Bring accountability to contract protests
January 31, 2011 by cs
An article in the November/December 2010 issue of Defense Acquisition University’s Defense AT&L magazine discussed why companies file protests against contract awards and illustrated the realities of the federal contracting environment. Budgets are tightening, competition for those shrinking dollars is ferocious, and protests have seemingly become standard operating procedure. Further exacerbating the issue are poorly trained acquisition workers and poor government communications. So what are we to do in this environment?
The issue hinges on the seemingly endless cycle of protests with no consequences or accountability on the part of government or industry. More protests mean an even higher rate of program disruption, with the result that users and warfighters will continue not getting the products and services they need to perform their missions. Industry often looks at protests in terms of return on investment and might find it worthwhile to fight a contract award that a competitor wins. Given the risk-averse nature of government, that approach can open additional revenue sources or further opportunities for a company to compete.
Nonetheless, the government does make mistakes and should be accountable because the point of a protest is to prevent the government from causing harm to the protesting firm.
There needs to be a measure of accountability on both sides. A protest should not be taken lightly. It is typically a disruptive and costly matter. Although a company expects to win and files its protest accordingly, the number of protests that are upheld remains less than 25 percent. Some firms file just to see what will happen. What if a firm loses repeatedly? We need a measure of financial accountability to recoup the costs borne by the government from repeat offenders. By holding companies accountable for fishing expeditions, agencies could ensure that the protest process is used for its intended purpose: ensuring fair competition.
The government also has gotten into the habit of not wanting to upset firms that have a history of protesting awards. Indeed, some procurement officials automatically award contracts to such companies to avoid the cost of resolving disputes if the company were to protest and the government were to lose. Procurement officials must be held accountable for that behavior. And firms should be reimbursed for protests that are upheld to help put the pressure on the government to award contracts fairly.
Protesting is a right that industry must continue to have. But it must be weighed against the real costs when accountability is finally added into the equation. Furthermore, the government must stop allowing itself to be bullied into awarding contracts to firms with a history of protests. And more importantly, the government must be held accountable for following procedures and executing sound acquisition strategies to ensure that protests don’t happen in the first place.
We can accomplish all that if reform actions match the rhetoric coming out of the 112th Congress. However, without some much-needed accountability, we can expect to see a continued rise in protests, to the detriment of all involved.
Contractors believe the government is inefficient in resolving contract issues
January 24, 2011 by cs
Nearly three-quarters (74%) of government contractors surveyed consider the government to be slow and inefficient in resolving contract issues, with 56% believing that the inefficiencies are caused by the Defense Contract Audit Agency (DCAA) and 18% saying it is caused by the contracting officer, according to Grant Thornton LLP’s 16th Annual Government Contractor Industry Survey.
“These findings were not unexpected given the changes in DCAA policy adopted in the aftermath of Government Accountability Office (GAO) reports issued in July 2008 and September 2009 that severely criticized the quality of the DCAA’s work,” noted Kerry Hall, Grant Thornton LLP’s Government Contractor practice leader. “The GAO reports and the DCAA changes that followed likely contributed to the survey findings, namely that the process of resolving contract issues is increasingly inefficient.”
More than half (55%) of government contractors reported that their revenue from federal business increased during the past year, while only 22% reported reduced revenue from federal business.
Other highlights of this year’s survey include:
Revenue from the stimulus program — 72% of respondents anticipate no significant revenue growth from the stimulus program over the next 18 months, while the remaining 28% foresee modest growth.
Identifying claims for out-of-scope work — 31% of government contractors consider their procedures for identifying out-of-scope work to be very effective, while 69% see them as being either somewhat effective or not effective. The failure to identify out-of-scope work effectively and seek related compensation may contribute to reduced profit rates.
Bid protests — A total of 22 bid protests were filed during the past year by companies surveyed, and 11 of them were sustained by the GAO or the court hearing the bid protest. This appears to be a higher sustainment rate than has historically been the case and could possibly signal an emerging trend.
– from The Financial – Jan. 18, 2011 – http://www.finchannel.com/Main_News/Business/79196_Contractors_believe_the_government_is_inefficient_in_resolving_contract_issues/
Defense policy bill could affect insourcing efforts
June 28, 2010 by cs
Many federal service contractors could see their jobs brought back in-house if provisions in the House and Senate Defense authorization bills are passed into law, according to an industry group.
The House version of the policy measure includes an amendment sponsored by Rep. John Sarbanes, D-Md., that would give “special consideration” to federal employees for any function that has been performed by a government worker during the past decade, was awarded without competition, is closely associated with an inherently governmental task, or that the private sector has performed poorly during the past five years.
The Sarbanes amendment also would prohibit insourcing quotas unless they were based on research or analysis, ask officials to give consideration to using federal employees for new functions, and require agencies to take inventories of their service contracts to determine which should not be outsourced.
Stan Soloway, president of the Professional Services Council, argued on Monday that the provision creates a preference to use federal employees and lacks a holistic, well-designed sourcing strategy.
“This sends a nonstrategic and unhelpful message to the community,” said Soloway, whose group has criticized the Pentagon’s insourcing policies in recent months. “And, it’s a terribly imbalanced amendment. There seems to be no recognition of the management challenges agencies face and how they should be approaching this.”
But, staffers in Sarbanes’ office called PSC’s complaints “misleading and largely disconnected from the text” of the amendment.
“To be clear, contractors performing these four categories of work will not automatically have their positions converted to federal employee performance,” said Scott MaKeda, a Sarbanes spokesman. “The Sarbanes amendment asks agencies to evaluate whether performance by a contractor is appropriate, at which point the agency can elect to leave the contractor in place, eliminate the position entirely, or convert the position to one filled by a federal employee — a far cry from a ‘preference’ for federal employee hiring.”
The House approved its version of the Defense bill on May 28. The Senate’s bill was reported out of the Armed Services Committee on June 4, but has yet to receive a vote in the full chamber.
Industry officials also were critical of a House-passed amendment that would exclude health care and retirement from any insourcing cost comparisons when contractors contribute less than the Defense Department. Soloway suggested the provision, sponsored by Rep. Tom Perriello, D-Va., “lacks a logical base,” because it does not look at the quality of the benefits or the realities of the health coverage marketplace.
But, Perriello’s office said the provision does not require contractors to provide, change, or increase their health care or retirement benefits.
“The amendment ensures that DoD won’t make insourcing decisions that are biased toward contractors that provide their employees with inferior health care and retirement benefits,” the office said in a statement. “If a bidding contractor does contribute less, then the costs of those benefits are excluded from consideration, and the decision-making process continues.”
The measure is based on a law Congress passed in 2007 that excluded health care and retirement costs from consideration in public-private job competitions.
Federal labor unions said the Perriello amendment would level the playing field for government employees. “Contractors should not be rewarded for contributing less toward employee health care and retirement benefits than the federal government,” said John Gage, president of the American Federation of Government Employees, in a statement earlier this month.
A third insourcing provision, favored by industry groups and sponsored by Rep. James Langevin, D-R.I., would prohibit the Pentagon from establishing “any arbitrary goals or targets to implement DoD’s insourcing initiative.” The measure also requires reports from the Defense Department and the Government Accountability Office on federal insourcing efforts.
The authorization bills also would have major implications for private security contractors.
The House legislation would establish a three-year pilot program at Defense to implement a best value procurement standard for private security contracts in Afghanistan and Iraq. Additional measures would establish a third-party certification process for the operations and business standards of private security contractors. And, private security contractors in Iraq and Afghanistan would have to hire their workers as direct employees rather than independent contractors.
An amendment that made it into the committee-passed Senate version, meanwhile, would allow the secretary of Defense to bar private security contractors that are found responsible for deaths or injuries on the battlefield from winning future contracts. The findings also would be included in the new Federal Awardee Performance and Integrity Information System database.
Other acquisition-related provisions in the House bill would:
- Implement the 2010 IMPROVE Acquisition Act, which overhauls how the Defense Department purchases services and technology;
- Penalize prime contractors that fail to provide information to databases on contracts in Iraq and Afghanistan;
- Make permanent the National Office for Cyberspace and position of federal chief technology officer.
The version awaiting the full Senate’s consideration would:
- Allow Defense to withhold up to 10 percent of certain payments to contractors that are found to have significant deficient in their business systems. The department is considering a similar rule through a change to the Defense Acquisition Regulations System.
- Make permanent the ability of contractors to file protests for task and delivery orders;
- Extend the department’s mentor-protégé program for another five years.
– By Robert Brodsky - GovExec.com - June 21, 2010
Non-Schedule items on a Schedule procurement must be kept “micro”
June 3, 2010 by cs
Over the years, contracting officers have exhibited a promiscuous tendency to include non-Schedule items in GSA Schedule purchases.
The many GSA Schedule procurements seeking $10,000 in Schedule items and $50,000 in non-Schedule “incidental” items did not go unnoticed by the OIG. The primary concern being that those $50,000 items should be properly competed – something that many agencies sought to avoid through their use of the Schedules program.
The practice also did not escape the notice of the Courts or the GAO.
And in two quite notable cases – ATA Defense Industries, Inc. v. U.S., 38 Fed. Cl. 489 (1997) and Pyxis Corp., B-282469 et al., July 15, 1999, 99-2 CPD ¶ 18 – the Court and the GAO respectively ruled that included non-Schedule items in a Schedule purchase was a no-no (a time-honored legal phrase).
More technically, the Court and the GAO ruled that the non-Schedule portion of a GSA Schedule order had to meet the same competition requirements that would have applied had the purchase been made outside of the Schedule context. In other words, if the Government wanted to add non-Schedule items to its Schedule purchase, it had to hold a competition – unless the non-Schedule items were below the micro-purchase (since there are no competition requirements for such purchases).
Since the time of ATA and Pyxis, the GAO has been a vigilant guardian of this Schedule/non-Schedule rule, sustaining protests time and again wherever it finds an agency trying to procure non-Schedule products through a Schedule procurement. See, e.g., T-L-C Sys., B-285687.2, Sept. 29, 2000, 2000 CPD ¶ 166, Symplicity Corp., B-291902, Apr. 29, 2003, 2003 CPD ¶ 89, Armed Forces Merchandise Outlet, Inc., B‑294281, Oct. 12, 2004, 2004 CPD ¶ 218.
In March of this year, we learned that the GAO’s vigilance continues apace. On March 15, 2010, the GAO issued its decision in Rapiscan Systems, Inc., B-401773.2, the latest in this long line of Schedule/non-Schedule cases. The case re-enforces the GAO’s view that the GSA Schedules program was not intended to shield the purchase of non-Schedule items from the FAR’s competition requirements.
But Rapiscan went one step further than prior cases in that it provides significant insight into how the GAO views the micro-purchase threshold (currently set at $3,000) – that is, the dollar value at which the Government’s competition rules fully kick in. Rapiscan involved a GSA Schedule procurement conducted by the Department of State for the purchase of gamma ray vehicle and cargo inspection systems. The solicitation (a Request for Quotations, or “RFQ”) limited participation to GSA Schedule vendors. Following award, Rapiscan Systems, Inc. (which did not win, obviously) challenged the award decision before the GAO. Rapiscan contended that the DOS improperly issued the purchase order to a contractor that did not offer every one of its items on its GSA Schedule.
Specifically, Rapiscan argued that the awardee did not offer freight on its Schedule Contract. In response to the protest, the Agency argued that the purchase of freight in this instance was permissible because it fell under the micro-purchase threshold.
The facts at this point, however, get a bit complicated – and very relevant. In its initial quotation, the awardee showed freight as an “open market” item, with a line item price of $6,832 – a sum above the micro-purchase threshold, obviously. In its revised quotation, however, the awardee discounted the freight charge by 100% – to $0. Accordingly, the Agency contended that the purchase of freight was permissible through a GSA Schedule procurement. The awardee, however, also had stated in its revised quotation that the price for freight was “included in the unit price of” the primary Schedule item being purchased – a quite common turn of phrase among Government contractors.
This language, however, coupled with the fact that the awardee had a price for freight in its initial proposal that was above $3,000, clearly concerned the GAO. Indeed, it led the GAO to conclude that the awardee’s $0 price for freight was “illusory.” In GAO’s view, it was no more than the “shifting of the initially quoted price” between line items. Having found the “real” price of freight to exceed the micro-purchase threshold, it was not a far leap to sustain the protest. According to the GAO, the “micro-purchase exception is a narrow one and was not intended as a means for vendors to provide non-FSS items as micro-purchase items . . . .”
Interestingly, there is much in the decision to suggest that the GAO would have come down differently had the awardee not stated that it “included the price” of freight elsewhere in its proposal. Finding evidence of a greater-than-$3,000 price for the non-Schedule item, however, the GAO was boxed in by its prior case law. The GAO’s Rapiscan decision obviously supports the long-standing general rule that non-Schedule products may not be procured through GSA Schedule procedures. But it also demonstrates how the GAO will read between the lines (or line items, in this case) when assessing the price of a non-Schedule item.
The lesson here? We offer two. First, when offering a non-Schedule item in a Schedule procurement, keep it “micro.” Second, to paraphrase an ancient Buddhist proverb, “whatever words we utter, should be chosen with care.”
– Authored by: Jonathan S. Aronie - jaronie@sheppardmullin.com and Christopher Noon – cnoon@sheppardmullin.com – May 12, 2010
The Price Was Wrong: GSA Rates Set the Ceiling for GSA Orders
May 17, 2010 by cs
GSA sought bids from contractors holding Federal Supply Schedule (FSS) Schedule 70 contracts for certain professional services. At the time it submitted its proposal, Perot was in the process of negotiating a five-year extension of its Schedule 70 contract. Perot had proposed new labor rates for the five-year extension, but those rates had not yet been approved by the GSA contracting officer. In its proposal, Perot use its proposed, but unapproved labor rates. The contracting officer excluded Perot’s proposal from consideration because the labor rates included in the proposal did not match Perot’s current Schedule 70 contract labor rates.
Approved GSA Prices Are A “Cap” On Prices
Perot raised several arguments as to why its new, but unapproved, rates were fair and reasonable. First, Perot argued that the RFQ required that a contractor’s approved rates be “derived from” its GSA Schedule rates, and its proposed rates were, in fact, “derived from” its GSA Schedule rates. Second, Perot argued that even though a few of its proposed rates had increased slightly, the majority of its rates were lower. Finally, Perot argued that its rates were fair and reasonable because its overall price was lower than the awardee’s price. GAO rejected each of these arguments. Relying on FAR 8.404(d), GAO found that even if the lower rates proposed by Perot could be considered a discount from its current rates, the categories for which higher rates were proposed were improper. Thus, the contracting officer correctly eliminated Perot’s proposal as unacceptable.
Lesson Learned
Approved GSA schedule rates are a ceiling when bidding on task orders issued under FSS contracts. Contractors should take care to make sure that prices offered are approved GSA Schedule prices or lower. Not only may proposing prices higher than those approved by GSA result in rejection of a bid, it also could result in allegations of overcharging in the event of a later audit by the GSA Inspector General. Thus, GSA contractors should make sure that federal sales personnel and any authorized dealers permitted to sell under the contractor’s GSA contract are adequately trained in this subject.
Builder sues city over bid dispute
May 5, 2010 by cs
Another businessman who reached his boiling point over the city’s purchasing practices is suing Augusta’s government.
Tony Ammar filed suit in Richmond County Superior Court on April 14 on behalf of his company, Ammar Construction Co., against the city and its procurement director, Geri Sams.
The city notified Ammar on Sept. 3 that his company was the low bidder on a job to do repairs at the Henry Brigham Center.
Ammar said he started to prepare for the job, obtaining a performance bond — which cost $925 — and lining up workers.
Eight days after he was awarded the bid, Ammar received a letter from Sams that said his bid was deemed “noncompliant.”
Ammar appealed unsuccessfully to Sams, the administrative services committee and Augusta commissioners.
Several other businesses have contended in lawsuits that they’ve faced the same frustration with the city’s procurement practices, particularly over Augusta commissioners’ refusal to waive any violation of the “materiality provision.”
That provision, noted in every bid request, states that a proposal will be thrown out if any error is discovered. That includes everything from a signature in the wrong place to the inability to obtain bonding.
Ammar’s bid was thrown out because of the way he filled out a form that is supposed to be submitted by subcontractors. Ammar had no subcontractors, according to his lawsuit.
“The form, the ‘Subcontractor’s Affidavit,’ does not include any blank lines or other designated place for a general contractor to complete the information (when) there are no subcontractors,” the lawsuit contends.
The repair project was put out for bid again recently. The bid proposals are to be opened May 18; until then it won’t be known whether the city might have saved money by waiving the alleged error in Ammar’s proposal.
LATE LAST MONTH, the city won a federal court battle against three other businesses and the Association for Fair Government. In awarding the city summary judgment, U.S. District Court Judge J. Randal Hall wrote:
“The city should not interpret this decision as endorsing the quality of its procurement operations. In fact, the record in this case suggests otherwise. The court empathizes with the plaintiffs’ understandable frustration with the city’s poor administration of the procurement process.
“However, the court will not, in the words of the Supreme Court, ‘constitutionalize’ these disappointed bidder disputes when the law does not allow such action.”
Thompson Building Wrecking, CSRA Testing and Artistic Design challenged the city’s practices as inconsistent and applied unfairly. The lawsuit also alleged the city is needlessly spending millions of dollars by rejecting the lowest bids over technicalities.
Hall wrote, “The reasonable inference that may be drawn from the evidence is that the city sometimes enforces the materiality provision and sometimes does not. Sometimes the enforcement favors minority-owned companies, and sometimes it favors nonminority-owned companies. In other words, at worst, the city is inconsistent in its application of the materiality provision, regardless of race. The record does not evidence purposeful race discrimination or enforcement based upon any other impermissible purpose.”
Therefore, he found there was no constitutional violation. If there is any issue with due process, that should be decided under state law by a Georgia court, he wrote.
City officials are working on proposed changes to the procurement ordinance to address some aspects of the materiality provision, said Andrew MacKenzie, the acting city general counsel.
Details on providing a local vendor preference are being worked out by the commission’s administrative committee.
The procurement department staff has already taken steps to improve some of the required forms to simplify the paperwork, MacKenzie said. More changes are being worked on to reduce the amount of paperwork and the chance for errors, he said.
There is no question that state law allows a local government to waive technical errors, but Augusta commissioners have chosen not to do so for the sake of consistency, MacKenzie said.
“The balance is tough,” he said.
- by Sandy Hodson, Staff Writer – Wednesday, April 28, 2010 – The Augusta Chronicle – Source URL: http://chronicle.augusta.com/news/government/2010-04-28/builder-sues-city-over-bid-dispute
Bid protest statistics released by GAO
April 29, 2010 by cs
The US Government Accountability Office (GAO) recently released its bid protest statistics for fiscal year 2009.
The number of protests filed rose to 1,989 cases, an increase of 20 percent from the previous fiscal year. Half of this increase is attributable to the GAO’s recently expanded jurisdiction over bid protests involving task and delivery orders, OMB Circular A-76, and the Transportation Security Administration.
Of 315 decisions on the merits, the GAO sustained 57 protests, which represents a sustain rate of 18 percent. However, the reported “Effectiveness Rate” – which is based on a protester obtaining some form of relief from the contracting agency – was 45%. This indicates that agencies took voluntary corrective action in a significant number of cases.
The GAO also reported that there was one instance in which an agency did not fully implement a recommendation made by the GAO in connection with a bid protest. This case involved the sole-source award of a U.S. Army contract for information technology support for the Office of the Judge Advocate General.
The bid protest statistics are available at http://www.gao.gov/special.pubs/bidpro09.pdf.
Source: Fried Frank Government Contracts Alert ® No. 10-04-09
8 stories to keep watching in 2010
December 11, 2009 by cs
Each year, there are big important stories, and few would argue with our picks for 2009.
But we highlight these particular stories not only for the immediate impact they had but also for the lasting influence they continue to exercise.
In essence, these stories aren’t over. They will keep people talking and make headlines in 2010 and beyond.
— Nick Wakeman
1. Obama sets sights on procurement reform
The economy and Iraq were at the top of the agenda when the Obama administration took over the White House Jan. 20. But when the Office of Management and Budget released memos outlining the administration’s procurement goals, it was obvious that contracting also was very much a priority.
The memos and guidance that followed have set forth goals that affect outsourcing, picking which type of contract to use, categorizing work as inherently governmental and determining conflicts of interest.
Although industry experts at organizations such as the Professional Services Council have said that the direction coming from the White House is reasonable and reflects good procurement principles, the jury is still out on how individual agencies will apply those principles.
2. Beware of government poachers
The rising number of contractor employees being recruited to work at government agencies has sparked complaints from industry.
There have been reports of agencies having lists of contractor employees they want to hire. In some cases, agencies have used job pitches that incorporate economic fears, such as claiming that there are plans to cancel contracts, leaving the contract employee without a job.
Questions also have been raised about the ethics of hiring contractor employees. The government should follow the same rules industry does when it hires a government person, some say.
3. M&A continues to remake the market
Two major hardware players — Dell Inc. and Xerox — made large deals that involve services companies with significant government business. Dell acquired Perot Systems, picking up an outsourcing and systems integration business. Xerox went after Affiliated Computer Services Inc.
Dell said it already had a large services business that supports its products, but Perot will bring higher-end work in areas such as education and health care.
For Xerox, ACS brings business process outsourcing capabilities on programs such as Medicaid and Medicare. ACS also will gain a broader international footprint.
The third big deal of the year was Northrop Grumman’s decision to sell TASC. They were forced into the deal because of tougher organizational conflict-of-interest rules.
TASC is being bought by equity groups General Atlantic and Kohlberg Kravis Roberts and Co. Because of its size, which limits potential buyers, TASC could be headed toward an initial public offering in the coming years. It could become a long-term independent player in the market.
4. GSA under a leadership vacuum
This was one of the sadder chapters of the past year. Martha Johnson, who sailed through the confirmation process at the committee level, now sits and waits.
Using the Senate’s arcane rules to his advantage, Sen. Kit Bond (R-Mo.) has put a hold on a full Senate vote on Johnson’s nomination. He wants assurances that a federal office building will be built in downtown Kansas City.
The timing is poor because Johnson’s nomination was hailed by many inside and outside GSA as just what the agency needed to continue its comeback as an efficient contracting partner for the rest of government.
In a time when the highest levels of government are pushing a variety of procurement initiatives, the lack of an administrator at GSA works against the best interests of the government.
5. Growing acceptance of cloud computing
As vendors address security concerns, it has become harder for agencies to deny the benefits of cloud computing, such as trimming costs, adding new services and increasing capacity.
No one expects an agency to put everything on the cloud, and a public cloud might not be the answer for many agencies. But the tide has turned in favor of cloud computing.
A big reason is the high-level support of White House officials such as Vivek Kundra, who, with the General Services Administration, opened a cloud computing storefront for agencies to easily purchase cloud services.
Many of the large systems integrators also have begun embracing the cloud as a line of business.
6. Contract protests
During the past few years, contract protests on losing bids have moved from being an unfavorable tactic to a common business tactic.
The huge Alliant contract was delayed nearly a year because of protests. GSA’s solution eventually was to award nearly all bidders a spot on the multiple-award contract.
The current poster child for protests is the Transportation Security Administration’s Information Technology Infrastructure Program. It was hit by protests at the downselect stage, and TSA let all bidders back in. More protests followed when TSA awarded the contract to Computer Sciences Corp.
Work on ITIP is on hold until the dispute is resolved.
One factor that breeds more protests, industry observers say, is that companies face little to no consequences for protesting. So why not protest?
7. Leadership changes
Two of the largest government contractors in the market will see leadership transitions in the coming year.
At General Dynamics Corp., Nicholas Chabraja turned over the chief executive title to Jay Johnson July 1. In May 2010, he will relinquish the chairman’s title.
Ken Dahlberg is following a similar path at Science Applications International Corp. Walter Havenstein became CEO in September, and in June 2010, Dahlberg will turn over the chairman’s role.
Both companies have planned transitions, but new leadership will undoubtedly bring new initiatives and goals for the companies.
8. Farewell, EDS
Hewlett-Packard erased one of the most storied names in the government and commercial markets this year when it dropped the EDS brand in favor of HP Enterprise Services.
EDS, known originally as Electronic Data Systems, was one of the creators of the market for outsourced IT services, particularly data centers. The name survived for 47 years, including a stint of ownership by General Motors.
But there are a lot of reasons for the change, such as creating a single company culture and presenting a single face to the market.
Dropping the name EDS also signaled that integration of the acquisition was over. It’s now time for the billions spent to start paying off.