared to say that as long as the overall price was “reasonable”,  the government didn’t have to be concerned about an unrealistically low price component.


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There has been another decision since the one cited by H2H: Chugach20-1 BCA P 37617, May 27, 2020, in which the board denied the Navy's motion for summary judgment. Here is what Prof. Nash had to say about the Chugach decisions (there have been four) last September:



The negligent negotiation claim is the strongest of these three claims [negligent negotiation, mutual mistake, nondisclosure of vital information]. However, the three together raise two difficult issues. First, although FAR 15.306(d)(3) requires the disclosure of “deficiencies” and “significant weaknesses,” it is not clear what specifically must be disclosed. Is a statement, “your estimated manhours are significantly lower than the Government estimate” sufficient or must the Government reveal the exact Government estimate or give an approximation of the amount of the disparity? Further, how much data used by the Government employees that made the Government estimate, such as the manhours employed by the incumbent contractor, must be disclosed?

Second, how is the board going to determine what the contractor would have proposed had it been given whatever information the board finds was required to be disclosed? This is highly speculative and raises the further question of whether relief should be granted in an amount that raises the price above that of other competitors. This issue is addressed with regard to mistakes in sealed bids by FAR 14.407-4, “Mistakes after award,” stating:

(a) When a mistake in a contractor's bid is not discovered until after award, the mistake may be corrected by contract modification if correcting the mistake would be favorable to the Government without changing the essential requirements of the specifications.

(b) In addition to the cases contemplated in paragraph (a) above or as otherwise authorized by law, agencies are authorized to make a determination—

(1) To rescind a contract;

(2) To reform a contract (i) to delete the items involved in the mistake or (ii) to increase the price if the contract price, as corrected, does not exceed that of the next lowest acceptable bid under the original invitation for bids;….[Emphasis added.]

While this provision clearly does not apply to competitively negotiated procurement or to the power of a board of contract appeals to award a price adjustment, it reflects a longstanding Government policy that may come into play in the final resolution of this appeal.

All in all, we have a new type of claim with high hurdles for the contractor to negotiate. In a couple of years we will see whether it succeeds (if the case isn't settled). 

Moreover, what if the government had told offerors up front that it was going to award without discussions? What rights would the contractor then have under 15.306(d)(3)? The GAO has long held that the government has no obligation to conduct discussions unless it says it intends to do so.

Chugach's lawyers are engaging in recon by fire, throwing every theory of recovery at the board that they can think of. They are firing salvos. Frankly, I think this so-called "new type of claim" ("negligent negotiation") is little more than a variation of the claim that the government failed to disclose superior knowledge, which is an old idea. The government knew that Chugach didn't understand the requirement (what would actually be expected of it) and went ahead with the award anyway, without putting them on notice, without negotiating in good faith. See Kronman, "Mistake, Disclosure, Information, and the Law of Contracts," 7 Journal of Legal Studies 1 (1978).    https://core.ac.uk/download/pdf/234133655.pdf

I hope the government loses this claim and has to pay up. It would be good for our country. Then maybe we can bring some common sense and sound practice to source selection under FAR Part 15, which is a deep well of government incompetence. And losing this dispute might force policymakers and contracting officers to admit to themselves that their precious "performance work statements" are a fraud, and prompt them to negotiate relational contracts instead of transactional contracts for support services.

Source selection under FAR Part 15 and service contracting in general are ongoing demonstrations of lack of vision and practical ineptitude. I hope the government takes a hard hit. I hope it takes a solid kick in the pants.

But I suspect that it won't. My guess is that the parties will settle. Chugach is represented by a first-rate law firm. First-rate. They'd rather settle than go the distance before the board. And maybe the government has lost enough motions to make its lawyers think twice about fighting it out.

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I agree that the Chugach claim appears to be a variation of a “Superior Knowledge” Claim. Agree that there was likely ineptitude at a minimum there.

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I taught Design-Build construction classes for 20 years. We have an order of precedence clause for non-Uniform Contract Format design-build contracts. The clause states that the solicitation and the contractors accepted proposal constitute the contract. The clause places any accepted betterment’s above the minimum solicitation requirements. Betterment are anything in the accepted proposal which conforms to and exceeds solicitation requirements. Thus, betterments become the new minimum contract requirements. In the event of a conflict between the accepted proposal and the solicitation after award,  the solicitation requirements are above remaining aspects of the accepted proposal.

I taught that  the government evaluators must understand the solicitation requirements and carefully read and review the proposals during the SS evaluation. They can’t ignore any obvious deviation or deficiency, expecting to rely on the order of precedence. It is a fundamental principle of federal acquisition that the government cannot award a contract with a known material deficiency.

Often, students would tell me that they didn’t know that and said that they just thought that the clause would allow them to enforce the contract requirement after award!!!! 

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