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

In a case captioned as Ace Constructors, Inc. v. United States concerning a contract with the Corps of Engineers for the construction of a structure at Biggs Army Airfield, the Federal Circuit upheld a Court of Federal Claims ruling awarding an equitable adjustment to ACE Constructors (“ACE”) and the return of liquidated delay damages.  The Court had ruled that, due to unforeseen conditions and defective specifications that were incorporated into the contract, ACE was entitled to additional relief beyond that which was provided by the contracting officer.  In particular, the Court awarded ACE its additional costs for: 1) being required to use a more expensive concrete testing methodology than was required by the contract; 2) being required to use a more expensive method of concrete paving than was required by the contract; and, 3) a Type I differing site condition that required 129,000 additional cubic yards of fill dirt.

On appeal, the government argued that the award for concrete testing was erroneous because: 1) ACE had failed to exhaust its administrative remedies and, therefore, the Court did not have jurisdiction over the claim; 2) the contract required the more expensive testing method; and 3) ACE did not demonstrate that its bid was based on the less expensive method of testing.  The Federal Circuit held that the Court of Federal claims had jurisdiction because the claim presented to the contracting officer and the claim before the Court did not differ significantly.  The Circuit Court also upheld the lower court’s ruling that the specifications were defective and that ACE reasonably concluded that the more expensive testing was not required by the contract (a fact which the government had acknowledged during the course of performance of the contract).  Finally, the Circuit Court upheld the lower court’s ruling that ACE reasonably based its bid on the less expensive method of testing. Regarding the method of concrete paving required by the contract, the government again argued that the Court lacked jurisdiction to entertain the claim and additionally argued that ACE unreasonably relied on the defective contract specification when it calculated its bid based on the less expensive method of paving.  The Federal Circuit again found that the Court of Federal Claims had jurisdiction over the claim and upheld the Court’s ruling that when the government provides a contractor with defective specifications, it is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications. ACE’s reliance on the specifications was reasonable.

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The Corps of Engineers responded to the recent Order of the United States Court of Federal Claims dated November 1, 2007, granting a permanent injunction against the issuance of a MATOC solicitation for dredging, by taking four proposed task orders included in the MATOC solicitation and reissuing them as separate negotiated procurements.  (See the article posted on November 5, 2007).  The Plaintiff, Weeks Marine, Inc., filed a motion asking the Court to find that the Corps of Engineers had violated the November 1 Order.  Weeks argued that the injunction of the MATOC solicitation was based upon a finding that there was no legal or rational basis for the Corps to employ contracting by negotiation instead of sealed bidding.  The re-issuance of those same projects as individual RFPs violated the spirit, intent, and the letter of the Court’s Order.

Weeks requested that the Court amend its November 1, 2007 Order to make it clear that the projects addressed by the task orders could only be procured by sealed bidding.   Judge Thomas C. Wheeler of the United States Court of Federal Claims responded by issuing a new Order on November 16, 2007, stating that “. . . the Court must fashion a remedy to address an agency’s conduct that the Court regards as an ‘end run’ to a judicial order and injunction.”  The Court decided to allow one of the four projects to proceed as an RFP because it involved dredging of the entrance channel to the Naval Submarine Base at Kings Bay, Georgia, and was considered to be urgent. The other three RFPs were not allowed to proceed as RFPs, however, because the agency “did not provide any legal or factual justification to use negotiated procurement methods.”  The Court was also concerned about the Corps’ unilateral decision to attempt to circumvent the earlier injunction and stated that “the prudent approach would have been for Defendant to seek relief from the injunction to issue this solicitation, rather than for the agency to decide unilaterally that the injunction did not cover the proposed action.”

In the hearing that was conducted on November 15, 2007, the Judge reiterated that “if sealed bidding is not used for dredging contracts, you may as well read FAR Part 14 right out of the regulation. I mean, when else is it going to apply if not to dredging contracts?”  The decision is a welcome recognition by the Court that sealed bidding is still the preferred method for procuring federal construction contracting, and the decision will hopefully help to stem the continuing move by the Corps of Engineers to unnecessarily employ IDIQ, MATOC, and contracting by negotiation in more of its construction procurements.

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In a recent prebid protest presented by our firm, Payne Hackenbracht & Sullivan, the United States Court of Federal Claims considered the protest of Weeks Marine, Inc. v. The United States (“Weeks”) challenging the decision of the United States Army Corps of Engineers, South Atlantic Division (“SAD”), to solicit proposals for maintenance dredging and shore protection projects using negotiated indefinite delivery indefinite quantity (“IDIQ”) multiple-award task order contracts (“MATOC”).  The Court noted that the contemplated change to negotiated IDIQ task order contracting represented a significant departure from SAD’s prior practice of using sealed bidding, and further noted that the policy change had caused widespread industry criticism. 

As grounds for its protest, Weeks asserted that SAD’s proposed change to negotiated IDIQ/MATOC task order contracting was contrary to law, and was without any rational basis.  Weeks relied upon 10 U.S.C. § 2304(a) and Federal Acquisition Regulation (“FAR”) ¶ 6.401(a), mandating that an agency shall use sealed bidding procedures when (1) time permits, (2) awards will be made solely based on price, (3) discussions are not necessary, and (4) the agency reasonably expects to receive more than one bid. Weeks contended that each of these four conditions was met for SAD’s dredging contracts, and that no legal basis existed to use negotiation procedures.

The Corps of Engineers argued in opposition that SAD’s proposed IDIQ task order contracting was lawful, that the agency had wide discretion in selecting an appropriate procurement method, and that SAD’s justification for the change was reasonable under current circumstances.  The Court disagreed and ruled that an agency’s discretion “does not empower an agency to employ a procurement method in violation of applicable law.”  The Court ruled that SAD had not pointed to any significant changes in its procurement environment that would warrant a change to IDIQ task order contracting.  The Acquisition Plan confirmed that SAD had “excelled in program execution” during the last two years and “the Court does not see any reasons or developments for moving away from the sealed bid process.  Without any analysis of the applicable statutes and regulations, and without citing any significant reasons or developments, the Court held that SAD would violate 10 U.S.C. § 2304(a), FAR ¶ 6.401(a), FAR ¶ 14.103-1(a), and FAR ¶ 36.103(a) by employing IDIQ task order contracting methods.“

This is an important judicial opinion that will hopefully cause government agencies to revisit decisions to utilize contracting by negotiation in either single procurements or IDIQ contracting.  When the sole justification for negotiated contracting boils down to nothing more than a desire to introduce unnecessary subjectivity into the source selection process, RFPs should not be used and sealed bidding should continue to be the preferred method.  In dredging, as in many other areas of construction contracting, sealed bidding has been a successful procurement method for many years.  It is a system that provides the greatest risk coupled with the greatest opportunity for reward and it is an integral part of the free enterprise system.

Of great concern to the Court was the fact that under SAD’s “new” procurement method approximately $2 billion in task order awards during the next five years would become virtually immune from any judicial or administrative bid protest review.  The Federal Acquisition Streamlining Act of 1994 (“FASA”) provides that “[a] protest is not authorized in connection with the issuance of a task order or delivery order except for a protest on the ground that the order increases the scope, period, or maximum value of the contract under which the order is issued.”  While SAD’s current sealed bid awards routinely are subject to bid protest review by the Government Accountability Office (“GAO”) or the Court, SAD’s task order awards would be insulated from review except in very limited circumstances.  Thus, while purporting to use highly discretionary “best value” evaluation procedures in awarding task orders, SAD effectively would remove itself from any bid protest oversight.   Although the Corps argued that the Court must apply the FASA provision that Congress created, the Court ruled that this provision did not authorize SAD to convert all of its procurements into task orders.

In asserting a need for a change from sealed bidding to contracting by negotiation, the Corps contradicted its own position by stating that its sealed bid approach had “excelled in program execution” during the last two years.  As a result, the Court concluded that “The agency has provided no evidence that the current system is failing or in need of revision.  In fact, the Court would be hard-pressed to identify any contracts better suited to sealed bid procurement than dredging.  If not appropriate for dredging work, it is difficult to imagine when sealed bidding ought to be used.” (Emphasis added).

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The Armed Services Board of Contract Appeals (“ASBCA”) recently decided a case involving the issue of whether a contractor could recover the fees charged by a consulting firm as a contract administration cost.  Fru-Con Construction Corporation. Although the cost principles in the FAR, at 31.205-47(f), provide that "costs are unallowable if incurred in connection with the prosecution of claims or appeals against the Federal Government," FAR 31.205-33 provides that "professional and consultant services" are allowable in certain circumstances. One of those circumstances occurs when a consultant's preparation of a request for equitable adjustment was for the purposes of seeking a negotiated settlement of pending issues with the government.  In such a case, a consultant’s costs may be allowable if otherwise found to be reasonable.

The ASBCA addressed the issue of whether the consultant's fee of $612,000 was reasonable. Troubled by the lack of specificity in the consultant's contract, the summary nature of the consultant's bills, and the apparent lack of oversight by the contractor, the Board decided that it was almost as if the contractor had given the consultant a blank check. The Board concluded that a prudent business person in the conduct of a competitive business would not have reasonably incurred the expenses in an effort to negotiate with the government. The Board concluded that the contractor was entitled to recover a reasonable amount for its consulting fees and, in a jury verdict, decided that $65,000, not $612,000, was allowable as a reasonable contract administration cost.

When contracting for professional services on a Federal government contract, it is important to clearly define what the professional will do, to obtain itemized bills that include sufficient detail regarding the nature of the services provided, and to oversee the consultant's activity. In addition, obtaining the consultant's work product, including trip reports, minutes of meetings, memoranda and reports will go a long way in helping a contractor avoid a later determination that the consultant’s costs were unreasonable and, therefore, not recoverable. 

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