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

By: Michael H. Payne

The recent increase in the use of Indefinite Delivery/Indefinite Quantity (“IDIQ”) contracting for construction has become even more evident by looking at the “FY 2011 – Forecasted Acquisition Strategy” issued by the Jacksonville District of the Corps of Engineers. A review of the list reveals that the majority of the construction work in the coming year will be awarded in the form of task orders under existing Multiple Award Task Order Contracts (“MATOC”), or under task orders on new MATOCs to be issued. The Jacksonville District is not alone in this trend and there is an unmistakable decline in the number of contracts available for full and open competition.

I have been a frequent critic of the use of IDIQ contracts for construction because I do not believe that the drafters of the FAR ever envisioned that the system described in FAR 16.504 for the purchase of supplies and services on an IDIQ basis would ever be used for construction. Nevertheless, that is exactly what has happened as contracting agencies continue to insist that IDIQ/MATOC contracting is more “expedient.” Even more disturbingly, most of these solicitations are being issued as RFPs (negotiated procurements) in total disregard for the FAR 36.103 preference for sealed bidding in the procurement of construction.

This consolidation of procurements could not come at a worse time for the construction industry. As state, local, and commercial contracting opportunities have declined during the recession, many contractors have looked to the federal market for work. What they have found is a large federal construction budget that is often used to fund various forms of small business set-asides, including MATOC set-asides, and various large-dollar multi-state IDIQ/MATOC procurements. There is, therefore, an ever-growing pool of qualified construction contractors who have fewer contracting opportunities. The result of all this is that both small and large business contractors are being denied the opportunity to effectively, and fairly, compete for billion of dollars worth of federal construction. The federal government, the construction industry, and the taxpayers all end up being the losers under this system.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal construction matters.

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The Court of Appeals for the Federal Circuit has decided two cases that assure the continued use of the Multiple Award Task Order Contract (“MATOC”) in federal construction contracting. In the first case, Weeks Marine, Inc. v. United States, the United States Court of Federal Claims decided a bid protest in favor of Weeks Marine.  The protest challenged the right of the South Atlantic Division of the Corps of Engineers to use MATOC procurement to solicit all maintenance dredging and shore protection projects for the next five years by establishing a MATOC pool of contractors who would compete for projects solicited on a task order basis.  The Protester contended, and the Court agreed, that since sealed bidding had been used successfully in the procurement of dredging for many years, there was no basis to use contracting by negotiation, much less MATOC. The Court found that the Corps’ Acquisition Plan did not provide a rational basis for a departure from sealed bidding.

The Court of Appeals reversed the lower court and concluded that the Corps was required to “supply a reasoned chronicle of the risk assessment,” and did so “by stating the reasons for its procurement decision and the thinking behind those reasons.”  Therefore, the Court concluded that as long as the Corps stated its reasons, and the thinking behind those reasons, the Court would not “second-guess” the Corps. In other words, even if the Corps’ rationale for using MATOC procurement made no sense and was not well supported, the Court would not disturb the Corps’ right to use a MATOC as long as some reasons were given.  In this regard, the Court stated “If the court finds a reasonable basis for the agency’s action, the court should stay its hand even though it might, as an original proposition, have reached a different conclusion as to the proper administration and application of the procurement regulations.”

The second MATOC decision, Tyler Construction Group v. United States, involved a protest by a small business concern against the use of MATOC procurements to procure barracks construction in an eight state region. The protester contended that Indefinite Delivery Indefinite Quantity (“IDIQ”) contracts may only be used to procure supplies and services, and not construction, pursuant to FAR 16.5.  MATOC procurements are solicited through the IDIQ contracting procedures specified in FAR 16.5, but that section of the FAR does not mention “construction” even once.  Tyler argued that the Corps, under the guise of “innovation,” had adapted a contracting method used to procure supplies and services, like rounds of ammunition or electrical repair services, to the acquisition of large multi-million dollar buildings.

The Tyler protest also addressed the issue of improper bundling in violation of the Small Business Act. By taking individual projects, many of which were less than the $31.5 million (now $33.5 million) small business size standard for general construction, and bundling them into a $300 million MATOC procurement, the Corps effectively prevented small business concerns from competing as prime contractors.  In other words, even though many small businesses could compete for projects in the $30 million range, they are excluded by the size of the bundled MATOC solicitation. In fact, both small businesses and small to medium-sized large businesses are effectively excluded from competition by MATOC procurements.

The Court of Federal Claims ruled that since the use of IDIQ/MATOC was not specifically prohibited in the procurement of construction by the FAR, it was therefore permitted.  The Court also found that the Corps had conducted market research and had concluded that there was an industry consensus that bundling was “necessary and justified.”  The Court of Appeals agreed with the lower court and decided that “The Corps, like other federal procurement entities, has broad discretion to determine what particular method of procurement will be in the best interests of the United States in a particular situation.”

In this writer’s opinion the widespread use of MATOC procurements to procure large dollar value construction projects is not consistent with the FAR. It is interesting that the use of the IDIQ procedure for construction was not subjected to review by the Defense Acquisition Regulations Council (DAR Council), as is commonly done when a new regulation is needed, or when there is a request for a deviation from an existing regulation.  Although the Corps has taken the position that IDIQ/MATOC is an innovative method that is within its procurement discretion, we find it to be strange that a method affecting billions of dollars of construction procurement is not specifically addressed by the FAR, or the supplemental agency regulations (DFARS, AFARS, EFARS). In fact, when the Corps was challenged because it was not following its own regulations (EFARS) that addressed IDIQ contracting,  it promptly rescinded those regulations. What the construction contracting community is left with is a multi-billion dollar procurement methodology that is unregulated, is ripe for abuse, and that only serves the interests of a reduced federal procurement workforce.  It certainly remains to be seen whether MATOC is truly more efficient or cost-effective than traditional single project solicitations.

Most disturbing of all, is the hands-off policy adopted by the Court of Appeals for the Federal Circuit on matters of federal procurement.  If the agencies can do whatever they want, as long as it is not expressly prohibited by law or regulation, and as long as they provide some reason for their decisions, the competitive opportunities that have been the hallmark of federal construction contracting will continue to be eroded.  Many capable contractors have been, and will be, denied a fair opportunity to compete and, in the long run, that cannot possibly be in the best interests of the construction contracting community, or the federal government.

Michael Payne is a Partner and is the Chairman of the firm's Federal Practice Group.

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A protest was filed recently in the United Stated Court of Federal Claims by our firm on behalf of a small business construction contractor challenging a solicitation issued by the Fort Worth District of the U.S. Army Corps of Engineers. The solicitation, No. W9126G-07-R-0123, is one of four similar solicitations for the construction of military projects described as Advanced Individual Training (AIT), Basic Training (BT) Barracks, and Warrior in Transition (WIT) facilities. The construction is being solicited through the use of a negotiated Indefinite Delivery/Indefinite Quantity (“IDIQ”) procurement on a Single Award Task Order (“SATOC”) basis.  Under the terms of the solicitation a single contractor will be selected to perform task orders, without competition, amounting to as much as $330 million over the next three years in an eight state area. The other three similar solicitations contain similar dollar values and apply to similarly extensive geographic areas.

The protest seeks an injunction to prevent the Corps of Engineers from proceeding with the solicitation because of our contention that it is unduly restrictive of competition; it violates the laws prohibiting “bundling” by unlawfully consolidating smaller projects that would have been suitable for small business prime contracting; and, it illegally employs supplies and services indefinite delivery contracting methods under FAR 16.5 to procure large military complexes. There has been a growing outcry from both the small and large business construction communities in recent months regarding the expanded use by the Department of Defense of Indefinite Delivery/Indefinite Quantity solicitations to procure construction, seemingly ignoring the fact that indefinite delivery contracts are typically used to acquire supplies and services on a much smaller scale. It is our opinion that Single Award Task Order Contracts and Multiple Award Task Order Contracts are illegally limiting competition and that they may not be appropriately applied to the procurement of major construction projects. 

It is also disturbing that the amount of construction work that is available for sealed bidding is declining to the point that many construction contractors are being closed out of the federal market. (See our earlier article).  The use of sealed bidding provides the greatest opportunity for competition and ultimately results in the lowest prices to the government. This was confirmed by a recent decision of the Court of Federal Claims that held that sealed bidding was the preferred method for the procurement of maintenance dredging and shore protection work.

Although we cannot predict the outcome of the pending protest, we believe that it is important for the Court to review whether there is legal and rational basis for the use of the IDIQ format to procure major construction. The Corps of Engineers has indefinitely postponed the date for receipt of proposals while this matter is under consideration.

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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).

After carefully considering the Administrative Record and the parties’ arguments, the Court found that the solicitation violated applicable statutes and regulations, and that SAD’s attempted justification for the new procurement approach was without a rational basis. The Court also found that the agency’s stated desire to consider evaluation factors other than price, in the dredging industry, “is a weak justification to abandon sealed bidding.”  The Court also noted that “The dredging industry consists of a small group of highly specialized contractors who are well known to SAD and some of the dredging contractors are family-owned companies with small management organizations.  The major barrier to entry is the expensive excavating equipment that a contractor must acquire. Much of the dredging industry’s work is performed for the Corps of Engineers. Under these circumstances, where new entries to the business are rare, and where the contractors are well known to the agency, a responsibility determination under FAR ¶ 9.104 should suffice.”

In another important ruling the Court stated that it “does not regard a Corps of Engineers 'ombudsman' procedure included in the solicitation as a viable substitute for the judicial or administrative bid protest review that currently exists for sealed bidding.”  Under the “ombudsman” procedure, the review is confined to the Corps of Engineers, at either the Contracting Officer or the ombudsman level, and that is not the same as judicial review or review by the GAO.

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