Why DHS landed in hot water over $5M leadership training contract

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Even simplified acquisitions can get an agency tied into knots. That’s what the Department of Homeland Security found out when it used simplified procedures for a training contract worth less than $5 million. Smith Pachter McWhorter attorney Joseph Petrillo joined Federal Drive with Tom Temin with the details.

Interview transcript:

Tom Temin: And Joe, I thought simplified meant simple, but in this case, it was anything but. Tell us about this case.

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Joseph Petrillo: Sure. In this instance, the Department of Homeland Security was conducting a small business set aside acquisition to obtain leadership training. The concept here is that DHS employees go off to Gettysburg with a contractor and they tour the battlefield and they stay there and they conduct leadership training and seminars. And they use the events at Gettysburg as illustrations and object lessons to show how leadership works. That’s the basic idea. The department, as you’ve mentioned, decided to use simplified acquisition techniques and try to make this a streamlined procurement. But things got complicated as they sometimes do. This was a best value procurement. And the most important factors in order of their importance were technical capability, a sample presentation, and past performance, with price being the least important factor. The proposals were rated each of those non price factors at confidence levels — high, some confidence, or low confidence.

Tom Temin: So a scale of one to three basically.

Joseph Petrillo: Exactly. Yeah, basically good, okay, and not so good. So, that was the rating system. When the evaluations took place, Lincoln had the highest rating category for the top two factors.

Tom Temin: Is that why they…this is because of Gettysburg?

Joseph Petrillo: Well, I don’t know it’s certainly they have the right name.

Tom Temin: Lincoln is a small business that does training, in other words.

Joseph Petrillo: Exactly. Lincoln Leadership.

Tom Temin: Got it, okay.

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Joseph Petrillo: Not Lincoln the president. Technical capability and sample presentation — they have the highest ratings. They have a middle rating for past performance, but the price was high, about $4.5 million. Academy Leadership had the middle rating for all three non-price factors, and a price of only $3 million. DHS determined that Lincoln Leadership’s technical superiority was worth the much higher price, and award went to that company. Academy Leadership protested. And the crucial issue in the protest involved around DHS’s communications with the offerors. They had asked all three finalists in the competition if their price was the best they could offer. In addition, they told Lincoln Leadership its price was significantly higher than the other proposals.

Tom Temin: And that’s kosher to say that?

Joseph Petrillo: GAO did not say that was objectionable. And they did mention that it was advice specifically tailored to Lincoln’s proposal. I think under FAR Part 15 — the normal competitive negotiation procedures — that’s a questionable thing to do. But certainly saying your price is too high or relatively too high probably is perfectly okay.

Tom Temin: But they didn’t slide pennies across the table, each one being a million dollars, and winking, say this is how high you are, so far as we know.

Joseph Petrillo: Apparently not, yeah, that’s not in the record anyway. So the issue now is what happened after that, and Lincoln and Academy both reduce their prices — Lincoln went from $5 million to $4.5 million, Academy went from $3.5 million to about $3 million. I’m rounding things off here. But Academy said, look, these were discussions and they were unfair and misleading. And the Department of Homeland Security said, well, this isn’t a FAR Part 15 procurement, where you have all these rules about what you do in discussions. It was a simplified acquisition. And we think that asking for a better price was a smart thing to do and perfectly fine. The GAO looked at it differently though. They said that even though the simplify procedures don’t require discussions, when an agency does conduct them, it has to do so fairly and reasonably. So what does that mean? What is fair and reasonable mean? Well, in this instance, GAO refer to the FAR Part 15 procedures as to what that meant. And first of all, it […] that these were the types of discussions that are mentioned in those procedures.

Tom Temin: So they were referencing the unsimplified part of procurement.

Joseph Petrillo: Exactly. And given that they were discussions under FAR Part 15, the standard for those discussions had to be that they were meaningful. Here, they didn’t meet those standards, because Lincoln was specifically notified of the main obstacle it had to achieving award, its substantially higher price, and given an opportunity to fix that — they were able to reduce their price. However, Academy wasn’t given that opportunity. Their problem wasn’t their price. Their problem was areas in their proposal, which were not as good as they could have been. And there were specific areas that DHS mentioned in their evaluation as being significant weaknesses in Academy’s proposal. It wasn’t told about those areas, and it wasn’t given an opportunity to fix its proposal to try to improve it.

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Tom Temin: In other words, Homeland Security told Lincoln, the one they awarded it to, that their price had been too high. But they did not tell Academy, which did not get the award, about the deficiencies in the other parts of the procurement — their technology, their sample presentations, and their past performance.

Joseph Petrillo: Exactly. The basic problem here is that Academy’s problem wasn’t that his price was too high, his price was fine, his price was comparatively very good. Ironically, all that happened as a result of discussions was everyone’s price lowered. And the gap between Academy Leadership and Lincoln Leadership didn’t close at all. But in the last analysis, price wasn’t the determitative factor here.

Tom Temin: But I guess the theory is that hadn’t known about the deficiencies in the more important areas of evaluation, perhaps Academy could have had the opportunity to improve them.

Joseph Petrillo: I think that’s right. They were things that look like you might be able to fix in a proposal. And we didn’t know because Academy never had that chance. So GAO sustained the protest and said that Homeland Security would have to conduct appropriate discussions with all three finalists, get revised, and make a new source selection. The moral of the story here is that it looks like to the extent you start using FAR Part 15 procedures, you’re going to have to use them more rigorously and thoroughly than you had perhaps envisioned, even in a simplified acquisition. GAO did say that there could be circumstances where an agency in a simplified acquisition could request price reductions, and those price reductions wouldn’t trigger discussions. But it’s hard to imagine what those are. The only instance I can think of is where everyone has the highest possible ranking and couldn’t improve in their non price factors. So the only thing is price. But other than that kind of unusual situation, it seems to me that you’ve got this kind of teaching to follow.

Tom Temin: Yeah, if everybody’s great, then you’ve got the equivalent of contractor T-ball. And it’s only a function of price. So the lesson is that, say the same thing to everybody. If you’re going to be simplified, say, everybody’s price is too high, come back at us. And leave it at that. But if you start having individual discussions, then you’re getting yourself into Part 15 territory if you don’t have them equally with everyone.

Joseph Petrillo: I think the agency did, in fact, do what you said here, but it got in trouble because everyone wasn’t in the same position. So that issue about price turned out to benefit only one offeror when others had meaningful interventions that didn’t happen and could have.

Tom Temin: Alright, so now we have to see what happens. It has not been rewarded yet, correct?

Joseph Petrillo: As far as I know, it has not.

Tom Temin: Well, agencies have ways of getting what they want, even in spite of protests, so, I’ll have to see how that one comes out. It’s getting cold to go up and traipse through Gettysburg pretty soon, this may all end up in the spring.

Joseph Petrillo: Well, maybe that’s a leadership lesson in itself.

Tom Temin: All right. Joseph Petrillo is a procurement attorney with Smith Pachter McWhorter. Thanks so much.

Joseph Petrillo: Thank you, Tom.

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