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Sometimes the Federal Acquisition Regulation calls for meaningful discussions between government and would-be contractors. The lack thereof can result not only in a bid protest – it can come up long after a contract has been awarded but runs into performance problems. That’s the heart of an issue between the Navy and one of its suppliers. Procurement attorney Joseph Petrillo brought Federal Drive with Tom Temin more details on the case.

Interview transcript:

Tom Temin: Joe, tell us about the case. This was an awarded contract, it was proceeding and then ran into trouble. How and why?

Joe Petrillo: Sure. Well, the contract was a very large fixed price facility support services contract awarded by the Navy. And the issue that arose as you said in your intro comes out of the Federal Acquisition Regulations in a competitive negotiated procurement. There’s a requirement that if the government opens negotiations, they’ve got to do various things, and one of them is to inform the offerors if their proposals have any deficiencies, significant weaknesses, or adverse past performance information, that way they can address that in their revised proposals. And that’s a fairly common ground of protest. But the question here was, does it also confer rights on the contract or after contract award? And the situation basically arose because of the staffing that had been proposed by the contractor, Chugach. The Navy had told Chugach of concerns about its proposed staffing in the first round of negotiations. But this was an extremely long and torturous procurement. It went through four separate rounds of negotiations with four rounds of revised proposals. In the middle there was a sustained GAO protest that probably led to the last two rounds. But after the first round, the Navy said nothing about Chugach proposed headcount. Ultimately, Chugach had proposed 311 full time equivalents. The Navy’s estimate was that it would take 421 to perform the contract.

Tom Temin: Sounds like some toilets were not going to get cleaned out.

Joe Petrillo: Well, there were problems. In fact, the evaluation record in the Navy said virtually every stage of the procurement, that Chugach has low staffing was a significant weakness. And that, of course, triggers the obligation to conduct meaningful negotiations. They didn’t. Chugach was running into trouble performing, probably losing money. It’s filed a claim with a Navy which was denied. And now, the appeal is before the Armed Services Board of contract appeals.

Tom Temin: So the company made a claim against the Navy based on the fact that there had not been meaningful discussions earlier about the proper staffing levels needed, and the Navy says tough. And now it’s at court.

Joe Petrillo: It’s at the Armed Services Board, which is an administrative board that handles contract disputes. One ground of the case that the company had brought against the Navy was that they conducted negligent negotiations. And just as you said, even though the internal evaluation showed consistent concern about staffing that was not shared with the contract.

Tom Temin: That’s the key thing. So the Navy knew that the 311 people probably wouldn’t cut it, but they didn’t tell Chugach that.

Joe Petrillo: Exactly. And the board upheld this as a valid ground for a claim the Navy had moved twice to get rid of this both to dismiss the case on that ground. The board’s reasoning analogize the situation to a 25 year old appellate decision, appellate court decision, in which the government had leaked one bidders price to another contrary to the Federal Acquisition Regulations. And these, again, are regulations about the conduct of a negotiated procurement, not necessarily what happens after the contract is awarded and is being performed. So we have a situation where the Federal Circuit said that regulation was for the benefit of the bidder, so the bidder can enforce it later on if it becomes a contractor. And the board felt the same was true here for the meaningful discussions requirement, the requirement that you be told about things like significant weaknesses, so you can improve your proposal, and it’s for the benefit of the contractor. The board also found an analogy to a very long line of cases in which the government can become liable if it has superior knowledge about contract performance, but doesn’t disclose that to the contractor so that it can submit a bid understanding the full impact and context of what it’s doing.

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Tom Temin: But is there any obligation on the part of a company like Chugach to look at what the requirements are to take care of this facility, could they have realized our 311 people can’t do everything the Navy’s asking us to do for the price we’ve agreed to do it at?

Joe Petrillo: Well, I think you’ve stated at one of the grounds Navy is going to use to try to defend the claim as it goes on now to trial. The Navy lost the preliminary motions, and all Chugach has established is that it has the right to bring this case. And if it can prove its case, it’s going to be entitled to relief. Now the rubber meets the road and they need to show their proof.

Tom Temin: So in essence, the company is looking for a post facto price increase.

Joe Petrillo: Exactly. Their arguments going to be, had we’ve known about this and had you shared this important information with us, we would have been proposing a higher price, wouldn’t be in this terrible situation that we’re in.

Tom Temin: Joseph Petrillo is a procurement attorney with Petrillo and Powell. As always, thanks so much.

Joe Petrillo: Thank you Tom.

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