Integrity of Procurement Compromised by the Government’s Misleading Statements
The Court of Federal Claims finds that the Department of State mishandled a procurement to construct an embassy compound in Maputo, Mozambique. During pre-award discussions, the Government informed one offeror that its price was above the Independent Government Cost Estimate ("IGE"). This statement proved false and was unfairly done to put pressure on the offeror to lower its price. This offeror ended up getting the award. A protest followed.
The Court held that the Government violated the fundamental requirement of fairness in the procurement process by misguiding the awardee that its price was above the IGE, when it was not:
The “technique” of misinforming an offeror that its price was high when in fact its price was low, and concomitantly misguiding that offeror about how “high” certain sub-elements were, is not a “price analysis technique or procedure” that meets the fundamental purpose of the FAR to ensure the “final price is fair and reasonable.” FAR 15.404-1(a)(1) Because the awardee’s price resulting from the erroneous discussion letter was not based upon reality or the offeror’s accurate understanding of its pricing status vis-à-vis the IGE, that price cannot be said to be “fair” or “reasonable.” Nor can such a price form the basis of an “adequate price competition” within the meaning of FAR 15.404-1, as one offeror’s price was influenced by erroneous, misleading discussions that were never corrected. As such, Plaintiff has established that the Agency violated the procedure in the FAR for assessing price reasonableness.
Given the Government’s misleading statements, the Court upheld the protest. The Court directed the Government to open discussions with the company that received the award, but not the other offerors. While normally when discussions are reopened for one offeror, they are reopen for all offerors, in this case the Court felt that allowing the awardee to change its price, but not others, was the appropriate remedy. In reaching this decision, the Court found that all other offerors were already given a fair opportunity to revise their offerors during discussions, and that they would be given an unfair competitive advantage if allowed to revise their pricing again since the awardee’s price and the IGE have now been publicly disclosed.
Bad Timing – Board Denies Claim Before “Handshake Settlement” is Finalized
In RELIABLE CONTRACTING GROUP, LLC (January 26, 2016) the Civilian Board of Contract Appeals ("Board") refused to vacate its decision denying a contractor's claim for providing back-up emergency generators. The Board denied the contractor's claim because the generators were not "new" and thus the contractor was responsible for procuring others at a higher cost. The Contractor appealed the Board's decision to the Federal Circuit. On appeal, the Federal Circuit remanded the case back to the Board to determine if damage to the emergency generators meant they were not "new."
While the Board was in the process of writing a decision on the contractor's claim in light of the Federal Circuit's instructions, the parties engaged in settlement discussions. On September 15, 2015, the parties reached a "handshake agreement" to settle the claim for $550,000. Before the parties could finalize this agreement and sign a written settlement agreement, the Board issued a decision denying the contractor's claim.
The contractor asked the Board to vacate or reconsider its decision given the parties' "handshake agreement." The Board refused to do so and allowed the judgment denying the contractor's claim to stand. This effectively meant that the VA owed the contractor nothing and the $550,000 "deal" was moot or off the table.
This is a case of bad timing. The Board noted that "it seems to us that to vacate our decision denying recovery, and then enter a
judgment in favor of Reliable for the stipulated amount of $550,000, where we have concluded that no recovery is due, would weaken the judicial process." The board blamed also blamed both parties "by waiting too long to settle the appeal."
This case illustrates the inherent risks in trying to settle a case while a decision is still pending before the Board. In retrospect, Appellant could have asked the Board to stay proceedings pending settlement discussions.
RELIABLE CONTRACTING GROUP, LLC (January 26, 2016)
Contractor’s Failure to Keep Accurate Cost Records Leads to Denial of Claims
In the Appeals of Vistas Construction of Illinois, Inc. ASBCA Nos. 58479, et al., (January 12, 2016), the Armed Services Board of Contract Appeals (“Board”) denied a contractor’s claims for additional work and delays involving a project to enlarge a levee in Jefferson Parish, Louisiana. The Board denied most of the claims for lack of adequate proof. The Board gave little weight to the contractor’s attempts to recreate what had occurred during contract performance by piecing together information during litigation.
The Board noted that the contractor’s method of “segregating costs between changed and unchanged work is a matter of considerable controversy.” Unfortunately, the contractor did not contemporaneously maintain records during contract performance, which separated costs for base contract work and costs for change order work. During litigation, the contractor tried to use its certified payrolls to prove costs for unchanged vs. changed work. The Board found this unconvincing, stating that the certified payrolls “do not describe what work, they do not identify the CLINs or the tasks performed by the worker that day, nor do they identify the equipment used.”
The contractor submitted Quality Control Reports (“QCRs”) during contract performance. The QCRs required the contractor to “to list the equipment used on the project on that day and to specify the operating and standby hours for each piece of equipment.” The contractor’s QCRs showed less equipment time than claimed by the contractor. The contractor explained this discrepancy by claiming the Government changed the manner in which the QCRs were to be provided. The Board did not buy this argument, finding that the contractor has not “identified any contemporaneous document where it protested or documented an alleged demand by the Corps to under report equipment hours.”
The Contractor sought a profit rate of 34.81% on change order work, while the Contracting Officer had only applied a 8.7% profit rate. The Contractor claimed that a 34.81% profit rate is more reasonable since it is in line with the profit rate the Contractor enjoyed on the base contract work. The Board denied the contractor’s claim, holding that the Contractor “has not demonstrated that it earned any profit on the unchanged work, and certainly has not demonstrated that it earned profit of 34.81%.”
The Contractor sought interest on borrowed money. The Board denied payment of interest on borrowed money as unallowable under FAR 31.205-20, "Interest and Other Financial Costs," which state that "Interest on borrowings (however represented) . . . [is] unallowable." The Board also noted that interest under the Prompt Payment Act only applies “when a payment is inadvertently late, not when the government refuses to pay or questions its underlying liability.” Since the Government had contested the Contractor’s invoices, Prompt Payment Interest did not apply either.
The Contractor sought consultant costs as allowable contract administration costs. The Board held that if the consultant costs were incurred “for the purpose of materially furthering the negotiation process, the cost normally is allowable under FAR 31.205-33 as a contract administration cost even if the negotiation ultimately fails. On the other hand, if the cost is incurred to promote the prosecution of a claim, then the costs are unallowable.” To determine whether costs are allowable as contract administrative costs or unallowable claim prosecution costs, the Board noted that FAR § 31.205-33(f) requires adequate records of the nature and scope of service furnished evidenced by:
- Details of all agreements (e.g., work requirements, rate of compensation, and nature and amount of other expenses, if any) with the individuals or organizations providing the services and details of actual services performed;
- Invoices or billings submitted by consultants, including sufficient detail as to the time expended and nature of the actual services provided;
and - Consultants' work products and related documents, such as trip reports indicating persons visited and subjects discussed, minutes of meetings, and collateral memoranda and reports.
Based on the above evidentiary requirements, the Board awarded consultant fees spent on responding to a Government audit, but denied other consultant fees. The Board also refused to award the cost of the contractor’s employees as “professional or consultant fees” because FAR 31.205-33(a) states that professional and consultant services do not include officers or employees of the contractor.
This case illustrates the importance of keeping accurate and current records during contract performance.
Appeals of Vistas Construction of Illinois, Inc. ASBCA Nos. 58479, et al., (January 12, 2016)
