Upon finding an unmitigated unequal access to information Organizational Conflict of Interest, GAO had “recommended” that the Contractor be stripped of the Contract and that the Contractor be barred from a new Award determination. The Head of the Army Contracting Activity had decided not to waive the Organizational Conflicts of Interest which GAO had found, this although the Army’s Contracting Officer had concluded in an extensive Post-Award, Post-Protest review that the claimed unequal access to information Organizational Conflicts of Interest did not exist. And the Army had decided to adopt the GAO “Recommendation.” It was this action which precipitated the Contractor’s filing of its own Post-Award Procurement Protest with the Court.

The Organizational Conflicts of Interest problems with the Acquisition had arisen from on-again, off-again merger discussions between one of the Contractor’s subcontractors and another private-party firm which was under contract with the Army to provide acquisition support services for the hospital Acquisition.

But while GAO concluded that this private-party support services Contractor had “special knowledge” which would had given the Contractor’s subcontractor an unfair advantage, GAO could point to only one piece of information, the support services Contract itself, which “suggested” that the Contractor’s subcontractor had gained access to this “special knowledge.” Likewise, GAO concluded that the support services Contractor’s employees “may have had access to competitively useful information” and that the support service Contractor which engaged in on-again, off-again merger discussions with one of the Contractor’s subcontractors, was “in a position to obtain information regarding the agency’s priorities, preferences, and dislikes.”

As it turned out, the Army’s Contracting Officer had not conducted a comprehensive, documented review of potential Organizational Conflicts of Interest prior to Contract Award in September 2009. After Contract Award and the filing of the Post-Award Procurement Protest with GAO in October 2009, the Army’s Contracting Officer conducted a one-hundred fifty page review which was supported by forty-two declarations from the people involved with the claimed Organizational Conflicts of Interest.

The Army insisted that the Contracting Officer’s failure to conduct such a comprehensive, documented review prior to Contract Award was itself sufficient reason supporting the Army’s decision to adopt the GAO “Recommendation,” here citing Federal Acquisition Regulation 9.504(a)(2), which requires Contracting Officers to “[a]void, neutralize, or mitigate significant potential conflicts before contract award.”

Per Contra. The Turner Construction Court held that Contracting Officers:

are not required, in every single procurement, to review and document whether OCIs [Organizational Conflicts of Interest] exist prior to award. Instead, a CO [Contracting Officer] must evaluate OCIs as early in the process as possible, and, for significant potential OCIs, a CO must mitigate them prior to award. In some cases, the earliest time to evaluate an alleged OCI might be post-award, such as when a bid protest is brought that alleges theretofore unknown OCIs. In other cases, . . ., evidence of a “significant” OCI will exist before contract award and require a CO to evaluate and mitigate it then . . . .

“Hard Facts” are required to establish a significant potential Organizational Conflict of Interest. This means that a fact-specific inquiry must demonstrate that there is an appearance of impropriety, in this Case, unequal access to nonpublic information. That is, there must be a potential conflict even though its precise impact cannot be determined. If the conflict can be established only by suspicion or innuendo, this is insufficient. On the other hand, the precise impact of the conflict on the evaluation of Competitive Proposals need not be established.

More is required if the claimed Organizational Conflict of Interest stems from unequal access to nonpublic information. Here not only must it be established that there was a conflict, unequal access to nonpublic information, and but also it must be shown that this nonpublic information was competitively useful. That is, possession of this nonpublic information could benefit an Offeror’s Competitive Proposal.

Per the Turner Construction Court, McCarthy/Hunt, JV was irrational because GAO dismissed the Army Contracting Officer’s Post-Award, Post-Protest review of the claimed Organizational Conflicts of Interest as nothing more than a “post-protest” rationalization, forgetting that a non-contemporaneous fact-specific inquiry addressing claimed Organizational Conflicts of Interest has been held sufficient in other GAO matters.

And the larger problem is that McCarthy/Hunt, JV cites to no hard facts showing the Contractor’s subcontractor had access to anything of competitive worth. Per the Turner Construction Court, “GAO pointed only to vague allegations that someone ‘may have had access’ to unidentified information or that someone ‘was familiar with the details.’” The Court observed that the Army Contracting Officer had “specifically discussed how each type of information to which . . . may have had access not only lacked competitive utility but also was disclosed to all of the offerors.”

Ultimately, the Turner Construction Court concludes:

The GAO decision here, in contrast, only points to “familiar[ity] with the details” and potential “access to competitively useful information” and being “in a position to obtain information.” This is not specific enough to have overturned the agency’s OCI determination, and it was irrational for the GAO to do so. Because the GAO decision was irrational, the Army was not justified in relying on it.

(Emphasis added).

©2010 Cyrus E. Phillips IV. All Rights Reserved.

The construction Contract at issue in Grunley allowed sixteen interrupted days per calendar year when no construction work would be allowed.

As it turned out, the Marshal issued Memoranda to the Architect of the Capitol precluding most construction work in the United States Supreme Court Building (save for noisy or disruptive construction work which was expressly required to be performed outside normal working hours) during the Supreme Court’s normal working hours, this from October 2005 through December 31, 2006. The Architect of the Capitol defended against this Claim on the ground that the Marshal’s Memoranda were Sovereign Acts which insulated the Federal Government from liability. Not so, held the Government Accountability Office Contract Appeals Board.

We first need to understand the Sovereign Acts Defense.

Generally, when the Federal Government is one of the contracting parties, the Sovereign Acts Defense devolves from the Federal Government’s dual role as both a contracting party and as the Sovereign. The Sovereign Acts Defense recognizes that the Federal Government as a contracting party acts in a different capacity than the capacity in which the Federal Government acts as the Sovereign.

For the Sovereign Acts Defense to apply, these dual roles may not be mixed, and if an act of the Federal Government as the Sovereign would justify non-performance of a Contract by any other contracting party, private or public, being sued for Contract breach, then the Federal Government as a contracting party is likewise immune from liability for non-performance.

But it is not unusual that Congressional enactments or other official Federal Government action upset what were thought to be settled contractual arrangements, and, as the United States Court of Appeals for the Federal Circuit has noted, the Sovereign Acts Defense is often asserted when the Federal Government is also a contracting party, and just as often, the Sovereign Acts Defense is found to be unavailing.

The Sovereign Acts Defense is well explained in two recent Opinions: Conner Brothers Construction Co., Inc. v. Geren, Fed. Cir. No. 2008-1188, December 31, 2008, and Stockton East Water District v. United States, Fed. Cir. No. 2007-5142, September 30, 2009.

At issue in Connor Brothers was a Claim for delay damages incurred by a construction Contractor after it was denied access to its construction site on a separated area of Fort Bragg for a period of forty-one days following the terrorist attacks of September 11, 2001.

The construction Contract work was for construction of four buildings at two sites within the Army Ranger compound at Fort Bragg. The Army Ranger Compound is under the operational control of the Ranger Regimental Commander, not the Post Commander, and the Ranger Regimental Commander shut down access to the Army Ranger Compound in order to allow the Rangers to deploy to Afghanistan in small groups so as not to attract public notice.

A problem with the Sovereign Acts Defense in Connor Brothers was that the Ranger Regimental Commander had allowed other private-party contractors, facility and custodial services contractors, a Coca-Cola vendor, and cable television personnel, access to the Army Ranger Compound while at the same time the construction Contractor was denied access.

Looking to existing Case law, the Connor Brothers Court first explained that for the Sovereign Acts Defense to excuse a Contract breach by the Federal Government, the Congressional enactments or other official Federal Government action which upset settled contractual arrangements must first be public and general in nature such that their occurrence would excuse a Contract breach if the other contracting party were not the Federal Government.

But this did not end the inquiry.

There is another prong to the Sovereign Acts Defense, and this is that even public and general acts of the Federal Government do not excuse a Contract breach by the Federal Government in which the supposed public and general acts of the Federal Government are “tainted by a government object of self-relief,” and in which the supposed public and general acts’ impact upon Federal Contracts are “not merely incidental to the accomplishment of a broader governmental objective.”

This second prong of the Sovereign Acts Defense is best explained in Justice Souter’s plurality opinion in United States v. Winstar Corp., 518 U.S. 839, 898 (1996): “The greater the Government’s self-interest, . . . the more suspect becomes the claim that its private contracting partners ought to bear the financial burden of the Government’s own improvidence . . . .” In other words, subsequent Congressional enactments or other official Federal Government action will not excuse a Contract breach by the Federal Government if the Sovereign Acts set out as the Defense have “the substantial effect of releasing the Government from its contractual obligations . . . .”

The Connor Brothers Court resolved the disparate impact of the denial of access to the Army Ranger Compound (facility and custodial services contractors, a Coca-Cola vendor, and cable television personnel were allowed access) by explaining that these other private-party contractors were not similarly situated (they could be escorted to discrete locations whereas the construction contractor moved around extensively), and by explaining that the Federal Government gained no economic advantage by temporarily denying access to its private-party construction contractor. Here the Connor Brothers Court noted that had the construction Contract at issue been between two private parties, and had access to such a private-party Contract work been temporarily suspended because of proximity to the Army Ranger Compound, the Contract breach would have been excused.

The Sovereign Acts Defense was unavailing in Stockton East Water District.

At issue here was a Bureau of Reclamation Contract under which the Federal Government made binding Contracts for the availability of water from California’s Central Valley Project. These water Contracts provided for the release of water for irrigation and for domestic and industrial uses. After these Contracts were signed in 1983, Congress in 1992 enacted a Federal Statute which expressly required the release of water for fish, wildlife, and habitat restoration needs. This was a shift in Federal policy, and the result was Federal Government breach of its water Contracts from 1999 through 2004.

Not surprisingly, the Federal Government argued that its Contract breach was excused by the Sovereign Acts Defense, and that the lack of water (after satisfying water needs for fish, wildlife, and habitat restoration) was only an incidental consequence of the 1992 Federal Statute, which was claimed to be public and general in nature.

This went nowhere. The Stockton East Water District Court noted that the only users of water from the Central Valley Project negatively affected by the 1992 Federal Statute were the Water Districts, and that when the Bureau of Reclamation shorted the Water Districts, the Federal Government’s action “was directly aimed at the contracts and Reclamation’s duties under them, nullifying the rights of the Districts to receive water under the contracts.”

The Government Accountability Office Contract Appeals Board correctly discerned these principles in Grunley.

First, that Agency Board noted that the Marshal’s Memoranda restricting access to the Supreme Court Building were not at all public and general, and instead were directed only to the Architect of the Capitol, and that Agency Board noted that the Marshal’s Memoranda did not suggest a broader Federal Government objective since they were specifically aimed at redefining the work hours specified in the construction Contract.

Second, that Agency Board explained that even if the Marshal’s Memoranda served a broader public purpose, operational security of the Supreme Court, what really happened is that these Memoranda garnered an economic advantage not agreed-upon in the construction Contract, and this was construction work required under that Contract outside of normal Supreme Court working hours for far more than sixteen days of construction work per calendar year.

Thus the Government Accountability Office Contract Appeals Board explained in Grunley that while the Marshal’s Memoranda were within his authority, they were not Sovereign Acts excusing the Architect of the Capitol’s breach of the construction Contract.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Under this Rule (which is set out at RCFC 13(a)), the United States, if it is required to file an Answer to the Federal Contractor’s Complaint, must assert any Claims that it has against the Federal Contractor which arise out of the same Federal Contract under which the Federal Contractor has asserted its Contract Disputes Act Claim.

This is not the case when a Federal Contractor elects to take a Contract Disputes Act Claim to an Agency Board of Contract Appeals, and there the Federal Contractor exposes itself to piecemeal and successive litigation before all matters arising under a particular Federal Contract can be resolved.

When a Federal Contractor comes before the Court with a Contract Disputes Act Claim of its own, it must first obtain the Contracting Officer’s Final Decision on that Contract Disputes Act Claim, 41 U.S.C. § 605(c)(1), (2), else proceed to the Court or to an Agency Board of Contract Appeals on a deemed denial of that Federal Contractor’s Contract Disputes Act Claim, 41 U.S.C. § 605(c)(5).

The same is true of Contracting Officer’s Contract Disputes Act Claims; these must first be asserted in a Contracting Officer’s Final Decision before such Contracting Officer Contract Disputes Act Claims can be pled as a Compulsory Counterclaim, 41 U.S.C. § 605(a). All Contracting Officer Final Decisions must be in writing and “must state the reasons for the decision reached . . .,” 41 U.S.C. § 605(a).

A Contracting Officer’s Final Decision and the necessary predicate for a $9.2 million Compulsory Counterclaim was before the Court in Fireman’s Fund Insurance Co. et al. v. United States, Fed. Cl. No. 08-782C, May 26, 2010. The Fireman’s Fund Court rejected this Contracting Officer’s Final Decision and Compulsory Counterclaim, and just why it did so provides insights into the requirements for a proper Contracting Officer’s Final Decision.

The Compulsory Counterclaim at issue arose when a Corps of Engineers Administrative Contracting Officer waived testing of the components of a lock on Arkansas’ White River in order to “expedite the project.” According to the Corps of Engineers, this unauthorized waiver shortened the period of Contract performance at an estimated savings of $9.2 million in field overhead and equipment costs. But the Corps of Engineers knew about all this as early as 2004, and it was not until August 2009 that the Corps of Engineers set out its Compulsory Counterclaim.

Per the Fireman’s Fund Court, the problem with the Contracting Officer’s Final Decision of July 2009 which was the basis for the Compulsory Counterclaim was that this Contracting Officer’s Final Decision was “not the product of [the Contracting Officer’s] personal and independent judgment.”

The Court noted that the Final Decision was entirely drafted by the Contracting Officer’s house counsel, that the Contracting Officer made no changes to the draft Final Decision before she signed it, and that prior to issuing her Final Decision, the Contracting Officer spent “less than an hour” reviewing the draft Final Decision.

Looking to Federal Acquisition Regulation 1.602-2(b), the Fireman’s Fund Court noted that when Contracting Officers exercise business judgment, they must nonetheless “[e]nsure that contractors receive impartial, fair, and equitable treatment.”

The Court carefully noted that this requirement does not abjure a Contracting Officer from first obtaining or even agreeing with the views of others. Rather, the Fireman’s Fund Court explained that the Contracting Officer must take “ownership of all determinations” included in the Final Decision; that the Contracting Officer “must put his own mind to the problems and render his own decisions;” and that the Contracting Officer must ensure that the Final Decision is not a determination by someone else.

The problems in Fireman’s Fund were that the Contracting Officer made no independent review or analysis, and that the Contracting Officer did not verify, or even ask her advisors to verify, the accuracy of any of the facts recited in the draft Final Decision:

Her testimony portrayed an orphan decision that she signed because her legal team recommended it. . . (Emphasis added). What attention she gave the final decision was not a substantive review and analysis of the claim’s merits or a review of the technical input; rather, she merely understood the nature of the claim asserted in the decision. Such a decision hardly can be elevated to the product of the exercise of the contracting officer’s independent judgment.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Jones Automation arose when an Agency decided not to exercise an available option to extend the term of a software development Contract and instead decided to satisfy its requirement for continuing services through a new, open Competition. The Jones Automation software Contractor filed a Protest with the Court of Federal Claims under 28 U.S.C. § 1491(b)(1), there asking the Court to enter a restraining order compelling the Agency to exercise the available option for continuing performance until such time that the Court could decide its challenge to the future procurement.

Under 28 U.S.C. § 1491(b)(1) the Court has Protest jurisdiction “in connection with a procurement or a proposed procurement.” And Distributed Solutions teaches that the scope of this Protest jurisdiction extends just as far as the definition of “procurement” set out in 41 U.S.C. § 403(2), viz. it “includes all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.”

A Federal Contractor, as the Jones Automation software Contractor, can present a Contract Disputes Act Claim to the Contracting Officer under 41 U.S.C. § 605(a) and then can bring an Action on the Claim directly to the Court under 28 U.S.C. § 1491(a)(1) and 41 U.S.C. § 609(a)(1).

The Protest filed by the Jones Automation software Contractor was based on an unstated premise, that a Federal Contractor has an available election, that it can choose between proceeding under the Contract Disputes Act, or instead, proceeding with a Protest under the broad definition of “procurement” encompassed in 28 U.S.C. § 1491(b)(1) and 41 U.S.C. § 403(2).

Not so, says the Court in Jones Automation. There is dicta in a Federal Circuit decision, Dalton v. Sherwood Van Lines, Inc., 50 F.3d 1014, 1017 (Fed. Cir. 1995), which holds that “[w]hen the Contract Disputes Act applies, it provides the exclusive mechanism for dispute resolution: the Contract Disputes Act was not designed to serve as an alternative administrative remedy, available at the contractor’s option.”

Relying on this Federal Circuit dicta and on an earlier decision from the Court of Federal Claims, Government Technical Services, LLC v. United States, No. 09-630L, December 29, 2009, the Jones Automation Court holds when a Case involves elements of both a Protest and a Contract Disputes Act Claim, there is no election, and the Contract Disputes Act is the “exclusive mechanism” by which the Court can acquire jurisdiction.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

The Navy knew that one of the Offerors was planning to mine the property for sand and gravel, but did not tell that Offeror that the Navy had concluded that such mining was tantamount to sale of the dairy farm, rather than a lease—and the authorizing statute, 10 U.S.C. § 6976(a)(2), did not allow sale of the property. The Offeror incurred substantial bid preparation costs and fees before the Navy told the Offeror that its Offer could not be considered.

The quandary results from two possible sources of protest jurisdiction for the United States Court of Federal Claims: 28 U.S.C. § 1491(a)(1), which gives the Court jurisdiction “to render judgment upon any claim against the United States . . . founded upon any express or implied contract with the United States”; and 28 U.S.C. § 1491(b)(1), which gives the Court jurisdiction:

to render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.

28 U.S.C. § 1491(a)(1), a part of the Tucker Act, is the Court’s primary jurisdictional authority and has been held prior to 1996 to give the United States Court of Federal Claims protest jurisdiction, this from a claimed breach of the implied-in-fact contract of fair and honest consideration which arises from Federal solicitations in connection with the purchase or sale of real or personal property.

28 U.S.C. § 1491(b)(1) was enacted in 1996 and explicitly gives the Court protest jurisdiction “in connection with a procurement or proposed procurement.” The term “procurement” in 28 U.S.C. §1491(b)(1) is limited to the definition of “procurement” in 41 U.S.C. § 403(2), and thus it is limited to “all stages of the process of acquiring property or services.”

Since 1996, the United States Court of Federal Claims has in some cases decided that its protest jurisdiction lies under both 28 U.S.C. § 1491(a)(1) and 28 U.S.C. § 1491(b)(1), and in other cases the United States Court of Federal Claims has decided that any protest jurisdiction under 28 U.S.C. § 1491(a)(1) has been supplanted by the protest jurisdiction, and the limitations on that protest jurisdiction, conferred in 28 U.S.C. § 1491(b)(1).

The result is confusion about just what actions can today be challenged before the United States Court of Federal Claims—for instance, a sale of Federal personal property can be challenged under 28 U.S.C. § 1491(a)(1) but not under 28 U.S.C. § 1491(b)(1) because a Federal sale is not a Federal “procurement.”

An example is a Forest Service sale of timber from Federal lands, a sale which was properly challenged in the United States Court of Federal Claims in 1988. If 28 U.S.C. § 1491(a)(1) still has force and effect, similar Federal timber sales can be challenged today; if 28 U.S.C. § 1491(a)(1) has been supplanted by the protest jurisdiction conferred in 28 U.S.C. § 1491(b)(1), then a timber sale (or any other sale of surplus Federal property) cannot be challenged in the United States Court of Federal Claims because these actions are not “procurements” as defined by 41 U.S.C. § 403(2).

Resource Conservation Group resolves these issues, for here the Federal Circuit holds that while relief in the “procurement” context is exclusive under 28 U.S.C. § 1491(b)(1), relief under 28 U.S.C. § 1491(a)(1) is still available where a Claim arises from a Federal solicitation which is not a “procurement,” i.e. where the Federal solicitation concerns a sale, not an acquisition, or where a Federal solicitation concerns the lease of Federal real property, and not a Federal “procurement” of property or services.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Agredano arose from a purchase of a vehicle at a Customs Service auction of forfeited vehicles. The purchaser later took the vehicle to Mexico where he was stopped at a checkpoint, hidden marijuana was found in the vehicle, and the purchaser spent nearly a year in prison before being exonerated by the Mexican courts. The vehicle had been sold by the Customs Service “as is, where is” without warranty or guarantee and with express disclaimers as to identity, previous ownership, physical condition, or registration status.

The U.S. Court of Federal Claims held that despite the disclaimers, the sales contract for the vehicle contained an implied-in-fact warranty that the vehicle no longer contained contraband, that this implied-in-fact warranty was breached, and thus the purchaser was awarded substantial damages. The Federal Circuit reversed, looking to a prior Federal Circuit decision which holds that an Agency’s failure to perform regulatory or statutory functions does not create contractual obligations, either express or implied-in-fact.

Precision Pine arose from a U.S. Court of Federal Claims matter wherein a timber harvesting contractor had been awarded “jury verdict,” or judge-computed, damages resulting from the suspension of one of fourteen Forest Service contracts, suspensions required in order for the Forest Service to engage in Endangered Species Act consultations stemming from the endangered species listing of the Mexican Spotted Owl.

The U.S. Court of Federal Claims had held the Forest Service in breach of the implied duty of good faith and fair dealing, also termed the implied duty not to hinder and to cooperate.

But in Precision Pine the Federal Circuit limits the implied duty of good faith and fair dealing by defining it as just a “variation” of a bait-and-switch, i.e. where the Government enters into a contract that confers a significant benefit and then later eliminates or rescinds that provision or benefit through subsequent action directed at the existing contract, subsequent Government action “specifically designed to re-appropriate the benefits the other party expected to obtain.”

In the case before it, the Federal Circuit decides that there has been no breach of the implied-in-fact duty of good faith and fair dealing because all but one of the Forest Service contracts contained no guarantee that the timber harvesting contractor’s operations could proceed uninterrupted. The suspensions were due to Forest Service violations of the Endangered Species Act, but these were statutory duties not owed to the timber harvesting contractor, just as the purchaser of the seized vehicle in Agredano was owed nothing contractually by the Customs Service under the statutory duty to seize all contraband.

The Federal Circuit holds that the implied-in-fact duty of good faith and fair dealing “cannot expand a party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.” Since all but one of the Forest Service contracts contained no guarantee of uninterrupted performance, the Forest Service’s violations of the Endangered Species Act did not destroy the timber harvesting contractor’s reasonable expectations.

As to the Forest Service contract which did not give the Forest Service the right to suspend performance, the U.S. Court of Federal Claims had rejected the methodology used by the timber harvesting contractor’s damages expert and instead constructed its own alternative calculation. This, the Federal Circuit holds, is entirely permissible—the U.S. Court of Federal Claims was not required to accept the timber harvesting contractor’s calculations in their entirety else enter judgment for the United States.

Here the Federal Circuit explains that in a “jury verdict” a judge may find for a party without fully crediting that party’s methodology, provided that the evidence is sufficient to allow the judge to make a “fair and reasonable approximation” of the damages.

The judge is the fact finder in a bench trial and may decide what evidence to credit or reject, and what result to reach. “Just as jury may find for a party without believing everything that party’s witnesses say, a judge may award damages, even if he does not fully credit that party’s methodology.” Fact findings by a trial judge may not be set aside unless they are clearly erroneous, and these fact findings which minimized the effect of uncertainty and arbitrary assumptions were not.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

At issue in DMS All-Star was a proposed indefinite delivery, indefinite quantity task order Contract for maintenance, repair, and minor construction work on real property located at Fort Sill, Oklahoma. Firm fixed-price task orders were to be issued to the successful Contractor, and these would be priced based on agreed-upon mark-ups against published RSMeans Construction Cost prices. Offerors competed based on these mark-ups.

The Solicitation promised that Price Proposals would be evaluated for Price Reasonableness and for Price Realism.

Price Reasonableness looks at the Price to be paid (is the Government paying too much?), and Price Realism looks at the risk of a low-priced Proposal and whether or not an Offeror’s Price is overly optimistic or impractically low (is the Offeror asking too little?).

The question whether or not a Price is realistic concerns only an Offeror’s understanding of Solicitation requirements, because if an Offeror can demonstrate that it understands the requirement, that Offeror can nonetheless choose to offer a buy-in just to win the Competition for a firm, fixed-price Contract.

Price Realism was before the U.S. Court of Appeals for the Federal Circuit in Alabama Aircraft Industries, Inc. v. United States, Fed. Cir. Nos. 2009-5021, -5022, and -5023, November 17, 2009. The Alabama Aircraft Court reversed the U.S. Court of Federal Claims, holding that the Court below had overstepped its bounds when it rejected an Agency’s Price Realism analysis, not because this Price Realism analysis was inconsistent with Solicitation requirements, but instead because the Court below thought that the Agency did not expressly consider, as it should have, the impact of the aging KC-135 fleet in its Price Realism analysis.

The Alabama Aircraft Court held that this was an impermissible substitution of the Court’s judgment for the Agency’s, a substitution not allowed under the narrow “arbitrary and capricious” standard of review which is applied to Protests.

It is no surprise, then, that DMS All-Star pays careful attention to the limits of Protest review as it applies to Price Realism analysis.

If a Solicitation does not set out a particular methodology for the Price Realism analysis, then on a Protest review the only limitation is that the Agency’s Price Realism analysis must be demonstrated not to contain any critical miscalculations, and must not make any irrational assumptions. In these Solicitations, the Agency’s Price Realism analysis has little vulnerability to a challenge on “adequacy” grounds. The Agency has broad discretion.

If a Solicitation sets out a methodology for the Price Realism analysis, then the Agency must demonstrate that it has followed the announced evaluation criteria, this in addition to demonstrating that the Price Realism analysis does not contain any critical miscalculations, and does not make any irrational assumptions.

The message in DMS All-Star is a simple one—if an Offeror believes that the announced Price Realism analysis is incomplete or unspecific, then the time to challenge these announced evaluation criteria is before the date set for receipt of initial Competitive Proposals, not later.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

The first, Tip Top Construction, Inc. v. United States, Fed. Cir. No. 2008-5183, April 29, 2009, arose from a decision of the United States Court of Federal Claims which denied a challenge to a Contract awarded for construction of a traffic roundabout, this because the Contracting Officer had rejected as nonresponsible an individual surety for the otherwise low bidder who pledged marketable coal as a bid guarantee. The second, Axiom Resource Management, Inc. v. United States, Fed. Cir. No. 2008-5072, -5073, May 4, 2009 is a reversal of a decision of the United States Court of Federal Claims which had precluded the Army from exercising an option for renewed performance of a program management support Contract, there after the Court of Federal Claims concluded that the Army Contracting Officer had unlawfully failed to mitigate a potential organizational conflict of interest.

In both decisions the Federal Circuit applied, as required by 28 U.S.C. § 1491(b)(4), the Administrative Procedure Act standard of review set out in 5 U.S.C. § 706(2)(A). Generally, this review standard requires: (1) that the Court look only at the record (the facts) as they were before the Contracting Officer, Florida Power & Light Company v. Lorion, 470 U.S. 729, 743-744 (1985); and (2) that the reviewing Court judge the Contracting Officer’s actions solely by the grounds invoked by the Contracting Officer, and not by substituting what the Court considers to be a more adequate, or a better, basis, OMV Medical, Incorporated v. United States, 219 F.3d 1337, 1344 (Fed. Cir. 2000) (applying SEC v. Chenery Corporation, 332 U.S. 194, 196 (1947)).

This Administrative Procedure Act standard of review is narrow, this reflecting a concern that Courts not interfere with matters entrusted to the judgment of Contracting Officers. A different regime prevails under the Contract Disputes Act, 41 U.S.C. §§ 601-613. There a de novo standard of review is imposed, 41 U.S.C. § 609(a)(3), and the Court conducts an independent examination of the relevant facts.

The problem with Axiom Resource Management, per the Federal Circuit, was that the Court below admitted extra-record evidence, freely allowing the parties to supplement the record “with whatever they want,” without first making a threshold determination whether this extra-record evidence was necessary. Doing so, the Court of Federal Claims admitted the declarations of two expert witnesses, and then the Court relied on these declarations to conclude that the Contracting Officer’s efforts to mitigate a potential organizational conflict of interest were unreasonable. This, the Federal Circuit observed, was de novo review, not Administrative Procedure Act review, and was “inconsistent” with the discretion given the Army Contracting Officer and with administrative law principles.

The Federal Circuit’s affirmance in Tip Top Construction is less obvious than the Federal Circuit’s reversal in Axiom Resource Management.

The Tip Top Construction Contracting Officer had rejected the proffered individual surety as nonresponsible because, reasoned the Contracting Officer, marketable coal was a “speculative” asset, this per Federal Acquisition Regulation 28.203-2(c). But other, nonetheless acceptable assets which may be pledged by individual sureties are likewise “speculative,” i.e., stocks and bonds traded on national U.S. security exchanges or real property owned in fee simple, Federal Acquisition Regulation 28.203-2(b).

This reality was enough of a problem for the Court of Federal Claims that the Court expressly found the Contracting Officer’s nonresponsibility determination reasonable not on the grounds invoked by the Contracting Officer, but rather because assets pledged by an individual surety, whether or not “speculative,” must, per Federal Acquisition Regulation 28.203-1(b), be secured by deposit into an escrow account, else secured by a recorded lien on real property. And a pile of coal, although it has a readily ascertainable value, cannot be deposited into escrow.

The Federal Circuit explicitly ignores this disconnect, simply holding in Tip Top Construction that the Contracting Officer’s nonresponsibility determination “is sustainable on the ground articulated by the contracting officer—namely, that the pledged coal was not the type of asset that is acceptable under the FAR as a bid bond asset.” Yet in OMV Medical, the Federal Circuit returned a price reasonableness determination to the Court of Federal Claims for further proceedings, an express recognition of the rule in Chenery, when it turned out that the Court below in fact had affirmed that price reasonableness determination on a ground not considered by the Contracting Officer.

The affirmance in Tip Top Construction appears to be a bow to practicality rather than an acknowledgment of administrative law principles. Axiom Resource Management, on the other hand, demands “by the book” adherence to the narrow Administrative Procedure Act standard of review.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Eligibility requirements for SDVOSBC’s were established by the Small Business Administration (SBA) in 2004 in Service-Disabled Veteran-Owned (SDVO) Small Business Concern (SBC) Program Rules at 13 Code of Federal Regulations (CFR) Subparts A and B (13 CFR §§ 125.8 through 125.13—Definitions and Eligibility Requirements) and in Subpart C (13 CFR §§ 125.14 through 125.23—SDVO Contracts). Subpart D of the SBA SDVOSBC Program Rules (13 CFR §§ 125.24 through 125.28) sets out Protest procedures allowing Contracting Officers and other Offerors competing for specific SDVOSBC Contracts to challenge the status of particular SDVOSBC’s.

In May 2008 the Department of Veterans Affairs’ (VA’s) Center for Veterans Enterprise (CVE) published interim verification guidelines which permit (but do not require) VA Contracting Officers to set-aside particular VA acquisitions if there are available SDVOSBC’s listed as “verified” in the VetBiz.gov Vendor Information Pages (VIP) database. These CVE interim verification guidelines, which largely parallel the SBA Program Rules, explicitly provide for SDVOSBC status verification and then listing by VA’s CVE in the VetBiz VIP database.

But neither the CVE interim verification guidelines nor the CVE itself give VA the final authority to determine SDVOSBC status. Instead, challenges to SDVOSBC status, either by a Contracting Officer or by another Offeror, are decided only by SBA. Singleton Enterprises-GMT Mechanical, A Joint Venture, B-310552, January 10th, 2008, at 3.

It turns out that there are presently 47 published decisions from SBA’s Office of Hearings and Appeals (OHA) which apply the SBA SDVOSBC Program Rules in deciding challenges to SDVOSBC status. Many of these published OHA decisions concern one particular aspect of the eligibility requirements for the SDVOSBC Program, and this particular aspect is the “control” requirement.

The “control” requirement is explained at 13 CFR § 125.10.

The “control” requirement demands: (1) that long-term decision-making and day-to-day management of the enterprise both must be conducted by one or more service-disabled veterans, 13 CFR § 125.10(a); (2) that a service-disabled veteran hold the highest officer position in the enterprise and that this service-disabled veteran have managerial experience of the extent and complexity needed to run the concern, else possess ultimate managerial and supervisory control over those who possess the required licenses or technical experience, 13 CFR § 125.10(b); and (3) that one or more service-disabled veterans have control over all decisions of the enterprise, this control including the ability to overcome any supermajority voting requirements for decisions otherwise made in the normal course of business, 13 CFR § 125.10(c), (d), (e).

Challenges to required “control” for SDVOSBC status often concern geography—that is, the qualifying service-disabled veteran is located at a site remote from the place of business and/or from the site of Contract performance. If the qualifying service-disabled veteran is located at a site remote from the place of business and from the site of contract performance, then it is likely that SBA will find a lack of “control.” If the service-disabled veteran is proximate to the place of business, then the question becomes whether or not the Contract in question requires intense on-site supervision. See, e.g., Matter of NuGate Group, VET-132, April 24, 2008, at 7.

Supermajority restrictions on business decisions, while common in the operating documents for any private enterprise, including SDVOSBC’s, have an effect on the required “control” for SDVOSBC status which is not as easily resolved. This difficulty stems from the difference between supermajority restrictions limited to circumstances outside the normal course of business (e.g., changes to the operating documents, issuing additional capital stock, or entering into a different line of business) and supermajority provisions not so limited (e.g., appointment and compensation of officers, limits on making other than nominal expenditures, or borrowing money for operations).

OHA has in the past, Size Appeal of EA Engineering, Science, and Technology, Inc., SIZ-4973, July 14, 2008, at 9, made a distinction between supermajority restrictions limited to circumstances outside the normal course of business and supermajority restrictions not so limited, there holding that supermajority restrictions which could be imposed in only three “extraordinary” circumstances outside the normal course of business were insufficient to prove affiliation.

But as regards the SBA SDVOSBC Program Rules, OHA has construed the “all decisions” language of 13 CFR § 125.10(c), (d), (e) strictly, holding that “any specified decisions requiring a supermajority that the [service-disabled veteran] could not himself satisfy” render an enterprise ineligible for status as an SDVOSBC. Matter of Heritage of America, LLC, VET-142, November 12, 2008, at 8 (emphasis added).

The problem with Heritage of America is that the supermajority restrictions there included both circumstances outside the normal course of business and circumstances within the normal course of business (i.e., making other than nominal expenditures or borrowing money). In a previous decision, Matter of Firewatch Contracting of Florida, LLC, VET-137, August 1, 2008, at 8, OHA had distinguished EA Engineering as applying only where supermajority restrictions were expressly limited to circumstances outside the normal course of business.

Heritage of America could have been more narrowly decided. Unfortunately, it was not.

We’re going to have to wait for future OHA decisions to see if the sensible distinction between supermajority restrictions limited to circumstances outside the normal course of business and supermajority restrictions not so limited, the distinction which was the focus of EA Engineering, will ever be applied to a challenge of SDVOSBC status.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

But the ADRA left unresolved the question whether the Implied-in-Fact Contract theory of Protest jurisdiction had survived, and on this question there has been neither unanimity nor a definitive ruling from the Court’s supervisory authority, the United States Court of Appeals for the Federal Circuit.

Perhaps this question is now resolved by FFTF Restoration Company, LLC v. United States, Fed. Cl. No. 07-659C, Judge Nancy B. Firestone, March 2nd, 2009, a Protest arising from the Department of Energy’s cancellation of a small-business set-aside Solicitation for deactivation and decommissioning of a nuclear reactor at the Hanford Site. Here Judge Firestone concludes that the Implied-in-Fact Contract theory of Protest jurisdiction survives the ADRA by “fitting within the ambit of the requirements to act with integrity, fairness, and openness, and to treat bidders fairly,” these imposed by Federal Acquisition Regulation 1.102(b)(3) and 1.102-2(c)(3).

Judge Firestone says that FFTF’s claims of breach of an implied-in-fact Contract and FFTF’s assertions of violations of the Federal Acquisition Regulation are “virtually indistinguishable.” Noting that the ADRA does not limit the theories under which violations are claimed, Judge Firestone concludes that claims of breach of an implied-in-fact Contract are permissible under ADRA.

©2010 Cyrus E. Phillips IV. All Rights Reserved.