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

In November, 2008, the Department of Homeland Security (DHS) implemented a new rule through the Federal Acquisition Regulation (FAR) that would force companies doing business with the federal government to clear their workers through a verification database. This database is called E-Verify and it electronically confirms whether a new hire is in the United States legally and therefore eligible to work on a federal project.  It works by comparing the name of the queried worker against submitted I-9 forms - the Social Security Administration’s paper based means of verifying worker status - and the DHS’s 60 million records of immigrants. Currently participation in E-Verify is voluntary. According to the October 23, 2008 DHS press release, over 92,000 employers have used E-Verify, with nearly 7 million queries made in Fiscal Year 2008, and 450,000 queries so far in Fiscal Year 2009.  In 96% of the queries made, the worker is deemed eligible to work on a federal project.

The new rule was placed into effect on June 6, 2008 by President Bush as part of an Executive Order, and pending the outcome of the case discussed below, it will be implemented on January 15, 2009. If implemented, it will require contractors and subcontractors who win federal contracts to verify their employees’ status and makes it very difficult for any company to knowingly employ illegal immigrants. In the past, illegal immigrants have been discovered working on U.S. military bases and in other federal offices on multiple occasions. The rule is not without limitation - it would only apply to contracts valued at over $100,000.00 and subcontracts valued over $3,000.00, and to the workers assigned to that particular project.    

The legality of this new requirement is being challenged in federal court where many groups, including the U.S. Chamber of Commerce and Associated Builders and Contractors among other co-plaintiffs, have filed suit to prevent its implementation. The Complaint names Michael Chertoff, Secretary of Homeland Security, et. al., as Defendants and was filed on December 23, 2008 in the United States District Court for the District of Maryland.  The lawsuit contends that it is illegal to require participation in a program such as E-Verify. The law in question, an amended version of the Illegal Immigration Reform and Immigrant Responsibility Act of 1996, designated E-Verify as one of several pilot programs that contractors can enroll in, but it also asserts that their participation cannot be made mandatory, as it would be if this new rule were implemented.    

The rule has the potential to impact a very large number of contractors. The rule could make participation in federal government contracting more costly for contractors: the Complaint notes an estimated increased cost of $188 million to private employers if the rule is implemented, a very negative outcome given the current state of the economy.  In a statement issued by the U.S. Chamber of Commerce, Randy Johnson, Vice President of Labor, Immigration and Employee Benefits stated that, “The DHS intends to expand E-Verify on an unprecedented scale in a very short timeframe, and to impose liability on government contractors who are unable to comply.” He adds that, “Given the current economy, now is not the time to add more bureaucracy and billions of dollars in compliance costs to America’s businesses.”  Additionally, the press release includes comments regarding the legality of the rule from Robin Conrad, executive vice president of the National Chamber Litigation Center (NCLC), the Chamber’s public policy law firm, who stated that, “This massive expansion of E-Verify is not only bad policy, it’s unlawful,” adding that, “The Administration can’t use an Executive Order to circumvent federal immigration and procurement laws. Federal law explicitly prohibits the Secretary of Homeland Security from making E-Verify mandatory or from using it to re-authorize the existing workforce.” Considering all of the changes we are expecting to see with the inauguration of Barack Obama in January, it will be interesting to see how this all plays out in the coming months. 

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We recently reported (see our earlier blog article) the decision of the United States Court of Federal Claims in BLR Group of America, Inc. v. United States, issued on November 25, 2008, in which the Court opened the door to contractor challenges of unfair or incorrect performance evaluations.  Coming literally on the heels of the BLR case, the Court issued another decision on December 9, 2008, Todd Construction Co., Inc. v. United States, denying a government motion to dismiss and holding that the Court had the jurisdiction to consider a challenge to a contracting officer’s decision regarding a contractor’s performance evaluation.  The Court held that Todd had submitted a “claim” within the meaning of the Contract Disputes Act of 1978 because, on March 22, 2006, the Government issued its proposed final evaluations of Todd’s work, and on April 20, 2006, Todd submitted its comments protesting those evaluations.  The Government issued final evaluations on July 21, 2006, and Todd submitted both a claim and a supplemental claim to the Department of the Army, asserting regulatory violations in the preparation of the evaluations and lack of factual accuracy. On April 25, 2007, the contracting officer wrote to Todd, indicating the letter “serves as my final decision regarding your performance on the above Task Order” with a subject line “Final Contracting Officer Decision.”  Based upon these facts, the Court held that “this is a final decision of the contracting officer upon a written demand.”

In 2003, Todd Construction received two task orders from the United States Army Corps of engineers (“Corps”) for roof repair of buildings at the Seymour Johnson Air Force Base in North Carolina, and the work was completed in September of 2005. On March 26, 2006, the Corps issued proposed final evaluations rating Todd’s overall performance on the work as unsatisfactory.  Todd submitted comments to the contracting officer explaining why, in its view, those ratings were unmerited, but the contracting officer nonetheless issued final unfavorable evaluations on July 23, 2006.  In August of 2006, Todd appealed the contracting officer’s decision to Ms. Rita Miles of the Department of the Army, alleging that the Government (1) violated the applicable performance review procedures set forth in Army Corps of Engineers Regulation 415-1-17 and (2) arbitrarily issued evaluations unsupported by the facts.  Ms. Miles apparently provided some documents to a vice-president of Todd, and Todd responded to that communication on October 2, 2006.  Ms. Miles rejected Todd’s appeal on April 25, 2007.  The negative evaluations were then made part of the Construction Contractor Appraisal Support System (“CCASS”).

The government’s motion to dismiss contented that the Court lacked jurisdiction because Todd’s challenge to the accuracy and procedural propriety of performance evaluations was not a “claim” within the meaning of the Contract Disputes Act because it is not made “as a matter of right” and does not arise from or relate to the contract. Specifically, the government contended that [w]here, as here, the contractor’s claim is that the Government breached its internal policies, rather than the provisions of the contract, such a claim cannot properly be considered a claim ‘relating to the contract.’” The Court disagreed and concluded that “this is a ‘final decision’ of the contracting officer upon a ‘written demand,’ and the Court further concluded that Todd made that written demand ‘as a matter of right.’” 

The Court further stated that Federal regulations require that for construction contracts the “contracting activity shall evaluate contractor performance and prepare a performance report” “in accordance with agency procedures,” and that the report must be “reviewed to ensure that it is accurate and fair.” FAR 36.201.  The Corps has set forth detailed procedures to be followed in assessing contractor performance, with additional steps to be taken when the rating will be unfavorable.  Army Corps of Engineers Regulation 415-1-17(5)(c)(1).  In this case, Todd alleges that those procedures were not followed and that the evaluations it received were not, in fact, accurate and fair.  To the extent plaintiff asserts that when the Government prepares a performance evaluation that will be made part of the record upon which its future submissions will be judged, it is entitled to an accurate and fair performance evaluation prepared in accordance with the regulations, it makes that request “as a matter of right.” Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1265 (Fed. Cir. 1999) (observing that the “claim must be a demand for something due or believed to be due rather than, for example, a cost proposal for work the government later decides it would like performed”); BLR Group of Am. v. United States, No. 07-579C, at 10 (Fed. Cl. Nov. 25, 2008).

While the Court has scheduled further briefing by the parties as to what should be the appropriate remedy, the decision comes as yet another welcome advance in the willingness of the Court to look into the fairness of contractor performance evaluations. In the past, government agencies have acted with impunity and have leveraged their power to issue poor performance ratings in order to extract concessions from contractors during performance. There is no question, moreover, that the power to reduce a performance rating has had a chilling effect on the filing of claims – a right that is granted by law and regulation. The Court further noted that “the creation of mandatory performance reviews, databases archiving those reviews, and the requirement to consider those archived materials in future contract awards means that a negative review is potentially devastating to a contractor, who may have no opportunity—or very little opportunity—to mitigate the impact that review will have on future awards.”  Accordingly, “there are sound reasons, as Judge Sweeney recently explained, to address performance evaluations as issues of contract performance rather than as part of a bid protest when the contractor seeks future government contracts.”  See BLR Group of Am. v. United States, No. 07-579C, at 17 (Fed. Cl. Nov. 25, 2008).

The BLR and the Todd cases make it clear that contractors do not have the right to simply challenge a performance evaluation by filing an appeal directly to the Court. There must first be a “claim” that is submitted to the contracting officer challenging the decision and explaining why the contractor believes that the performance rating should be changed. If the contracting officer then issues a decision denying the “claim,” or if the contracting officer fails or refuses to respond within a reasonable time, the contractor may then appeal the contracting officer’s decision to the Court of Federal Claims. (The jurisdiction of the boards of contract appeals is not as broad as the Court’s and the boards have not been as receptive to contractor challenges to performance evaluations). Because this is an evolving area of the law, however, and because there are procedural hurdles that must be overcome, it is strongly suggested that contractors seek legal counsel before undertaking an appeal of this nature.

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A decision just published by the Government Accountability Office ("GAO"), Matter of Burchick Construction Co., mpany, involved a request for proposals issued by the Department of Veteran Affairs ("VA") for the construction of an ambulatory care center . After receiving five proposals and evaluating the technical evaluation factors, the VA conducted discussions with the offerors that only addressed their price proposals. The VA determined that the offeror providing the best value was Massaro Corporation at a firm fixed price of $38,530,000. Burchick Construction Company, whose price proposal of $36,686,000 was the lowest price offered, challenged the award of the contract to Massaro.

During the evaluation of technical proposals, the VA had determined that Burchick's proposal contained "weaknesses" in a number of factors, including past performance, identification of key personnel, and small business participation. Based on these perceived weaknesses, the VA scored Burchick with a total of 50.8 points out of a possible technical score of 100 points. The VA had given Massaro a score of 67.3 points. When the VA decided to discuss the price proposals, it also decided that it would not conduct discussions with the offerors with respect to the firms' technical proposals, because "none of the offerors could materially improve its technical proposal."

Burchick contended that the VA did not conduct meaningful discussions since the VA did not apprise Burchick of, or provide it with the opportunity to address, the significant evaluated weaknesses in its technical proposal. Burchick explained that it could have addressed each of the VA's concerns that resulted in the downgrading of its technical evaluation.

While the GAO conceded that agencies have considerable discretion in determining whether and how to conduct discussions in a negotiated procurement, it found that where discussions are conducted, an agency must identify deficiencies and significant weaknesses, at a minimum, in the proposals of each offeror in the competitive range. The GAO concluded that discussions must be meaningful, meaning that the discussions must be sufficiently detailed so as to lead an offeror into the areas of its proposal requiring amplification or revision.

The GAO found that the VA failed to conduct meaningful discussions with Burchick, and that there was a reasonable possibility that Burchick was prejudiced, given that it offered the lowest price and could have addressed the VA's concerns such that it may have been offering the "best value" to the government. The GAO sustained the protest and recommended that the VA conduct discussions with the offerors about the technical proposals, and make a new source selection decision.

The GAO also criticized the agency's reliance on a numerical comparison of the proposals to determine "best value." While not specifically challenged by Burchick, the GAO noted that a mechanical comparison of the technical and price point scores is not a valid substitution for the qualitative assessment of the technical differences or the benefits associated with a higher priced proposal. Point scores are merely guides, and the record must contain adequate documentation of the price/technical tradeoff to support an agency's judgment concerning the significance of the differences is reasonable and adequately justified in light of the evaluation scheme. 

It should be noted that the Federal Acquisition Regulation does address the extent of the discussions which are to be conducted with offerors in the competitive range. FAR 15.306(d)(3) provides that:

At a minimum, the contracting officer must, subject to paragraphs (d)(5) and (e) of this section and 15.307(a), indicate to, or discuss with, each offeror still being considered for award, deficiencies, significant weaknesses, and adverse past performance information to which the offeror has not yet had an opportunity to respond. The contracting officer also is encouraged to discuss other aspects of the offeror’s proposal that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award. However, the contracting officer is not required to discuss every area where the proposal could be improved. The scope and extent of discussions are a matter of contracting officer judgment.

While it is not uncommon for the GAO to defer to the discretion afforded the agency in negotiated procurements, that deference, as demonstrated in the Burchick decision, is not absolute. In instances where, as here, the agency's actions are clearly not in accordance with the requirements of the FAR, seeking redress in a protest before the GAO can sometimes result in a favorable outcome.

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In an interesting decision issued by the United States Court of Federal Claims on November 25, 2008, in a case entitled BLR Group of America, Inc. vs. United States, the Court ruled that it had jurisdiction to consider a contractor’s claim that a Contractor Performance Assessment Report (“CPAR”) was “false and highly prejudicial.” The case arose because the Air Force had assigned a final performance rating of “Marginal” to the contractor in several categories, and had refused to amend the rating pursuant to a rebuttal presented by the contractor. Instead, the Air Force disseminated the rating by posting it on the Past Performance Informational Retrieval System (“PPIRS”), a database of performance ratings accessed by contracting officers while making contractor responsibility determinations and while conducting past performance evaluations during the source selection process on negotiated procurements. At a time when contractors are experiencing the rapidly growing use of “best value” negotiated procurements, the accuracy and fairness of contractor performance evaluations can be critical to a contractor’s ability to successfully compete for government contracts.

The Court did not address the merits of the contractor’s contention that the performance rating was “false and highly prejudicial,” but simply ruled that the Court had jurisdiction to consider the case. The government had filed a motion to dismiss and cited a number of Armed Services Board of Contract Appeals decisions where the Board had declined to consider appeals based on challenges to performance evaluations. The Court refused to follow the Board’s decisions (the Court of Federal Claims is not bound by the decisions of the various boards of contract appeals) and concluded that a contractor could file a claim under the Contract Disputes Act of 1978. In doing so, the Court focused on the Federal Acquisition Regulation (“FAR”), which provides that a claim is “a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract.” See FAR 52.233-1. The Court also noted that the contractor was not appealing the performance evaluation itself, and concluded that a contractor’s claim requesting a change to a performance evaluation is a proper mechanism, and provides the proper jurisdictional predicate, to challenge an adverse performance evaluation in the Court of Federal Claims. 

In addition, even though the contracting officer had not issued a final decision, the Court ruled that the contractor had made its claim to the contracting officer for a fair and accurate CPAR on January 12, 2007, and that the contracting officer, more than twenty-two months later, had failed to issue a final decision in conformance with 41 U.S.C. 605(a).  The Judge then stated that “Because twenty-two months exceeds the length of time that the court considers “reasonable” for the contracting officer to issue a decision in this case, the court deems the claim denied by operation of 41 U.S.C. § 605(c)(5), which allows plaintiff to pursue the instant appeal.” In other words, the failure of the contracting officer to issue a decision within a reasonable time was treated as a “deemed denial” entitling the contractor to file an appeal.

The Court not only held that it had the jurisdiction to consider the case, but it also stated that a contractor is legally entitled to a fair and accurate performance evaluation. In view of what has frequently been the use of performance evaluations as a tool to unfairly punish contractors, and to intimidate them into not filing claims for fear that they will receive lower performance ratings, this decision comes as a welcome leveling of the playing field. We have always felt that the statutory right that contractors have to file claims and appeals should not be diminished by fear of reprisal. All claims should be evaluated on their merits. 

Please see the Federal Construction Project Manager’s Bulletin, November 2008, a publication of Construction Contract Specialists, Inc., for an excellent article entitled "The Contractor Performance Evaluation System (Revisited)," authored by Paul Perkins, that addresses the BLR decision and revisits an earlier article. Mr. Perkins presents interesting background information on the contractor performance evaluation system and provides the author’s perspective as a former contracting officer, project manager, and construction consultant.

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