Court of Federal Claims

For federal contractors, it is not an exaggeration to say that performance evaluations are the lifeblood of the business.  A less-than-satisfactory evaluation in the Contractor Performance Assessment Reporting System (CPARS) affects far more than just the agency’s assessment of performance on a particular project.  A negative evaluation follows a contractor around – impacting the ability to obtain future contracts due to the specter negative past performance ratings.

The good news for contractors is that the ability to challenge and – if successful – reverse negative CPARS evaluations is a quickly developing area of government contracting law.

The first step in any successful CPARS challenge involves meaningful participation in the evaluation process.  The Federal Acquisition Regulation (FAR) Part 42.15 entitles contractors to submit comments and receive an agency review of a disputed performance evaluation.  Specifically, contractors are entitled to submit comments, rebuttal statements, and/or other information in response to the agency’s evaluation.  The agency must then review those comments at a level above the contracting officer and update the evaluation, if necessary.

If the review and comment process is unsuccessful in resolving the issues, both the U.S. Court of Federal Claims and Boards of Contract Appeals recognize that contractors may bring a lawsuit to address performance evaluation disputes.  Generally speaking, in order to advance a performance evaluation dispute to the next level, the contractor must be prepared to prove that the agency’s evaluation is arbitrary, capricious, and contrary to law.

Although litigation over a performance evaluation dispute is a relatively new development – the law is now clear that a condition precedent to litigating the issue before a Court or Board is a certified claim.  That is – just like a claim for damages based on (for example) delay or a differing site condition – the contractor must file a written claim in accordance with the Contract Disputes Act (CDA) and receive a denial or “deemed denial” of that claim in order to move forward.

In a recent decision, the Court of Federal Claims reinforced the notion that there is no substitute for a CDA claim.  The case originated with a complaint filed by a contractor concerning an allegedly unreasonable negative performance evaluation issued by the United States Transportation Command.  The contractor sought a declaratory judgment vacating the evaluation.

Before the contractor could even begin to prove its case, the government filed a motion to dismiss, arguing that the contractor did not submit a CDA claim to the contracting officer.  Without a claim (the government argued), the Court lacks jurisdiction to hear the case.  In response, the contractor asserted that it engaged in a series of communications with the agency regarding the CPARS evaluation, but the agency would not change its allegedly improper position.

On review, the Court sided with the government and dismissed the contractor’s complaint.  In this instance – far from proving a legitimate dispute that could substitute for a CDA claim – the Court relied on the contractor’s communications with the government as evidence its the lack of jurisdiction.  The Court held that the on-going nature of the parties’ negotiations showed that the contracting officer had no notice that the contractor sought a “final decision” of any kind.

The takeaway for contractors is very simple – engage in the process and follow the required steps when disputing a CPARS evaluation.  The contractor must participate in the review and comment procedure articulated in FAR 42.15 – but if that fails, the next logical step is to proceed with a CDA claim (or, perhaps as an intermediate step, a request for equitable adjustment).  Before a performance evaluation dispute can escalate to litigation, the contractor must be armed with a denial or deemed denial of that claim.

 

 

Today, we take a look at the culmination of a long fight over the size status of a joint venture competing for a Federal contract.  After losing battles at the Small Business Administration (SBA) Area Office and Office of Hearings and Appeals (OHA) – the joint venture finally won the war when the Court of Federal Claims (COFC) declared that SBA incorrectly applied the economic dependence test.

quick refresher on SBA economic dependence:  In a nutshell, the SBA will find two firms affiliated through economic dependence when a small business is dependent on another company for a disproportionate amount of its revenue.  Without a steady flow of business from its counterpart, the small business would be unable to survive (let alone thrive).  When one business is economically dependent on another, there is a presumption of affiliation.

That was precisely SBA’s finding with respect to the joint venture that teamed up to bid on a Department of Defense Missile Defense Agency support contract.  The SBA Area Office found the joint venture was “other than small” for purposes of the contract (and, therefore, ineligible for award).  OHA agreed, confirming that one of the joint venture partners was affiliated with a third entity (and therefore had to include that entity’s average annual receipts in its size calculation).  As a result of this affiliation, the joint venture partner was deemed to be a large business under the relevant size standard, thus disqualifying the joint venture.

Specifically, SBA found the two firms affiliated because the purported small business received more than 70% of its revenue from the third firm, thus creating an “identity of interest due to economic dependency.”  According to OHA’s decision, “as a matter of law, a firm that derives 70 percent or more of its revenue from another firm is economically dependent on that firm.”

On appeal to COFC, the joint venture argued that SBA misapplied the presumption of economic independence as a bright line rule – as opposed to a rebuttable presumption.  Here, the mitigating factors weighing against affiliation included the fact that the small firm had only been operating a short time and held a small number of contracts (which distorted the 70% figure relied on by OHA).  The joint venture also presented evidence of the firm’s attempts to diversify and expand to other sources of revenue.

The COFC was persuaded by these arguments and remanded size determination back to the Area Office for a new review.  In its decision, the court affirmed that the 70% standard  is highly indicative of economic dependence – but still not an absolute rule.  COFC determined that OHA failed to consider properly the mitigating factors presented.

This is a fascinating case study and a great example of a firm forcing SBA to faithfully apply its own regulations.  But – importantly – it also needs to be taken with a grain of salt and viewed as the exception to the rule.

The fact remains that there is a rock solid basis to support the SBA’s use of the 70% threshold as a standard for finding affiliation based on economic dependence – both in the regulations and in the case law.  If your business receives even close to 70% of its receipts from one business – there is a definite cause for concern.  This case confirms that your business has the ability to try and rebut the presumption of affiliation – but that can be a steep mountain to climb.

If you are concerned about your firm losing its size standard due to economic dependence – now is the time to think about proactive strategies for diversifying.  Relying on a winning rebuttal argument with the SBA is betting against the house.

Government contractors know the odds on GAO bid protests – are they are not all that good.  Even with a noticeable uptick, the statistics reveal that less than 1/4 (about 23%) of all bid protests were sustained in FY 16.  Even factoring in voluntary agency corrective action, the odds of a positive outcome are still worse than a coin flip (about 46%).

So, the question is how can you make those odds work for your business?

First, pick the right battle.  As I discuss in The Practical Guide to Filing (and Winning) GAO Bid Protests, certain kinds of cases tend to fare better at the GAO.  These cases include pre-bid solicitation errors and obvious evaluation missteps by the government.  More nuanced issues – or cases requiring in depth legal analysis – are better suited to the Court of Federal Claims (COFC).

The difference largely lies in the mission of each venue.  The GAO’s trademark is speed and efficiency.  A contractor can obtain a mandatory stay of contract award or performance just based on filing a timely protest – so the GAO’s stated goal is to resolve all protests within 100 days of filing.  Protest administration at the COFC, on the other hand, is more akin to traditional litigation.

Each venue offers pros and cons that can vary on a case-by-case basis.  So, contractors should certainly think before mechanically filing a protest (because “that’s what we always do”).

The other way to beat the odds at GAO is to avoid common contractor pitfalls.  Even though some areas of procurement administration seem (and probably are) inequitable – that does not necessarily mean they will support a protest.

For example, in a recent decision, GAO rejected a contractor’s protest related to its adjectival ratings.  The contractor argued that the agency conducted an improper best-value tradeoff analysis where two offerors received identical adjectival ratings – but the agency still elected to award to the higher-priced offeror.

GAO disagreed, finding that the contractor’s arguments focused too narrowly on the assigned ratings.  The record showed that, within those ratings, the agency conducted a proper tradeoff analysis, including documenting the technical merits of the proposals against their respective offered prices.  In the end, the agency determined that the technical benefits of the awardee’s proposal warranted the government paying the premium price.

The lesson for contractors is not to rely too heavily on adjectival ratings.  Particularly when it comes to best value procurements, the government has significant discretion to put a finer point on proposals with the same overall rating.

When this situation arises, contractors are well-served to thoroughly explore the agency’s best value decision during the required post-award debriefing.  If the debriefing reveals holes in the analysis, then a protest could be worth the time and effort.  On the other hand, if the best value decision is properly documented, a protest based only on adjectival ratings is likely not worth the investment.

A response to an RFP is the government contractor’s chance to put its best foot forward and stand out from the crowd.  Particularly when it comes to best value procurements, this is your chance to tell the contracting officer that your company does it best (whatever it is).

But, a recent bid protest decision reminds us that contractors must carefully walk the line between well-deserved boasting and playing make-believe.

The protest concerns a U.S. Department of the Navy IDIQ contract.  The RFP required contractors to submit detailed information documenting their relevant depth and breadth of experience on similar contracts.  In other words, the agency wanted the ultimate awardee to prove it has the chops to do the work required under the contract.

The agency rejected one contractor’s proposal as technically unacceptable because it lacked specific details concerning prior projects.  Instead, the contractor submitted only general information about its past work – and instead focused on hypothesizing about the stellar work that it could perform, if given the opportunity.

On review, the Court of Federal Claims sided with the Navy.  It is reasonable, the Court concluded, for an agency to require contractors to submit satisfactory evidence of qualifying past performance experience.  The contractor’s decision to submit general (not specific) information concerning its prior contract performance and focus on hypothetical statements of future potential did not meet the RFP’s requirements.

For contractors – and especially greener contractors – the Court’s decision presents and chicken-and-egg scenario.  It is difficult to win a contract award including a past performance element when your firm has limited experience.  But how can you get the experience without the award?

Two thoughtsFirst, as this case demonstrates, this is one area where you can’t “fake it till you make it.”  Focus on actual, supportable experienceSecond, if your firm’s past performance is really holding you back, consider teaming options for situations where the RFP allows you to lean on the past performance experience of a partner or subcontractor.

Government contractors responding to RFPs understand the need to read the fine print.

Mostly commonly, we discuss this topic in terms of pure proposal acceptability.  Protest decisions from the GAO and Court of Federal Claims make it abundantly clear that the burden falls on the contractor to follow directions and include all of the required information in all of the right places.  It is for that reason (among others) that we always recommend having an outsider (be it a consultant, a lawyer, or even just another person from your company not involved in preparing the proposal) do a quality check before a proposal is submitted.

A more nuanced issue – but just as important – is understanding the RFP’s evaluation scheme.  That is, not only what information must be submitted, but how that information will be weighed and measured by the Agency.

For example, in the past, we’ve looked at low-price technically acceptable (LPTA) RFPs.  The basic idea on an LPTA procurement is that a contractor need only achieve a minimum passing score on its technical proposal – the Agency will not give bonus points for added bells and whistles.  The much more important part of an LPTA proposal is price. Among those offerors found to be technically acceptable, the award goes to the offeror with the lowest submitted price.  So, the focus on an LPTA proposal should be on getting lean (while maintaining technical acceptability) so that you can get as low as possible (or practical) on price.

But what about Best Value RFPs?  There, the game changes dramatically.  The Agency is not looking just at technical ability or price – but how the two interact in order to maximize the benefit to the government. The award may be made to a higher-priced offeror, but only if that higher price is justified by a proper tradeoff analysis.  Stated differently, is the contractor’s higher price justified by greater technical skill?

Here is a nice, short summary from a recent GAO decision outlining government’s rights and responsibilities under a Best Value RFP:

[Agencies] have discretion to make award to a concern that has submitted a higher-priced, technically superior offer.  An agency’s decision is governed only by the test of rationality and consistency with the solicitation’s stated evaluation criteria.  Source selection decisions must be documented, and must include the rationale for any business judgments and tradeoffs made or relied upon by the source selection authority, but there is no need for extensive documentation of every consideration factored into a tradeoff decision.  Rather, the documentation need only be sufficient to establish that the agency was aware of the relative merits and costs of the competing proposals and that the source selection was reasonably based.

So, what is the BEST approach for Best Value competitions?

Maximize Technical Skill.  Unlike LPTA (where the proverbial C- or D+ proposal could get the award), the key is to go for the A+.  Play to your strengths and show the Agency that your firm is not only capable – but highly skilled and able to deliver the best service.

In maximizing technical skill, you’ll look to add those bells and whistles that show off your firm’s capabilities.  But remember, this isn’t just a talent show.

Keep Price in Mind.  This is where things start to get tricky.  While you’ll want to maximize technical skill and performance, price must always be a touchstone.  In order to accept a higher price, the Agency must be able to document (as part of its Best Value Tradeoff Analysis) that the higher price is justified by demonstrated technical superiority.

The Best Value combination of technical aptitude and price is particularly important for contracts involving complex, multi-disciplinary services because it gives the government the option of accepting a higher price in exchange for better odds of successful future performance.  But what if the Agency gets the formula wrong?  Fortunately, the GAO and Court of Federal Claims have recognized a number of avenues for challenging the Agency’s Best Value Trade Off.

Protesting Best Value Awards.  Bid protests of Best Value award decisions generally fall into one of two buckets: (1) The Agency overvalued the technical aspects of the awardee’s proposal (when a lower-priced offeror that believes that it is on par with the technical skill of the offeror) or (2) The Agency failed to recognize the technical superiority of a proposal (when a higher-priced offeror loses out to a lower-priced and allegedly less skilled awardee).

When properly supported, these allegations will put the Agency’s Best Value Tradeoff Decision under the microscope and open the door for the more skilled and/or lower-priced protester to make its case.

 

Government contractors are frequently faced with the situation where they are owed additional time or are entitled to damages from the government on a contract.  For example, the government might be responsible for delays to the project schedule.  Or it might direct changes to the contract that make it more expensive to perform.

There are generally two methods for the contractor to pursue recovery – (1) filing a Claim under the Contract Disputes Act or (2) submitting a request for equitable adjustment (REA) to the contracting officer.  There are pros and cons to both methods and Contractors should take the time to consider these options carefully before moving forward.

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What is the Difference between a Claim and an REA?

Claims and REAs are very similar (but not identical) in both form and function.  The basic concept is that the contractor is owed time or money (or both) on a contract and is providing the government with a written request for compensation.  The well-drafted Claim or REA will include a basic summary of the contractor’s performance and an easy-to-understand explanation of why it is entitled to the damages sought.

So what are the differences?  The primary difference is the government’s obligation to promptly respond.  A Claim puts the government “on the clock” and establishes a fixed deadline for a formal response (typically 60 days from the date it is filed).  On the other hand, there is no firm or fixed deadline for the government to respond to an REA.  For this reason, many contractors favor filing Claims (rather than having an REA sit unanswered by the government for months, or even longer).

There are also a few key differences in what a Claim must include.  Unlike an REA, the Claim must include an expression of damages in the amount of a “sum certain” – in other words, the exact amount of damages, in dollars, being claimed.  A Claim of $100,000 or more must also include a formal Contractor Certification (the exact language is provided at FAR 33.207).  The Certification is the contractor’s assurance that the claim is current and accurate as of the date of submission.

Is a Claim or an REA Better for You?

As outlined above, a Claim offers the immediate advantage of requiring a response from the government by a specified date.  For that reason alone, Claims are usually considered more advisable than REAs.  The government will either grant or deny the Claim, or offer a partial settlement.  If the contractor is unhappy with the decision, it has the option to file an appeal and argue its case before a board of contract appeals or the U.S. Court of Federal Claims.

However, while a Claim is certainly the most direct way to proceed, it is not always the best for the contractor.  Your firm might have a good working relationship with the contracting officer.  Or you might want to proceed cautiously in order to preserve your relationship with a particular client.  In those cases, an REA offers the opportunity to reach a mutually-beneficial settlement without having to file a formal Claim.  Bear in mind, a contractor can also convert an REA into a Certified Claim at any time (in the event that the government does not respond to the REA, or negotiations stall).

Is There Anything Else to Consider?

Before making a final decision, contractors should also think about the potential hidden money in Claims and REAs.  For example, contractors can include “contract administration” costs as part of the damages sought in an REA.  These costs can include the attorneys’ fees and consultants’ fees incurred in preparing and submitting the REA.

Attorney and consultant fees are not recoverable as part of a Claim.  However, the Contract Disputes Act does provide for the recovery of interest on any amount that becomes due on a claim.  Depending on how long the Claim takes to resolve and the amount at stake, the interest collected can be considerable and should not be overlooked.

Final Thoughts

The decision of whether to file a Claim or submit an REA should be made on case-by-case basis.  One size does not fit all, and it is very likely that the right answer will change from contract to contract.

Making the right decision could save you time and money – and result in a better overall outcome for your company.

Every government contractor that files a bid protest has the same goal in mind – corrective action.  The agency made a procurement error and changes need to be made.

But just because the agency takes corrective action does not mean it will be the corrective action your firm wants.  Contractors should take the time to consider the possible outcomes of a successful bid protest before filing.

Take, for example, the recent U.S. Court of Federal Appeals decision denying a protest over corrective action.  In that case, an unsuccessful offeror successfully protested a United States Transportation Command non-temporary storage contract.  In response to the protest, the agency took corrective action and started the process of re-evaluating all offerors in order to make a new award decision.

But this was not the corrective action the protestor expected.  Because the protest argued that the original awardee’s proposal was technically deficient, the protestor wanted the government to cancel the first award and make a new award decision (in its favor) without further evaluation.

The Court rejected the idea that a protester can limit the agency’s authority to correct evaluation errors.  To the contrary, the decision holds that it is within the agency’s discretion to review its prior conclusions and conduct a re-evaluation (provided that the new evaluation conforms to the solicitation and is fair to all offerors).

So is the takeaway that your firm shouldn’t file a protest unless it knows it will receive the award?  Not at all.  As this decision makes clear, you cannot control or limit the agency’s authority when it comes to corrective action.  The correct takeaway is that you should make sure that your firm is prepared for all contingencies before moving forward with filing a bid protest – including the possibility of a complete re-evaluation.

Again, on this point, the COFC decision is extremely illuminating.  Even though the protestor was successful in obtaining corrective action, it also found out that its own proposal was not considered technically acceptable by the agency (due to an alleged failure to meet the solicitation criteria).  If not for that proposal drafting error, it is possible the protest would have a different outcome (including a new award decision rather than a re-evaluation).

Taking the time to work through these scenarios in advance is the key to time and cost effective bid protests.  Even bid protests that result in corrective action are disappointing when they do not result in a new contract for your business.

 

Our Blog often covers issues associated with government contracts protests (like, for example, protests at the GAO, Court of Federal Claims, and size protests at the SBA).  The point of those posts is to highlight ways that disappointed offerors can “get back in the game” by challenging an improper award made to another business.

But, occasionally, we’re reminded that the best practice (whenever possible) is to avoid the need for a protest altogether.  By focusing on the details and learning how to serve up timely proposals that check all of the government’s boxes, you’ll put yourself in a position to win more contract awards and avoid the need to file protests on the back end.

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Take the recent opinion from the GAO denying a protest over the post-deadline submission of pricing data.  In that case, the protester was eliminated from the procurement when it used a draft agency document to submit its pricing information, rather than the final revised version of the form later circulated by the agency.

The protester offered a number of equitable arguments against its elimination.  It used a form that was provided by the government, just not the most recent version.  And, in any event, it included all of the key pricing information.  At a minimum, shouldn’t the agency allow an interested offeror to correct this deficiency by simply substituting the correct form?

The GAO rejected all of these arguments out of hand.  It held that the agency acted reasonably in deciding to reject the offer — it would be unfair (GAO surmised) for the agency either to accept an offer based on different pricing assumptions (the draft form) or allow one offeror the special privilege of revising its offer after the deadline for proposals (on the corrected form).  As the GAO pointed out, the agency specifically cautioned all offerors that only the revised pricing form would be accepted.

Putting together a proposal in response to an agency solicitation can be a time-consuming and expensive proposition.  Protect that investment by developing a system for checking (and double-checking) your work.  Sometimes, a new or fresh set of eyes will be able to pick up on mistakes or omissions, or perhaps better see the requirements from the agency’s perspective.

Taking the time to get it right can help minimize the frustrating experience of missing out on a contracting opportunity due to easily avoidable mistakes.

After filing a claim under the Contract Disputes Act (CDA), the contracting officer may notify you that a final decision will be issued within “X” days after certain pre-conditions are met, such as:

  • Providing additional documentation supporting your claims or damages;
  • Attending a meeting to discuss your claims; or
  • Answering certain question allegedly required for the government’s review of your claim.

Are you required to cooperate?  For claims over $100,000, the CDA requires a contracting officer, within 60 calendar days, to either issue a final decision or notify the contractor of the date by which a final decision will be issued.  The Armed Services Board of Contract Appeals (ASBCA) recently held that a conditional final decision date, as described above, does not comply with this CDA requirement.  Thus, in such instances, a contractor may file an Appeal on a deemed denial basis without waiting for a final decision.

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In Aetna Government Health Plans, ASBCA No. 60207, Aetna filed a claim for damages associated with a termination for convenience.  The Contracting Officer responded that the Government needed additional documentation to review the claim and would issue a final decision within 90 days after receipt of such documentation.

Aetna appealed to the ASBCA on a deemed denial basis without providing the requested documentation. The Government moved to dismiss the Appeal arguing that the Contracting Officer had not issued a final decision and that the additional documentation was reasonably necessary for review of the claim.

The Board held that the CDA requires a contracting officer to pinpoint the exact date by which a final decision will be rendered. “It is not enough to state that a final decision will be issued within a specified number of days after the occurrence of some future event.”  Accordingly, the Board determined that the Contracting Officer did not comply with CDA and Aetna correctly appealed the decision as a deemed denial.

The take-away here is that if the government is requiring you to jump through hoops in order to get a final decision, there is no requirement to cooperate.  Sometimes it may make strategic sense to cooperate and provide additional information necessary for government review of your claim.  But, if you have fully supported your claim and the government is still requiring you to provide more and more information or documentation, you may be doing more harm than good.  Many times the government has already decided to deny the claim and is simply seeking additional justification for its decision.  In such instances, there is no requirement for you to continue to wait for the government to bolster its position.  If, within 60 calendar days after filing your claim, you do not receive a final decision or a date certain on which the final decision will be issued, you may file an Appeal without waiting for a final decision.

Today we review more evidence reminding small business owners to get their house in order when it comes to questions of “ownership and control” in the eyes of the Small Business Administration.  Failing to plan can mean lost contracts and – even worse – losing your small business status and the opportunity for lucrative set-aside contracts.

When we last visited this issue in April, the SBA determined that Precise Systems, Inc. was ineligible for a $134 million State Department SDVOSB set-aside contract because its employee stock ownership plan raised concerns over whether the company’s service-disabled owner exercised proper “ownership and control” under the applicable SBA rules.

After the Court of Federal Claims remanded the issue for further interpretation, the SBA  doubled-down on its authority to interpret questions of small business ownership and control.

In affirming its prior decision to boot Precise Systems, the SBA is drawing a hard line that allows the agency to consider different stocks to be of different “classes,” without regard to whether the differences in stock adversely affect the question of control.  The SBA justified its broad interpretation of its own precedent by noting that it has separate regulations governing the questions of “ownership” and “control,” and that small businesses must meet both in order to remain eligible for SBA program participation.

The SBA’s decision (which has now been upheld by the COFC) offers important insights and guidance to small business owners.  Putting aside the admittedly complex voting stock issues presented by the case, it is crystal clear that any restrictions on small business ownership or control – or corporate formation issues that conflate the two – must be identified and fixed now.  Once they are identified by a competitor as part of an SBA protest, it is already too late.

Again, this is an issue that touches all categories of small businesses, as the regulations governing of the various small business programs all require (in one form or another) that the small business owner must unconditionally meet the ownership and control requirements.  In short, its time to check your small business’s formation documents to ensure compliance.