Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

The Baltimore District, in conjunction with the Society of American Military Engineers, is conducting a one-day forum on the workload created by the Base Realignment and Closure (BRAC) construction program in the District.  This multi-billion dollar program includes new construction and renovation work.  The forum will be held on December 7, 2006 in Hunt Valley, Maryland.  Information and registration forms may be obtained at http://www.nab.usace.army.mil/BRAC/.

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This recent Court of Federal Claims decision involves a USDA contract for the construction of a vegetable laboratory in Charleston, South Carolina. The contractor was terminated for default and the bonding company, Travelers Casualty and Surety of America, took over under the terms of the performance bond. 

While there is nothing particularly noteworthy about the Court’s lengthy recitation of the facts, the Court did restate some important rules governing the determination of defective specifications. The Court referred to one of the landmark cases in federal government contracting, Spearin v. U.S., where Justice Brandeis wrote the Supreme Court opinion that established the “Spearin Doctrine’ (a contractor will not be liable to an owner for loss or damage which results solely from insufficiencies or defects in plans and specifications). As the Supreme Court explained:

[I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications. This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work . . . . In Spearin, the Supreme Court held that contract provisions “prescribing the character, dimensions and location of” a structure to be constructed “imported a warranty that, if the specifications were complied with, the [structure] would be adequate.”

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This article describes a GAO decision that highlights how difficult it is to prevail on a protest that challenges an agency’s rating of a proposal where the protest is not supported by anything more than a difference of opinion as to how much weight, or what score, should be assigned to a particular evaluation factor. Absent a showing that there was no rational basis for an agency’s evaluation, contractors should not expect the GAO to overturn an evaluation.

The GAO published a decision today that was originally issued on July 19, 2006, but delayed in being made public because of the need for redactions.  The case involved a protest by East-West Industries, Inc. against the award of a contract to Regent Manufacturing, Inc.   The solicitation was issued under request for proposals (RFP) No. FA8518-04-R-70801, advertised by the Department of the Air Force for multi-aircraft canopy cranes (MACC). East-West challenged the past performance and risk evaluations of its and Regent’s proposals. The protest was denied.

In its decision, East-West Industries, Inc. , B-297391.2; B-297391.3, the GAO stated that in reviewing a protest of an agency’s proposal evaluation, “our review is confined to determining whether the evaluation was reasonable and consistent with the terms of the solicitation and applicable statutes and regulations.” The GAO found that the evaluation of protester’s proposal under the past performance evaluation factor was unobjectionable where the agency reasonably concluded that only one of four prior contracts was of a magnitude and complexity essentially the same as the solicitation’s, and thus met the solicitation’s definition of very relevant. Since only one contract was rated very relevant and the protester received exceptional performance ratings under only two of its three relevant contracts, the GAO determined that the agency reasonably concluded that East-West’s performance record warranted assigning the firm a very good/significant confidence rating based on there being little doubt--rather than no doubt--as to its successful performance.

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The Navy recently awarded three cost-plus-award-fee, indefinite-delivery/indefinite-quantity (ID/IQ) contracts to Fluor International, Inc., URS-IAP, LLC (a joint venture of URS Corporation and IAP Worldwide Services, Inc.) and Atlantic Contingency Constructors, LLC (a limited liability company managed by The Shaw Group) for global contingency construction. Each contract was for a base year with four one year options, and the value of each contract was approximately one billion dollars. The contractors were to provide construction and related engineering services in response to war fighting needs, global natural disasters, and humanitarian assistance.

The awards were made following a "best value" evaluation based on experience, past performance, contingency planning, management, small business utilization, and cost. Non-cost factors were considered more important than cost. A disappointed offeror, Kellogg Brown & Root Services, Inc. (“KBR”), filed a GAO protest asserting that the Navy misevaluated the proposals under technical and cost factors. The GAO agreed and issued a decision sustaining the protest.

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A GAO decision released today, but dated November 15, 2006, reported that Advanced Federal Services Corp. protested the award of a contract to Eastek, Inc. under request for proposals (RFP) No. W9128Z-06-R-0001, issued by the Department of the Army Communications-Electronics Life Cycle Management Command for business administrative support services (BASS).  The protester contended that the agency unreasonably evaluated offerors’ technical proposals and past performance and made an improper source selection decision.  The protest was denied.

The GAO stated that in reviewing a procuring agency’s evaluation of an offeror’s technical proposal, “our Office’s role is limited to ensuring that the evaluation was reasonable and consistent with the terms of the solicitation and applicable statutes and regulations. As with any evaluation review, our chief concern is whether the record supports the agency’s conclusions To the extent a protester disagrees with an agency’s evaluation, such mere disagreement does not render an evaluation unreasonable; our Office will not question an agency’s evaluation judgments absent evidence that its judgments were unreasonable or contrary to the stated evaluation criteria.”

In other words, contractors who want to challenge the government’s evaluation of an offer submitted in response to a Request for Proposals (RFP) should understand that the GAO gives great latitude to federal agencies. The GAO will almost always yield to the discretion of the source selection official unless the protester can provide evidence that there was not a rational basis for the evaluation.   See Advanced Federal Services Corp., B-298662, November 15, 2006.

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The Court of Federal Claims, in Trafalgar House Construction v. United States, recently reiterated the criteria that a contractor must meet if it decides to use the total cost method to calculating damages for differing site conditions and delays. This method essentially involves subtracting the bid price from the total costs incurred and adding profit to the difference. In this way, a contractor takes the position that all of the costs it incurred above and beyond the bid price are the responsibility of the government. The courts disfavor this approach, as stated in the Trafalgar decision, because of “bidding inaccuracies” and “performance inefficiencies” that “skew” the accuracy of the damage calculation. The criteria that a contractor must meet to sustain a total cost method damage calculation are as follows:

1) That it was impractical to prove its actual losses directly

2) That its bid was reasonable

3) That the actual costs incurred were reasonable

4) That the contractor was not responsible for the added costs

In the Trafalgar case, the contractor failed to meet the first criteria and was unable to demonstrate why its costs could not be calculated directly.  The criteria established by the Court are very stringent and difficult for a contractor to meet. As a result, the message is quite clear: contractors should find another, more accurate, more reliable method of proving damages. Contractors are well advised to segregate labor and material costs for work items in dispute that involve such things as differing site conditions, delays, and changes in the work. By segregating costs, contractors are in a better position to negotiate and resolve disputes, and they will be able to prove their costs in a way that will be accepted by government auditors, administrative boards, and the courts. The bottom line is that the courts are very reluctant to accept the total cost approach as a method to calculate damages.      

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The GAO published a decision today in the Matter of SunEdison, LLC, B-298583; B-298583.2, dated October 30, 2006, involving SunEdison’s protest of an award to PowerLight Corporation under request for proposals (RFP) No. FA4861-06-R-B501, issued by the Department of the Air Force for the construction and operation of a photovoltaic array to supply solar power to Nellis Air Force Base (AFB) in Nevada. The protester contended that the agency’s evaluation of offerors’ prices was flawed and the GAO sustained the protest. 

The protester argued that the agency’s evaluation of the offerors’ prices was flawed in that it failed to take into consideration that PowerLight’s price was offered contingent upon “successful completion of an REC purchase agreement with Nevada Power,” whereas its own price was offered on an unconditional basis.  The GAO agreed that the agency’s price evaluation was flawed and found hat PowerLight’s inclusion of a contingency in its pricing rendered the proposal ineligible for award.  Where a solicitation requests offers on a fixed-price basis, an offer that is conditional and not firm cannot be considered for award.  Omega World Travel, Inc.; Sato/Travel, Inc., B-288861.5 et al., Aug. 21, 2002, 2002 CPD para. 149 at 6.  Here, not only did PowerLight make its offer conditional upon successful completion of an REC purchase agreement, but further, it acknowledged the uncertainty of such an agreement being reached.

Government contractors need to keep in mind, when responding to a sealed bid invitation or to a request for proposals, that conditional pricing is an almost certain way to have your bid, or offer, rejected.  Of course, this procurement seems to have been yet another of those all too frequent “negotiated” procurements were actual discussions, or negotiations, did not occur. The Contracting Officer simply furnished each of the offerors with “evaluation notices” describing required information that had not been fully addressed in the proposal or that required clarification.  Apparently the uncertainty in PowerLight’s proposal was not addressed, and there were no discussions during which additional issues could have been raised. (Unlike sealed bidding, where a bid cannot be revised after bid opening, offers submitted in response to a Request for Proposals can be revised after offers are submitted if the government conducts discussions, or negotiations, and gives the offerors in the competitive range an opportunity to submit best and final offers. The regulations regarding Contracting by Negotiation are found in FAR, Part 15).

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The Office of Federal Contract Compliance Programs (OFCCP) has published a Technical Assistance Guide designed to help federal government construction contractors and subcontractors comply with the federal laws and regulations that prohibit government contractors from discriminating in employment, and require that they undertake affirmative action to ensure equal employment opportunity in their workforces.  It is intended for government contractors who have construction contracts and/or subcontracts.  The obligations of government contractors and subcontractors who hold non-construction contracts differ in significant ways and are covered in a separate guide.

This Guide does not create new legal requirements or change current legal requirements. Instead, it reflects the views of OFCCP and is intended to serve as a basic resource document on OFCCP-administered laws. The legal requirements related to equal employment opportunity that apply to Federal supply and service contractors are contained in the statutes, executive orders, and regulations cited in the Guide. Every effort has been made to insure that the information contained in the Guide is accurate and up to date.

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A new regulation announced by the Small Business Administration on November 15, 2006, to be effective on June 30, 2007, requires small businesses to recertify their size when they are purchased by or merged with a larger business, or at the end of the five-year point of a contract.  The rules are intended to help small businesses obtain more federal contracts and to assure that contracts set aside for small businesses are not going to larger companies.  As reported in the Thompson West publication, the Government Contractor Online Update, “According to SBA Administrator Steven Preston, the changes “will go a long way toward ensuring that contract awards get in the hands of small business owners, federal agencies get the proper credit toward their small business contracting goals and small business contracts are fairly and accurately reported..’”

There are critics of the new policy, however, who contend that the SBA has not gone far enough to prevent larges businesses from intruding into the small business marketplace.  The American Small Business League has commented that “A new policy proposed by the Small Business Administration (SBA) and the Office of Federal Procurement Policy (OFPP) will allow the government to continue reporting awards to large companies as federal small business contracts.” (See the full article).

Pertinent parts of the new regulation are as follows:

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The U.S. Army Corps of Engineers awarded an $88 million contract for the construction of a fifty-three mile road around a tropical island in the North Pacific. During contract performance, the contractor submitted a certified claim contending that the contract clause, "Time Extensions for Unusually Severe Weather," was defective, resulting in a gross misrepresentation of the number of adverse weather days that could be anticipated during performance of the work.  The contractor also contended that reliance on the defective specification led to an increase in the cost to perform the work. The certified claim included costs incurred up to the date of the claim submission and costs estimated to be incurred in the future.

The United States Court of Federal Claims found that $50 million of the contractor's certified claim of $63.4 million was clearly fraudulent. During the trial, witnesses, including the corporate officer who certified the claim, testified that the $50 million claim "was a means to get the Government's attention, and to show the Government what would happen if it did not approve the new compaction method that plaintiff wanted."  The Court stated that this part of the certified claim was not submitted in good faith, and was not for an amount which the Plaintiff honestly believed it was entitled. Daewoo Engineering and Construction Co., LTD. v. U.S., No. 02-1914C, October 13, 2006.  Accordingly, the projected additional costs based on estimates, and not yet incurred, were found to be fraudulent.

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Federal construction contractors need to be aware that an unbalanced bid can be rejected as nonresponsive. FAR 52.214-10(e) provides that:

“The Government may reject a bid as nonresponsive if the prices bid are materially unbalanced between line items or subline items.  A bid is materially unbalanced when it is based on prices significantly less than cost for some work and prices which are significantly overstated in relation to cost for other work, and if there is a reasonable doubt that the bid will result in the lowest overall cost to the Government even though it may be the low evaluated bid, or if it is so unbalanced as to be tantamount to allowing an advance payment.”

Unbalanced bidding becomes a problem if the government believes that the bidder who submitted the apparent low bid according to the method by which the low bid was to be determined for evaluation purposes, in all probability will ultimately perform the project at a higher cost than the second bidder. In other words, the idea is that the low bidder has managed to “trick” the system by managing to be evaluated as low at bid opening, but through an unbalancing strategy has made it likely that he will be paid more than it appears. For example, if a solicitation requests bids on both an underrun and an overrun quantity for the same item (i.e. a unit price price for over 10,000 cubic yards and a unit price for under 10,000 cubic yards), with both bid item prices to be counted for bid evaluation purposes, an unbalanced bid would insert a very high price for the item likely to overrrun, and a very low price for the item likely to underrun. The bidder thereby would be planning to be paid a lot more than reflected by its bid because of its “educated guess” that there will be a windfall occasioned by an overrun. 

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The GAO issued a decision today reiterating a familiar theme: Where a protester’s proposal failed to provide information specifically requested by the solicitation and necessary for evaluation purposes, the agency’s evaluation of the proposal as “poor” was reasonable.

The solicitation required the submission of a proposal with sections addressing the offeror’s past performance, technical approach, staffing, and management approach, and supplied instructions as to what proposals were to address in relation to each of the RFP’s evaluation factors. Because the agency’s evaluation was dependent upon information furnished in the proposal, it was the offeror’s obligation to submit an adequately written proposal for the agency to evaluate. The protester simply failed to do so. Therefore, the agency’s evaluation of the proposal, and determination to not award a contract under this solicitation to the protester, was consistent with the terms of the solicitation and was reasonably based. See Matter of Phyllis M. Chestang, B-298394.3, November 20, 2006.

All government contractors should be aware that federal agencies have a great deal of discretion in determining whether a proposal is responsive to the listed evaluation factors. Before submitting a proposal, contractors should try to put themselves in the position of the government’s source selection team. Does the proposal answer the questions that the government will have about an offeror’s experience, past performance, and technical qualifications? If your proposal doesn’t seem convincing and responsive to you, the chances are that the government will not think very much of it either. In the world of negotiated procurement and proposal preparation, it is vital to be thorough, responsive, and persuasive. A contractor needs to sell the company’s capabilities and approach throughout the process.

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The Armed Services Board of Contract Appeals recently reiterated the requirements a contractor must meet in order to recover unabsorbed home office overhead using the Eichleay Formula.  In Kato Corporation, ASBCA No. 51462, the Board held that a contractor must establish three elements to successfully maintain a claim for recovery of its home office costs as a result of a delay:

1) There must be a government-caused delay of an indefinite duration that delays completion of the entire project and there must be no concurrent contractor caused delay;

2) The original contract performance time must be extended by the delay, or the contractor must prove that it was going to finish early and was prevented from doing so by a government-caused delay; and

3) The contractor must show that it was required to remain on standby, ready to resume work, once the delay had ceased. 

In Kato, the contractor failed to prove that the government delayed the completion of the work. Although the contractor presented evidence that the government issued three change orders that delayed completion of specific portions of the work, it did not prove a causal link between those changes and a delay to the critical path, thus failing to demonstrate that the overall project had been delayed. The ASBCA further found that the work had not been suspended for an indefinite period of time because Kato had continuously performed some work at the site during the claimed delay period. Since Kato had been performing work, the Board also concluded that it could not prove that it was on “standby” during the purported delay. 

This decision points out the critical importance of proving that a government-caused delay occurred that it actually delayed completion of the overall project. 

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Many contractors prepare bids on a computer, using either commercially prepared bid packages or "home grown" spreadsheets using Excel or similar programs, to automatically calculate their bids.  A recent decision by the Comptroller General, however, reveals some of the dangers that these "automatic" packages hold for a contractor.  A bidder on a sewer lagoon project for the Corps of Engineers recently utilized a computer program and contended that an erroneous entry resulted in its bid of $6,881,800 being 25 percent lower than the next competitor's bid.  The low bidder alleged that it had made a "mistake" in preparing its bid and requested upward correction.  The Federal Acquisition Regulations (FAR) allow upward correction of a bid when the bidder provides clear and convincing evidence of both the existence of a mistake and the bid actually intended, but only where the correction would not result in displacing one or more lower bids. See FAR 14.407-3(a).  The low bidder alleged that a "mistake" occurred because it "overrode" the automatic calculations in the spreadsheet by manually entering a dollar amount in the "total" column for a bid item rather than allowing that total amount to be automatically calculated by the formula in that cell.

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When the individual Corps of Engineers’ Districts used the Tri-Service Solicitation Network to provide access to electronic documents, not only were the solicitations, specifications, plans, and amendments available, other useful information that was also included.  However, with the deactivation of the Tri-Service Network and the Federal Government's adoption of the Federal Technical Data Solutions (FedTeDS) centralized procurement information system, it has become difficult for contractors to find useful, such as lists of planholders or the results of bid openings on Corps of Engineers’ solicitations.  Fortunately, Some Districts have begun to provide bid abstracts on their websites. (See the Baltimore District for an example).  Hopefully, more districts will adopt this practice so that this vital information will be available for contractors to review.

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Strangely, the Department of Homeland Security's Supplemental Federal Acquisition Regulations (HSAR) is not included on the official Code of Federal Regulations website. However, an unofficial online beta test site, the Electronic Code of Federal Regulations (e-CFR), does include the HSAR.  This beta test site is updated daily and also contains the Federal Acquisition Regulation, FAR, as well as the individual agency supplements.  By accessing Title 48 of the CFR on this website, the most recent versions of these regulations were accessible.

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Although a contractor encountered subsurface conditions in a dredging project that it may not have anticipated, it was unable to prove that the hard material was a differing site condition.   The contractor’s claim was that it had encountered a Type I differing site condition. The Armed Services Board of Contract Appeals denied the claim, stating that the contractor had not proven that the actual conditions differed materially from those indicated in the solicitation. The ASBCA reiterated the four elements of proof that a contractor must meet in order to prevail on a Type I differing site conditions claim, as follows:

1) The conditions in the contract must have differed materially from those encountered.

2) The actual conditions must not have been reasonably foreseeable based upon all of the information available to the contractor at bid time.

3) The contractor must have reasonably relied upon its interpretation of the contract and the contract related documents. (In this case there were additional boring logs referenced in the solicitation that were available upon request).

4) The contractor must have been damaged by the actual, materially different, conditions.

In denying the contractor’s claim for a differing site condition, the ASBCA held that “a contractor has a duty to review information that is made available for inspection.” The Board of Contract Appeals determined that had the bidder reviewed the referenced boring logs in conjunction with those appended to the solicitation, the site conditions encountered would have been reasonably foreseeable. The ASBCA found that the actual conditions, including rock, cemented sand, and other hard materials were reasonably foreseeable based upon the borings in the solicitation and the additional borings referenced in the solicitation as being available upon request.  See Appeal of Bean Stuyvesant L.L.C.

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The purpose of this blog is to give the construction industry the benefit of our insights about the latest developments in federal construction contracting. We closely monitor the decisions of the courts and the administrative boards of contract appeals and we will explain the practical meaning of those decisions in terms that will make sense to a contractor.  If there are changes in procurement policy, or agency guidance, we will keep contractors informed.  Most importantly, we will endeavor to keep the industry advised of new contracting opportunities, and we will pass along practical advice about how contractors can protect their rights and maximize their profits on federal government contracts.

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