$600 contract at the heart of ‘intense’ 2015 for federal procurement

A $600 procurement for kitchen equipment at a Veterans Affairs Department medical center is at the heart of the atypical year that was for federal procurement in fiscal 2015.

That procurement led to Kingdomware, a service-disabled, veteran-owned small business, challenging VA’s interpretation of a law requiring the agency to set-aside all procurements if at least two veteran-owned small businesses are qualified. The case is now before the Supreme Court.

In fact, Kingdomware is the second federal procurement case over the last year to make it to the nation’s highest court. The first case was about whether the Department of Housing and Urban Development needed to use grants or contracts to do its Section 8 public housing agreements. GAO said it needed to be done with a contract, not a grant. The Supreme Court ended up denying the government’s appeal, leaving in place a lower court decision that HUD must use contracts and not grants.

In his 30 years in federal procurement, Ralph White, the Government Accountability Office’s managing associate general counsel for procurement law, said he’s never seen one, let alone two, federal acquisition cases make it before the nine justices.

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“It is a very tight environment and businesses are closely watching the outcome of these competitions or the failure of the government to hold competitions,” White said. “[The cases] started at different points but they’ve come to their pinnacle of the legal structure at the same time in the same year. They are very different questions. But they are complex questions even on matters that seem fairly straightforward like the VA statute. There are a lot of different views about how that statute should or shouldn’t be interpreted, and the same with the HUD statute that required GAO and the courts to interpret the Federal Grants and Cooperative Agreements of 1976. A very complex, and somewhat arcane area about whether or not the government has to use a contract or grant to get some kind of function or service done.”

Many experts have said that the federal procurement process is getting more complex rather than less, especially as the community gets further and further away from the seminal 1990s laws, the Federal Acquisition Streamlining Act and the Federal Acquisition Reform Act.

One example of the complexity is GAO’s jurisdiction to hear bid protest cases on task order and deliver order contracts worth more than $10 million.

Congress granted GAO this authority in 2008 and GAO reaffirmed its jurisdiction in 2011.
White said the number of protests of task or delivery orders have stayed fairly consistent over the last seven years.

In 2015, contractors filed 335 bid protests on task orders out of a total of 2,647 complaints filed, according to GAO’s annual bid protest report to Congress.

“That’s been a steadily increasing number, but not a huge number,” White said. “I actually think it will be even higher this year because folks … have seen a very large increase in the use and the government building multiple award IDIQ contract structures that they can use for 5-to-10 years and have competitions with task orders limited to that pool of people who hold that umbrella contract.”

In 2015, agencies spent more money through the General Services Administration’s schedules and governmentwide acquisition contracts than the previous year. Final 2015 spending numbers are not ready yet, but GSA officials have said many times publicly they expect spending on schedules and GWACs in 2015 to increase significantly.

In 2014, agencies spent more than $32.8 billion on the schedules. GSA officials estimated the amount of revenue could increase to $35 billion. Additionally, agencies spent more than $5.5 billion on GWACs last year, up from about $5 billion in 2014.

Even with the task order and delivery order jurisdiction, White said overall bid protests remain relatively flat.

GAO reported vendors filed 2,639 total in 2015, up from 2,561 (3 percent increase) in 2014. Since 2011, the number of bid protests filed to GAO increased by 286.

Maybe more significant are the stats from GAO about the sustain rate and effectiveness rate.

GAO reported vendors won only 12 percent of the bid protests that went to the end of the process. The sustain rate dropped by 1 percent year over year, but it’s down from 18.6 percent in 2012.

The effectiveness rate increased to 45 percent, up 2 percent since 2013 and 3 percent over the last five years. The effectiveness rate is when the protester gets any kind of relief — either from the agency conducting the procurement taking corrective action or GAO sustaining the protest.

In all, GAO said it made merit-based decisions — meaning GAO sustained or denied the protest — on 587 protests.

“There is about a one-in-five chance of a protest filed with GAO going to a decision on the merits —meaning getting sustained or denied,” White said. “The other situation is that four out of five are getting dismissed, meaning we are not going to the merits. That happens in a vast number of ways, but the biggest group by far is that a very large number of them are going away after they become academic or moot because there is no longer a dispute, the agency has agreed to pull back the procurement and take some steps that either address the issues the protester raised or address issues not addressed by the protester, but the agency sees in the underlying record it chooses to fix or address before going forward with the litigation.”

White said about more than 1,100 cases out of 2,600 protests are closed after the agency takes corrective action.

White said he attributes the fact that agencies take corrective actions on a large number of protests before GAO can rule because lawyers can look at the historical precedents of the agency’s rulings and have a pretty good idea of GAO will decide.

He said GAO’s latest report shows that agencies continue to conduct the vast majority of procurements with success and within the regulatory and legal bounds.

White said many times the smallest contracts that don’t get a lot of attention in the media are the ones that have the biggest impact on the system.

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