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Agency Reasonably Adjusted Pricing When Protester Failed to Support Low Labor Rates; GAO B-415774, Agile Defense Inc.

Protest challenging an agency’s evaluation of technical proposals is denied, where the evaluation methodology established that a proposal could be rated positively but still not receive a “best suited” rating, and protest challenging the agency’s cost realism analysis is denied, where the agency reasonably compared offerors’ pricing to the average of all offers received, and where the agency’s upward adjustment to the protester’s proposed price was reasonable, given the protester’s failure to provide documentation supporting labor rates the agency considered to be unreasonably low.

Agile Defense Inc. protested the Navy’s award of an IT services task order to Advanced Alliant Solutions Team LLC, challenging the agency’s technical evaluation and cost realism analysis.

First, Agile argued the agency erroneously concluded that its proposal was “not best suited” under the understanding of the requirements technical factor, because Agile had teamed with incumbent contractors and its team offered “unrivaled expertise and understanding” of the contract requirements. The evaluation specifically noted that Agile’s proposal was clear, comprehensive, detailed, and beneficial, and therefore Agile argued it merited a “best suite” rating. Agile made similar arguments about its rating under the management plan factor.

In response, the agency acknowledged that it found aspects of Agile’s proposal to be beneficial to the government, but explained that it simply found the awardee’s proposal to be more beneficial. For example, the agency concluded that Agile has submitted a suitable technical solution, but was not as aggressive in its approach to improve quality and customer satisfaction. Similarly, while Agile proposed a sufficient management plan, the agency concluded AAST’s was superior.

GAO found this reasonable, finding that the agency appropriately documented its technical evaluation and comparison of the proposals. Further, the methodology of rating proposals as “best suited” or “not best suited” indicates that a proposal could receive a positive review, and still not receive the “best suited” rating. GAO also found the agency reasonably credited AAST for its approach to improving quality, even though the solicitation did not specifically call out this element as an evaluation criterion.

Next, Agile challenged the cost realism analysis, arguing that the agency’s comparison of proposed labor rates to the average of all offerors’ proposed rates for each category was contrary to the solicitation. According to Agile, the agency was required to compare the proposed rates to a larger data pool. Agile also argued the agency’s upward adjustment to its proposed price was unreasonable.

In response, the agency explained that the solicitation allowed it to rely on the average labor rate in industry for comparison purposes, and therefore its comparison of offerors’ proposed labor rates to the average of all proposals, as well as its use of data from salary.com and payscale.com, was reasonable. The agency also explained that Agile did not provide current employee salary figures for the 20 rates the agency viewed as unrealistically low, and when these rates were compared to payscale.com, the agency found the proposed rates to be “considerably low.” Finally, the agency noted that Agile’s proposal failed to include information regarding one of its subcontractor’s fees.

GAO found the agency’s analysis reasonable and in accordance with the solicitation. GAO also noted the FAR allows an agency to compare proposed costs to other cost estimates received in response to the government’s request.

Agile Defense Inc. is represented by Paul A. Debolt, Emily A. Unnasch, and Spencer P. Williams of Venable, LLP. Advanced Alliant Solutions Team LLC is represented by Steven J. Koprince, Matthew T. Schoonover, Matthew P. Moriarty, and Shane J. McCall of Koprince Law, LLC. The government is represented by Robin Ray Coll and Jessica K. Eddy, Department of the Navy. GAO attorneys April Y. Shields, Glenn G. Wolcott, and Christina Sklarew participated in the preparation of the decision.

Narrowly Drafted Exculpatory Contract Clauses Unavailing for Contractor’s Claim Involving a Type 1 Differing Site Conditions; ASBCA No. 60121, R.L. Persons Construction, Inc.

The government’s motion to dismiss an appeal of the agency’s denial of a claim is denied, where the solicitation was ambiguous on whether the site had been tested for the presence of groundwater, and where language in the solicitation disclaiming responsibility for the accuracy of its specifications was not persuasive.

R.L. Persons Construction Inc. appealed the final decision of the Army Corps of Engineers contracting officer denying its request for an equitable adjustment related to groundwater it encountered while obtaining borrow material for a construction project.

Persons asserted the solicitation indicated that the agency would provide a borrow pit from which it could obtain the materials for the project. Persons also asserted theories of differing site conditions, changes, and defective specifications, arguing that it encountered groundwater after excavating materials from the borrow pit.

The government moved for summary judgment, arguing that the contract was silent as to the presence or absence of groundwater, and therefore it cannot reasonably be interpreted as affirmatively representing an absence of groundwater. The government also argued that other contractual information created an expectation of groundwater in the borrow pit.

However, the board found there was a genuine issue of material fact as to whether there was Type 1 differing site condition. Contrary to the agency’s assertion, the solicitation was not silent regarding the presence or absence of groundwater in the borrow pit. Instead, the solicitation stated that there was no available groundwater data from the boring. The court found this phrase ambiguous, because the solicitation contained no explanation of why there was no data. According to the board, the contractor could have reasonably interpreted there was no data because the borings had been sampled for groundwater and did not find any.

The Corps also argued that Persons could not rely upon the boring profiles as a representation of ground water levels it would encounter, because of solicitation language stating that the absence of water surface data on a boring profile “does not necessarily mean that ground water will not be encountered at the locations or within the vertical reaches of such borings.” However, the board noted that such governmental disclaimers of responsibility for the accuracy of specifications which it authors are viewed with disdain.

The Corps also complained that, if it had disclosed groundwater levels on the boring profiles, then it would have subjected itself to a differing site condition claim if the actual groundwater level turned out to be different. However, the board explained that the Corps could have avoided exposure to such a claim, while still providing accurate information to contractors, by clearly stating that it did not sample for groundwater in the borrow pit area, or omitting the misleading suggestion that it was reporting whether it encountered groundwater.

R.L. Persons is represented by Matthew W. Willis and S. Leo Arnold of Ashley & Arnold.   The government is represented by Thomas J. Warren, Ann M. Bruck, and Edward J. McNaughton of the U.S. Army.

Contractor Liable for Overbilling When It Ignores an Agency Directive Reducing Government’s Requirements; ASBCA No. 58175, Kellogg, Brown & Root Services Inc.

Appeal of an overbilling claim asserted by the government against a contractor is denied, where the contractor disregarded an agency directive that reduced the government’s requirements, did not exercise valid business judgment in disregarding the directive, and failed to challenge the factual basis of the government’s quantum calculations.

Kellogg Brown & Root Services Inc. was awarded a cost-plus-award-fee task order to provide dining services to Army personnel in Iraq. KBR subcontracted with another company to provide services at one of the contract sites called H-3. The price of the H-3 subcontract was based on a headcount of 5,400, but during performance of the task order, the Army issued Letters of Technical Direction reducing the headcount at H-3 to 1,442 people.

Despite this reduction, KBR did not amend the subcontract and continued to bill the Army as if 5,400 people were dining at H-3. After initially conceding that the government may be entitled to a credit for overbilling, KBR changed its tune, arguing that the Letters of Direction were not binding and that the failure to reduce the headcount at H-3 was consistent with reasonable business judgment. The government disagreed, assessing more than $11,000,000 against KNR for overbilling. KBR appealed to ASBCA.

As a preliminary matter, KBR argued that to the extent the Letters of Direction were intended to be contract modifications, the individual who issued the Letters on behalf of the Army, a lieutenant colonel, lacked the authority to issue them. The board rejected this argument, noting that the Procuring Contract Officer authority had delegated Administrative Contracting Officer authority under the task order to DCMA in San Antonio. DCMA-San Antonio sub-delegated this authority to DCMA-Northern Iraq. In accordance with the FAR, the lieutenant colonel in question had been appointed ACO for the KBR task order in Iraq. The task order gives the ACO authority to direct all modifications of the task order; the lieutenant colonel thus had the requisite authority. Indeed, the board further noted that KBR’s argument was undercut by the fact that when the letters were issued, the company never contacted the lieutenant colonel nor suggested that he lacked authority to issue them.

KBR next contended that the Letters of Direction were merely planning documents and not binding contract modifications. Acknowledging that the letters were not themselves agreements, the board reasoned that the parties’ contemporaneous construction of an agreement before it has become the subject of a dispute is entitled to great weight in its interpretation. Here, the weight of evidence showed that Army and KBR personnel all believed that the letters were directives that had to be followed by KBR. In fact, KBR’s project manager conceded in testimony that KBR could not simply disregard the Letters without consulting with the government.

KBR also argued that not complying with the Letters of Direction was consistent with reasonable business judgment given the wartime environment, conflicting information on headcounts, and the failure of the government to provide clear guidance. The board dismissed this argument, finding there was no contemporaneous written explanation for why KBR did not implement the Letters. Moreover, the board continued, wartime does not somehow preclude the exercise of rational business judgement.

Finally, KBR contested the quantum of the government’s claim, contending that the government’s audit of KBR’s billing was biased and flawed. But the board concluded that KBR had made no effort to challenge the factual basis of the government’s audits and made no effort to advance a different quantum calculation at the hearing. Indeed, the only calculations KBR did proffer followed the same methodology as the government.

The board denied KBR’s appeal and affirmed the government’s claim. KBR was ordered to remit $11,233,117 to the government plus interest.

KBR is represented by Jason Workmaster, Raymond B. Biagini, Alejandro L. Sarria, and Patrick J. Stanton of Covington & Burling LLP. The government is by E. Michael Chiapara and Carol Matsunaga of the Defense Contract Management Agency.

Contractor Cannot Apply Collective Bargaining Agreement to Task Order Without New Wage Determination; CBCA 5837, Alcazar Trades Inc. v. Nuclear Regulatory Commission

Appeal of the contracting officer’s denial of a request for equitable adjustment based on the terms of a new collective bargaining agreement is denied, where there is no evidence the Department of Labor has issued a new wage determination based on the agreement.

Alcazar Trades Inc. appealed the contracting officer’s denial of its request for an equitable adjustment in relation to additional costs it expected to incur as a result of a newly negotiated collective bargaining agreement. The government moved to dismiss for lack of jurisdiction.

NRC awarded Alcazar a hybrid firm fixed-price/time-and material task order, with a cost reimbursable line for reimbursable work, not to exceed $75,000 per year. After award, the union representing ATI’s employees successfully renegotiated its contract. When NRC informed ATI that it planned to exercise the first option year of the contract, ATI informed NRC’s contracting officer about the new collective bargaining agreement and asked for an equitable adjustment to cover the increases in wages and benefits. However, because the majority of the contract was fixed price, with the labor, wage, and fringe benefits built in, the CO concluded that NRC was not obligated to increase the ceiling of the contract.

NRC also asked the GSA CO about ATI’s new collective bargaining agreement. The GSA CO explained that ATI had submitted a collective bargaining agreement with an economic price adjustment modification to GSA for consideration, that GSA had “rejected” the collective bargaining agreement, and that ATI was supposed to resubmit, but had not done so. When ATI submitted its claim to NRC, NRC forwarded it to the GSA CO.

From July 18, 2017, until August 7, 2017, GSA informed NRC that GSA was handling the claim, and that GSA understood that ATI intended to withdraw its claim with NRC. Ultimately, ATI never did. The NRC CO eventually denied the claim, stating that the resolution required an interpretation of ATI’s GSA schedule contract and that GSA had not approved ATI’s proposed price increases.

CBCA noted that the task order and the underlying FSS contract are subject to the Service Contract Act, which requires contractors or subcontractors entering into service contracts in excess of $2500 to pay no less than the prevailing wage rates set forth in either a Department of Labor wage determination or the rates contained in an applicable collective bargaining agreement. The SCA states that if the prevailing wage rates or the collective bargaining wage rates are subject to an increase during a period of contract performance, the contractor is entitled to a price increase in the option years if a new wage determination causes the contractor to pay increased wages or benefits.

However, CBCA found no evidence that DOL had issued a new wage determination based upon the new collective bargaining agreement when ATI filed its claim. Although ATI sought to apply the new agreement to its GSA contract and first option year under the task order, CBCA noted that the decision of whether a CBA should be the basis of a revised wage determination applicable to the option year has, in the past, been left to the Department of Labor.

ATI argued that it is the CO’s responsibility to obtain the wage determination upon exercising any option to extend the contract, and that CBCA has jurisdiction because the CO failed to fulfill his duty. However, because CBCA held that it is within DOL’s jurisdiction to decide whether ATI’s new CBA should form the basis of a wage determination, it declined to address ATI’s alternative argument.

Alcazar Trades Inc. is represented by Jonathan M. Bailey and Kristin E. Zachman of Bailey & Bailey, P.C. The government is represented by Ruth Kowarski Cooke, Shelbie R. Lewman, and Robin A. Baum, Office of the General Counsel, Nuclear Regulatory Commission.

Agency’s Out-of-Scope Modification of Contract, which Effectively Transferred Work Being Performed by One Contractor to Another, Violated CICAs’ Requirement for Full and Open Competition; COFC NO. 18-1C Ian, Evan, & Alexander Corp. v. United States

Protest alleging that a contract modification exceeded the contract’s scope and thus should have been a new procurement is granted, where the modification increased the price and amount of resources for the work and required different work than the original contract, which could not have been anticipated by the original offerors.

In 2014, the Department of Defense implemented the Continuous Evaluation program, which involved automatic record checks to monitor government and private employees who had access to classified material. Ian, Evan & Alexander Corporation had a contract with DoD’s Washington Headquarter Services to validate alerts generated by the CE system. Another company, Xcelerate Solutions, had a different contract with DoD’s Defense Security Services to, among other things, review, analyze, and prioritize records flagged by the CE system.

After IEA and Xcelerate had been performing their contracts for about a year, DoD realigned the CE program so it would now be managed solely by DSS. As a result of this realignment, WHS effectively ended its contract with IEA, declining to exercise future options. DSS, on the other hand, modified Xcelerate’s contract, adding new responsibilities, including the assessment and validation of CE flags. Thus, the work IEA had been performing—validating CE red flags—had essentially been transferred to Xcelerate.

IEA sued the government, alleging that the modification of Xcelerate’s contract exceeded the scope of the contract as solicited, and that by using a modification rather than a competition, DSS had violated the Competition in Contracting Act’s requirement for full and open competition. Shortly after filing suit, Xcelerate intervened, and all the parties moved for judgment on the administrative record.

In ruling on the competing motions, the court noted that modifying an existing contract so that it materially departs from the scope of the original procurement violates CICA by preventing potential offerors from participating in what should be a new procurement. To determine whether a modification is within the scope of the original procurement, the court would consider whether the modification substantially changed the type of work, the performance period, and the costs of the original contract.

The court found that the modification exceeded the scope Xcelerate’s original contract. First, the court reasoned, the initial contract involved receiving, evaluating, and disseminating flags identified by the CE system. The modification, however, required far more—i.e., providing a knowledge based analytic capability for assessing and validating the flagged records. The court determined that this type of work differed from the mere review and dissemination of flagged information that Xcelerate had been performing before the modification. Xcelerate now had to develop tools to capture and analyze data that it did not have to perform under the original contract. Moreover, the modification now required Xcelerate to develop policy, coordinate, and assess the entire CE program. Again, this was not work that had been included in Xcelerate’s original contract.

The court was further persuaded that the modification exceeded the scope of the contract by the increases in time and personnel that DSS anticipated for the project. DSS estimated that due to the modification, it would now take Xcelerate nine times longer to complete s single CE report. Moreover, this new work would require several times the number of personnel required by the original contract.

Also, while not dispositive, the court noted that the modification nearly doubled the price of the contract. Taken together with the change in services provided under the contract, this was a significant indication that the modification exceeded the scope of the contract.

The government and Xcelerate contended that offerors could have anticipated the modification and thus it was not outside the scope of the original contract. The court, however, found that it was by no means clear that offerors could have foreseen a modification of this magnitude. After all, IEA already had a contract with WHS performing validation of CE alerts; there was no reason to expect that the DSS contract would be modified to include this exact validation work. What is more, none of the four offerors that responded to the DSS contract had included end-to-end processing of CE alerts in their proposals, further indicating that this modification was not foreseeable.

Having concluded that DSS issued an out-of-scope modification that violated CICA, the court turned to whether IEA was entitled to an injunction. Applying the four factors used to determine the propriety of injunctive relief, the court found that IEA had prevailed on the merits. Additionally, because it had lost the opportunity compete for the DSS contract, IEA had also suffered irreparable harm. The court also found that the balance harms weighed in favor of IEA. While the agency may be harmed by a gap in services, the court believed this could be mitigated by giving IEA a bridge contract while it competed the DSS contract. Finally, the court found that the public interest was served by ensuring that the DSS contract was procured by free and open competition.

The court granted IEA’s motion for judgment on the administrative while denying the government’s and Xcelerate’s cross-motions.

Ian, Evan & Alexander Corporation is represented by John R. Prairie, Brian G. Walsh, Kendra P. Norwood, and Cara L. Lasley of Wiley Rein, LLP.  Xcelerate is represented by Michelle E. Litteken, Jonathan T. Williams, Samuel Finnerty, and Meghan F. Leemon of PilieroMazza PLLC. The government is represented by Douglas T. Hoffman, Franklin E. White, Jr., Robert E. Kirschman, Jr, and Carl A. Readler of the U.S. Department of Justice.

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