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Blog - Archive for August 2011

Judicial Remedy for Negative Performance Evaluations

Posted on Tuesday, August 30, 2011 8:25:28 PM

Yes, there is a judicial remedy if you are aggrieved by a negative performance evaluation.  The Court of Appeals for the Federal Circuit (CAFC) handed down an opinion today affirming an opinion by the Court of Federal Claims (COFC) that it had jurisdiction to hear a complaint that a contractor had been wronged by a negative performance evaluation.  Jurisdiction was based on the Contract Disputes Act (CDA) which also gives jurisdiction for such claims to the Armed Services Board of Contract Appeals (ASBCA) and the Civilian Board of Contract Appeals (CBCA).  Thus, you also can go to the Boards for redress.
But be wary.  Todd Construction ended up losing the case.  It tried to get the court's attention on procedural (due process type) issues but failed because it could not show that it was prejudiced by a significant procedural error.  That is, it failed to show that but for the error, it would have taken curative action or that the performance evaluation would have been different.  Todd therefore lacked standing to sue with respect to the procedural violations.
Todd then tried to show the government acted arbitrarily and capriciously in assigning an inaccurate and unfair performance evaluation.  However, Todd admitted that some of the performance problems were not the government's fault but were instead caused by Todd's subcontractors.  Don't forget, the prime contractor is not excused unless the subcontractor also has encountered excusable causes of nonperformance.  Todd was just blaming subcontractors.  The CAFC said:  "To raise a plausible inference that the ratings were arbitrary and capricious, the contractor would, at the very least, need to allege facts indicating that all of the substantial delays were excusable."
The teaching of the case is that you can seek judicial relief from negative performance evaluations.  But you had better be sure your failure to perform is excusable.  And, don't forget, all compensable changes are excusable causes of delay and failure to perform.
This reaffirmation of the jurisdiction of judicial tribunals under the CDA to grant declaratory relief suggests some creative approaches to contract administration.  If you have a dispute of significant importance regarding interpretation of the contract, interpretation of regulations relating to the contract, propriety of termination for default or for that matter nearly any dispute relating to the contract and your contracting officer stonewalls you, consider certifying a claim for declaratory relief and demand a final decision.  Avail yourself of the disputes clause mechanism early to provoke a response and if necessary, get the matter before a judge.  And, don't forget alternative disputes resolution (ADR).  Judges can act as mediators even if the case is not officially before the tribunal.
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Posted on Thursday, August 25, 2011 2:30:31 PM

Lately, we’ve noticed several contractors were surprised to find out their contracts contain FAR Part 12 Commercial Item clauses. In fact, in one case, commercial item clauses were improperly used in a construction contract. So, check your contract to see if it contains any of the clauses set forth in FAR Subpart 12.3. If so, here is what to expect.

You essentially have no changes clause. That is, the changes clause says changes can only be made by mutual agreement (bilaterally). The government has no right to make unilateral changes. Any attempt to change the contract unilaterally is a breach of contract. Therefore, there are no constructive changes. If the government breaches any of its implied obligations (see our editorial on “The Big Five Implied Contractual Obligations”), your remedy is based on straight breach of contract principles. That in turn means you may be able to recover lost anticipated profits in the event of a breach of contract.
Welcome to the new world of government contracting. Actually, it’s the old work of contract law working its way back into our new world of government contract law.
But there is even a bigger surprise. The old government contract termination for convenience (T for C) clause is replaced with a new clause purporting to limit T for C recovery to a percentage of the price which represents the percentage of completion plus “charges” associated with the termination itself. This new T for C clause has been interpreted to severely limit your T for C recovery. However, the issue is very much up in the air and subject to further analysis by judicial tribunals.
It really makes no sense to limit T for C recovery on commercial item contracts. At least that is what a U.S. District Court in Maryland thinks. Since FAR Part 49 applies as a guide in the termination of commercial contracts, the Maryland court says most of the old rules should apply. But be wary. The law is very much in a state of flux on this issue of T for C recovery on commercial item contracts.
One of the interesting twists (which feeds the legal analysis controversy) is FAR Part 12 makes it clear the FAR Part 31 cost principles do not apply in commercial item contract terminations for convenience and the government has no right to audit your proposal.
Have you checked your contract? Does it have the FAR Subpart 12.3 clauses? Surprised? You may be having to learn a new language.

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Posted on Wednesday, August 24, 2011 2:21:41 PM

In times of fiscal austerity, we usually see an increase in terminations for convenience. The government has an almost unfettered right to terminate a contract for its convenience. Only in very rare cases has a termination been treated by a judicial tribunal as a breach of contract. These cases involve bad faith attempts to just get the contract switched to another contractor. In some cases we’ve also seen the termination rules abused by contracting officials who terminate for default when they should terminate for convenience. The remedy in such a case is conversion to a termination for convenience. 

The distinction between breach of contract and termination for convenience is important since one of the hallmarks of a T for C is the inability to recover lost anticipated profits or any form of incidental or consequential damages. These remedies are available, however, in the case of breach of contract.
A T for C places many responsibilities on the contractor. These are all covered not only in the T for C clause but also in FAR Part 49, one of the best written regulations the government has ever written. Among the responsibilities is the requirement to submit a T for C settlement proposal.   There even are special forms. See FAR 53.301-1436, 37, 38 and 39. 
It is extremely important to remember the rules for termination settlement proposals are very different if your contract is a commercial type contract under FAR Part 12.  These rules also are currently undergoing some controversial judicial interpretations.  However, if your contract is not a FAR Part 12 contract, there are four important things to keep in mind when submitting a T for C settlement proposal:
  1. The cost principles in FAR Part 31 apply.  Only the costs allowable under that regulation can be recovered.
  2. Your proposal very likely will be audited.
  3. Your recovery is limited by the original contract price unless that price is increased through the changes clause.
  4. The adjustment for loss formula may be applied when the government projects you would have lost money if you completed the contract but the changes clause can be used to avert that result.
 In any event, the government should be guided by the following language in FAR 49.201:
“A settlement should compensate the contractor fairly for the work done and the preparations made for terminated portions of the contract, including a reasonable allowance for profit. Fair compensation is a matter of judgment and cannot be measured exactly. In a given case, various methods may be equally appropriate for arriving at fair compensation. The use of business judgment, as distinguished from strict accounting principles, is the heart of a settlement.”

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Enhancing Productivity

Posted on Tuesday, August 23, 2011 2:45:24 PM

Your job is productivity in performance of contracts and subcontracts.  Our purpose in writing these notes is to enhance your productivity.  You need to keep up with the latest procurement news and you need helpful pointers on government contract rules and regulations.  Our goal is to be your one stop for all of this.  We are trying to enhance your productivity by eliminating the need to search far and wide for the answers.

 We are a member of all the important government contract organizations.  We keep tabs on recent developments by attending meetings and reading all the recent industry association publications.  We subscribe to all the relevant sources of acquisition information.  We have an intelligence network of people who keep track of what is going on.  In sum, one of our jobs is information intelligence.
We don't report on everything.  We try to separate the wheat from the chaff.  We also give you our opinions based on over 40 years of experience in acquisition management and litigation.  We are not omniscient.  We don't see and know everything.  And we don't purport to report on everything you may be interested in.  But that's your job.  Let us know what subjects you'd like us to cover.

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Safeguarding Unclassified Information; Protecting Data

Posted on Tuesday, August 23, 2011 2:42:45 PM

In CIB No. 10, I reported on a proposed DFARS subpart addressing requirements for safeguarding unclassified DOD information.  The rule would apply across the board to all DOD contractors and subcontractors at any tier.
The rule purports to treat unclassified data (vaguely defined) as if it were classified, essentially. This rule has been under considerable fire from industry groups.  So the time for comments has been extended until November 30, 2011.  This means it could not possibly be implemented before next year. 
However, the proposed rule brings to mind the standard advice I give about protecting your proprietary data.  Marking does not make it so.  That is, proper marking of data is not an automatic protection.  Marking is important.  See FAR 52.215-1(e) and FAR 15.609(a) for the proper Use and Disclosure of Data legends.  But you must go beyond just marking data.  You must have policies, procedures and physical protections in place as well.  You must actually treat the data as a secret and limit its release and who has access.
Perhaps if we just protected our trade secrets a little better, compliance with the new FAR rule would not be onerous.  Most of you, I hope, are way ahead of this curve and already essentially comply with the proposed regulation.

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Recent Organizational Conflict Decision

Posted on Tuesday, August 23, 2011 1:23:45 PM

GAO has just handed down a decision in an OCI case sustaining a protest where the Army Corps of Engineers investigated the awardee's alleged unequal access to information based on the awardee's hiring of a high-level government employee from the office responsible for the project but limited its review to the former government employee had and did not consider his access to non-public information.  The former government employee also continued daily contact with members of the source selection team and access to inside information.
Protesters alleged an impermissible OCI in that the Corps failed to reasonably investigate or mitigate a possible OCI.  GAO points out that FAR requires that contracting officials avoid, neutralize or mitigate potential significant conflicts of interest so as to prevent an unfair competitive advantage or the existence of conflicting roles that might impair a contractor's objectivity.  FAR expressly directs contracting officers to examine the facts carefully.  GAO goes on to quote the Court of Appeals for the Federal Circuit's "hard facts" rule -- suspicions are not enough.  GAO concludes that the contracting officer did not conduct a reasonable investigation to determine if an unfair competitive advantage existed.  The CO focused only on the precise role the former government had at the Corps.
This is a lengthy decision.  In sum, GAO found that hard facts exist to suggest the existence of a potential, if not actual OCI that the Corps failed to evaluate and avoid, neutralize or mitigate.  The Corps failed to consider whether the former government employee had important inside information and whether his having this information provided an advantage to the awardee.  GAO determined this failure to investigate tainted the integrity of the procurement process and therefore sustained the protest (it also was sustained on other grounds).
Hiring former government employees may be a great business move.  But be wary of the OCI pitfalls.
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Say What? Contract Interpretation

Posted on Thursday, August 18, 2011 6:24:57 PM

Most disputes involve contract interpretation.  One side thinks something means one thing and the other thinks it means something else.  What does the contract say?

A judicial tribunal will start by examining the plain language of the contract, reading its terms together to give reasonable meaning to all parts of the contract.  The tribunal will not allow extrinsic evidence (evidence outside the contract such as witness testimony, documents, etc.) to be introduced on the issue unless the language is ambiguous.  Ambiguous is defined as capable of two (or more) reasonable interpretations.  If the contract is not ambiguous, meaning there is only one reasonable interpretation, there will be no testimony and no documents allowed in evidence to help interpret the meaning.

Since most disputes arise over interpretations, I must repeat my admonition that you thoroughly and carefully scour the solicitation and contract documents for possible ambiguities BEFORE you bid. 

If you miss something and become entangled in the thicket of "what does it mean", read the language carefully, in the context of the entire contract.  Try to discern the plain meaning first.  If you are hopelessly entwined in differing possible reasonable interpretations, apply the rules of resolving ambiguities, which start with extrinsic evidence of meaning and end with resolving ambiguities against the drafter of the language.

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Model Subcontract Disputes Clause

Posted on Wednesday, August 17, 2011 7:10:09 PM

The standard FAR Disputes, Changes and Termination clauses are not mandatory subcontract flow down clauses.  In fact, it is improper to flow down the standard FAR Disputes clause.  Here is a model subcontract Disputes clause:

1)  If a dispute arises in the performance of this subcontract, the parties will first attempt to negotiate a settlement.  If negotiation is unsuccessful, they agree to submit the dispute to mediation.  If mediation does not resolve the dispute, either party may seek redress in any court of competent jurisdiction.  Pending resolution of any dispute, the parties shall proceed diligently with the performance of the work.
2)  However, if any dispute gives the subcontractor recourse against the U.S. Government through the prime contractor's prime contract, the parties may agree to pass the subcontractor's dispute through the prime contract to the U.S. Government.  The subcontractor must submit the disputed claim within 5 years after it accrues; the prime must cooperate fully with the subcontractor in prosecuting the claim; the parties agree to be bound by the outcome; the subcontractor must certify its claim in a form approved by the prime contractor; each party will bear its own costs in prosecuting the claim; and any other dispute or portion of the dispute not resolved in paragraph 1) above may be decided by a court of competent jurisdiction.  Pending resolution of the dispute, the parties shall proceed with performance.
3)  This subcontract shall be government by the laws of the State of ______________.  However, any FAR, DFARS or other federal agency clause or any clause substantially based on such federal agency clause shall be construed and interpreted according to the federal common law of government contracts as applied by federal agency judicial tribunals.
Subcontract terms and conditions under federal government prime contracts can be tricky.  There is nothing in FAR, DFARS or any other federal regulation which provides a single source guide to mandatory flow down clauses.  Moreover, many flow down clauses need to be rewritten or modified for subcontracts.  The disputes clause is probably the best example of a clause which has to be totally rewritten for subcontracts.

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Posted on Thursday, August 11, 2011 5:52:39 PM

Don’t be the blind leading the blind. Chances are your newly minted contracting officer does not know what an REA or a claim is supposed to look like—what is must contain. There is no form in FAR, no outline, not even a discussion of what goes in this type of document. That’s a bit odd, in my view.

Here’s the outline:
1.       A statement of the relevant contract requirements;
2.       A statement of the government direction, actions or omissions which caused the problem;
3.       Detailed descriptions of the added work or effect on performance;
4.       Computation of the cost and profit impact; and
5.       A legal brief stating the theories of recovery and damages.
This document should be a whopper. It must contain thorough and complete statements of fact and be supported by all the documentary evidence you can find. Five pages will not do. Put it together now and save yourself a lot of grief later. Be specific. Provide names and places. Don’t just say the work was delayed and disrupted. Be specific.
Too many times, the uninitiated submit a rambling tale of woe with accusations of bias and prejudice. Wrong! Or, they submit a lengthy discussion of the law which is short on facts. Also wrong. There is a tried and true method of preparing REA’s and claims even though it is not found in FAR, DFARS or any other regulation. 
Finally, unless you are a lawyer or accountant, you should not try to do the damage calculation yourself. The cost allowability rules are complicated and you will need assistance on just what damage theories apply. Although the general concept is to make you whole, the whole is your contract and not normally the impact on other contracts and your business generally. 

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Posted on Thursday, August 11, 2011 4:42:40 PM

What do Requests for Equitable Adjustment (REA’s) and muscle cars have in common? Both are kind of dying out, slowly but surely. 

REA’s have always been and will continue to be necessary when seeking an adjustment under the standard government contract changes clause. Prior to 1978, there was an explosion of REA’s based on the constructive change doctrine development by the administrative boards. They found they had to construct the doctrine to get around the fact they had no jurisdiction to hear breach of contract cases. Since l978, however, they have all dispute jurisdiction. Theoretically there is really no need for constructive changes. 
All constructive changes were based on some type of contract breach. The duty to be clear (contract interpretation), the duty to provide error, omission and conflict-free documents, the duty to cooperate, communicate and not interfere, the duty to disclose superior knowledge and even acceleration claims were based on breach concepts. 
But there really is little need for constructive change REA’s today. It still may be smart to file them since you can recover your administrative expenses including consultant fees in the process. And, calling your claim an REA may help with negotiations.   However, these really all are breach claims and at some point you may have to certify them if you can’t settle. If you know you won’t settle, certify and call them by their correct name: claims.
If you have a FAR Part 12 commercial item contract, you have no changes clause and hence no opportunity for an REA. (The changes clause is illusory since changes must be bilateral and there is no equitable adjustment language anyway.) So, what you have is a breach claim pure and simple.
This is not just so much semantics. Damages for breach claims can vary from REA’s. More about that later . . . . I need to take a ride in my GTO.

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Posted on Tuesday, August 9, 2011 5:31:46 PM

I just reported in a CIB on a proposed FAR regulation which addresses documenting contractor performance evaluations.  The proposed regulation (comments are due by September 8, 2011) provides that agency evaluations of contractor performance, including both negative and positive information, must be provided the contractor "as soon as practicable" after completion.  Contractors are given 30 days to submit comments, rebutting statements or additional information to the agency.  Agencies then kick the package to a level higher than the contracting officer for the final agency decision.  The evaluation file may then be used in source selection decisions.

This seems more than a little unfair in the case of negative evaluations.  It's a little like the fox guarding the hen house.  Sure, it's too time consuming and expensive to provide for complete judicial review of disputed performance evaluations.  But it does seem as though a bit more due process is in order when so much is at stake.  It's a little like getting negative points on your driver's license without the opportunity to contest the ticket.  We need at the very least a traffic court judge to take a look at these negative performance evaluations.

So, our comment on the regulation is this:  please, let's appoint an impartial contracting person outside the accusing agency to pass judgment on negative performance evaluation disputes.  I treat this as one of the many things we need to do to encourage more participation in the industrial manufacturing and services base for government contracts.  Competition will be enhanced if we just introduce a little more fairness and impartiality into the procurement process.

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Posted on Sunday, August 7, 2011 1:21:28 AM

As I stated in writing about the "Big Five" government duties, there is an implied obligation in every government contract that the government cooperate with the contractor and not interfere in its performance.  This all started in 1876 with a pronoucement from the U.S. Supreme Court.  In the 20th Century, the doctrine evolved to require the government to do whatever was reasonably necessary to assist the contractor to perform and included the duty to communicate with the contractor and disclose information vital to the contractor's performance.

The government can violate the duty to cooperate and not interfere without acting in bad faith or with the intention of harming the contractor.  In fact, to sustain a claim for breach of these duties, the contractor need not prove bad faith.

These duties are read into the contract as a matter of law.  They are just as binding as if they were stated expressly in the contract terms and conditions.

Unhappily, contracting officers often seem unaware of these legally required duties.  Although, in my opinion, the relationship is not a partnership and the system of procurement laws and regulations creates an adversarial atomosphere, there is no excuse for foot dragging, stonewalling, failure to be responsive, ignoring pleas for assistance, turning down ADR and insourcing through bait and switch to name but a few breaches of these duties.  When the government enters the marketplace, it is required to follow the rules.  After all, it made the rules in the first place.

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Posted on Saturday, August 6, 2011 1:01:39 PM

Just how do you get the government to the table?  FAR 33.214 does not require the parties to conduct ADR.   But it does require the contracting officer to answer your request stating the reasons for denial which are somewhat limited.  The new DFARS (and we hope a new FAR clause) should help (See In Praise of Mediation below).  We certainly need strong government acquisition leadership to make ADR work. 

But my favorite form of ADR is what DFARS calls "structured unassisted negotiation".  What is that and how does it work?  It is not in DFARS or FAR.  See

If that does not work, get your case to the ASBCA or CBCA as quickly as possible.  File your notice of appeal from the contracting officer's decision (or deemed denial), file your complaint and ask for a settlement judge.  You cannot formally without making it a joint request.  However, you can ask for a status conference during which you politely invite the judge's assistance in getting the parties to the table.  I assure you, the judges at these Boards love to encourage negotiated settlements.


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Posted on Saturday, August 6, 2011 11:51:15 AM

Just what all does it take to win a bid protest?  Generally, two things:  1) a winning argument based on solid facts; and 2) an outside consultant to ferret out those facts.

Specifically, what kind of arguments win protests?  Let's get rid of the losing arguments first.  If you are dead set on arguing the source selection official's best value determination was a bad judgment call, you lose.  If you absolutely must argue bias and prejudice, you lose.  In these instances, I will not help you. 

So let me list the winning arguments:

  1. The solitication language is ambiguous and must be clarified (pre bid protest).
  2. The source selection official's justification is not thoroughly thought out and justified in writing (post award protest).
  3. The source selection official failed to use all the announced evaluation factors, changed them or applied them unequally between you and the winner (post award protest).
  4. The source selection official used an evaluation factor not announced in the solicitation (post award protest).

The first argument depends upon a thorough analysis of the solicitation documents including, in particular, the statement of work and the evaluation factors.  If they are ambiguous, go to the contracting officer pronto.  If he or she stonewalls you, protest.

The other arguments depend on what actually shows up in the agency record.  How do you see the complete agency record?  You must hire an outside consultant.  You will not be allowed to see the record, but your consultant can.  (I can explain.)

How do you protest without seeing the record?  How could you lose without the source selection official failing to apply an evaluation factor, changing the factors, introducing a new one or applying them unequally?

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Interrelationship of Changes and Terminations

Posted on Saturday, August 6, 2011 10:35:17 AM

The interrelationship of the changes and terminations clauses in government contracts and subcontracts is so important I feel the need to reiterate what I said in CIB No. 5 below.

If you face termination for default or you have been terminated for convenience, you must also consider the implications of the changes clause.  Every compensable change is an excusable cause of delay or failure to perform.  Thus, if you are given a cure notice or show cause notice, look to whether you have compensable changes.  They are defenses to the threatened T for D.  And, if you are terminated for default, your appeal should include your changes claim.  It also is important to file immediately a pro forma termination for convenience settlement proposal including changes claims to set the stage for negotiation of a settlement of the T for D.

If you are terminated for convenience, part 49 of FAR requires the contracting officer to consider all changes claims.  You will need the changes clause to justify a price increase if your total T for C proposal exceeds the original contract price.  You also will need changes as a vehicle to argue against the application of the adjustment for loss formula, should the government choose to assert the contract was in a loss position. 

How do you identify changes?  A good starting point is in our blog on the big five implied obligations in every contract.

All of these principles apply with equal force and effect to subcontracts under government prime contracts if the subcontracts contain flowdown changes and termination clauses.

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