By: Michael H. Payne
There is an old saying that "you win some, and you lose some." Well, if you are a construction contractor who competes in the world of Multiple Award Task Order Contracting ("MATOC"), you usually lose. Under sealed bidding, which dominated the procurement of federal construction for many years, a contractor who was not the low bidder could always compete for the next project. In the MATOC arena, a contractor who is not selected to be one of the chosen few to compete for task orders over what is often a three to five year period may not be able to compete for the "next project" for a long time. What this means is that there are a few winners, but there are many more losers.
Even if a contractor is fortunate enough to be selected as one of the MATOC master contract holders, there is no guarantee of being selected for future task orders. Every construction MATOC features a "seed" project that serves as the basis of the price competition for the evaluation of the offers on the master contracts. If a contractor does not win the seed project, there may not be another task order for a long time, and the award of the ensuing task orders may go to someone other than the low bidder. The reason for this is that most construction MATOCs are negotiated, best value, procurements ("RFPs"), and past performance, experience, technical merit, quality of personnel, small business subcontracting, and other evaluation factors may come into play. Although it can be argued that the award of a master MATOC should pre-qualify all of the MATOC holders, we have heard complaints from a number of contractors who lose out in the competition for task orders because they do not score well on past performance, or one of the other evaluation factors. This has never made sense to me because if a contractor has won the fierce competition for one of the master MATOCs, price should be the discriminator for the task order awards. If the contractor is not technically qualified to receive a task award on a lowest price proposal, why was the contractor selected as one of the MATOC holders in the first place?
Those who are really left out in the cold, however, are the construction contractors who fail to win one of the master MATOC awards. Simply because a contractor may not have scored particularly well technically, or simply because the contractor's price on a seed project may have been too high, does not mean that it will always be that way. A contractor can do a much better job of putting together a competitive proposal the next week, but if all of the upcoming projects are tied up in MATOCs, the door is closed. Simply because a contractor submits the lowest price on a seed project does not mean that the contractor will be similarly competitive on future projects. It is for this reason that I have been a frequent critic of indefinite delivery/indefinite quantity ("IDIQ/MATOC") contracting for construction. I do not believe that FAR 16.5, dealing with various indefinite delivery contracts, was ever meant to be applied to construction, and I believe that the system unfairly penalizes a lot of very qualified contractors who simply are not adept at proposal writing. Construction was successfully procured using sealed bidding for many years, and that system was more open and fair. The new system simply results in too many losers and not enough winners. (See the earlier article "Has the Corps of Engineers Gone MATOC Crazy?").
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 contracting matters. He also serves as the Executive Director of FedCon Consulting, an ancillary business of the firm that involves former contracting officers, procurement and technical personnel, as well as lawyers, in providing assistance to federal construction contractors in the preparation of proposals.
By: Michael H. Payne
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.
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.
Early Contractor Involvement - Another Experiment by the Corps of Engineers in "Creative Contracting"
In recent years, the U.S. Army Corps of Engineers has attempted to employ "innovative" contracting methods but, in doing so, has often limited the number of contractors who have had the opportunity to perform major construction projects. One of the justifications for these “innovative” methods has been that there will be a reduction in the administrative workload resulting in a "savings" for the government. As a result, it seemed as though fewer solicitations were being issued using the sealed bidding procedures in FAR Part 14, with a corresponding increase in the procurement of construction under FAR Part 15, Contracting by Negotiation. Construction contractors began to find that competition was no longer based on price alone, but on subjective factors as well, such as past performance, technical ability, or client satisfaction. Of course, even though these procurements were purportedly “negotiated,” the instances where discussions or negotiations actually occurred were relatively few in number. It was for that reason that we continued to wonder whether the Corps ever actually intended to “negotiate” a negotiated contract. Could the reason possibly be that the Corps wants to be able to use subjective evaluation factors, under the guise of “best value,” as an excuse not to award construction contracts to responsible, bonded, contractors who offer the lowest price?
In a further extension of the use of "Contracting by Negotiation," the Corps has also adopted the Multiple Award Task Order Contracting (“MATOC”) procedures provided under FAR Part 16.5, "Indefinite-Delivery Contracts," to the procurement of major construction projects. We have been involved in on-going legal challenges to the use of MATOC for construction because we believe that the preference for sealed bidding in construction, as expressed in FAR Part 36, is being ignored by the Corps. Through the use of MATOC, the Corps has found a way to limit the competition for the design and construction of facilities in entire regions of the country to only a few of the very largest construction companies.
Just as the shift to large, regional MATOCs has decreased the number of contractors, both large and small, who are able to perform these projects as prime contractors, the adoption of design-build as the favored mechanism for major construction projects has also tended to limit competition. Design-build contracting has permitted the government to shift more and more risk and responsibility to the contracting community, but it seems to be a community that is shrinking in size. Does this make any sense at a time when the country is suffering from rapidly increasing unemployment and the government is planning to spend billions of dollars on improving the infrastructure? There are many small and medium-sized business concerns who have capably performed thousands of federal construction projects over the years under sealed bidding. We continue to wonder why that successful system is being systematically abandoned.
Now the Corps is beginning to issue solicitations for major construction projects under the provisions of FAR Part 16.403, Fixed Price Incentive Contracts, using a project delivery method referred to as "Early Contractor Involvement," or “ECI” for short. Under ECI, the Corps engages the services of a general contractor to provide "preconstruction services" concurrent with the design of a project that is being performed by a design firm. The construction contractor reviews the partially completed design for constructability and biddability. As the design work nears completion, construction is then procured through the exercise of an option under the ECI contract. An ECI procurement requires the construction contractor to compete on both technical and price factors long before the project's design is developed to the point that facilitates meaningful and well-informed cost proposals, however. With so little detailed information on the construction that is being procured, the competition among construction firms has the real possibility of being nothing more than a popularity contest in which the government procurement officials make choices based on who they think they want to work with, rather than the contractor they should be working with based on the technical aspects of a particular project. The competitors also must provide a ceiling price for the project as part of their proposals, long before the design has reached the point where a price estimate is anything more than an educated guess. Although a Corps spokesman, in an article published in Engineering News-Record, indicated that the Corps is turning to ECI for classic reasons, that it is "better, faster, cheaper," we wonder what the basis is for such a bold conclusion.
In a recent press release, the New Orleans District of the Corps reported that it will use Early Contractor Involvement (ECI) to construct the $500 Million Gulf Intracoastal Waterway West Closure Complex project. Colonel Alvin Lee, New Orleans District Commander, indicated that although "the New Orleans District has never used ECI as an acquisition strategy before," the District was "excited about the benefits it brings to this momentous project.” In addition to the West Closure Complex project, the New Orleans District is proposing to employ ECI on a series of levee improvement projects on the Chalmette Loop Levee in St. Bernard Parish, Louisiana. These additional ECI contracts will total between $850 Million and $1.75 Billion.
Other Corps districts have had some experience using a similar method of procurement under a strategy known as "IDBB," or "Integrated-Design-Bid-Build." Two of these IDBB projects are the new Community Hospital and the National Geospatial Intelligence Agency Complex at Fort Belvoir, Virginia. Very recently, other Corps districts have advertised the intention to issue ECI solicitations, notably for the construction of a Replacement Hospital at Fort Riley, Kansas ($250 to $500 Million). Other Federal agencies can be expected to increasingly employ the ECI procurement method; the U.S. Navy already intends to construct a $68 Million Helicopter Maintenance Hanger in San Diego using ECI. In private construction, ECI is called Construction Management (or Manager) at-risk, "CM@R." A joint committee of the AIA and AGC have described CM@R as follows:
Construction management at risk (CM@R) approaches involve a construction manager who takes on the risk of building a project. The architect is hired under a separate contract. The construction manager oversees project management and building technology issues, in which a construction manager typically has particular background and expertise. Such management services may include advice on the time and cost consequences of design and construction decisions, scheduling, cost control, coordination of construction contract negotiations and awards, timely purchasing of critical materials and long-lead-time items, and coordination of construction activities. In CM@R the construction entity, after providing preconstruction services during the design phase, takes on the financial obligation for construction under a specified cost agreement. The construction manager frequently provides a guaranteed maximum price (GMP). CM@R is sometimes referred to as CM/GC because the construction entity becomes a general contractor (GC) through the at-risk agreement. Primer on Project Delivery, AIA/AGC (2004).
A question remains as to whether the government can exercise the flexibility that a private entity can employ to insure that the ECI, or CM@R, process can be successful. Whether or not such flexibility is possible, use of ECI will certainly further diminish the competitive nature of the government procurement of construction projects in the future.
Effective May 23, 2008, there will be important changes that pertain to a contractor’s ability to protest task and delivery orders. These changes are embodied in Section 843 of the 2008 Defense Authorization Act, "Enhanced Competition Requirements for Task and Delivery Order Contracts," and legislators expect the new provisions to increase competition for task and delivery order contracts. Most notably, the new law allows a contractor to protest a task order in excess of $10 million to the GAO. Previously, the Federal Acquisition Streamlining Act of 1994 (“FASA”) prohibited task order protests, except in very limited circumstances. In addition, the new law requires that DOD task or delivery order contracts in excess of $100 million be awarded to multiple contractors, with certain exceptions, and the establishment of enhanced competition requirements, such as a requirement for debriefings on task or delivery orders in excess of $5 million under such multiple award contracts. The GAO is currently revising its bid protest rules to address the newly acquired jurisdiction over task order protests. (The new rules will be posted on this blog as soon as they are issued).
At the April 19, 2007 hearing of the Senate Committee on Armed Services regarding the DOD’s management of costs under the Logistics Civil Augmentation Program (“LOGCAP”) contract in Iraq, Senator Carl Levin (D-MI) asked why ithe Army waited five years to split the contract among multiple contractors, allowing for competition of individual task orders. The response from the Assistant Secretary of the Army for Acquisition, Technology, and Logistics was: "I don't have a good answer for you." The provisions of Section 843 ensure that, absent compelling reasons not to, there will be competition in the award of task and delivery orders on future contracts of this type. As far as we are concerned, however, there is an open question as to whether Multiple Award Task Order Contracts (‘MATOC”) are legally authorized under the Federal Acquisition Regulation for the procurement of construction. A protest raising that issue was filed by our firm and is pending before the United States Court of Federal Claims.
Section 843 of the Defense Authorization Act lifts the ban imposed by the Federal Acquisition Streamlining Act on protests to the Government Accountability Office (GAO) of task or delivery orders valued over $10 million. This provision may be short-lived though: it contains a “sunset” provision and expires three years after it becomes effective. Congress enacted Section 843 in response to the need for enhanced competition requirements, and apparently believed that federal agencies had too little oversight when permitted to issue task order procurements that were not subject to protest. After the FASA was enacted, federal agencies increasingly employed the indefinite delivery, indefinite quantity (“IDIQ”) contracts for expensive projects, purportedly to utilize “streamlining” but, in part, to circumvent the bid protest process. It will be interesting to see whether the newly enacted right to file bid protests will have a “chilling” effect on agency plans to issue IDIQ contracts in the future.
The exclusive jurisdiction granted to the GAO means that the Court of Federal Claims (CFC) will not adjudicate these protests. Under the current protest regime, both the GAO and the CFC are authorized to hear bid protests, and we would have preferred for that dual jurisdiction to have continued on task order protests, as well. An advantage of the current system for contractors is that if they are unhappy with the outcome of a GAO protest, they can obtain de novo review of that same protest at the CFC. Under Section 843, this second chance will not be available for task or delivery order protests. This has serious implications for contractors because only a small fraction of protests heard by the GAO are sustained.
Additional means of enhancing competition are also set forth by Section 843. For task or delivery orders in excess of $5 million, the government agency is required to provide a fair opportunity to be considered. This means that at the very least, the following must be provided to all contractors: 1) a notice of the task or delivery order that includes a clear statement of the agency’s requirements; 2) a reasonable period of time to provide a proposal in response to the notice; 3) disclosure of the significant factors and subfactors, including cost or price, that the agency expects to consider in evaluating such proposals, and their relative importance; 4) in the case of an award that is to be made on a best-value basis, a written statement documenting the basis for the award and the relative importance of quality and price or cost factors; and 5) an opportunity for a post-award debriefing. Unless certain exceptions apply, the current law requires the agency to give all multiple-award IDIQ contract holders a fair opportunity to be considered for each order in excess of $2,500.
Section 843 targets sole source awards. The new rules establish further requirements for agencies awarding IDIQ contracts valued over $100 million to a single awardee, as opposed to multiple sources. In order for this to happen, the head of the agency must make a written determination that (i) all task orders under the contract are so integrally related that only a single contractor can reasonably perform the work; (ii) the contract provides only for firm, fixed-price task or delivery orders at specified unit prices; (iii) only one source is qualified and capable of performing the work at a reasonable price; or (iv) it is necessary in the public interest to award the contract to a single source. Additionally, Congress must be notified within 30 days of the determination to award an IDIQ contract to a single source. These new requirements are similar to those of the Federal Acquisition Regulation (FAR) Part 6.3 which justify awarding a contract to a single source.
The most potentially controversial provision of the enhanced competition framework of Section 843 is the authorization of task or delivery order protests. In 2003, the Services Reform Act (SARA) authorized the Acquisition Advisory Panel (the "Panel") to review and recommend any necessary changes to acquisition laws and regulations and government-wide acquisition policies. Included in the Panel’s draft report of 2006, was a similar provision, which was met with opposition from interest groups who feared that an increased number of bid protests would raise costs for federal contracts and impede the procurement process. The final legislation gives exclusive jurisdiction to the GAO over task or delivery award contract protests, and is likely a compromise between the recommendations of the Panel and the concerns of the interest groups.
Section 843 is silent on some procedural matters regarding task or delivery order protests. For instance, the automatic stay requirement of the Competition in Contracting Act is not mentioned. Under the CICA, the contracting agency is required to stay the award or suspend performance of a protested contract upon the commencement of a timely protest to the GAO. Further questions are raised by the silence of Section 843 regarding time limitations for filing task or delivery order protests at GAO. It would seem that current rules for protests where debriefings were requested would stand. This means that the deadline for filing a task or delivery order protest will likely be 10 days from the date of the debriefing (five days to obtain the automatic CICA stay) in post-award protests-regardless of when the protester learned the basis of the protest. However, the new GAO rules must be reviewed after they are issued to determine whether there are any new or unusual requirements that affect the filing of task order protests.
Congress’ grant of exclusive jurisdiction to the GAO for task and delivery award protests also precludes agency level protests. This seemingly creates a conflict with current federal acquisition policy, which encourages parties to resolve controversies over procurement at the agency level whenever possible. The NDA, however, does not alter the existing statutory requirement, first implemented in the FASA, that each federal agency appoint a task and delivery order ombudsman to review complaints from contractors claiming they were not afforded a fair opportunity to be considered for task or delivery orders.
For task orders valued below $10 million, the ombudsman remains the only reviewing authority for disappointed contractors. Under Section 843 task order procurements between $5 million and $10 million are subject to the new procedural requirements but still exempt from GAO’s protest jurisdiction. This implies that contractors can still seek to enforce compliance with the new procedures for procurements in this dollar range by submitting a complaint to the ombudsman.
The Commander of the Air Force Material Command, General Bruce Carlson, recently told reporters at a forum sponsored by Aviation Week that there should be some sort of penalty for protests that are found to be unwarranted. It was reported that the General said “that some losing bidders file protests with 20 or 30 elements when perhaps only one part has any foundation. In recent years, nearly every significant defense contract has been protested by the losers to the Government Accountability Office.” The comments, which were reported by GovernmentExecutive.com and the Congress Daily, demonstrate a total lack of understanding about the vital need for accountability on the part of federal agencies, contracting officers, and source selection authorities.
I disagree with the General’s observations. Government contractors, and the taxpayers, are entitled to a procurement process that is fair and reasonably transparent, and they are entitled to take advantage of the Constitutional right to petition Congress for redress of grievances. They are also entitled to take advantage of statutory and regulatory procedures authorizing protests against unfair or illegal procurement actions without intimidation or fear of having to pay some sort of “penalty” to the government. It is interesting that one of the protests that apparently triggered the General’s comments was a challenge by the Sikorsky Aircraft Company and Lockheed Martin Systems to what they contended was an unfair source selection process in the award of a large dollar value contract to The Boeing Company for the Combat Search and Rescue Replacement Vehicle (CSAR-X). The GAO sustained the protest and found that the Air Force had ignored differences among the proposed aircraft that could have had a material impact on likely O & S costs, and that the Air Force had departed from its stated evaluation approach. (See the attached GAO decision).
This is not the first time that the Air Force has not followed the procurement regulations and has lost a protest. The General, rather than focusing on the improvement of source selection procedures by his agency, would seek to reduce the number of challenges to Air Force procurements by penalizing unsuccessful protesters. This, of course, would have the unavoidable effect of reducing the number of successful protests, as well, and would give the Air Force even greater latitude to run roughshod over the procurement regulations.
It is not easy to win a protest before the GAO or the United States Court of Federal Claims. The protester must demonstrate a clear violation of procurement laws or regulations, an abuse of discretion, or a decision by the Contracting Officer that lacked a rational basis. In fact, given the rapidly expanding use of multiple award task order contracting (“MATOC”), where the law prohibits protests against task orders (except in very limited circumstances), government contractors are already precluded from protesting task order solicitations and source selections that they believe are unfair. In addition, great deference is afforded to contracting officers by the GAO and the Court and when protests are sustained there generally is something very wrong in the procurement process. In other words, there are plenty of things built into the system to discourage frivolous protests, including the cost of legal representation, without seeking to impose additional “penalties.”It must be recognized that there is a statutory and a regulatory right to file a protest, and these rights cannot be denied by agency action alone. The statutory basis for bid protests is found in 28 USC 1491(b)(1), granting the Court of Federal Claims Protest Jurisdiction. For the GAO the statutory basis is found in 31 USC 3526, the authority to settle accounts. As provided in Pichel Air Service, 84-1 CPD 108, the basis for the GAO to decide protests is based upon the authority to adjust and settle accounts and to certify balances in the accounts of accountable officers under Pub. L. No. 97-258, § 3526, 96 Stat. 964 (1982) (codified at 31 U.S.C. § 3526). With account settlement authority, the Comptroller General can take exception to an improper transaction and hold the certifying officer or relevant official personally liable for the amount of money improperly expended. Moreover, his decisions on the expenditures of appropriated funds are binding on the executive branch.” The regulatory basis is found in FAR 33.1, Protests (Agency and GAO protests) and 4 CFR Part 21 (GAO Bid Protest Regulations) which states that protests may be filed with the GAO.
Protest Challenges Solicitation for Single Award Task Order Contract (SATOC) Involving Military Construction
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.
Corps of Engineers Conduct Found to be an "End Run" to a Judicial Order and Injunction on MATOC Solicitation
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.
Federal Court Rules that Negotiated IDIQ/MATOC Contracting Cannot be Used Instead of Sealed Bidding Without a Lawful and Rational Basis
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.
We recently presented a number of seminars on the topic “How to Succeed in the New World of Federal Construction Contracting” that dealt with the shift from sealed bidding to negotiated procurement in federal construction contracting, as well as the increased use of Indefinite Delivery Indefinite Quantity (IDIQ) and Multiple Award Task Order Contracts (MATOC). (See our upcoming seminar schedule and agenda). One of the byproducts of this shift in procurement policy has been a reduction in the number of competitive opportunities resulting from the combination of many smaller projects into very large negotiated contracts. As the examples below demonstrate, the era of $320 million construction contracts and $9 million to $24 million task orders has arrived.
Shaw-Dick Pacific, LLC, Honolulu, Hawaii, was awarded a $175,983,523 (first increment) firm-fixed-price contract for construction of the Hawaii Regional Security Operations Center at Naval Computer and Telecommunications Area Master Station Pacific. An additional $144,016,477 will be funded upon the passage of FY2008 Military Construction Appropriation Bill making the total amount $320,000,000. The contract contains one option which may be exercised within three months, bringing the total cumulative value of the contract to $320,040,000. Work will be performed at Wahiawa, Hawaii, and is expected to be completed by June 2010. This contract was competitively procured with 38 proposals solicited and two offers received. The Naval Facilities Engineering Command, Pacific, Pearl Harbor, Hawaii, is the contracting activity (N62742-07-C-1329).
Rogers-Quinn Construction, Inc., Bonsall, Calif., was awarded $9,820,000 for firm-fixed-price Task Order 0009 under a previously awarded indefinite-delivery/indefinite-quantity multiple award construction contract (N68711-02-D-8062) for construction of the Reserve Training Center at Marine Corps Air Ground Combat Center, Twentynine Palms. The work to be performed provides for the construction of a single-story, steel framed structure with spread footing foundation, concrete floor, reinforced masonry walls, standing seam metal roofing system, fire protection system, heating, ventilation and air conditioning systems, specially constructed weapons storage area (armory), lithium battery storage area, staging areas, classrooms, storage and supply areas, drill hall, administrative spaces, locker and shower rooms, workshops, electrical utilities and mechanical utilities. Work will be performed in Twentynine Palms, Calif., and is expected to be completed by June 2008. The Naval Facilities Engineering Command, Southwest, San Diego, Calif., is the contracting activity.
Harper Construction Co., Inc., San Diego, Calif., was awarded $24,855,000 for firm-fixed price Task Order 0005 under a previously awarded multiple award construction contract (N68711-02-D-8019) for family housing replacement in the Desert View and Club Street Area at Marine Corps Logistics Base, Barstow. The work to be performed provides for design and construction services for 74 family housing units and a community center, consisting of all necessary site clearing, grading, demolition, improvements, structures, and off-site work as required. Work will be performed in Barstow, Calif., and is expected to be completed by June 2008. The Naval Facilities Engineering Command, Southwest, San Diego, Calif., is the contracting activity.
MATOC – IDIQ – “Best Value” – BRAC
These are the terms that contractors are hearing more and more and they are part of the rapidly changing world of construction contracting with the federal government. It is no longer enough to simply be the low bidder; now, in many federal procurements, it is the “best value” that gets the job. To make matters even more complicated, projects that were once bid individually, on a project-by-project basis, are now being awarded under Indefinite Delivery Indefinite Quantity (IDIQ) or Multiple Award Task Order Contracts (MATOC) and the number of contracting opportunities is shrinking. Nevertheless, for those who understand the system and know how to put an effective proposal together, there continue to be many opportunities for construction contractors and subcontractors to participate in the federal government’s vast construction program, including the upcoming Base Realignment & Closure (BRAC) program.
If you are interested in learning more about construction contracting with the Army Corps of Engineers, NAVFAC, and other federal agencies, we invite you to attend one of the upcoming seminars sponsored by Payne Hackenbracht & Sullivan on How to Succeed in the New World of Federal Construction Contracting. The seminars are to be held in Charlotte, Dallas, New Orleans, Orlando, or Philadelphia on one of the dates in February 2007 listed above and on the attached agenda. The speakers include former Corps of Engineers attorneys and engineers, the former Deputy District Engineer of the New Orleans District, and the former Chief of the Construction Division of the Philadelphia District. The program will be presented from 8:30 a.m. until 1:00 p.m.
The program will focus upon Identifying Contracting Opportunities, Understanding the Latest Contracting Methods, Successfully Competing for Negotiated Procurements (including effective proposal preparation), and How to Deal Effectively with Federal Agencies, and will include information about how to protect your rights in both the bidding and contract performance stages of a project. While contracting with the government provides many potentially profitable opportunities for a contractor, the federal contracting process is fraught with peril for those who do not understand federal procedures. We will help you understand both what you should do, and what you should not do, when dealing with the federal government.
Please review the enclosed agenda and registration form, and feel free to contact us if you have any questions. The attendance fee is $195, and additional attendees from the same company will only be charged $95. Please register early because space is limited.
Our Seminar Coordinator, Rachel McNally, is available to answer your questions and she may be contacted at 215-542-2777, email@example.com.