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

In what we regard as a somewhat unusual decision by the GAO, given its reluctance to interfere with matters of agency discretion, the GAO has concluded that the Air Force failed to make reasonable efforts to ascertain whether an acquisition was suitable for an SDVOSBC set-aside.  The GAO ruled that a procuring agency is required to make reasonable efforts to ascertain whether an acquisition is suitable for a set-aside for service-disabled veteran-owned small business concerns (SDVOSBC) before it can proceed with a small business set-aside. Under the circumstances presented in a decision issued on March 28, 2007, MCS Portable Restroom Service, B-299291, the GAO concluded that the Air Force failed to make reasonable efforts to ascertain whether this acquisition was suitable for an SDVOSBC set-aside and the protest was sustained.

The GAO reiterated that, generally, a procurement set-aside determination is a matter of business judgment within the contracting officer’s discretion, which “our Office will not disturb absent a showing that it was unreasonable.” The GAO further commented that although the use of any particular method of assessing the availability of firms for a set-aside is not required, measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may all constitute adequate grounds for a contracting officer’s decision to set aside, or not to set aside, a procurement. The assessment must be based on sufficient evidence so as to establish its reasonableness.

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The government has the right to insist upon strict compliance with the contract specifications. However, the government does not have an unlimited right to require corrective work when it is not really necessary and amounts to economic waste. In other words, just because a contractor has failed to comply with the precise requirements of the specifications, that does not mean that the government can force the contractor to needlessly spend thousands of dollars when the work is otherwise acceptable. The economic waste doctrine is an exception to the general rule that “the government generally has the right to insist on performance in strict compliance with the contract specifications and may require a contractor to correct nonconforming work.”  

A recent case before the United States Court of Federal Claims highlights the viability of the exception. In M.A. DeAtley Construction, Inc. v. United States, (Fed. Cl. February 28, 2007), the contractor pursued a claim of over $250,000.00 because the government directed removal and replacement of a roadway subbase. The specifications required that no more than 10% of the aggregate in the subbase pass the #200 sieve. The contractor’s stone aggregate gradation was 10.69%. Although the contractor maintained that the gradation substantially complied with the specifications, the government directed removal because of the .69% overage. The contractor offered a small credit to the agency because of the slight deviation, but the government rejected the offer.   

     The government moved to dismiss the economic waste claim on the procedural ground that the argument had not been presented to the contracting officer, as required by the Contract Disputes Act. The Court denied the motion stating that the contractor had presented the “operative facts” of an economic waste claim to the contracting officer, namely that the contractor had substantially complied with the specifications, that the work was adequate for its intended purpose, and that removal and replacement was economically wasteful. 

     Contractors should carefully review government directives to remove and replace work. If it can be established that the work substantially complied with the specifications and was otherwise adequate for its intended purpose, it may prudent to present this argument to the contracting officer before undertaking costly removal and replacement work.

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The American Society of Civil Engineers calls attention, on its website, to the rapid deterioration of our nation's highways, bridges, airports, dams, waterways, water systems, wastewater systems and other infrastructure facilities that are vital to our nation's economy and our quality of life.  Estimating that over $1.6 trillion needs to be invested during the next five years to restore the infrastructure to only a good condition, the ASCE offers a plan of action for Congress to address this national emergency.

Implementation of this action plan, or even just portions of the plan, would represent a significant opportunity for Federal construction contractors.

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Earlier this month, the President submitted the Administration's FY2008 Budget to Congress. Federal construction contractors should be encouraged by the large number of projects that are proposed for funding.  The budget provides the highest level of funding ever included in any President's budget for U.S. Army Corps of Engineers’ water resources projects and programs.  The proposed budget for the Department of Defense includes over $8 billion for the BRAC (Base Realignment and Closure) program.  The Defense FY2008 budget also includes considerable funding for military construction to support the Integrated Global Presence and Basing Strategy (IGPBS) that is presently being implemented to move U.S. forces from overseas to continental U.S. installations to better position them to support worldwide contingencies.

For more information on where these projects will be built in the coming years, please click here. The FY2008 Budget for military construction totals over $18 billion.  

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A proposed amendment to the FAR was published in the Federal Register on February 16, 2007 to address Contractor Code of Ethics and Business Conduct.   FAR 3.101, Standards of Conduct, provides that “Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none. Transactions relating to the expenditure of public funds require the highest degree of public trust and an impeccable standard of conduct.  The general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships.” 

The Federal Register notice points out that FAR Part 3 provides guidance on improper business practices and personal conflicts of interest, but it does not discuss the contractor’s responsibilities with regard to code of ethics and business conduct and the avoidance of improper business practices.  The proposed new regulation will provide that contractors receiving awards in excess of $5,000,000 that have performance periods of 120 days or more, shall have a written code of ethics and business conduct within 30 days after contract award.  Furthermore, the contractor will be required to promote compliance by establishing, within 90 days after contract award, an employee ethics and compliance training program and an internal control system proportionate to the size of the company and extent of its business with the Federal Government.

Contractors who currently compete for contracts in excess of $5 million, with performance periods in excess of 120 days, and do not currently have a Code of Ethics or an internal training program, would be well-advised to start planning to take steps in anticipation of the new regulation. In fact, implementation of these requirements is a good idea even if the proposed regulation is not ultimately approved. Comments on the proposal are due no later than April 17, 2007.

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