Prime – Sub Relationships in Government Contracting

June 1, 2018 on 4:05 pm | In Contract Interpretation, Contract Types | Comments Off

In the commercial world, under the Uniform Commercial Code (UCC), contracting can be very flexible and given the policies of the UCC, parties can find themselves in a contractual relationship with much less formality. Occasionally one of the parties is surprised that they are in a contractual relationship, but when the processes are much less formal, that can happen.

There is also a legal principle involved known as privity of contract. This principle reflects that two parties are in a direct relationship; there is no third party between them that holds a contractual relationship with them both. Thus the government has privity with the prime, and the prime has privity with the sub, but the government and the sub do NOT have privity as between them. The two of them are not in a direct contractual relationship with each other. Among other things, this prevents the buyer from going to the seller’s subcontractor and making changes of which the seller is unaware. It maintains a legally enforceable relationship between the parties actually in a contract with each other.

It is rare when an adjudicative body appeals to the privity of contract rules, but the GAO found it necessary in a May 18, 2018 decision. The current procurement, an IDIQ solicitation, led to the award of 80 contracts with a variety of contractors. One of the requirements was that if the offeror proposed subcontractors, the prime offeror had to demonstrate that they had successfully performed with that subcontractor in an identical relationship previously.

The protestor here submitted documentation to show that they had worked with the proposed sub under a different solicitation. That requirement was different and the government, which has extremely broad discretion on how to define its needs, dictated that all subs would be given PRIME contracts and deal directly with the government. In that case, this offeror’s “team” (there was a formal teaming agreement, which is NOT a subcontract) won the contract and each of them got separate prime contracts. Thus, in addition to other differences, the government provided specific contract direction to these separate entities and each billed its own costs and the government paid them directly. The protestor tried to argue that as the “team lead,” it served an identical role as a prime with subcontractors. The GAO disagreed.

Contracting in a loose manner in never advisable. You should never treat basic contracting principles in a cavalier manner. What you name an agreement may, on some occasions and some circumstances, reflect what the parties believed the nature of the relationship to be, but from a legal perspective a contract is different than a teaming agreement, which is different than a joint venture, which is different than a partnership, which is different than a corporation, which is different than a limited liability company, which is different from any number of other relationships that people or entities might have between or among themselves. A court will look to the terms of the agreement and how it functioned to determine the true nature of the arrangement.  In this case, the parties on the prior contract called what they did a team. And most commonly, upon winning a contract, the prime is awarded a contract and each other teammate then assumes a role as a subcontractor at some tier. In that case, however, due to government demands in meeting its reasonable requirements, each of the teammates became a prime contractor. Thus the protestor here had NEVER been in a prime/sub relationship with the currently proposed subcontractor.

The GAO determined that the agency had been correct in removing points from the protestor’s evaluation, thus dropping them below the level at which contracts were awarded. It pays to understand the variety of contractual relationships, and never try to call an apple a kumquat.

Amyx, Inc., B-415789.4, May 18, 2018.

Assumption of Risk in a FFP Contract

April 21, 2016 on 6:42 pm | In Contract Drafting, Contract Interpretation, Contract Types | Comments Off

February 5, 2016 by Tom Reid

Everyone in the government contracting profession understands that a FFP contract means that it is a FIRM commitment by the contractor to perform the contract work at a PRICE that does not change, i.e. it is FIXED. An interesting case in August 2015 highlighted this in an interesting way.
Agility was under a FFP contract to dispose of all the property in Afghanistan, Iraq, and Kuwait related to specific sites in those countries. The government provided accurate historical data for property disposal, but history was about to change. There was significantly more property to dispose of and Agility filed a claim for $6.9 M for the excess. The contracting officer allowed $236,363.93 via final decision that was appealed to the US Court of Federal Claims.
The court acknowledged that this was “an unusually high-risk contract.” Even so, the legal issue was quite simple – who had assumed the risk of the bad estimate? Interestingly, Agility was allowed to keep the proceeds from sale of scrap material. Thus a reasonable assumption would suggest that with an increase in the quantity of property of which to dispose, there would be an increase in the revenue from the sale of scrap. The parties even drafted a clause in an effort to deal with actual property counts that varied significantly varied from the original estimate. The court described this clause as being “so complex and uncertain that it offered essentially no protection at all to the contractor.”
The court provided a good survey on determining what ‘type” of contract the parties intended.
Regarding the quantity term, there are three possible types of supply contracts: those for a definite quantity, those for an indefinite quantity, and those for requirements. … The question here is whether the contract is one for a definite quantity, as the contract itself states, or for requirements, as Agility claims. The Court is not bound by the name or label included in the contract itself. ….
Rather, it must “look beyond the first page of the contract to determine what were the legal rights for which the parties bargained, and only then characterize the contract.” … “[I]f a contract is susceptible of interpretation as . . . one for requirements . . . the court should uphold it as of the requirements type.” ….
A definite quantity contract contemplates a “fixed, definite quantity of goods or services be purchased and provided.” …. A contract that provides only estimates and not definite quantities is not a definite quantity contract. ….
On the other hand, a requirements contract is formed when the seller has the exclusive right and obligation to fill all of the buyer’s needs for the goods or services described in the contract…. An essential element of a requirements contract is the promise by the buyer to purchase the contract subject matter exclusively from the seller.… (citations omitted).

The court concluded that this was a “high risk” FFP requirements contract. Agility argued constructive change, negligent estimating, breach of warranty of reasonable accuracy, and general equitable adjustment for a portion of the work. The court found none of those arguments persuasive.
The primary message in this case is one every contractor learns quickly or goes out of business just as quickly. FFP means FIRM, FIXED, PRICE. There are almost never any exceptions. If you can’t do the work at that price, do not propose that price. A second lesson has to do with the drafting of a special contract provision. That clause was useless to Agility even though it was drafted by the government and should have been construed against the government. The Court did not address that little detail (and Agility was no novice government contractor; they should have known better.)
What strikes me about this case, however, is “none of the above.” Yes, FFP means FFP and any contractor who forgets that gets what they deserve. Survival of the fittest, Darwin Principle, and stupid is as stupid does. What strikes me is that FAR 16.202-2 is extremely clear. It says, “A firm-fixed-price contract is suitable for acquiring … supplies or services on the basis of reasonably definite functional or detailed specifications … when the contracting officer can establish fair and reasonable prices at the outset….” More and more I see agencies issuing terrible requirements documents and forcing them under a FFP arrangement. Sadly there are enough hungry contractors, and from my experience even sadder, usually small businesses including 8(a)’s, who will bet their company on the hope that it can succeed. The government takes advantage of this arguing that the fact that there was competition validates the reasonableness of the requirement. This is false logic. The hungry or naive small business bites the dust (or minimally hurts itself very badly) from what is, in reality and effect, a bad requirements document promulgated by the government. In my view, this contract was void ab initio (Meaning it never existed.) The contractor should have been compensated for the fair value of benefit received by the government. The CO had no authority to even enter into the contract since he/she failed to comply with ALL of the rules and regulations as required by FAR 1.602-1 (b) “No contract shall be entered into unless the contracting officer ensures that all requirements of law, executive orders, regulations, and all other applicable procedures, including clearances and approvals, have been met.” FAR 16.202-2 is just one example. I do not think justice was done here, and it all started with a bad requirements document, coupled with a hungry contractor. That is ALWAYS a recipe for disaster and this situation played out exactly as any reasonable person would have predicted.

“Use of Consultants on Proposals Prohibited, says GAO” Really?

May 4, 2015 on 6:25 pm | In Bids and Proposals | Comments Off

On March 25, 2015, GAO issued an opinion that has been much maligned in the press and commentaries. As described by some, the ruling was that consultants could no longer be used to assist in proposal development. This is a gross misstatement of what GAO actually held.
In the Matter of Advanced Communication Cabling, Inc. the protestor objected to RFP language that limited responses to one segment of the RFP to actual employees or subcontractors on the team. They argued that such language limited the ability of some firms to compete, thus limiting competition contrary to FAR requirements. This is a legitimate matter to bring to GAO, and as it relates to the terms of the solicitation, must be brought before the date set for the receipt of proposals.

The RFP anticipated the use of multiple awards for task order contracts where tasks would be priced under a variety of pricing schemes. Anticipating a large number of offers, and in order to distinguish among the offerors and their capabilities, the VA posed a set of three hypothetical tasks for which the offerors had to propose solutions. As described by GAO:

With regard to the sample tasks subfactor, the RFP directs offerors to describe their approach to performing three hypothetical tasks, to include identifying the labor categories the offerors would use to perform the tasks. … The RFP provides that the sample tasks “are designed to test the Offeror’s expertise and innovative capabilities to respond to the types of situations that may be encountered in performance of a contract resulting from this solicitation.” … The RFP further provides that in evaluating each sample task, the VA will consider the offeror’s understanding of the problem and the feasibility of the offeror’s proposed approach. … As to the latter, the RFP provides that “[t]he evaluation will also consider the realism of the labor categories being proposed in the Offeror’s response to the sample tasks.” (Citations omitted).

The RFP also placed the following restriction on offerors, again as described by GAO:

Notably, the RFP expressly prohibits offerors from using consultants to assist them in preparing their sample task responses. … In this regard, the RFP requires an offeror to certify, using a form provided with the RFP, that its sample task responses were prepared only by the offeror and its subcontractors, provided that any such subcontractor has entered into a contractor team arrangement (CTA) with the offeror and is identified in the offeror’s management proposal. Id. The RFP provides that the agency will not consider proposals which do not include the certification or which provide a falsified certification. (Citations omitted.)

This is the language to which some have hung their argument that consultants would no longer be permitted on proposals. This is wrong on several levels. The restriction that GAO reviewed and found reasonable was solely that consultants could not be used to draft the solutions to the hypothetical tasks. That is only one portion of an RFP response, and as drafted was actually a very narrow restriction.

According to the VA, it prohibited offerors from using consultants to assist in the preparation of the sample task responses in order to help ensure that the responses received by the agency would reflect the technical abilities of the offerors and their subcontractors, and not that of outside experts who would not be involved in performing the contract. … The VA reasons that this restriction reduces the risk of unsuccessful performance because it makes it more likely that its technical evaluation will be based on the knowledge and abilities of the individuals who would actually be involved in performing under an awarded contract. (Citations omitted).

In a footnote, GAO noted that VA cited experiences where the proposed solution from a variety of offerors were nearly identical, making substantive comparisons impossible. It is as if there were a “textbook” answer that each offeror gave, without consideration of how THEY would perform based on the resources and capabilities actually available to them.
It is important to understand GAO’s standard of review. It is not GAO’s role to replace its judgment with that of the agency. GAO often notes that it is within the discretion of the agency to establish its requirements and to set the standards by which meeting those standards will be measured. GAO will only “examine the adequacy of the agency’s justification for a restrictive solicitation provision to ensure that it is rational and can withstand logical scrutiny.” As to the evaluation criteria, GAO will not object to the agency’s choices, “so long as they reasonably relate to the agency’s needs in choosing a contractor that will best serve the government’s interests.” Look carefully at the choice of words in those two quotes – “rational,” “logical scrutiny,” and “reasonably.” Those words tell you clearly that GAO does look for a single “right” answer. The standard is one of reasonableness, and as we all know, reasonable people can and do differ. The agency’s actions must be reasonable, rational, and withstand logical scrutiny. In a phrase, do they make sense in the context? Similarly, as GAO noted, an agency might consider the past performance of the entire contract team, including subcontractors OR might limit such review to the past performance of the prime contractor alone since it is only the prime contractor that is on the hook for successful performance. In this case, GAO found that “it is reasonable to require that the sample task responses be prepared by the firms proposed to perform the contract, as opposed to outside consultants who have not been identified as members of the offeror’s team.”
The GAO went on to state that consultants COULD be involved if they were within the Contract Teaming Agreement – i.e. part of the group that will in fact perform the contract. The decision is also completely silent on the use of consultants for ANY OTHER PART of a proposal. The task descriptions were only one part of a relatively large and complex RFP. GAO did NOT prohibit the use of consultants. It only held that it was reasonable for the agency, under the circumstances of that solicitation, to limit who could offer the contractor’s proposed solutions on the sample tasks. This does not make it the “right” answer; it is merely one acceptable (reasonable and rational) way for the agency to lower the risk of failed performance.
So those who have been scared into believing that consultants were no longer permitted to assist offerors on proposals can put their fears aside. Hire the best consultants you can find, particularly if your internal staff is thin or inexperienced. Just follow the proposal instructions on who can do what.

Two Options – For our LinkedIn Connections

August 30, 2010 on 5:28 am | In CCS News | 2 Comments

There are two ideas that we are considering putting into development and marketing. We may  only be able to do one. We thought that we would post these two ideas and see what sort of response we get. That will help guide us in our development of some new classes.


We have developed so many classes over the years that there is always some root material already in our library and archive that we can use and adopt, so the actual development of any project, in terms of cost, is roughly equal to any other class we develop. The bigger issue is one of marketing. The goal is to develop a class that will provide some level of repeat presentation.



There is a push from the government to limit the use of T&M contracts. While there are several arguments for doing so, the primary issue highlighted by GAO is that T&M estimates of “T” are generally not accurate. If the estimate is too low, then an insufficient level of overhead and G&A will be built into the hourly rate and the contractor will not recover sufficiently to make the project worthwhile. If the estimate is excessively low, then the contractor will over-recover to the government’s detriment.


As with many government initiatives, one bad example makes the entire genre bad. Those of us in the industry know that a T&M contract serves a very worthwhile purpose and its use should be maintained IN THE RIGHT CIRCUMSTANCES!


We propose a two day class that will cover the following syllabus:

I. Contract Types (not limited to the cost dimension)

II. The Mechanics and Proper use of a T&M Contract

III. How to convert a T&M to a more appropriate contract type

IV. What changes in administration of a contract when it is no longer T&M


The target market would be corporate and government clients and would cost approximately $5000 for up to 25 attendees if the class were held in the client facility.



In 2007 we participated in the development of two, in a series of  ten, books published by Management Concepts which they called Federal ActionPacks. The two we wrote covered Government Contract Law Basics and Terminations. The others in the series were titled:

            Earned Value Management

            Performance-Based Contracting

            Cost Estimating and Pricing

            Contract Administration and Closeout

            Contract Formation

            Best-Value Source Selection

            Performance Work Statements


The two topics we would add are:

            Negotiation – based on Getting to Yes

            Market Research or Appropriation Law – book TBD. The government does a very poor job overall in market research, and the myriad issues surrounding appropriation law are not generally well understood.


We have already converted the two we wrote into half-day presentations that were well received. We have taught all of the other subjects as part of other classes, so there is a great deal of original material available to package into half day classes for the other topics. Given the current requirement that all CO’s attend 40 hours of training each year to maintain their warrant, we have observed that this is usually done by taking them out of the office for a full week of training. Several things occur. They are pulled out of the training repeatedly, they are very distracted, they retain very little of the training, they learn nothing really new, and they “fill the square” of putting in 40 hours in the classroom even though a large amount of the time is spent in the hallway on their cell phone. And often this is done in September because they failed to get it done prior to the fiscal year end.


We propose to take the full series of ten books and put together half day sessions to be held once a month. Every CO can take a morning or afternoon and attend four hours of quality training once a month. In addition to the ten topics covered by the ActionPacks, we would add one class on negotiations and one class on either market research or appropriations law, each of which are already developed, to cover the full twelve month schedule. A CO only has to attend 10 of the 12 classes to get their 40 hours in.


Pricing would be based on a per-seat basis. With sufficient interest we could hold the price to $199 each. We are considering packages such as a company or agency purchasing 20 or 40 or 100 “seats” for the year and being able to send anyone they choose to at a more discounted price. This concept would require that we obtain the facility (or work a barter deal with a current client to offer them a certain number of seats for the use of their facility), and perform our own marketing to sell additional seats. As an NCMA Education Partner we can use their mailing list once each year.



Initially we had considered Concept 2 as occurring in the Denver area, which is our base of operations. An alternative was proposed where we take this on the road to the DC area and offer the class, for example, in the morning in the northern Virginia area, and in the afternoon in the Bethesda area. This would limit travel and attempt to tap a larger market. Since we can use the NCMA list only once, we would expand the class announcement mailing to the east coast as well as to Denver.



We are looking for opinions and interest in either of the options to guide us in the development of our next project. As always we remain available for COTS or customized training to all of our clients on any government or commercial contract-related class. Please leave a comment or feel free to direct your comments to me personally via email or through LinkedIn.

A Question of Character

June 24, 2010 on 1:09 pm | In Ethics | Comments Off

A client recently provided me with an extremely onerous non-compete agreement that they had been provided by a potential employer. It seems this employer had hired some folks in the past who, when leaving the company, took key clients and client lists and proceeded to do harm to the company. Thus the management had this ridiculously stringent agreement drawn up that effectively barred anyone who signed it from working in their field (and possibly at all given the breadth of “any company that COULD become a government contractor”) for at least seven years. This caused me to reflect on the question of character.
Those who steal from a company, whether it is data, forms, lists, formats, supplies, or even time show that they lack character. An honest day’s wages for an honest day’s work. The entitlement mentality that is becoming more endemic to our society is troubling. We should not have to work, or if we do, not work hard. We should be guaranteed an education, a house, a car, and food on the table. Any effort on our part toward achieving those things is simply not required. Unemployment benefits can and should be extended indefinitely and union protections that force job security on even the incompetent are a right that everyone should have. And health care, well….., that is a right that is specifically called out in the constitution where it speaks to the right to life (liberty and the pursuit of happiness). We should all be guaranteed to live forever.
Sadly character is lacking in many people today. Get yours before someone else does.  Corporations are evil and it is your duty, no a right, to take advantage of them. Anything that can be converted to personal advantage should be, whether that is a pen and pad of paper from work to the company’s complete client list. When we teach negotiations there is invariably someone in the class who attended a prior seminar where they were told to ignore what they deserve and just get whatever they can get. Win-lose all the way.
When we teach negotiations we state explicitly: RULE #1 – Always enter every negotiation with your integrity intact. RULE #2 – Always leave every negotiation with your integrity intact. Sadly, too may people don’t have enough to begin with and it takes a long time to build a solid reputation. Nine of the top ten government contractors have been convicted of fraud. News reports come out weekly about someone who tried to get money for nothing (and chicks for free). Many are caught and punished, but many more escape notice. We will never wipe out improper or criminal activity. As James Madison said, “If all men were angels we would need no laws.” We are not angels.
What struck me about that non-compete agreement was that it was so onerous that no person of character could ever sign it. There was no way they could comply with its terms and to deny someone the right to make a living for seven years is just ridiculous. What this company had done was, first – hire the wrong people who lacked character and who ultimately took advantage of them. Second – they drafted an agreement intended to completely protect them from such unscrupulous people in the future. And third – (and this is the saddest part of the story) guaranteed that anyone who came to work for them and who was willing to sign such an agreement would be lacking character since in signing it they were acknowledging that they had no intention of adhering to it. Perhaps they would believe it to be unenforceable, or that they would never get caught, or that the company would not pursue them. Regardless of the reasoning, it takes a LACK of character to enter into such an agreement. The strength of character would be shown by the person who simply refused to sign it no matter how badly they needed the work. Those are the tough decisions, but they are also the situation where character counts.
I once advised a client that they should stop hiring for specific skills and start hiring for character. Their employees were constantly getting the employer in trouble with their clients for bad employee conduct – misappropriating client data, sexual harassment, porn on the computers, etc. It was a real cesspool. The owner did not feel the advice was worthy (and we dropped the client). They are still in business but at a fraction of the size they were. Character counts.
What have you done today to demonstrate your character? Are you happy with the character you are perceived to have? What can you do to be a person of character? Worthy thoughts for today.

DLA – The Good, the Bad, and the Ugly

October 8, 2009 on 5:42 pm | In The Profession | Comments Off

The Defense Logistics Agency supplies almost every consumable item America’s military services need to operate, from groceries to jet fuel to light bulbs. It provides approximately 95% of the military services’ repair parts and 100% of the services’ subsistence, fuels, medical, clothing and textile, construction and barrier material. It then disposes of surplus material and supplies. It has operations in 48 of the fifty states including Alaska and Hawaii (the neglected states are Vermont and Iowa) and would be #57 on Fortune’s 500 list (if it were a company). So in terms of basic commodities, if you are looking to sell to the government DLA is a key agency to consider.

DLA managed $2.07 billion in foreign military sales for FY 2008 and supports 126 allied nations. It employs 23,000 military and civilian employees. Manages 6.4 million items in eight supply chains and processes 114,000 requisitions every day. It conducts 11.200 contract actions every day and supports 1603 weapon systems. It spends about $35 billion every year, and that number went to $42 billion in 2008. It is a very busy and productive place. It’s contracting specialists are some of the best and working for DLA gets you vast experience very quickly. Speed and efficiency are key measures of success, and unlike many logistic functions – soldiers’ lives depend on DLA’s effective execution of its mission. It is a high-pressure, but very rewarding environment.

Historically, although its roots go back to WWII, DLA has only existed since 1961. In that year, Secretary of Defense Robert McNamara ordered that the previous single-manager agencies(where each branch of the armed services had responsibility for certain commodities) be consolidated into one agency. The Defense Supply Agency (DSA) was established on October 1, 1961, and began operations on January 1, 1962. In 1965, DOD consolidated most of the contract administration activities of the military services to avoid duplication of effort and provide uniform procedures in administering contracts. Officials established the Defense Contract Administration Services (DCAS) within DSA to manage the consolidated functions.

DLA took on its present name on January 1, 1977, when DOD changed the name of the Defense Supply Agency to the Defense Logistics Agency. In 1990, DOD directed that virtually all contract administration functions be consolidated within DLA. In response, the agency established the Defense Contract Management Command, absorbing its Defense Contract Administration Services into the new command. You might here some of us still refer to DCAS or DSA, much as we sometimes here references to the ASPR! Some old habits die hard.
This past September, however, Congress heard testimony from the Government Accountability Office that suggested that perhaps DLA was not functioning quite as it should. According to this report DOD faces challenges in making sure that DLA gets value for the taxpayer’s dollar and obtains quality commodities in a cost-efficient and effective manner. Key areas of concern include clearly defining its requirements, using the appropriate contract type, and effectively overseeing contractors. Specifically the GAO has found the following problems:

Accurate Requirements Definition – Without a good understanding of customers’ projected needs, DLA is not assured it is buying the right items in the right quantities at the right time. GAO’s prior work has identified instances where problems in properly defining requirements can lead to ineffective or inefficient management of commodities. For example, GAO reported in 2005 that while DLA had a model to forecast supply requirements for contingencies, this model did not produce an accurate demand forecast for all items, including Meals Ready-to-Eat. As a result, the demand for these items was underestimated and some combat support units came within a day or two of exhausting their Meals Ready-to-Eat rations.
Sound Business Arrangements – Selecting the appropriate [contract] type is important because certain contracting arrangements may increase the government’s cost risk where others transfer some of that cost risk to the contractor. For example, GAO noted in 2007 that DLA’s Defense Energy Support Center was able to purchase fuel and supply products for the forces in Iraq more cheaply than an Army Corps of Engineers contractor because DLA was able to sign long-term contracts with the fuel suppliers.
Proper Contract Oversight and Management – Failure to provide adequate contract oversight and management hinders DOD’s ability to address poor contractor performance and avoid negative financial and operation impacts. For example, in June 2006, GAO found that DLA officials were not conducting required price reviews for the prime vendor contracts for food service equipment and construction and equipment commodities. Agency officials acknowledged that these problems occurred because management at the agency and supply center level were not providing adequate oversight to ensure that contracting personnel were monitoring prices.


GAO acknowledged that DLA from its headquarters at Fort Belvoir in northern Virginia has taken some actions to address these challenges. For example, DLA has begun adjusting acquisition strategies to reassign programs to a best procurement approach. DLA has also established contracting officer’s representative training requirements to ensure these individuals are properly trained to carry out their responsibilities.

On the one hand it might be easy to say that after all this time, DLA should be able to get it right; that GAO should not still be finding these problems. When you look at these criticisms, however, they are identical to the very issues that EVERY contracting activity faces. Defining and understanding the requirement, placing the contract under the correct business arrangement, and overseeing the contractor are the three areas that require constant attention. Government contracting is very dynamic, resources are stretched too thin, and inadequate training conspire to create these perennial problems. No agency is immune.

But that doesn’t suggest that it is excused. Our profession MUST continually strive to properly define requirements and train those who do so. The variety of business arrangements must be understood. For example, when was the last time you saw a Fixed Price Redeterminable contract? Did you even know that such a contract type existed? Doing things a particular way because “that’s the way we’ve always done it” is just sloppy contracting. Contracting professionals MUST engage in continuous learning or they neglect one of the linchpins of being a professional. And having enough trained contract professionals is going to continue to be problem as the baby boomers continue to retire. These are not easy problems to solve. But that doesn’t mean we shouldn’t try. What can you do to address these three areas in your organization? The next GAO report might be a cut and paste from this one, only this time it will refer to your command, company, or service center.

Do You Compete With Federal Prison Industries?

October 7, 2009 on 3:44 pm | In Bids and Proposals, Marketing to the Government | Comments Off

Under applicable federal procurement rules certain products are required to be purchased from Federal Prison Industries (FPI). These purchases are intended to give prisoners productive work and a method to pay, at least in part, for their upkeep and maintenance. The problem is that there are companies in the commercial marketplace that are effectively frozen out of the federal market since they produced the same things as FPI.

In a recent decision, GAO had occasion to review the statutory and regulatory underpinnings of the current role of FPI in federal procurements.  Ashland Sales & Service Company. B-401481,September 15, 2009.

 FPI is a self-supporting, wholly-owned government corporation that was established to provide employment and training to federal penal inmates involving the production of commodities for consumption in prisons or for sale to government agencies. 18 U.S.C. §§ 4121, 4122 (2006); Federal Acquisition Regulation §§ 8.601(a), (b). For DOD, the requirements for the procurement of products from FPI are defined by the National Defense Authorization Act (NDAA) for Fiscal Year 2002, (citations omitted).

In 2008 Congress changed the process for determining when FPI is a preferred provider. This law created a new procedure for obtaining products from FPI for situations where FPI has been determined to have a “significant market share” of the product category in question as follows:

The Secretary of Defense may purchase a product listed in the latest edition of the Federal Prison Industries catalog for which Federal Prison Industries has a significant market share only if the Secretary uses competitive procedures for the procurement of the product or makes an individual purchase under a multiple award contract in accordance with the competition requirements applicable to such contract. In conducting such a competition, the Secretary shall consider a timely offer from Federal Prison Industries.
* * * *
For purposes of this subsection [2410n(b)], Federal Prison Industries shall be treated as having a significant share of the market for a product if the Secretary, in consultation with the Administrator of Federal Procurement Policy, determines that the Federal Prison Industries share of the Department of Defense market for the category of products including such product is greater than 5 percent.

So if FPI has captured 5% or more of a market segment, then DOD publishes that list from time to time as the DOD determines necessary. In the particular procurement before the GAO here, the product was “8405, Outerwear, Men’s” and it had been added to the list on June 3, 2009, with an effective date thirty days hence. Based on a solicitation issued within this window, and after conducting market research on these items as required by the statute, the agency decided to obtain them from FPI non-competitively. The protestor argued that since FPI now had a greater then 5% market share, the use of the set-aside was improper. The issues before GAO included the discretion of DOD in publishing the list with a later effective date, and the proper role of FPI in the federal marketplace.
The GAO analysis began with the interpretation of the relevant statute. For GAO and other decision makers when conducting statutory interpretation, they start with an analysis of the language in the law – does it provide an unambiguous expression of the intent of Congress? If so, the analysis ends there because the unambiguous intent of Congress must be given effect. (citations omitted) If, however, the statute is silent or ambiguous with respect to the specific issue, the decision maker will turn to the interpretation given to the statute by an agency responsible for administering the law; in this case DOD (citations omitted). Generally if the agency has interpreted ambiguous provision of the statute through a process of rulemaking or adjudication, the decision maker will provide great deference to that interpretation unless the resulting regulation or ruling is procedurally defective, arbitrary, or capricious in substance, or manifestly contrary to the statute. (citations omitted) On the other hand, where the agency’s position reflects an informal interpretation, deference is not warranted; in these cases, the agency’s interpretation is “entitled to respect” only to the extent it has the “power to persuade.” (citations omitted) The weight given to an interpretation under this lesser standard depends “upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade.”

So in a nutshell, and these rules apply whenever statutory or regulatory interpretation is required to resolve a dispute, if agencies follow a formal process of rulemaking/interpretation under authority granted to them by Congress then the courts and boards will generally follow that interpretation. If the interpretation is merely advisory, or informal in its creation, it is provided much less deference, but is given weight to the degree it makes sense and is persuasive. These are good rules to remember when reading laws or regulations.

Another rule of statutory interpretation cited by GAO is the rule that “[a] statute is passed as a whole and not in parts or sections and is animated by one general purpose and intent. Consequently, each part or section should be construed in connection with every other part or section as to produce a harmonious whole.” (citations omitted).

In this case, GAO determined that the timing of the update was proper, and even though a determination had been made that FPI had a greater than 5% market share for these products, the formal publication provided for 30 days to become effective. Thus the procurement from FPI under a non-competitive acquisition was proper.

So there are two lessons to consider here. If you compete with FPI, you will not have an opportunity to sell to the government unless and until FPI reaches a 5% market share. You might make your product commercially unique in a way that meets a government need, but is not copied by FPI. Intellectual property protection might be one way to do this. Second, this GAO opinion provides some excellent guidance on how adjudicative bodies interpret statutes and regulations. As confusing as they may be sometimes, these are standard rules of interpretation. Given the number of regulations and statutes that are involved in government procurement, these rules are worth remembering and applying.

Remembering 9/11

September 11, 2009 on 10:57 am | In Uncategorized | Comments Off

This is a part of Project 2996 – a project designed to recruit 2996 bloggers to post a blog about one of the 9/11 victims. Certified Contracting Solutions, LLC is proud to participate in this worthwhile project.

I fully expect that at some point in our future we will, as a nation, realize the impact of the events of 9/11. As the government report told us, just because we did not believe that we were at war, there was an entity out there that has been at war with us for many years. It is naive to think that they have just “given up” or that sitting down and talking to them peacefully will change their hearts. As hawkish or dovish as you might be personally, there does come a time when we must fight to protect the freedoms that others wish to take from us. Sadly we can lose them just as easily, perhaps more easily, by letting them drift away slowly rather than be taken away by force and violence. When the time comes to fight for those freedoms, and violence becomes necessary for our protection, count me in.
There were 2996 victims killed in the war of 9/11. Today we have been selected to honor one of them. Today we honor the memory of Allison Horstman Jones. She was 31 on that fateful day and was working as an analyst for Sandler O’Neil & Partners, an investment banking firm. There is no telling just what she was doing. It was a normal business day in World Trade Tower 2. People on the 104th floor were making coffee, booting up their computers, catching up with co-workers, looking at their schedules and to-do lists, and taking care of the myriad tasks we all tend to each morning.
Allison was a Phi Mu at Albright College. Her class mates and sorority sisters knew her as a “beautiful, loving, cheerful glow that added much joy to any room she entered.” She was a New York City resident, but loved the outdoors. Biking in my neighboring town of Boulder was one of her favorite activities. She and her husband Larry grew up in Bernardsville, New Jersey. With what seems to be Type A personality, when Larry introduced her to outdoor sports she took to them with a vengeance, as she apparently did with most things in her life. Biking, running, hiking, and swimming were activities in which she excelled. She skied in Idaho, and competed in tri-athlete competitions.  She hoped to enter the Iron Man competition someday.
She and her husband had been married barely five years. On their honeymoon in Belize they went wind-surfing and scuba diving. Just a few days before 9/11 she mountain-biked 30 miles. This was routine for her. According to one report, her husband who has since relocated to Boulder, said, “I’d be following her down a hill and hear her hooting and hollering… She kept on discovering new things about herself. She blessed me in a sense. Her drive to overcome adversities — I’ve taken that with me.”

I never knew Allison or any of the other 2995 victims. I confess to a curiosity of why anyone would work in a building that tall. I’m not a big fan of heights, but we do what we must when earning a living. I am guessing, obviously, but I think I would have been a better person for having known her. There may never have been an opportunity to meet, but some encouragement in my exercise program, some inspiration from someone so dedicated to outdoor sports, and some good Type A company certainly would do me some good. Because of the actions of some radicals who have been at war with us for so many years, I will never get that chance.
How long should we remember this day? Some suggest that excessive mourning is just too fatiguing. Perhaps. And clearly there are days that we never forget such as Pearl Harbor and D-Day, while there are others that fade as a remembrance of a specific day such as the sinking of the Maine and the fall of the Alamo. What we must remember is that we are still at war, even if we want to deny it. Our enemies will use that denial to their advantage, and it is just stupid to give your enemies any advantage whatsoever. Until the jihadists are defeated entirely, the war continues and unlike Viet Nam, we must fight it to win. Remembering the awful attack on our home soil by these vile creatures should serve to cement our resolve against them. It is not a remembrance of terror – it is a tribute to the unwavering courage of the American people. The grieving has ended for most of us, but certainly not the families who lost loved ones. They live with the loss every day. And as a society we feel that loss even if we can’t define it. So it remains a day of remembrance for most of us. Let us not forget that there are those who seek to destroy our freedoms and way of life. Remember that.
Some of the victims, both in the towers and on the planes, grabbed their final seconds and called loved ones – most just to say “I love you.” Some reached a voice; others just a machine. But they said what was important. What will you do today that captures those final seconds? Who will you call just to say, “I love you?”
On this day of remembrance, we look to the short life of Allison Horstman Jones. May she not be forgotten and even in death may she inspire us to be the best we can be. We can still make a difference in this world. May none of the victims have died in vain. Think about what you can do today, and every day for the rest of your life, to capture the good traits and disciplines of those who have gone before us, such as Allison.

Taking Exceptions

June 3, 2009 on 2:22 pm | In Bids and Proposals | 4 Comments

There is boilerplate in almost every government solicitation, and many from prime or higher-tier contractors, that says in effect. “you must accept our terms and conditions or you will not be considered for award.” The exact phrasing varies, but the point is clear – in any battle of the forms, buyer wins.

And it is also true that almost all offerors (especially under a government RFP or a subcontract request from a higher-tier; less so under an IFB since that will risk being found automatically non-responsive) will engage in that classic battle of the forms (see the classes on the UCC) and take exception to some portion of the terms and conditions.

So the question becomes in a government solicitation, when is it appropriate to take exception to the terms, conditions, or requirements, and when will you run a greater-than-usual risk that you will be found non-responsive, or fail to meet an essential element of the solicitation? That was the question raised in the protest of Northern Light Productions against a competition held by the National Park Service and decided just this week.

The solicitation, which was for the purchase of various audio-visual productions, stated that the government expected to get unlimited rights in anything produced by the contractor. Once they paid for it, they had no interest in dealing with future licenses or royalties. It was, as is often the case, designed to be a “work for hire” that would let NPS use the material for training, publication, advertising, or whatever. Forever. It was to be theirs to do with as they pleased. Part of the evaluation specifically said, “Evaluation will also include your understanding of the Rights in Data clause and other licensing requirements.”

In its initial proposal Northern Lights made no reference to data rights, but in a later revision it stated that the rights to be granted were “for educational and museum presentation use for the life of the program, up to twenty years.” This was factored into the evaluation by the evaluation team, but upon review by the contracting officer, she determined that this reservation made the proposal unacceptable for failing to meet an essential requirement of the solicitation.

So what was it, a minor exception to a term or condition or a material element of the solicitation? The GAO cited the rule that in “negotiated procurements, a proposal that fails to comply with the material terms of the solicitation should be considered unacceptable and may not form the basis of award.” In a footnote to that rule GAO further explained that “clearly stated RFP requirements are considered material to the needs of the government.” GAO further noted that the RFP contained a “deviations and exceptions” clause that notified offerors that exceptions would not, in and of themselves, automatically cause a proposal to be deemed unacceptable.

The protestor argued that since the exception had been evaluated and scored, it could not later be a strict past/fail criterion. It was part of a ten-point factor, and even if they had been scored as a zero in that factor, they should still be considered for award. Further, it argued, since it did not list anything in the “deviations and exceptions” clause, it could not be considered a disqualifying item.

None of this was persuasive to GAO. They denied the protest on the basis that the requirement was clearly stated, it was reviewed by the agency (thus it was not an “automatic” disqualification) and in the agency’s discretion, the failure to permit unlimited rights was a material deviation thus making the proposal unacceptable. GAO, while it might have reached a different conclusion regarding the structure of the RFP or in the evaluation scheme, it was not inclined to say that the agency acted unreasonably in meeting its needs.

So what are the lessons? First, do not make material changes in an updated proposal. Introducing an exception that late in the process is just asking for trouble. Address the items that were raised during discussions, fine tune a few things if you choose, but do not take exception to a clearly articulated government requirement. And that is the second lesson. When the government says they need something – give it to them. If you can’t, don’t make an offer in the first place. If you think that the requirements are overly restrictive, the time to ask that question is BEFORE the initial submission, not after you have lost the competition.

Taking exceptions with the government is always risky. Companies that are more accustomed to commercial practices where the Uniform Commercial Code will step in to determine the terms of the contract are often surprised at the rigidity of the government process. In the expenditure of public funds, and fairness to all competitors, the government cannot permit such deviations. Yes, certain exceptions will generally not get you thrown out, but talk to someone who knows. Taking exceptions is not a best practice with clearly stated government requirements.

Northern Light Productions, B-401182, decided June 1, 2009.

Memorial Day 2009

May 25, 2009 on 3:06 pm | In Tributes | Comments Off

As custodians of our defense contracts, we, the procurement professionals, have a special obligation and duty to our fighting men and women. We supply the troops; we bring them the latest and best technology in the world; and we make sure that they have the best America can provide. Fail in our duty, and people can and will die. This is a sobering thought, but the weight of our responsibility should be ever present on our minds.

Today is a day of reflection toward those who have given the ultimate sacrifice so that we can enjoy the greatest and freest society the world has ever known. It is not, as our dear President mistakenly observed, the day to honor those who serve – they have Veterans Day. Today is the day to honor the fallen. And to thank the families of those who have died – they too have paid a terrible price for our freedom.

Our liberally slanted society today reflects the youth of the ‘60s. Make love, not war. As Peggy Noonan has observed, “It’s good to remember war is hell. But when we removed the warrior, we removed something intensely human, something ancestral and stirring, something celebrated naturally throughout the long history of man. Also it was ungrateful: They put themselves in harm’s way for us.”

I find it interesting and sobering that so little respect is afforded to our flag these days. Kids have stopped saying the pledge every day in school. When prayer was removed, the religion of humanism was allowed to pervade their consciousness. It is now the National religion. Look at this picture.


Who honors the flag? The man who willingly risked his life to defend it. So many others just don’t seem to care, or sadly, know. Common courtesy has faded; is it any wonder that respect for our country and those who fought to save it has also gone by the wayside?

No one likes war, at least no one who is sane. It is a natural result of the human condition where good must fight evil to prevent it from dominating us. People are born to be free. It is an inalienable right. It comes from the creator – words that our founding fathers immortalized. You don’t have to believe in God to know that there is a split between good and evil. Demonizing? You betcha! And all it will take for evil to succeed is for good men and women to do nothing.
One of our greatest patriots of the modern era had this to say in recognition of this day. “I have no illusions about what little I can add now to the silent testimony of those who gave their lives willingly for their country. Words are even more feeble on this Memorial Day, for the sight before us is that of a strong and good nation that stands in silence and remembers those who were loved and who, in return, loved their countrymen enough to die for them. Yet, we must try to honor them — not for their sakes alone, but for our own. And if words cannot repay the debt we owe these men, surely with our actions we must strive to keep faith with them and with the vision that led them to battle and to final sacrifice. Our first obligation to them and ourselves is plain enough: The United States and the freedom for which it stands, the freedom for which they died, must endure and prosper.” Yes, those are the words of President Ronald Reagan.
Patriots today come in all shapes and sizes. And the fact that we can still debate the rightness or wrongness of battles between good and evil. I particularly like the words of the hunter, musician, and patriot, Ted Nugent who said, “In paying the ultimate sacrifice, American warriors ensured that not only would America continue to be free but that America would continue to be a beacon of freedom so intense that it no threat of oppression can extinguish it. So long as Old Glory flutters in the wind, there is hope. So long as American warriors are willing to carry Old Glory into battle, freedom’s flame will never be extinguished. Our enemies can knock sometimes down our buildings, but mortar, brick and steel does not America make. It is the irrepressible spirit and undying love of freedom that is uniquely America and it is the American warrior who is willing to fight and die to protect the God-given freedoms and rights of all people.”
We are not brick and mortar. We are free human souls. Our souls are from above. Our freedom is from our forefathers and the many who have died to preserve it for us. It was bought at great price. Respect that. Work to continue the effort they started. And never, never, never, give up.

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