Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

A recent GAO report highlights the fact that when a solicitation and procurement strategy prioritize (1) capabilities and the quality or level of service to be procured over (2) the dollars to be paid, government contracting, project, and source selection personnel are forced to earn their paychecks.  In these situations, two or more proposals, with potentially vast differences, must be comparatively analyzed for overall and incremental value, with solicitation requirements serving as a baseline, and government employees must decide which proposal provides the best value to the government.

On October 28, 2010, GAO followed through on the mandate in Section 845 of the National Defense Authorization Act for Fiscal Year 2010 and reported on the Defense Department's use of the best value tradeoff process in source selections during March through October 2010.  GAO focused on difficulties and challenges faced by government officials in making and supporting source selections when factors other than cost or price (e.g., technical approach, past performance, small business utilization) are designated as having more importance, when combined, than cost or price factors.  DOD relies heavily on this approach in situations involving high-dollar, competitive contract awards.  The GAO report notes that government used this approach 95% of the time during FY 2009 in situations involving competitively awarded contracts involving an obligation of $25 million or more.

In theory, the government's use of a best value tradeoff analysis should provide the critical element of flexibility to decision makers.  That is, the decision to pay Contractor A a higher price for good and services than that offered by Contractor B is an acceptable one, if doing so yields the best value to the government.

In practice, the use of a best value tradeoff process places government officials in the position of having to exercise business judgment.  And, perhaps most important, the process forces the government to articulate and document its reasons, with very specific references to information gained from offerors during source selections, for deciding that the government's best interest are served by paying either (1) more dollars for more capability or service, or (2) less dollars for less capability or service.  Interestingly, GAO found that DOD officials selected the lower priced option nearly as often as it selected the highest rated, but more costly, proposal.

GAO's report underscores the importance of growing a DOD Acquisition Workforce (including 6,400 anticipated new hires over the next few years) that has the guidance, skills, and business judgment to maneuver the best value tradeoff process properly and successfully.  And GAO would know, considering the continuing failures by the federal acquisition workforce to perform tradeoffs and determine best value.  Here are two recent examples.

This past summer, in Powersolv, Inc., B-402534, Jun. 1, 2010, 2010 U.S. Comp. Gen. LEXIS 234, GAO sustained a protest because the Federal Railroad Administration utterly failed to engage in a tradeoff process when it selected for award the proposal of a higher priced, higher rated proposal for database support services.  After the protestor pointed out that no tradeoff analysis was done to justify payment of a 10% price premium, the agency scrambled unsuccessfully to find documents that would have shown consideration, with specifics from features of contractor proposals, of whether the higher price was worth it.

Likewise, in Systems Eng'g Int'l, Jul. 20, 2010, 2010 CPD ¶ 167, GAO sustained a protest in a procurement for power system maintenance services because EPA took an unacceptable short-cut in the best value tradeoff process and only considered the top two qualitatively rated offers out of ten received.  In this instance, EPA failed to consider the lower priced offers.  GAO noted that, even though the protester's offer was marked low as "Marginal" in non-price factors under consideration, the offer nonetheless should have been considered in the best value tradeoff process, because it was the least expensive quote.

These decisions, and GAO's recent report, suggest that the federal acquisition workforce is going to continue to be held accountable for the best value decisions it makes and that it may well be money well spent for the government to devote more significant resources to hiring individuals with the sound business judgment and experience required to make effective best value tradeoff decisions for major acquisitions.

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On June 17, 2010, the Federal Circuit majority ruled in M. Maropakis Carpentry, Inc. v. U.S. that it had no jurisdiction over the contractor's defense, based on excusable delay, to the Navy's liquidated damages claim for late completion, because the contractor had not filed a fully compliant "claim" under the Contract Disputes Act "CDA" (41 U.S.C. §§ 601-613.) Contractors have thus been warned. They should consider carefully all anticipated defenses (and those already asserted?) to government claims (e.g., breach or other government actions that might excuse a default termination) to determine whether they must be recast, formalized, and properly submitted under CDA procedures -- with attendant cost and, likely, delay in dispute resolution.

In Maropakis, the contractor failed to complete a Navy facility renovation project in accordance with the contract schedule and alleged that the government caused much of the delay. During more than two years of correspondence, the Navy announced its intention to collect liquidated damages under the terms of the contract. The contractor initially filed a complaint for, among other things, time extensions to compensate for alleged Navy delays on the project, and the Navy counterclaimed for liquidated damages. The Federal Circuit affirmed a Court of Federal Claims decision that the plaintiff-contractor could not be heard on the government's ensuing counterclaim for liquidated damages for breach of the contract schedule, because the Court lacked jurisdiction until the contractor met CDA requirements for properly drafting and submitting a claim to the contracting officer: i.e. clear statement of basis for claim, request for CO final decision, certification.

The Maropakis majority relied on Sun Eagle Corp. v. United States, 23 Cl. Ct. 465 (1991) to characterize the plaintiff's position as a "claim for contract modification" instead of a "defense" against a government claim for liquidated damages. While the Maropakis court declined to provide much detail on its conclusion that the plaintiff was "claiming" and not "defending," the Sun Eagle case sheds some light possible ways to make the distinction. The Sun Eagle court stated that contractors could likely defend themselves against government liquidated damages claims without having to first submit for CDA-complaint claims, so long as the contractor did not claim for itself the liquidated damages sum assessed or any interest thereon. 23 Cl. Ct. at 482. The Maropakis plaintiff may have been more readily viewed as a "claimant" than a "defender," considering the claim for rescission of liquidated damages and interest in its initial complaint.

The Maropakis majority also relied, however, on Elgin Builders, Inc. v. United States, 10 Cl. Ct. 40 (1986), where the contractor was permitted to defend against a government liquidated damages claim without filing a CDA-complaint claim of its own, but only to the extent of denying any delay in completion: "However, if plaintiff intends -- in connection with its contest of the assessment -- to raise any issue of relief to which it might be entitled, such as the contractor's claim of entitlement to time extensions, such claims must first be presented to the CO for his decision and this court will not consider such claims until that has been accomplished." Id. at 44. In short, Maropakis apparently confirms strict procedural requirements on contractor defenses that could be asserted as claims, probably even if not advanced as claims for money.

The Maropakis opinion was delivered over a spirited dissent, which steadfastly refused to view a contractor's objection to a government claim for liquidated damages as a "claim" subject to a jurisdictional bar. And, more basically, the dissent expressed grave concern---even quoting President Lincoln in the process---that the majority's decision to grant the government's motion for summary judgment on its liquidated damages claim, denied the contractor the basic right to defend itself.

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