Court of Federal Claims decision results in a ‘sea change’ for federal acquisition

In one fell swoop, the Court of Federal Claims upended two major governmentwide acquisition contracts from the General Services Administration and almost five years of effort to change the culture of federal contracting.

The Court ruled April 21 that GSA’s interpretation of Section 876 of the 2018 Defense Authorization was too broad as applied to the Polaris small business GWAC. The decision, released publicly last Friday, not only forces GSA to pause its efforts on Polaris, but also make a significant change to its strategy for OASIS+,  the follow-on multiple award contract for professional services.

“There were a couple of factors included in that decision that are going to impact how we’re going to approach OASIS+’s acquisition strategy. And notably, we had originally intended to not consider price or not have price as an evaluation factor in the RFP, and based on the judge’s decision, I think we’re going to pivot,” said Tiffany Hixson, the assistant commissioner for the Office of Professional Services and Human Capital Categories in the GSA’s Federal Acquisition Service, at the Coalition for Government Procurement’s spring conference yesterday. “Based on the judge’s decision, we’re going to go ahead and include a price evaluation factor in RFP, which is a pretty big change in terms of our strategy. Based on her decision, we feel like it’s necessary to make sure that agencies can do the types of contracting that they want to do at the task order level. The judge, in her decision, at least this my interpretation, was that really we could only do labor hour based task orders, which as many of you know for OASIS is not how most of the federal agencies that use always use it. The contract types that we have the task order level are either largely fixed price, cost reimbursement and then there is some time and materials and labor hours. So for us to be able to allow that type of contracting to happen, we just need to include cost as an evaluation factor.”

Hixson said her team still is figuring out what that will look like with one idea taking a page from the OASIS solicitation and focusing on price reasonableness as an evaluation factor. She said GSA is hopeful to release the final solicitation with price as an evaluation factor in the next month or so.

Section 876 meant to reduce burden

The Court’s decision, however, just doesn’t mean a delay in the release of the OASIS+ final solicitation or awards under Polaris, it throws a wrench into GSA and industry’s long-effort to change the way agencies evaluate and award GWACs and multiple award contracts.

Emily Murphy, a former GSA administrator and a procurement expert, said the judge’s decision “hurts” government contracting, especially small businesses and agencies.

“Getting Section 876 in place was something I am very proud that we did. It was supposed to take a lot of burden off small firms and contracting officers, and it was a meaningless burden because it was not delivering results,” said Murphy, who is now a senior fellow with the Center for Government Contracting at George Mason University, in an interview with Federal News Network. “I’m surprised the judge went this far with the decision. It’s very much a strict constructionist argument, and it doesn’t seem to reflect GSA’s knowledge of how awards are made under the contract. Usually the court defers to the agency for how a vehicle would be used.”

The Court of Federal Claims ruled GSA applied the Section 876 statute too broadly in Polaris, saying price wasn’t necessary as an evaluation factor for the main contract. GSA said agencies could award task orders under Polaris that were time-and-materials, labor hours, cost reimbursement and firm fixed price with a preference for firm fixed price type contracts.

GSA issued a class deviation to the Federal Acquisition Regulations to apply Section 876 to Polaris.

The protest, by SH Synergy and VCH Partners, argued that this broad definition went beyond the authority Congress granted GSA, which was for performance under the task order must be measured by, and payment remitted in accordance with, the number of hours a contractor spends working on the project.

The Court said GSA’s interpretation of the law “does not reflect the statute’s plain language because it relies on terms absent from the statute and, if adopted, would render the phrase ‘based on hourly rates’ superfluous. As an initial matter, all parties agree that the statute at issue is unambiguous in nature.”

Further the judge said GSA’s defense of which contract types qualify as “based on hourly rates” is equally problematic because it is “so broad that it renders the phrase ‘based on hourly rates’ entirely meaningless.”

Judge makes bold decision

Under Polaris, agencies could use a variety of contract types ranging from labor hours or time and materials, which are based on hourly rates, to firm fixed price, which is not.

“The statute’s plain language unambiguously demonstrates Congress’s intent to create a narrow exception to the general rule requiring agencies to evaluate price for competitive procurements. By correspondingly requiring task orders featured under the IDIQ to be ‘based on hourly rates,’ Congress underscored the limited subset of IDIQ contracts that would qualify for special treatment under [the law],” the judge wrote.

A GSA spokesperson said the agency is reviewing the court’s decision and will determine a path forward for Polaris.

“This decision prohibits further proposal evaluation and contract awards under the current versions of the Polaris solicitations protested at the Court.  GSA remains committed to providing opportunities for small businesses while supporting Federal agencies and their socioeconomic and small business program goals,” the spokesperson said. “Further updates and next steps for the Polaris program will be communicated through SAM.gov. ”

Murphy said the issue as she read the decision was more focused on firm fixed price than the other three contract types. She said the problem is GSA really can’t do anything to get insight into the cost of a firm fixed price task order so in the end, the pricing at the main contract level isn’t valuable to GSA or the ordering agency.

Mike Pullen, vice president of CGI Federal for strategic operations, said with multiple task orders and varying scopes of work, it can be difficult to determine the actual cost of delivering the work under the indefinite delivery, indefinite quantity (IDIQ) contract.

“Each task order may have different requirements and cost structures, making it challenging to compare the pricing of different task orders,” he said. “Since IDIQ contracts typically have a longer lifespan and multiple task orders, indirect costs such as overhead costs, indirect labor and material handling costs can be difficult to predict accurately.”

Eric Crusius, a procurement attorney and partner with Holland and Knight, said the decision is correct, but creates a sea change in federal procurement.

“This was not challenged before because no one picked up on it or contractors saw it done erroneously but were not harmed by it so they didn’t think they could get an injunction in the court. It’s a difficult task here to make an argument for not having to submit price is disadvantageous to you now versus at the task order level,” Crusius said. “This is the kind of sea change you don’t see judges willing to take on typically in a protest decision. As a protest lawyer, I like the fact the judge was willing to be bold and impact a multi-billion dollar procurement. What’s difficult is one person, as well-reasoned as the person is, will impact many hours of government and contractor efforts.”

GSA cannot move forward with Polaris until it narrows its use of Section 876.

Roger Waldron, the president of the Coalition for Government Procurement, said the judge’s decision eliminates a key streamlining tool that increased access to the federal market and competition at the task order level.

“The submission and evaluation of cost information will be mandated at the contract level.  It remains to be seen how much cost information will be required for submission and how that cost information will be evaluated. In short, this decision will increase bid and proposal costs and increase time to market for a host of major IDIQ contracts currently under development across government,” he said.

Future of Polaris unknown

Murphy said that puts Polaris in dangerous waters, similar to what happened with Alliant 2 small business.

“Vendors will have to submit pricing so GSA will need to provide a definitive list of what they want prices on. That will be a lot of work for GSA, and then it will be a lot of cost and work for small businesses to put that together,” she said. “How long does this push off the award and at what point in time is the Polaris scope the scope you no longer want?”

GSA announced Polaris in July 2020 and released the RFP last September so it’s already been almost three years since the initial thinking started. GSA ended up cancelling Alliant 2 small business after four years, meaning there hasn’t been a small business GWAC for almost eight years now.

She said Congress could pass a technical amendment to give GSA broader authority, but that will not be easy given four different committees would have to agree, the House Oversight and Accountability Committee and Armed Services Committee as well as the Senate Homeland Security and Governmental Affairs and Armed Services committees, given the most logical way to pass a fix would be through the 2024 Defense authorization bill.

CGI’s Pullen said the judge’s decision unravels years of work by government and industry, and there likely will not be a benefit for the protestor.

“Even if price was a factor it would likely not change the award pool for the contract. The cost evaluation at the IDIQ level is truly meaningless as required factors for specific efforts are unknown so rates end up as ceilings based on arbitrary unknown risk factors. This is why it was in the best interest of government and industry for price competition to occur at the task order level,” he said. “The unintended consequence of this decision will cause the government to take action to correct the Polaris solicitation and future solicitations that will ultimately not change the companies who receive awards, but cost the American taxpayer money as both industry and government jump through unnecessary hoops.”

Murphy echoed Pullen’s comments about the protestor still not get on the contract even with this win as the judge also ruled for GSA on some other complaints, specifically about the mentor-protégé program requirements.

Murphy said it’s unclear if the Justice Department will appeal the judge’s ruling.

“By requiring small businesses to provide pricing for services that may never be used, bid and proposal costs will increase substantially. At a time when the small business industrial base is shrinking, this will create further barriers to participation by small businesses. Labor hour costs are of dubious value when the scope of work isn’t known,” she said. “At the end of the day, if there is vigorous competition at the task order level, customers and taxpayers are better served.”

 

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