What happens when government buyers should negotiate, but don’t

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When the Defense Department buys high-dollar items under negotiated procurement rules it’s supposed to negotiate. The Army awarded a major contract without talking to any of five bidders. The Government Accountability Office dismissed the protests so the company went to court and there it got interesting. The Federal Drive with Tom Temin got details from Smith Pachter McWhorter procurement attorney Joe Petrillo.

Interview transcript:

Tom Temin: And Joe, first of all, tell us what was the Army buying here? And what was the rough dollar value of this whole deal?

Joseph Petrillo: Sure, the Army was buying operations and maintenance services, or its communication and information systems needed by the Central Command in nation locations like Iraq, the Emirates, Qatar, places like that. But a contract would be cost plus fixed fee for up to five years. And if all the options were exercised, and the five-year term, were realized the estimated value of the contract was going to be about $1 billion. And that’s what the award was.

Tom Temin: And what was the contracting rule or system under which they were buying this? Pretty standard stuff, right?

Joseph Petrillo: Yes, very standard. That’s a really good point. This is being done under contracting by negotiation in FAR Part 15, which is the normal way the government awards very large dollar value contracts, where they want to be able to do things like a best value trade off of cost versus technical factors. And they did that here. Technical factors were more important than the cost of the contract.

Tom Temin: All right, and they awarded a single bidder and they had no discussions. I mean, what happened that touched off this protest?

Joseph Petrillo: There were five competitors. The award went to the incumbent contractor, Ventress. One of the losers, IAP Worldwide, protested with GAO and lost there, then went to the Court of Federal Claims, and the public version of that ruling came out this month. There were two main types of issues in this protest: IAP Worldwide attacked the evaluation. And under the evaluation, it had been found unacceptable in one of the four technical sub factors and therefore for the technical factor itself, which of course meant it couldn’t get the contract. It attacked that evaluation and failed to convince either GAO or the court that it was wrong. However, it also complained that the army hadn’t conducted negotiations. Now, usually, whether or not to conduct discussions is in the discretion of the contracting officer. And the government has pretty wide discretion in whether to do so. But in 2011, the Department of Defense decided that there weren’t enough negotiated contracts with actual negotiations. And that at least in the high dollar ones, it was worth conducting those discussions and clearing up misunderstandings getting better and more targeted proposals from contractors. So they issued a regulation that said for acquisitions over $100 million the contracting officer should conduct discussions. And this protest basically revolved around the question of what does that mean? Fortunately for us, the court could look at the FAR’s definition of those terms.

Tom Temin: We’re speaking with Joe Petrillo. He’s a procurement attorney with Smith Pachter McWhorter. So GAO turned down the protest?

Joseph Petrillo: Right. They said no, this was within the Army’s proper discretion, didn’t have to conduct discussions here. The court said, well, not so fast. What is does “should” mean? as I mentioned, the Federal Acquisition Regulation defines the terms. “Should” is neither permissive like “may” nor imperative like “shall.” It means that there’s an expected course of action or policy that’s to be followed, unless it’s inappropriate for a particular circumstance. So the default position in these defense procurements is to conduct discussions. And the question is, why didn’t the Army do that here?

Tom Temin: So the idea is that the Army could have looked at that technical factor with the losing bidder and said, Well, can you do better here? And then perhaps they might have had a better shot of the contract, is that the basic premise?

Joseph Petrillo: Well, one of the arguments that government had was that IAP couldn’t insist on discussions because its proposal was unacceptable. But as you point out, one of the objectives and purposes of discussion is to tell offerors about which parts of their proposal are deficient or have significant weaknesses. And the reason for doing that is so they can address it in a revised proposal. So the fact that it was unacceptable really doesn’t negate the possibility of discussion.

Tom Temin: That is to say the government has the discretion to discuss things with individual offers, and give those offers a chance to resubmit before they make a decision, provided they don’t share all of this information across the offerors.

Joseph Petrillo: Exactly. And in this particular DoD regulation, at least for these high dollar procurements, that the default position should be yes, we’re going to go ahead and have those discussions. So the court then did what it needs to do, which is to look at the record and see what justification the Army had for its decision. And the Army concluded that discussions wouldn’t benefit the government or change the outcome. But it didn’t really give any reasons for that. And that kind of thing can be fatal in a decision issued by a court on a protest. You’re looking at the record. The court needs reasons for conclusions, and here there weren’t any.

Tom Temin: Right, you could almost sense that the Army was just trying to stick with the incumbent because that’s maybe the most convenient way to proceed operationally. There’s no evidence of that but that’s what someone could infer.

Joseph Petrillo: When the incumbent’s doing a good job sometimes the government’s loath to try the risk of another vendor, even if it means saving money. They don’t want to risk mission failure.

Tom Temin: The court raised that question. And then what did they say actually? Did they tell the Army to go back and start over or what’s the status now?

Joseph Petrillo 6:02
The status of the procurement is that the court finds the Army’s decision not to conduct discussions, a decision that can’t be sustained here. They have to go back and do something about it. The question is what. And the court is sort of confused as to what it should do, given the facts of this particular procurement. It isn’t clear that IAP really is in a good position to insist upon a review of this decision not to conduct discussions. And even if discussions are conducted, it isn’t clear that I AAP is going to be in the competitive range. So it wants more briefing by the parties on what the remedy is, is there going to be an injunction? What will that injunction say? If there isn’t going to be an injunction, then IAP is probably just going to get its bid and proposal preparation costs.

Tom Temin: Is the implication then what the court did is not overturn the Army’s decision. So it’s the whole thing in limbo at this point?

Joseph Petrillo: Well, it’s in limbo in the sense that the Army has violated the regulation. But the consequence of that in terms of what remedy IP gets is still up in the air. I think the interesting thing to take away from this decision is that the court did not follow GAO’s jurisprudence on this question. As I mentioned earlier, GAO did not rule in IAP’s favor on this discussions point. And the court pointed out that the test that GAO is applying here is a test that had it been applying before the regulation was changed in 2011? The court said wait a minute, that’s changed, means that the presumption is you’re going to have discussions and the exception is that you don’t. So how can you possibly use the same legal tests that were applied when there was no such presumption? And right there, that’s kind of an interesting situation where the court is going in a different direction than GAO on an important legal issue.

Tom Temin: So this is a case where we have yet more to see what the Army does and what the court eventually decides in finality?

Joseph Petrillo: I think that’s right. And you know, perhaps GAO will start reconsidering the way it looks at these cases as well. Even if it doesn’t, this issue may get up to the Court of Appeals for the Federal Circuit and they will resolve, I hope the inconsistency between the legal tests now.

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