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Understanding Government Contract Law 2nd Edition
Terrence M. O'Connor (Author)
Publication date: 11/13/2018
The book breaks down the complex arena of government contract law into its three most basic parts: the contracting parties, the contract itself, and legal challenges. It begins by examining key aspects of the contracting officer's job and provides guidance for navigating its different and often conflicting demands. The government contractor's responsibilities and challenges are also outlined.
Government contracts come in a lot more varieties than the typical commercial contract, and they also tend to be long and confusing. The second part of the book introduces the different types of legal agreements the government uses to buy the goods and services it needs—and addresses the challenges of writing a perfectly clear contract and guidelines for interpreting an ambiguous one. The book concludes with an overview of the government contract litigation process.
This is an essential text for students preparing to do the work of government contracts, an indispensable guide for those new to the work, and a valuable reference for contracting personnel who seek solutions to specific issues they face in their day-to-day work.
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The book breaks down the complex arena of government contract law into its three most basic parts: the contracting parties, the contract itself, and legal challenges. It begins by examining key aspects of the contracting officer's job and provides guidance for navigating its different and often conflicting demands. The government contractor's responsibilities and challenges are also outlined.
Government contracts come in a lot more varieties than the typical commercial contract, and they also tend to be long and confusing. The second part of the book introduces the different types of legal agreements the government uses to buy the goods and services it needs—and addresses the challenges of writing a perfectly clear contract and guidelines for interpreting an ambiguous one. The book concludes with an overview of the government contract litigation process.
This is an essential text for students preparing to do the work of government contracts, an indispensable guide for those new to the work, and a valuable reference for contracting personnel who seek solutions to specific issues they face in their day-to-day work.
Chapter 1
The Contracting Officer as Judge
Three Simple Rules for Always Being Fair and Reasonable
Being Fair and Reasonable in Awarding a Government Contract
Being Fair and Reasonable in Administering a Government Contract
What kind of relationship is a contracting officer supposed to have with a contractor?
FAR 1.602-2(b) answers this critical and fundamental question this way: a contracting officer is supposed to “ensure that contractors receive impartial, fair, and equitable treatment.”
In effect, this FAR provision adds black robes to the contracting officer’s wardrobe by making the contracting officer a judge. A judge’s decisions should be fair and reasonable, and they should be reached independently—without bias or pressure from someone else. As a judge, the contracting officer is not supposed to advocate for the government; that is, they are not driven by saving the government time or money or by making the process easier on the government. All decisions a contracting officer makes—those in the solicitation process and those in the contract administration process—have to be, first and foremost, fair and reasonable.
In the first section of this chapter, we will look at what this vague phrase means in day-to-day procurement. In trying to make this phrase understandable, we next look at the contracting officer’s duty to be fair and reasonable from three perspectives. We will discuss general rules for how a contracting officer can be fair and reasonable. We will next look specifically at what it means to be fair and reasonable in the contract award process and after that, in the contract administration process.
In addition to being fair and reasonable, a contracting officer should reach decisions independently. Just as judges should not be pressured into making decisions that are not truly their own, the decisions of a contracting officer should be their own opinion. So in the last section of this chapter, we will look at what makes a contracting officer an independent decision maker.
A “FAIR AND REASONABLE” JUDGE
The requirement in FAR 1.602-2(b) that a contracting officer must “ensure that contractors receive impartial, fair, and equitable treatment” is too vague to be of any real help in the day-to-day life of a contracting officer working with contractors. So it is not surprising that there is little law on what this FAR provision means.
Fortunately, laws passed by Congress—statutes—and decisions handed down by courts—case law—give the contracting officer a lot more guidance. One federal law gives the U.S. Government Accountability Office (GAO) the right to review decisions a contracting officer makes in the solicitation process.1 The GAO’s test of the contracting officer’s actions is rationality or reasonableness, so good examples of what fair and reasonable means come from GAO decisions.
Other federal laws make courts the judge of whether a contracting officer’s decision is reasonable.2 In legalese, courts ask whether a contracting officer’s decision was “arbitrary and capricious.” Thus, good examples of what fair and reasonable means come from court decisions dealing with the “arbitrary and capricious” test.
What does this almost clichéd phrase “arbitrary and capricious” mean? It means that a contracting officer must use a reasonable way (process) to reach a reasonable decision (substance).
To determine whether or not a contracting officer’s decision is arbitrary and capricious, precedent says that the contracting officer must consider “relevant data and provide a coherent and reasonable explanation of” the decision.3
When you think about it, having a contracting officer act reasonably can be both a blessing and a curse. It can be a blessing as it acknowledges that, in procurement, there is not only one decision that is the right decision. Courts use the phrase “zone of reasonableness” to show this.
For example, if you are buying a car to use in a neighborhood car-pool, it would be reasonable for you to buy an SUV, a minivan, or a six-passenger sedan. Each vehicle is in the “zone of reasonableness.” But it would be unreasonable to buy a two-seater sports car or a large bus. If a contracting officer chose a six-passenger sedan for a carpool vehicle, a judge who might have chosen an SUV for their carpool would have a hard time finding the contracting officer’s decision unreasonable. In a sense, the reasonableness test makes judges leave their personal preferences at home.
That’s the way the founding fathers wanted it. Under the theory of separation of government power, Congress (the legislative branch of government) has told judges (the judicial branch) to let the procurement people (the executive branch) do their job. Courts will generally defer to an executive branch decision, even if a particular judge might not agree with it and might prefer a different decision, as long as the contracting officer’s decision is “reasonable.”
If the court finds a reasonable basis for the agency’s action, the court should stay its hand even though it might, as an original proposition, have reached a different conclusion as to the proper administration and application of the procurement regulations.4
So, it’s a blessing that a court won’t force a contracting officer to follow a judge’s personal belief.
But “reasonable” is also a curse. First, it seems too vague to work with as a practical matter. Aren’t we all reasonable? Or, at least, aren’t we reasonable? (It’s usually the other person who isn’t being reasonable, right?) It is hard for everybody to agree on what is reasonable and what is not. Second, people always have a reason for doing something. By this logic, isn’t everything, therefore, automatically reasonable? It’s at this point that the apparently redundant word “good” has to be added to “reason.”
Although there might be gray areas allowing reasonable people to disagree, sometimes a contracting officer’s decision is clearly unreasonable, whether the decision is made in the solicitation process or in the administration process.
Three good rules for reasonable decisions can be found in the decisions of the courts, boards, and GAO.
Three Simple Rules for Always Being Fair and Reasonable
Rule 1: To be reasonable, the contracting officer’s decision must be in writing.
One of the surest ways for a contracting officer to be found “unreasonable” is to make an important decision and have nothing in writing to explain it. According to GAO:
It is able to assess the reasonableness of an agency’s source selection process only where adequate documentation of that process exists. Without such documentation, we cannot be certain that the agency action was not arbitrary.5
The Defense Logistics Agency (DLA) sent out Requests for Quotations (RFQ) for sheet metal. The low bidder lost the best value award, protested, and won. There was no documentation showing that the contracting officer had performed any kind of analysis comparing the vendors with respect to which vendor was the best value.6
Without documentation, a contracting officer’s decision is unreasonable.
Rule 2: To be reasonable, the contracting officer’s written decision must show that the contracting officer actually thought about the decision instead of making a thoughtless, knee-jerk decision.
One judge made this point nicely when he said, “Procurement officials must use judgment . . . ; they cannot act as ‘automatons.”’7
A construction contractor asked the government to allow it to substitute “in the public interest,” as allowed by a contract clause, an item not in the specification. The contracting officer refused to even consider alternatives, insisting on the contractor’s following the specification. A court concluded that the contracting officer’s decision to reject the substitution without considering the alternatives the contractor had presented was arbitrary and capricious.8
Rule 3: To be reasonable, the contracting officer’s written, thoughtful decision must follow the rules for making a decision.
FAR gives good advice here. For example, a contracting officer’s decision on who won a contract should follow the rules in FAR 15.308:
The source selection decision shall be documented, and the documentation shall include the rationale for any business judgments and tradeoffs made or relied on by the SSA [Source Selection Authority], including benefits associated with additional costs.
A contracting officer’s documentation on a contract award has to compare the pros and cons of the offers.
The Department of Veterans Affairs issued a best value solicitation for prescription glasses. Classic scored 180 and Opti-Lite scored 170. The award memorandum that the contracting officer prepared concluded that Classic should get the contract because it had the highest combined total score. GAO sustained Opti-Lite’s protest. The contracting officer’s documentation had to include the rationale for any trade-offs made, including the benefits associated with additional costs. “It is improper to rely, as the agency did here, on a purely mathematical price/technical trade-off methodology. Because there was no qualitative assessment of the technical differences between the two proposals, the award was improper. Without this assessment, there was no way to determine whether Classic’s technical superiority justified the cost premium involved.”9
In addition to these general rules, there are specific rules for being reasonable in each of the two phases of government contracting—the contract solicitation phase and the contract administration phase.
Being Fair and Reasonable in Awarding a Government Contract
The contracting officer must reasonably carry out every step in the solicitation process. From the start of the solicitation process (drafting the solicitation, getting it out on the street, receiving bids or offers, and evaluating them) to the end of the solicitation process (choosing the winner and deciding whether or not the winner is responsible), the contracting officer must be fair and reasonable.
For example, a losing vendor can challenge the contracting officer’s use of a firm fixed-price contract instead of a cost-reimbursement contract or the use of a negotiated procurement instead of a sealed bid process. The test for the contracting officer is “How reasonable was the choice I made?”
Although the solicitation process has many steps, the four steps that bring the most vendor complaints are as follows.
1. Competition—was it full and open?
2. Discussion—were the discussions the contracting officer had with those vendors in the competitive range of a negotiated procurement “meaningful”?
3. Evaluation—did the contracting officer or evaluation panel fairly evaluate the proposals?
4. Award—did the contracting officer choose fairly in picking the winning contractor?
We will look more closely at these four problem areas in the solicitation process. In doing so, we will look at the decisions of GAO and the courts to determine whether or not the contracting officer’s decision was reasonable.
Fair Competition
“Full and open competition” is the law as per the Competition in Contracting Act (CICA).10 This law is carefully monitored by GAO and the Court of Federal Claims (COFC), both of which review how a contracting officer carries out CICA.
A common example of competitions that are not fair and reasonable is a sole-source procurement. In these “non-competitions,” the contracting officer concludes that only one source can provide what the government needs, and so the contracting officer does not conduct a full and open competition.
However, sometimes the contracting officer can only do a sole-source procurement. To be fair and reasonable, a contracting officer’s sole-source justification must make sense and must have the proper paperwork to prove it. Confusion and bad documentation can sink a contracting officer’s sole-source justification.
The Defense Supply Center Columbus (DSCC) announced that it intended to buy metal tubing on the sole-source basis from the original equipment manufacturer (OEM), Specialized Metals, because that company was the only responsible source for the tubing. But the user agency had trouble establishing exactly what the piping was used for. DSCC said the piping was used for “certifying welders” and for other purposes, but the user agency didn’t know what those uses might be. There were also problems with the paperwork backing up the sole-source decision. The contracting officer used a justification and approval (J&A) form that was pre-printed, so all the contracting officer could do was to check various boxes.
GAO said the contracting officer’s sole-source decision was unreasonable: the J&A was “inadequate consisting of only a check mark entered on statements on a pre-existing form. There is no explanation or justification to support the check mark entered. . . . DSCC is essentially accepting at face value the requiring activity’s assertion that this particular product is the only one that will meet their needs. . . . there also appears to be unquestioning acceptance by DSCC, the requiring activities, or both, of the OEM’s apparent insistence that its product is unique in ways that are essential to its function but cannot be revealed.” GAO sustained the protest.11
Perhaps the most important part of this decision is GAO’s criticism of the contracting officer’s thought process. GAO said there was no indication that the “contracting officer ever questioned why the item was needed or when information could be obtained from the OEM.” As GAO stated plainly: “The DSCC is requiring absolute adherence to unknown parameters which may or may not be necessary to satisfy the government’s actual need.” It concluded that contracting officers “cannot take a docile approach and remain in the sole source situation when they could reasonably take steps to enhance competition. The agency cannot blindly rely on statements to justify a blanket rejection of any alternative part submitted without the OEM’s technical data.”
Notice, however, that it is fair and reasonable for a contracting officer to significantly limit competition when human safety is involved. When procurements for a unique agency requirement involve human safety—such as building security at the Pentagon—the government clearly has the right to set high security requirements, regardless of whether or not some or many vendors are excluded because they can’t meet the high requirement.
The government needed security services at the Pentagon and other DOD facilities in the Washington, D.C., area. Its request for proposals (RFP) set security requirements and standards much more strenuous than those of the existing contract. These higher standards were required by the events of 9/11. One of the requirements was that the winning contractor would have to have an interim secret facility clearance prior to the closing date of the RFP. DOD was concerned about the lengthy process involved in getting clearances and the possibility that the potential winner of the contract would ultimately not get the clearance. Although these requirements were high, the agency still received 16 offers. A protest about how limited the contracting officer had made competition was denied. GAO held that an agency has broad discretion in deciding what its needs are. And the agency has even more discretion when human safety is involved. “Where a requirement relates to national defense or human safety, as here, an agency has the discretion to define solicitation requirements to achieve not just reasonable results, but the highest level of reliability and effectiveness.”12
Fair and Meaningful Discussions
One of the more difficult and protestable jobs a contracting officer has in the solicitation process is making sure that the discussions with vendors in the competitive range are fair and reasonable. In other words, are these discussions “meaningful”?
In plain English, FAR says a contracting officer’s job here includes a “must,” a “must not,” and a “maybe.”
FAR 15.306(d)(3) gives the legalese for the “must” and the “maybe.”
At a minimum, the contracting officer must . . . indicate to, or discuss with, each offeror still being considered for award, deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond. The contracting officer also is encouraged to discuss other aspects of the offeror’s proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award. However, the contracting officer is not required to discuss every area where the proposal could be improved. The scope and extent of discussions are a matter of contracting officer judgment.
The “must.” At a minimum, a contracting officer must discuss “deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond.”
The “maybe.” The contracting officer “is encouraged to discuss other aspects of the offeror’s proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award. However, the contracting officer is not required to discuss every area where the proposal could be improved. The scope and extent of discussions are a matter of contracting officer judgment.”
The “must not.” FAR 15.306(e) describes what a contracting officer cannot do. A contracting officer must not, for example, favor one offeror (i.e., competing vendor) over another, reveal “an offeror’s technical solution, including unique technology, innovative and unique uses of commercial items, or any information that would compromise an offeror’s intellectual property to another offeror”; or reveal “an offeror’s price without that offeror’s permission.”
It’s the “maybe” that gives a contracting officer the most problems. FAR gives contracting officers a lot of discretion or freedom in deciding how to carry out discussions with those in the competitive range. But this broad discretion is not unlimited. At some point, a contracting officer can abuse this discretion.
Good examples of a contracting officer’s not having meaningful discussions come from GAO decisions. Notice that GAO sees “meaningful discussions” as being slightly different from the FAR requirement but certainly consistent with FAR’s emphasis on fairness: discussions cannot be misleading or inadequate:
It is a fundamental precept of negotiated procurements that discussions, when conducted, must be meaningful; that is, discussions may not mislead offerors and must identify deficiencies and significant weaknesses in each offeror’s proposal that could reasonably be addressed in a manner to materially enhance the offeror’s potential for receiving award.13
So, in GAO terms, misleading and/or inadequate discussions violate the requirement that the contracting officer have “meaningful discussions” with offerors who are in the competitive range of a negotiated procurement. By conducting misleading or inadequate discussions, a contracting officer would be unreasonable.
Before looking more closely at what makes discussions misleading or inadequate, some general rules apply.
According to GAO, a contracting officer is not required:
• To advise an offeror of a minor weakness that is not considered significant, even if the weakness subsequently becomes a determinative factor in choosing between two closely ranked proposals.14
• To disclose deficiencies still remaining in the offeror’s proposals or to conduct successive rounds of discussions until omissions are corrected.15
But a contracting officer is required:
• To tell an offeror that its proposal would have to be fundamentally altered to be acceptable.16
• To say more than simply that an offeror has to “review [proposed labor hours] and revise if necessary” when those hours were substantially less than the government estimate and to discuss the disparity of prices from the undisclosed government estimate.17
Misleading Discussions
GAO has described how a contracting officer can have misleading discussions:
An agency may not, through its questions or silence, lead an offeror into responding in a manner that fails to address the agency’s actual concerns; may not misinform the offeror concerning a problem with its proposal; and may not misinform the offeror about the government’s requirements.18
Here’s a great description of what GAO considered misleading discussions:
The protester was encouraged to reduce its price during discussions and, after it did so, its price in its best and final offer was evaluated as so “unrealistically low [as to] evidence a lack of understanding. . . .” In [this case] not only had the agency failed to inform the protester that its pricing was already viewed as unrealistically low, but the agency had advised the protester that its pricing was rather high and encouraged the firm to review its proposal for additional savings.19
Inadequate Discussions
The second test of fair and reasonable discussions is how adequate the discussions were. A contracting officer has to “point out weaknesses that, unless corrected, would prevent an offeror from having a reasonable chance for award.”20
Discussion of Proposed Personnel
When discussing personnel as proposed by an offeror, the contracting officer does not have to discuss the experience, or lack thereof, of all proposed personnel as long as they give the offeror a chance to discuss the experience of key personnel.
A Treasury Department solicitation for financial crimes investigative services made key personnel the second most important technical factor. The government asked Base Technologies, Inc., about only BTI’s key personnel and not all personnel BTI had proposed. GAO denied the protest: “Here, even assuming that the agency did not reasonably apprise BTI during discussions that its proposal would be downgraded if the proposed personnel did not have law enforcement or extensive years of experience, this weakness related only to BTI’s ability to achieve a maximum score under this subfactor, and did not prevent BTI from having a reasonable chance for award. Thus, discussions were not required to be conducted with BTI on this point.”21
What would constitute inadequate discussions of personnel? Another GAO decision gives two examples:
Instruction to offerors to “review [proposed labor hours] and revise if necessary” did not constitute meaningful discussions of a deficiency that the proposed hours were substantially less than government estimate where the agency’s evaluation and discussions did not provide for offerors to explain deviations from the undisclosed government estimate; . . . and it was unreasonable for an agency not to hold discussions on disparity between proposals and an undisclosed government estimate.22
Discussion of Price
FAR gives a contracting officer more advice on how much the contracting officer can say during price discussions. According to FAR 13.306(e) (3), the contracting officer may tell one or all of the offerors how the government developed its own price estimate:
The contracting officer may inform an offeror that its price is considered by the Government to be too high, or too low, and reveal the results of the analysis supporting that conclusion. It is also permissible, at the Government’s discretion, to indicate to all offerors the cost or price that the Government’s price analysis, market research, and other reviews have identified as reasonable.
GAO also says that the issue is not whether a price is too high but rather whether it is unreasonable:
With regard to the adequacy of discussions of price, an agency generally does not have an obligation to tell an offeror that its price is high, relative to other offers, unless the government believes the price is unreasonable.23
One easy but unacceptable solution to this dilemma is to be vague and not be precise—to tell an offeror with a high price a vague cliché such as “sharpen your pencil.”
After Creative Information Technology, Inc. (CITI) submitted an initial offer of over $110 million, with the prices of other offerors ranging from a low of $15 million to a high of $167 million, all the agency told CITI was that its proposed price was “overstated . . . please review your revised price/cost proposal.” CITI revised its offer down to approximately $89 million. The next highest price was $38 million, with the lowest being $10 million. The independent government cost estimate (IGCE) was $13,062,405.60. GAO said that “agencies must impart sufficient information to afford offerors a fair and reasonable opportunity to identify and correct deficiencies, excesses or mistakes in their proposals. . . . CITI could not be reasonably expected to have understood the true nature and magnitude of the agency’s concern with its proposal based upon the information provided by the Army during its discussions with CITI, thus rendering those discussions essentially meaningless.”24
Fair Evaluation of Proposals
“Fair and reasonable” is also the rule for evaluating proposals.
GAO spells out exactly how it decides whether the evaluation of a proposal by the contracting officer is fair and reasonable:
We will not reevaluate [proposals] but instead will examine the agency’s evaluation to ensure that it was reasonable and consistent with the solicitation’s stated evaluation factors and applicable statutes and regulations.25
Notice that this standard assumes that there is documentation. Such documentation is often called the supporting record. In a previous section, we discussed how the lack of documentation often shows that the contracting officer has not been fair and reasonable.
A “reasonable” evaluation process cannot involve a “mechanical” thought process, which is one that really has no thought process. GAO applies the “mechanical” label to agency decisions that show little or no thought.
Notice also what GAO will not do during its review: reevaluate proposals. It will not reevaluate proposals because evaluating the proposal is the agency’s job. Instead, it takes the agency’s evaluation and asks three questions.
Question 1. Did the scoring system used by evaluators and the final evaluation itself pass “the laugh test”?
In other words, are both the process and the result of the process reasonable on their face?
Although a contracting officer generally has the right to decide how to evaluate the proposals of offerors, the evaluation must be “reasonable.” An evaluation process that considers a contractor’s past performance on irrelevant contracts is unreasonable.
An Air Force solicitation promised offerors that the Air Force would review their “relevant” present and recent past performance. United Paradyne Corporation (UPC) lost the contract and protested to GAO arguing that the evaluation process was unreasonable and won. The Air Force’s scoring system was flawed. It considered all of an offeror’s prior contracts, including those that were not relevant. For example, the Air Force rated one of UPC’s contracts 0 out of a maximum score of 60 for relevance; this score of zero was used to calculate an average score for past performance. To GAO, the Air Force’s past performance scoring process “was unreasonable because it had the effect of penalizing offerors with relevant experience such as UPC . . . for their non-relevant experience. . . . In UPC’s case, for example, the protester’s performance on the predecessor contract to the effort solicited here, for which it had received a relevance score of 60 of 60, was given the same weight in the computation of its past performance score as its performance on” the irrelevant contract for which it had received 0 out of 60 points.26
It is also unreasonable to not evaluate all price elements.
A General Services Administration (GSA) solicitation for repairs and alterations to government buildings told offerors it would evaluate only the mark-up rates for contractor overhead, general and administrative costs, bonds, insurance, other indirect costs, profits, and other fees that the offeror would use for pricing the projects. Other cost-price factors like the number of labor hours proposed and the cost of materials would not be evaluated. GAO found that the solicitation violated FAR’s requirement that cost or price to the government be evaluated in all procurements. “Considering only mark-up rates fails to represent the agency’s best estimate of the likely relative cost to the government of the proposals competing for umbrella contracts.”27
And it is unreasonable to make “mechanical” evaluations.
One evaluation factor Federal Emergency Management Agency’s (FEMA) used to evaluate proposals for lodging services was an offeror’s staffing plan. Its evaluation compared those plans to an internal FEMA estimate that had not been disclosed to the offerors. Although FEMA told offerors their staffing plans were inadequate, it gave no additional information. GAO found the evaluation to be mechanical and improper. The agency apparently did no analysis of each of the staffing categories. Instead, it improperly compared—mechanically—an offer-or’s total staffing to the government’s total staffing estimate.28
A past performance evaluation team (PPET) decided that it would give the highest rating to any offeror with all relevant past performance it found to be “very relevant” with “exceptional” quality ratings. Any other combination of relevancy and quality would automatically be scored lower. Applying this rule, the PPET gave the highest rating to an offeror who submitted only two references which the PPET rated as very relevant/exceptional. The PPET, however, mechanically rated lower an offeror who provided more references but not all were very relevant/exceptional despite being well qualified: two rated very relevant/exceptional, one rated very relevant/very good, and two rated relevant/exceptional. GAO found the past performance evaluation to be mechanical.29
An unreasonable way of carrying out a reasonable evaluation process is to score the best offer as the worst one and the worst one as the best. According to GAO:
In a best value evaluation looking for the best building for the government to lease, and using a scoring system in which the better proposal was to get more points, an agency evaluated what clearly was the highest quality building and gave it a low score but gave a high score to a clearly inferior building.30
On its face, such a backward scoring system was laughable, or in the polite prose of GAO, not reasonable.
Question 2. Did the contracting officer actually use only the evaluation factors they said they would?
To be reasonable, contracting officers must follow the evaluation rules they set in the solicitation and also make sure that the evaluators do so as well. According to GAO:
An agency may not induce offerors to prepare and submit proposals based on one premise, then make source selection decisions based on another. Accordingly, once offerors are informed of the evaluation criteria against which proposals will be evaluated, the agency must adhere to the stated criteria or inform all offerors of all significant changes.31
In this case, a solicitation said that the contracting officer would evaluate proposals on a pass/fail basis. But in the actual evaluation, the government awarded additional points based on how well proposals met the requirements.32
Question 3. Did the evaluators follow the law, statutes, and regulations?
There should be no need to explain this question. It’s unreasonable for evaluators to not follow the law; this includes the FAR regulations applicable to the evaluation process. A good example of this is the previous case (ending in footnote 27) about the GSA solicitation for repairs and alterations to government buildings.
If these three questions can be answered positively, then the evaluation of solicitations is generally reasonable (however, there are always exceptions).
Fair and Reasonable in Winner Selection
We’ve already mentioned several ways the contracting officer’s award decision can be unreasonable, like a “paperless” decision or a knee-jerk decision. These unreasonable actions are often found in the contracting officer’s selection of the winning vendor. And in best value decisions, there’s a third way—an improper trade-off decision.
Mechanical Decision-Making Process
As we mentioned, one of the biggest mistakes contracting officers can make is failing to show that they have a well-thought-out decision.
In a best value procurement, a contracting officer has to decide which offer is the best deal for the government. This assumes the contracting officer thinks about it. A contracting officer who simply says, “A proposal that scores 95 is higher than a proposal that scored 90, so I’ll select the proposal that scored 95” is not thinking. While the number 95 is higher than 90, a score of 95 and a 90 might be considered technically equal. This decision-making process is too mechanical.
The Department of Veterans Affairs issued a solicitation for prescription glasses. Classic Optical Laboratories Inc. submitted the top-rated technical proposal and the second lowest price. When the scores were added, Classic scored 180 and Opti-Lite scored 170. The contracting officer gave Classic the contract because it had the highest combined total score. GAO said this was unreasonable. “The [contracting officer’s] decision was based on a purely mechanical application of the numerical scores for the technical factors and price. . . . The contracting officer’s [decision] provided only the total technical and price scores for the proposals evaluated and in each instance stated that the total score for technical and price would determine the final ranking of vendors and award.”33
After the Air Force evaluated 22 offerors based on two best-value trade-off award factors: performance confidence and price, it awarded contracts to all 12 offerors it evaluated to have substantial performance confidence. The other 10 offerors evaluated to have satisfactory confidence, limited confidence, no confidence, or unknown confidence won no contracts even though one had the third lowest price. The Air Force’s award decision conceded that it awarded contracts based on those offerors with substantial performance confidence: “While some of the Offerors with Satisfactory confidence ratings may appear to provide a price discount as compared to some of the Offerors rated Substantial, it is my judgment that awarding a contract to an offeror with Satisfactory confidence introduces performance risk” justifying no award to them.
GAO sustained the protest. The SSA had made an unwarranted, mechanical “class” division between those who received satisfactory and substantial confidence ratings and awarded contracts only to those who received substantial confidence ratings, and ignored the significant price differences among the offerors.34
No Documentation
FAR 15.308 clearly describes what the paperwork on an award decision should look like:
The source selection decision shall be documented, and the documentation shall include the rationale for any business judgments and trade-offs made or relied on by the SSA, including benefits associated with additional costs.
Details show the reasonableness of a decision. When the contracting officer explains why a vendor is “the best value,” they must say why. Contrary to the cliché, in procurement there’s no “devil in the details.” If there are no details, the contracting officer may well lose a protest.
The USDA Forest Service scored proposals on the basis of a maximum possible 160 points. The higher-priced proposal scored 134, while Shumaker Trucking and Excavating Contractors, Inc., scored 93. GAO said the Forest Service’s decision document was inadequate. One paragraph simply pointed out the large point spread between the scores of the technical proposals of the two competitors. A second paragraph gave the contracting officer’s opinion that the additional cost “is justified based on the superior scoring on past performance and technical approach.” That was it. To GAO, this wasn’t enough. The agency had focused on the higher technical score “without discussing what, if anything, the spread between the technical scores actually signified. The record contains no evidence that the agency compared the advantages of the awardee’s proposal to those of Shumaker’s proposal, or considered why any advantages of the awardee’s proposal were worth the approximately $400,000 higher price. In this case, the Forest Service’s trade-off was inadequate because its mechanical comparison of the offerors’ point scores was not a valid substitute for a qualitative assessment of the technical differences between the offerors.” 35
Unreasonable Trade-offs
It’s okay for the government to pay more money for a better value as long as the solicitation warns vendors that the government intends to do that. The tough question is this: How much more is too much more? There is a point where it would be unreasonable for the contracting officer to pay more. But where is it?
FAR 15.101-1(b)(2) says that the government must tell offerors how important price will be, compared to the technical factors, in the award decision:
The solicitation shall state whether all evaluation factors other than cost or price, when combined, are significantly more important than, approximately equal to, or significantly less important than cost or price.
A contracting officer has more discretion to pick a higher technically scored proposal if the solicitation makes those factors significantly more important than price.
Here are some examples of successful trade-offs based on GAO decisions:
• An agency was justified in paying 16 percent more when a technical proposal of the winner scored 55 percent higher. (Technical factors were significantly more important than price.)36
• An agency was justified in paying 4 percent more for a proposal that scored 16 percent higher. Price was equal in importance (50 percent) to the combined eight technical factors (50 percent).37
• An agency properly awarded a lease to an offeror whose technical score was 119 and price was $18.40 sq/ft as opposed to another offeror’s price of $12.95 sq/ft with a technical score of 99 points, because technical factors were significantly more important than price.38
The contracting officer can still award a contract to the lower-priced, lower-scored proposal if the agency paperwork justifies it. Doing so, however, is tricky. Contractors often believe that a solicitation in which “technical factors are more important than price,” prevents the government from awarding a contract to a lower-priced, lower technically rated proposal. That’s not true. The so-called “quality/price” trade-off in this situation is often done, but it must be done carefully and documented carefully to be successful.
GAO gives the following guidance for selecting the lower-priced, lower-rated proposal:
Where cost is secondary to technical considerations under a solicitation’s evaluation scheme, as here, the selection of a lower-priced proposal over a proposal with a higher technical rating requires an adequate justification, i.e., one showing the agency reasonably concluded that notwithstanding the point or adjectival differential between the two proposals, they were essentially equal in technical merit, or that the differential in the evaluation ratings between the proposals was not worth the cost premium associated with selection of the higher technically rated proposal. Where there is inadequate supporting rationale in the record for a decision to select a lower-priced proposal with a lower technical ranking notwithstanding a solicitation’s emphasis on technical factors, we cannot conclude that the agency had a reasonable basis for its decision.39
Here’s a good example of properly selecting a lower-priced, lower-rated proposal:
In a HUD procurement involving CitiWest and Tidewater, Tidewater received a score of 100 points and CitiWest got a score of 90. CitiWest’s cost, however, was 15 percent lower. HUD concluded that the 10-point spread in technical proposals did not merit paying 15 percent more and awarded the contract to the lower-rated, lower-priced proposal of CitiWest. GAO said that HUD’s documentation justified the decision. An agency may select a lower-priced, lower technically rated proposal if it decides that the cost premium involved in selecting a higher-rated, higher-priced proposal is not justified, given the acceptable level of technical competence available at the lower price.40
Here’s an example of this lower-priced, lower-rated trade-off done incorrectly—paying more for slower delivery. Providing a faster delivery only in the short run is unreasonable.
The government wanted 16,000 military steel rings to be delivered at the rate of 3,000 a month, with the first delivery of 3,000 delivered as soon as possible, but no later than within 165 days. Badger Truck Center won, offering the first 3,000 in 150 days but only 1,800 a month after that. A competitor, Novex Enterprises, could deliver the first 3,000 in 165 days, only 15 days after Badger’s initial delivery, and could then deliver the government-required 3,000 rings per month after that. Novex’s price was lower than Badger’s. GAO concluded that Badger’s offer failed the “reasonableness” test: “except for the initial quantity, Novex’s proposed delivery schedule, which would be completed in 315 days (initial delivery in 165 days and five deliveries at 3,000-unit rate every 30 days), was significantly better than Badger’s, which would not be completed until 390 days (initial delivery in 150 days and eight deliveries at 1,800-unit rate every 30 days).”41
Being Fair and Reasonable in Administering a Government Contract
Where does it say that a contracting officer has to be fair and reasonable in administering a contract? To be exact, FAR says it expressly in several places and case law holds that it is implicit in every contract. Both still demand that the three basic rules of “fair and reasonable” apply: that the contracting officer will think through a decision, write it down, and explain why they have reached the decision they are making.
FAR Provisions
One of the most interesting developments in the twenty-first century for government contracting has been the expanded use of these FAR provisions by offerors and contractors and the application of these FAR provisions by courts.
Several FAR provisions establish an express duty on the government to be fair in both the contract solicitation process and the contract administration process.
As discussed above, according to FAR 1.602-2(b), a contracting officer must “Ensure that contractors receive impartial, fair, and equitable treatment.” In addition, regarding the solicitation process, government personnel involved in an acquisition “shall not engage in conduct that . . . favors one offeror over another” as per FAR 15.306(e)(1). And in the contract administration process, FAR makes numerous references to an “equitable adjustment.”
These regulations are enforceable by offerors and contractors.
In requesting offerors to clarify aspects of their proposals, the Veterans Administration (VA) allowed the initial awardee, LMC, to so modify its proposal that it became compliant with the solicitation requirements. “Although the VA’s request for clarification was reasonable, it acted in a manner that was arbitrary and capricious by allowing LMC to rewrite its proposal so that it would conform to the requirements of the solicitation.”42
A rare example of the government procurement personnel acting in bad faith involved their backdating of documents involved in a bid protest.
At the heart of any protest are the documents the agency submits to the court to show how the agency made the decision being protested. EPA’s document submittal justifying its termination and eventual cancellation of a contract award had several problems. The contracting officer’s Determination and Findings (D&F) document explaining why EPA terminated the original contract for convenience had not been prepared at the time of the termination for convenience in March 2013. According to the court, the contracting officer “rather than admitting that she did not prepare the document required by her supervisor, attempted to cure her oversight by preparing, after consultation with her supervisor, a draft Determination and Findings document.” The contracting officer dated the D&F “March 11, 2013” even though she had actually signed it in January 2014. Perhaps worse yet, the backdated document was also not accurate because it incorrectly claimed that the solicitation had been canceled because EPA’s soil remediation needs could be met by existing contracts.
Another problem with the EPA submittal was that the contracting officer’s supervisor certified to the court that she had carefully reviewed all documents including the D&F being submitted to the court. Not only had she not done so; she “knew or should have known” according to the court that one of the submitted documents, the D&F, had been backdated.
The court concluded that both the contracting officer and her supervisor had acted in “bad faith in preparing and approving the inaccurate, backdated Determination and Findings document, and in including that inaccurate, backdated document as part of the supplemental administrative record that they knew would be filed with the court.” The court also concluded that the contracting officer’s supervisor “acted in bad faith by falsely certifying that she carefully reviewed the supplemental administrative record and that the record was an accurate representation of the EPA’s actions relevant to the protest.” The court made EPA pay protester’s attorney’s fees and expenses it incurred to address that conduct and made EPA pay a $1,000 penalty.43
In another case, a court found that a contracting officer had violated FAR 1.602 because the contracting officer had looked at only the government’s side of a claim and not the contractor’s:
The contracting officer had not examined the contractor’s daily reports, submitted in support of this claim, but rather reviewed only the inspector’s daily logs before making his decision to deny the delay claim. The court cannot countenance the CO’s admitted failure to give any consideration at all to Sergent’s arguments and exhibits. By reviewing only the records produced by the government, he failed to fulfill his duty to be unbiased and impartial.44
A contracting officer may terminate, based on FAR 1.602-2, a recently awarded contract for convenience upon discovering that the specification did not adequately describe the government’s work.
If . . . a contracting officer discovers that the bid specifications inadequately describe the contract work, regulations promulgated under CICA may compel a new bid. Thus, to accommodate CICA’s fairness requirements, the contracting officer may need to terminate a contract for the Government’s convenience to further full and open competition.45
The Implied Duty of Good Faith and Fair Dealing
When you think about it, do contracting parties really need a contract provision promising to carry out the contract fairly? Not really, although this answer probably seems naive in our litigious society. But for years, judges have built into contracts an implied duty of good faith and fair dealing.
Since the duty is implied, this can present problems. Implied duties under a contract are hard to identify because they are not written, so any implied duty raises hard questions. Is it fair to make people follow unwritten rules? If someone breaches an unwritten rule, does he have to pay damages? Can unwritten rules even be breached? As we will see, the answer to all three questions is “yes.”
Written contracts have unwritten rules. These unwritten rules— called implied duties—are just as binding as the written rules. They can be breached just like any written rule. Unfortunately, it’s hard to anticipate how these rules can be broken precisely because they are unwritten.
This implied duty typically can be violated in many ways, such as by failing to cooperate in contract performance; by interfering with contract performance; and by bad faith on the government’s part. One respected government contract authority believes that “By far, the most important implied duty in government contracting is the duty to cooperate.”46
There are problems with defining the duty to cooperate. For example, what one party may think of as “cooperation” may be considered by the other party work well beyond for what the contract calls. Closely related to the “duty to cooperate” is the duty not to hinder.
Here is the distinction between the two. Notice, however, that the test is the same—reasonableness:
The implied duty to cooperate imposes an affirmative obligation to do what is reasonably necessary to enable the contractor to perform. Determination of a breach of the duty requires a reasonableness inquiry. The nature and scope of that responsibility is to be gathered from the particular contract, its context, and its surrounding circumstances. In contrast, the implied duty of noninterference is a negative obligation that neither party to the contract will do anything to prevent performance thereof by the other party or that will hinder or delay him in its performance. The Government’s actions or inaction must be shown to be unreasonable.47
Although they are difficult to identify, some violations of this implied duty are obvious. A contractor was trying to negotiate an extension of the contract, and the government official adopted a take-it-or-leave-it position on an issue. This was made even worse as the official’s position was wrong as a matter of law.48
The Libertatia Associates (TLA) had a grounds maintenance contract at Fort Rucker, Alabama. The COR on the contract told TLA employees that, in the words of the COR, they should think of him as Jesus Christ and the contracting officer as God. Other people heard the COR say that he would run TLA off the contract. Others heard him say to the president of TLA that he would break TLA. The court found that the COR had a “specific intent to injure” the contractor. The COR’s “Jesus Christ” comparison “showed the COR to be a contracting official without a proper understanding of his role.” His personal animosity was clear from his “break them” statements.49
Another example is government bad faith. Although it might not seem logical to nonlawyers, bad faith and good faith are not flip sides of the same coin. Proving bad faith is not the same as proving that the government did not act in good faith. They are two different concepts. Good faith is violated by self-interest, whereas bad faith is driven by malice. A person who is selfish is not necessarily out to hurt the other person.
Two men bought from the U.S. government a car confiscated by U.S. Customs in a drug raid. They drove it into Mexico, got arrested for drugs found “unexpectedly” in the car, and spent a year in a Mexican jail for possession of those drugs. They sued the U.S. government, arguing that it had violated the implied duty of good faith because the government had not carefully inspected the confiscated car and found the hidden drugs before putting the car up for auction. Because the car had been confiscated in a drug arrest, “a reasonable purchaser would believe that the vehicles had been adequately searched prior to the sale or at least that the search was not intentionally limited to increase the government’s profits.” Less government work (inspection of the car), less damage to the car’s interior, more government profit was the argument the two men made. Although the government argued that there was no government bad faith, the COFC held there could still be government violation of good faith.50
To see what the violation of good faith involves, the COFC in this case gave several examples:
It may be that plaintiffs can prove that the government failed to conduct an adequate search for the purpose of obtaining higher resale value for the vehicle at auction. This could be a case of the government’s appropriating profits to itself at the expense of its contracting partner in direct contravention of the covenant of good faith and fair dealing. Or, if plaintiffs prove they could not have discovered the hidden contraband in the circumstance of the auction sale, and that the government had a policy to search thoroughly any vehicle seized because they contain narcotics, but that the government acted in direct contravention of its stated policy, plaintiffs may be able to show that the government had a duty to notify plaintiffs of the government’s failure to search the vehicle thoroughly or a responsibility to put plaintiffs on notice that it would be their responsibility to inspect the vehicle for contraband and to allow them the opportunity to conduct meaningful inspection.51
There are important limits on this implied duty: It’s not a catchall duty to be fair in everything the parties do. It is simply a duty to be fair regarding a clause already in the contract.
For example, the implied duty “does not conf
