Government Contracts Outline s1

GOVERNMENT CONTRACTS OUTLINE Fall 2002 - Professor Schwartz

I. Basic Legal Considerations Concerning Contracting with Governmental Entities

A. Transactions and Agencies Covered by Federal Procurement Law; Exceptions

i. Introduction

Federal government procurement: ▪ about 300 billion annually ▪ Government can act in house or can privatize - privatization leads to more government contracts for services ▪ procurement contracts are one of the major ways the government regulates the private sector - there are collateral provisions that are tacked on to the contracts o Ex: affirmative action, minimum wage, reporting requirements, etc. ▪ federal procurement is a recurring source of dissatisfaction in the law - National Performance Review: Gore makes arguments about deregulating the process of government contract formation and administration. o Gore makes four basic reformist recommendations: (1) the rules are too rigid, there should be fewer guidelines; (2) we should decentralize and allow more discretion in purchasing; (3) we should buy commercially available products instead of writing ridiculous specifications; and (4) we should adapt to changes in the market. - If you deregulate, you give more discretion to government employees to use common sense, but you will also allow some of them to commit fraud and abuse the system. That abuse will lead to political outrage and debate and then further regulation. It’s cyclical. ▪ Goal of Government (FAR): avoid waste, buy cheap, buy quality, avoid fraud and abuse, etc.

Globalization (p.12) ▪ the field of government contracts is becoming globalized ▪ significant obligations bear on US procurement law - Bilateral treaties - NAFTA - GPA (WTO’s government procurement act)

1994 Federal Acquisition Streamlining Act: an effort by Congress to change the rigidity of the rules

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ii. Procurement Statutes

ASPA: Armed Services Procurement Act (10 USC § 2303) - governs military procurement (DoD, DoA, DoN, DoAF, CG, NASA) - doesn’t govern all contracts; just procurement, not sales o applies to procurement of “all property (other than land)” o “for its use or otherwise”: Army can buy for Navy, vice versa - must be an appropriation

FPASA: Federal Property and Administrative Services Act (41 USC § 252) - governs executive agency procurement - even when statute doesn’t apply, there is an older set of GC statutes that weren’t repealed that will still apply

FAR: Federal Acquisition Regulation ▪ a set of regulations that went into effect in 1984 - controls government procurement o PRO: highly centralized to prevent fraud and corruption on the part of agency managers, takes advantage of bulk purchasing (lowest prices) o CON: ignores customer’s needs, pays higher prices than necessary, impedes access to state-of-the-art technology and services and forces prices up with its complexity - meant to unify procurement practices o agencies are allowed to create supplemental regulations ▪ required to be followed by executive agencies in the procurement of: - property, other than real property in being - services, including research and development - construction, alteration, repair or maintenance of real property ▪ military procurement was the template for US procurement; it moved into the civilian side - consequence: exceptionalism o for example: the government can do things for “national security” reasons whereas a private party would not be able to ▪ APA exempts government contracts regulations from the basic requirement that there must be notice and comment rulemaking (p.127) - this exemption has been undone – the FAR itself requires notice and comment rulemaking for significant revisions

Exceptionalism: ▪ because of its sovereign status, unique functions, and special responsibilities, the government as a contracting party is not subject to all of the legal obligations and liabilities of private contracting parties

Congruence: government is treated like a private party when entering into contracts with private parties

iii. Bid Protests

Motor Coach Industries v. Dole, 4 th Cir., 1984 (p.17) ▪ this is an award dispute – a.k.a. “bid protest” – a classic bid protest case ▪ disappointed bidders have standing if they show they would have had a better shot if procedures were followed (don’t need “but for” analysis) ▪ how do you determine if an entity is governmental in nature? - degree of control - source of finances - public character of agency’

Comparative Law Note: Determination of whether an entity is governmental in nature ▪ GATT dispute resolution panel heard dispute between US and EU - held that where procurement is carried out under government control, by a private company, with government funds, in the interest of the government, it is considered a government procurement - similar to criteria used in Motor Coach

iv. Performance Disputes

▪ Contract Disputes Act of 1978 - makes a jurisdictional requirement that you go to the contracting officer as the first step, then you go to a BCA of the Ct of Federal claims - there are about 11 BCAs – each having jurisdiction over certain agencies - buildings and land that already exist are outside the jurisdiction of the CDA o acquiring a lease is also not covered o but creating a lease is covered (Forman)

(PS)BCA (agency’s BCA)  contracting officer Fed. Circuit S.Ct. US Ct. of Federal Claims

Forman v. United States, Fed. Cir., 1985 (p.29) ▪ performance dispute case ▪ K to build post office and enter a lease – Forman sued government for subletting against K. ▪ contract interpretation: clause was permissive in nature, restrictive terms not used ▪ Held: BCA has jurisdiction because “real property in being” exception does not apply: the contract was to build a post office (nothing in being at time) and to create a lease (not acquire one) ▪ used federal law because of government contract = exceptionalism

B. The Power to Contract

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 4 Does the government have the power to enter into contracts without the express approval of Congress? ▪ YES, the government has inherent power to enter into contracts (Tingey, Corliss) - so can agencies if it’s relevant to their duties - separation of powers: the government needs to be able to enter into contracts (satisfies federalism) and voluntary contracts don’t have to be authorized by Congress or by statute (satisfies separation of powers) ▪ The government can also terminate contracts for convenience (Corliss) - one of the most obvious forms of exceptionalism

US v. Tingey, S.Ct., 1831 (p.40) ▪ government sues Tingey because he didn’t pay up on bond; Tingey says no, government doesn’t have the power to make contracts without approval of Congress. ▪ Held: the government can enter into voluntary contracts as part of inherent US sovereignty. There is no restriction against such in the Constitution and government should be able to do what a private party can do.

United States v. Corliss Steam-Engine Co., S.Ct., 1875 (p.46) ▪ case comes from Ct of Claims ▪ Corliss sues government for terminating contract for convenience (war) and not paying when the appropriation came through (funds availability clause), despite agreement to do so. ▪ Held: the government has inherent authority to enter contracts and terminate contracts for convenience – this includes agreements to settle payment. - can terminate for war or public interest - support inherent power to contract (don’t need express approval) C. Appropriations and the Anti-Deficiency Act

i. GAO and Comptroller General

Comptroller General (CG) ▪ the CG is the head of the GAO (General Accounting Office) - part of the legislative branch (Bowsher) - President nominates the CG from a list of 3 recommended by Congress - the CG gets removed by joint resolution (signed by House, Senate, President) o Congress can remove over the presidents veto (can initiate removal without him also) ▪ the CG plays several important roles in GC law: - bid protest role and budgetary advice role

GAO ▪ GAO has become more independent and has gotten a more non-partisan reputation ▪ GAO has an “automatic stay” provision that allows the GAO to stop execution of a contract while it investigates the protest - unique function to GAO, under Competition in Contracting Act (CICA) - The “automatic stay” provision was enacted because Congress was worried about agencies’ tendency to not follow the bidding rules (check up on executive) - CG allowed to vary the length of the stay in order to decide the merits (Ameron)

▪ The GAO cannot really tell people if certain provisions are lawful (no authority); but you dare not disobey the advice given

Competition in Contracting Act (CICA) ▪ role of CG: the CG gives a recommendation to the agency, who can accept it or deny it. - If the agency doesn’t take the recommendation, then the CG writes a report of such to Congress. o (If the CG did more than issue a recommendation, and ordered the agency, then that would not be constitutional because that would be a much clearer violation of the separation of powers.) o The report to Congress, in practical terms, says that the contract was improperly awarded and that hurts the agency when appropriations time comes up (makes Congress think that they obviously have too much money if they are awarding a higher bidder). - In practical terms, agencies rarely ignore the CG/GAO recommendation. ▪ the CG gets the authority to award bid protests costs (attorneys fees)

Comparative Law Note GAO’s procurement recommendation function ▪ similar approach used successfully under the US-Canada Free Trade Agreement ▪ Procurement Review Board established by Canada: power to recommend appropriate remedies in case of a meritorious bid protest. Agencies encouraged to comply.

Bowsher v. Synar, S.Ct., 1986 (p.50) ▪ issue with act created to deal with deficit by forcing budget cuts…CG had authority to take reports from Congress on deficit, determine amount of budget cuts from reports, then tell the president how much to cut. ▪ Held: the CG is part of the legislature and his functions under the act are executive, can’t do that. Congress has sufficient control over the CG (removal power), that you cannot vest him with executive functions. ▪ Stevens: removal is not enough to make CG part of legislature, look to what he does. CG gives reports and makes estimates for Congress, investigates things for Congress, provides budgetary information, and the history of the office suggests that the CG is a congressionally controlled office.

Ameron, Inc. v. U.S. Army Corps of Engineers, 3d Cir., 1986 (61) ▪ bid protest by disappointed bidder ▪ GAO stayed execution of contract, government ignored it. Government argues that GAO is not allowed to determine length of stay (violates separation of powers). ▪ Held: the CG has authority to vary the length of the stay to decide the merits; he only has limited power/discretion…just gives recommendations, doesn’t decide the law. Executive can override the stay. ▪ government disobeyed law to get issue litigated – wanted issue settled

ii. Anti-Deficiency Act

Appropriations Clause (Art. I, Sec. 9, cl.7)

▪ express statutory appropriations must be made before any money is spent - a contrast to idea that government doesn’t need express statutory authorization to enter into contracts - theory: can enter contracts as long as no money is paid before appropriation is made ▪ appropriations are only made once a year, so long-term contracts must have a condition that payment is conditional on the necessary appropriation - funds availability clause – acts as a warning - consequence: the government may not include the funds-availability clause and then not pay because of no appropriation (see Anti-Deficiency Act) ▪ Policy of Appropriations Clause: - Separation of powers: giving the executive the power to obligate payment from the treasury is taking away congressional power - Prevents fraud and corruption - Protects public money - Makes sure that public money will be used according to the judgments reached by Congress

Anti-Deficiency Act (31 USC § 1341) (p.78) ▪ says the government can’t make contracts to pay money without an appropriation - if a funds-availability clause is included, that is okay under the Anti-Deficiency Act because you haven’t really promised to pay the money - appropriations have to be available, which means they must be available with respect to time, purpose and amount o Must usually spend within a year or contract within the year for a genuine bona fide need . Replacement contract rule is an exception o GAO is likely to interpret purpose restrictions more strictly when there is no time limit on the appropriation ▪ Agencies go to the GAO because the Anti-Deficiency act creates the incentive - the GAO’s advice is influential because the agency has no reason to question the ruling and no one else has standing to question an expenditure the GAO says is okay ▪ criminal penalties: very few prosecutions under this statute - the Anti-Deficiency Act may be under enforced - may be more effective than we think: people run scared of this act and the criminal provisions, so people go ask the GAO for advice first ▪ once an appropriation is made, you can enter into a contract - You cannot spend money on a contract after the time period of the appropriation (the fiscal year) is over unless there was a contract lawfully entered into during that time period.

Multi-Year Contracts: the funds availability clause in a multi-year contract seems to turn it into several separate contracts that must be affirmatively renewed each year by the government (Goodyear)

Judgment Fund – a standing statutory appropriation – there are always funds appropriated to pay judgments (like a blank check appropriation) ▪ the government doesn’t have an appropriation to finish projects, but it does for damages for breach of contract

▪ funds availability clauses prevent breach of contract and therefore prevent having to pay via fund

Acting Comptroller General Weitzel to the Secretary of the Interior (1954) (p.80) ▪ request for advice – TIME requirement ▪ government wants to complete a defaulted contract using appropriation of contract year, instead of this year (had some left over). ▪ Requirements for using lapsed funds: (1) Performance extended beyond the expiration of the period of availability for obligation; (2) the contract is terminated because of the contractor’s default; and (3) there was a need for the work or services at the time of the original contracts and there is still a need for the same. ▪ rec: the contract meets these requirements because the original contract was entered into before the fiscal year expired, so it is just an extension.

Replacement Contract Doctrine: an exception to the general rule that that appropriations self-destruct at the end of the fiscal year. - used when the contract is terminated for default; sometimes the doctrine is extended because the government in good faith believed there was default - exception to the statutory requirements of the TIME of the appropriation

To the Secretary of State (1955) (p.84) ▪ request for advice on four issues ▪ Issue 1: whether there was a binding agreement for appropriation year (time req’mt) - Held: need to see if there was proper offer/acceptance ▪ Issue 2: whether appropriation for contract is valid if services aren’t need until next year - Held: no bona fide need for services, no appropriation ▪ Issue 3: whether an appropriation may be had for an anticipated tax (never received before) - Held: insufficient evidence of legal liability for appropriation ▪ Issue 4: whether an appropriation may be had for elevator repair - Held: decision to repair elevator was not made, not bound to pay. § 1311(a)(1) says that there must be a binding agreement executed before the expiration of the expiration of the period of availability for obligation

Bona Fide Needs Rule: The rule is that there must be a bona fide need for services or supplies genuinely needed in the FY. The policy may be that money is appropriated on a need-based system, so if there is no need, it should be put to use somewhere else. To the Secretary of State (1962) (p.89) ▪ request for advice – PURPOSE requirement ▪ State Dept wants to pay for tube delivery system with appropriation for remodeling (“no-year” or open ended appropriation) ▪ Held: The expenditure need not be specifically identified if it is reasonably related to the purpose of for which the appropriation was made, however, the remodeling appropriation was specific and cannot include the tube system.

Solar Turbines Int’l v. United States, Cl.Ct., 1983 (p.93) ▪ ASBCA  Ct. Claims…can’t do this anymore (Wunderlich Act)

▪ Solar wants equitable adjustment; says government didn’t purchase requisite minimum. They say it is a multi-year contract with a fixed minimum obligation. ▪ Government says they don’t have to – it’s a requirements contract and they only buy what they need (consideration = giving up freedom of action) ▪ Held: Solar’s interpretation not reasonable. The absence of the funds availability clause shows that this is not a multi-year contract. Requirements contracts don’t need them. ▪ fiscal law has a bearing on contract interpretation, as seen in this case

Goodyear Tire v. United States, S.Ct., 1928 (p.102) ▪ case comes from Ct. Cl under Tucker Act ▪ Goodyear had a multi-year contract with a funds-availability clause (if approp, lease renews). Government held over for ½ year and agreed to pay when appropriation came; they did, but Goodyear wants $$ for the whole year (lease renewed with appropriation) ▪ Held: to bind the government there must be (1) an appropriation and (2) affirmative renewal of the lease for the next year. ▪ funds-availability clause  turns multi-year contract into several separate contracts that must be affirmatively renewed each year by the government. ▪ hold over: an implied contract – government cannot be bound

C. H. Leavell & Co. v. United States, Ct.Cl., 1976 (p.106) ▪ Leavell had a “continuing contract,” where payments were made when funds were available, otherwise work was suspended (SOW clause and FA clause). Leavell worked for 6 mo and sued for an equitable adjustment when they were not paid. ▪ The government hides behind the funds availability clause and the suspension of work clause and say they bar an equitable adjustment; Leavell took risk. ▪ Held: a delay and a funds availability clause permits equitable adjustments, but not damages - 6 months is unreasonable – get costs, but not profits (just a delay) ▪ congruence: the court says: let’s not make this so one-sided (even government bilateral contracts should have a balanced interpretation) ▪ contra proferentum: it would have been easy to contract for no equitable adjustments (they have the advantage of long-term collective learning) ▪ even when an agency has statutory authority, a funds availability clause must be added

D. Authority of Agents

G. L. Christian v. United States, Ct.Cl, 1965 (119) ▪ What are the consequences for the agency when an individual make a mistake? ▪ the government terminated the contract to build Army houses because they didn’t need the housing anymore ▪ the contractor wants anticipated profits; the government says only costs because of a termination for convenience clause; it was left out, but they want it read in (standard)

▪ held: the clause should be read in; government procurement regulations are given the force of law in interpreting a contract ▪ does the government have the authority to contract around this clause or bargain around it? - NO, under ASPR, the clause must be inserted in all fixed-price construction contracts ▪ “force and effect principle”: when certain conditions are met, an agency regulation is treated like a statute and is binding on private parties affected by its terms ▪ Accardi doctrine: agencies must follow their own regulations; if they don’t, the agency action can be set aside under the APA

FAR § 1.601: ▪ government contracts can only be entered into and signed by contracting officer ▪ authorizes head of agency to delegate contracting officer authority in larger agencies ▪ why worry about who has authority? - Prevent corruption and incompetence (focuses the responsibility in the hands of those who can answer for what has been done) - Political responsibility - Separation of powers – Congress wants a tight chain of command so that their decisions are enforced - Taxpayer protection

Gordon Woodroffe Corporation v. United States, Ct.Cl., 1952 (p.130) ▪ Walsh, a contract specialist, agreed to pay 900 K for a generator. His supervisor signed it. Gordon sues for breach of contract, government says there was no acceptance because Walsh had no authority ▪ held: the court finds that Walsh did not have authority, so the US is not bound. A contract is not enforceable against the US if it is entered into by a person without authority. ▪ Ratification: government can reiterate the acceptance of the contract if they notice that the person who accepted did not have authority ▪ apparent authority: doesn’t work against the government ▪ people who deal regularly with the government check out the authority first

General Electric Co. v. United States, Ct.Cl., 1969 (p.138) ▪ the money in dispute is a cost overrun for a CPFF contract. ▪ Limitation of Cost clause: if there is a cost overrun, ask the government and they will decide if they want to spend more money (can do in advance of overrun, otherwise there is more risk) ▪ GE did not give request to CO because GE was knowingly dealing with a contract specialist, who did not have any authority to make the adjustment, but told CO orally ▪ GE argues that internal letters of concurrence from the CO indicate approval and the conduct of the contract specialist waived the limitation of cost article ▪ Held: the contract specialist had no authority to waive anything. But, if someone who has authority approved the cost overrun, the government is bound. CO approved the overrun in a letter and his opinion on the merits of the claim with knowledge of the facts is a decision.

Williams v. United States, Ct.Cl., 1955 (p.150)

▪ Major Russell made promises and agreements he didn’t have the authority to make and Williams sues for payment for services they provided ▪ The government defends that a contracting officer did not make the promises ▪ Held: there is an implied contract: the contracting officer was on the premises during the work and there is no way he could not have known about it; he ratified the contract by his silence

Equitable Estoppel: ▪ What does it do?  Prohibits a party from disavowing a representation it has made, where an opposing party has justifiably relied on that statement, and where to allow the change of position would be unfair to the other party - need a (1) representation; (2) justifiable reliance; and (3) detriment to relying party ▪ apparent authority: like an application of the doctrine of equitable estoppel - statements or conduct by a principal that lead a third party to believe that an agency has been invested with a particular authority (estops defense of lack of authority) ▪ these problems come up frequently: the government is big and acts through many agents ▪ competing policies: fairness v. enforcing law, preventing unauthorized claims against treasury

Estoppel analysis: 1. Is there really an estoppel problem? - is someone claiming that a government agent made a representation that the government is trying to go back on and the person is relying on? - Broad Avenue Laundry is a case where Richmond is not applicable, for example, because there is no estoppel (no unauthorized misrepresentation) 2. If so, is Richmond applicable? - Covers only payments in violation of (or absence of) o an appropriation statute o any statute o statute or regulation o payments of money 3. If Richmond is not applicable (or not sure), apply Merrill, etc. - strong presumption against estopping the government, but maybe with some exception 4. Is there “affirmative misconduct” - need an affirmative, or intentional, act - this is a very hard level of misconduct to meet, nearly impossible Federal Crop Insurance Corp. v. Merrill, S.Ct., 1947 (p.154) ▪ The Supreme Court held that the government could not be estopped like a private party - used broad language suggesting the government might never be estopped, but they do not go all the way to say that explicitly - policy: separation of powers, protect treasury, duty of those who do business with the government to check

Estoppel in 60’s and 70’s… ▪ Supreme Court repeatedly rejects estoppel cases ▪ The Court says there might be some exception for affirmative misconduct

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Office of Personnel Management v. Richmond, S.Ct., 1990 (p.156) ▪ government employee is given wrong information twice concerning effect of work on disability benefits. In reliance, he took on extra work and exceeded his earning limit. ▪ the government wants to stop disability payments, Richmond wants to estop them. ▪ Fed. Cir.: equitable estoppel was available because of affirmative misconduct (no worry for exposing treasury to relentless litigation because the facts of this case were so unusual and extreme) ▪ Held: an individual cannot use estoppel to get money from the government unless that money has been appropriated (protects policies behind appropriation) - narrow: Court declines a broad rule to bar all estoppel, says that will decide another day whether an estoppel claim could ever succeed against the government - ▪ Stevens concurrence: the funds were appropriated for programs, not individuals. However, this is not a case of affirmative misconduct that would warrant estoppel ▪ Dissent: thinks this a case of affirmative misconduct. Estoppel can be used equitably and Congress has said nothing about appropriations in the context of estoppel.

E. Aspects and Consequences of Sovereignty

1. Contract and Statute: the Federal Government’s Authority to Change its Mind (and contracts)

Introduction ▪ what is the influence of the government sovereignty for breach of contract liability? - this usually happens in atypical government procurement contracts (those without termination for convenience clauses) o Ex: Winstar - regulatory contracts o When the government sells instead of buys (satellites) . Ex: Horowitz – government selling surplus silk (here, the government was not in breach because an embargo caused the breach) ▪ there are typically two general doctrines, in addition to specific rules ▪ sovereign acts doctrine (SAD) ▪ unmistakeability doctrine (UMD) ▪ also, sovereign immunity, unavailability of appropriations ,etc.

Sovereign Acts Doctrine: ▪ US is not liable for breach of a contract made by a “public and general” act within its sovereign power ▪ examples: enactment of tariffs, regulatory rail embargo, etc. ▪ difficult to determine when the government is acting in public and general capacity and when it is acting in its capacity as a contractor

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 12 Unmistakability Doctrine: ▪ government contracts should not be interpreted to protect the contractor from subsequent exercises of sovereign authority, unless the contract has surrendered the power to exercise that authority against the contractor in “unmistakable terms.” ▪ central premise: it’s not reasonable to expect that the government would not make unconditional promises that would cut off its own future exercise of sovereign power - implicit in these contracts: we will keep promise unless the law changes - must say clearly (unmistakably) that the government is going to tie its hands in the future despite changes in the law ▪ TEST: (1) does the doctrine apply and (2) was the government’s promise unmistakable?

Schism v. United States, Fed. Cir. 2001 (p.179) ▪ still undecided upon rehearing en banc ▪ military retirees are suing US for breach of contract to provide lifelong medical care; pursuant to a statute they now have to get Medicare ▪ Held: government made an implied in fact contract to give lifetime medical care; terms of the contract are set and government cannot unilaterally change them now - “the notion that the federal government could avoid a contractual obligation through subsequent legislation would conflict with the government’s” own interest in being a reliable contracting partner - goes against Hercules, which says that the government would not make a contract for years into the future if there is no appropriation o says…to abrogate contracts, in the attempt to lessen government expenditure, would be an act of repudiation. ▪ Schwartz: thinks this is clearly an erroneous decision; the appropriation, if there were one, would have to be open-ended, open amount.

Winstar v. United States, S.Ct., 1996 (p.177, 191) ▪ claims of breach that arose out of savings and loan insolvency crisis – Congress made unlawful the very accounting rules that were part of the inducement to Winstar to enter into supervisory mergers. ▪ Plurality Opinion (Souter): (4, sometimes 3 because O’Connor gave no opinion on some issues) - pro-congruence, anti-exceptionalist flavor - UMD: doesn’t apply to all government contracts o The doctrine is narrow, but deep (US needs to promise in explicit and specific terms that they are exempted from subsequent exercises of sovereign authority or enactment of statutes) - SAD o Narrow: “public and general requirement” is hard to satisfy; only public and general if releasing the government from its contractual obligations is an incidental effect of a widely applicable change to other contracts as well o Souter rejects that all regulatory statutes or statutes with a public purpose are public and general o Relates this to impossibility doctrine (except government is the one making its own performance impossible), subject to same limitations . Non-occurrence of circumstance must have been a basic assumption . Default rule, where government contracts out of SAD, can’t use defense

▪ Concurrence of Scalia (3): - UMD o Applies to all government contracts; government rarely promises a contractor that it will be exempt from future changes in the law, so courts should hesitate to read in that kind of promise (here, there was one) o The defense is wide, but shallow; only need to promise a contractor the benefit of certain regulatory treatment once clearly, no need to have a second promise that they will continue to receive the treatment if the law changes - SAD: no comment, SAD adds little to the UMD - Scalia has the sensible middle ground (according to Schwartz) ▪ Dissent: Rehnquist and Ginsburg (gave no opinion on some issues) - UMD o Applies to all government contracts; it creates a very strong presumption against finding a promise of indemnification if there is a change in the law o The doctrine is wide, but deep (second promise requirement) - SAD o Broad reading of what is “public and general”

Some common ground between UMD and SAD ▪ hypo 1: Congress passes statute which reduces the price specified in one government contract - government not likely to have good defense because only one contract was targeted - Souter: UMD doesn’t apply and the SAD doesn’t apply (statute not public and general) o Scalia: UMD does apply (unmistakable promise by gov’t) o Scalia/Souter: would agree that the government is in breach and has no defense o Damages: probably available out of the judgment fund ▪ hypo 2: same contract, it provides that in the second year of the contract the price goes up (inflation clause – 5% escalator) and then Congress passes a statute which establishes wage and price controls (freeze on price increases). - Government likely to have a good defense because a the entire economy is affected - Souter: UMD doesn’t apply but SAD gives the government a defense (statute is public and general) - Scalia: UMD does apply (but not unmistakable promise that the government would pay even if everyone else doesn’t have to) o Scalia/Souter would agree that the government has a defense here

2. Comparison: State Disabilities Under the Contract Clause

Contracts Clause ▪ Contracts Clause: no state shall pass a law impairing the obligation of contracts - places restrictions on a state to modify or avoid its obligations under its own contracts - policy: state must possess broad power to adopt general regulatory measures, but such regulations must serve a legitimate public purpose ▪ test for determining whether private contract modification stands: - Legitimate public purpose? (defer to legislature) - Reasonable means used to accomplish that purpose? ▪ test for determining whether public contract modification stands: - did state have ability to limit its own power to act in the future? o Reserved powers can’t be contracted away; if reserved, promise is void . Police power, power of eminent domain . But, taxing and spending powers are not reserved (financial obligations) o If such a promise was made, was it unmistakable and clear? - If it is not a reserved power, is the regulation reasonable and necessary?

o sometimes when its reasonable and necessary to do so, a state may modify obligations that were initially valid. o teeth: reasonable and necessary is a stringent standard: look to how much time has passed, if there was a less intrusive means of accomplishing the same end, etc.

Contracts Clause and UMD/SAD ▪ similar considerations are taken when deciding if a state or a government can modify its own contractual undertakings - maybe the federal government should have more latitude; the Constitution gives them the right to do this ▪ in most cases, the same result will happen - in federal context we look to see if the impairment is public and general and in state context we look to reasonable and necessary impairment

United States Trust v. New Jersey, S.Ct., 1977 (p.197) ▪ plaintiff is the trustee from bonds issues from Port Authority. A statute that limited the Port Authority from running deficit mass transit trains is being taken away ▪ Port Authority argues there has been no breach in the fundamental sense (never failed to pay back money on bonds); the Trust says the consideration for the bonds was to have the money available to pay it back (security impaired) - they want declaratory judgment saying the repeal was unconstitutional ▪ held: this is a public contract; the government (Port) is impairing its own contract. The government had the authority to make the promise and the promise did not affect a reserved power. The regulation is not reasonable and necessary because there was a less intrusive means of doing the same thing (it was a foreseeable problem at the time of the contract).

3. Choice of Law in the Field of Federal Procurement

Choice of Law ▪ 28 USC § 1345: United States as Plaintiff - when the US is the plaintiff, the district courts have original jurisdiction ▪ 28 USC § 1652: State Laws as Rules of Decision - state law is the rule of decision in civil actions, unless otherwise provided ▪ the rules on choice of law reflect a strong manifestation of exceptionalism - state law governs most private contracts (Erie), but does not govern federal contracts

What law governs government procurement cases? ▪ Is there a gap in the coverage of the issue by federal regulations or statutes? - NO, use federal law that covers the issue - YES, go to next question ▪ Does state or federal law apply here? - Federal law ▪ Where do we get the federal law? - borrow state law or make up federal law? o Need for federal uniformity? (this is likely to be a big need) o Federal policies interrupted? o Need uniformity between state and federal law?

- borrowing state law is more attractive when the state law in question is uniform with the rest of the states; i.e. with the UCC (see Wegematic), o borrowing state law rarely happens; usually not gaps in the FAR

Clearfield Trust v. United States, S.Ct., 1943 (p.211) ▪ source of all the law in the area of choice of law in government contracts ▪ US is the plaintiff, sues Clearfield Trust to be reimbursed for funds it paid out on a forged check. Clearfield argues the US delayed unreasonably in giving notice of the forgery and should not be reimbursed (PA law). They argue that Erie should apply. ▪ District Court: applied Erie, state law controls ▪ held: federal law applies when the US disburses its funds or pays its debts (constitutional function). Disputes about federal government contracts are to be governed by federal law. This will prevent interference with federal functions or policies and provide uniformity ▪ So, what federal law should be applied? If there is no federal statute or regulation, the court will have to make up federal common law about the interpretation of federal contracts - sometimes the court will borrow state law and make it federal law - Here, the court decides not to borrow state law– reject PA rule (exceptionalism) ▪ Merits: Delay is not an automatic defense for reimbursement of payment on a forged check; if damage resulted from the delay then recovery by the US is barred

United States v. Kimbell Foods, S.Ct., 1979 (p.216) ▪ the district court case: created a federal rule by making analogies to tax cases - the court of appeals rejected that; they borrowed state law as guidance - the second court of appeals created a federal law by using UCC as guidance ▪ held: this case is about federal contracts, therefore federal law controls - the federal law should be federal common law (Clearfield) - in this case, the federal court ought to look to state law, borrow state law in creating federal common law (different from Clearfield) ▪ Factors to be considered in borrowing state law: - Is there a need for federal uniformity? - Will federal policies be interrupted by borrowing state law? - Need for uniformity between the state and federal law? ▪ Here, there is a great need for state/federal uniformity

American Pipe and Steel Corp. v. Firestone Tire & Rubber Company, 9 th Cir., 1961 (p.230) ▪ What law applies in a dispute between a government contractor and a sub-contractor? ▪ Firestone issued a change order. American was entitled to an equitable adjustment – issue is how to compute the equitable adjustment and what rules govern that computation ▪ district court cited Clearfield and says federal law applies ▪ held: court doesn’t say whether or not this is a government contract case (shows some skepticism); but says there is a need for uniformity and need in upholding federal policies. So, subcontracts of government contracts can be controlled by federal law - Schwartz: this is not a government contracts case; they should have used state law! - state law should have borrowed federal law in the name of uniformity

4. Tort Liability of Contractors & their Personnel; the Gov’t Contractor Defense

Federal Torts Claim Act (245)

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 16 ▪ “discretionary function exception” of 28 USC § 2680 - if US not liable for discretionary functions ▪ Feres doctrine: US not liable for tort claims arising out of military service (28 USC § 2680(j)) ▪ 28 USC § 2679: federal officials are absolutely immune from suit for common law torts committed while acting within scope of employment (there is a claim against US)

Boyle v. United Technologies Corp., S.Ct., 1988 (235) ▪ Boyle’s father is suing the helicopter company for defective repair and design because his son died in a helicopter accident (diversity case – common law tort). ▪ the plaintiff claims that state law should apply because it is a tort case (suing private party) ▪ Court of Appeals found that UTC had a government contractor defense. This was a newly created defense: immunizes government contractors from civil liability arising out of the performance of federal procurement contracts (federal common law doctrine) ▪ held: Supreme Court decides that the government contractor defense should be allowed - Federal law should govern because of the large federal interest - Economics: the burden of liability on contractors will pass to US and increase prices - Policy: contractors shouldn’t be liable for doing what the government told them to do - Three part Boyle test must be satisfied: o US approved reasonably precise specifications to follow o The contractor conformed to those specifications (not for standard products) o The contractor warned the US about the dangers in the use of product that were known to the contractor but not to the US ▪ Dissent: - Congress should decide if such a defense exists (separation of powers) o Inaction doesn’t necessarily mean that they reject it - Economics: liability built into the pricing of the contract - Federalism: state law should apply ▪ Is this a military contractor defense? It is possible that it will just be more common in military contractor cases when the government creates specifications than when it just buys products. ▪ What about service contracts as opposed to manufacturing contracts? It seems to Schwartz, and Bailey will help, that this test may apply to service contracts also (unusual for specifications)

Bailey v. McDonnell Douglas Corp., 5 th Cir., 1993 (p.246) ▪ Plaintiff has two theories of liability for wrongful death action in aircraft: design (locked up) and manufacturing defect (failure to warn) (constitutional tort claim). ▪ lower court granted summary judgment focusing on the first claim; there was still confusion as to whether there was a second claim and what the court did with it ▪ held: If the claim is for something that was not precisely specified in the contract (silent), then there is no defense even if the contractor followed all the other specifications. When applying Boyle factors, you do it in a claim specific manner; look to see if the precise specifications were met for each claim.

Richardson v. McKnight, S.Ct., 1997 (254) ▪ held: prison guards employed by a contractor are liable for constitutional tort claims (not covered by the qualified immunity defense that protects state employees) ▪ the reason that the government contracts out are the reasons that the defense doesn’t extend: less tied to government, less supervision, market forces will pressure firms to hire competent people)

▪ dissent: immunity should be determined by function, market pressures don’t work where government is the only purchaser, costs will increase ▪ this holding is specific to the privatized prison management function

Correctional Services v. Malesko ▪ comes out the opposite of Richardson (dissenters + O’Connor), rejects Bivens - Bivens: federal officials and employees are liable for constitutional torts ▪ held: cannot bring constitutional tort claim against federal prison contractor - unclear about employees of contractor - unclear about common law tort claims

F. Federal-State Relations

Federal-State Relations ▪ Alabama: no contractor immunity from state and local taxation - if Congress wants to create a defense, they can create it (passive) ▪ Paul: contractor immunity from state regulation - if Congress doesn’t like this defense, they can change it (activist) - like Boyle ▪ tension between cases? No, the law is consistent in both cases. If government was purchaser in Alabama, they would be exempt from tax. In Paul, the US was exempt from regulation because of law conflict. States cannot tax or regulate the US, but can do so with contractors as long as it doesn’t have the effect of regulating or taxing the US.

1. Federal Contractors’ Immunity from State and Local Taxation

Alabama v. King & Boozer, S.Ct., 1941 (p.265) ▪ K&B sells the lumber to the government contractor who is building an army camp for the US. Alabama law imposes a tax on the seller, who is required to pass the tax on to the purchaser. ▪ K&B and government are suing because it’s a cost-reimbursement contract, the government will be paying the tax indirectly when it reimburses costs – can’t impose state tax on government. ▪ Alabama: says they are not taxing the federal government, they are taxing K&B. ▪ The court rejected the old “economic incidence test” of Panhandle Oil: tax could not be applied to cost-reimbursement contracts since government had to pay for it ultimately. ▪ held: new legal incidence test – look to see who the state formally taxes and whether the reality of the transaction is such that the government is really the purchaser (not enough to just have a cost-reimbursement contract; thus no more tax incentive to use them). The government is not really the purchaser here because they are not legally obligated to pay for the materials at a certain point of time (if they were, they would be exempt). If Congress wants government contractors to share this immunity, they can act

2. Federal Contractor’s Immunity from State Regulation

Paul v. United States, S.Ct., 1963 (p.272)

▪ the regulation in question is a minimum price regulation on milk sellers; California wants to keep the regulation on milk sold at military institutions (government) ▪ the minimum price regulation disrupts competitive bidding ▪ Penn Dairies: allowed states to impose this type of regulation, but the law has changed since this time – the statute changed ▪ held: it is sufficient to give immunity from state regulation/law that conflicts with federal law. Here the federal regulation calls for purchases on a competitive basis and it conflicts completely with the minimum price regulation; so federal law prevails ▪ implicit conflict: federal regulations have a policy to get the lowest price - this argument could be used with tax: against goal of getting the lowest contract price

G. The False Claims Act and Qui Tam Suits against Contractors

False Claims Act: provides civil remedies for fraud against the government – 31 USC § 3729 ▪ an action may be filed by the Attorney General OR a relator (private party with personal knowledge of the facts that give rise to the violation) ▪ When a relator files a suit, the government can: - Intervene: has 60 or more days to decide o government has primary responsibility o relator can continue as a party . gov’t may dismiss if it gives relator notice, despite objections of relator . government may settle if court determines the settlement is fair, despite objections of relator . government may request limit relator’s participation if it would delay case or be repetitious, irrelevant or for harassment - Not intervene: relator can take over action (Qui Tam action) o government can ask for depositions and pleadings o government can stay discovery if it would interfere with an investigation o government may intervene later with a showing of good cause, but status and rights of relator can’t be limited . if action is successful, relator can get treble damages . if not, they pay for litigation fees, plus other party’s fees if frivolous ▪ how to violate FCA: present a false claim for payment “knowingly” present a false record in support of a claim for payment ▪ why contractors hate this statute: - provides a penalty of 5-10K plus treble actual damages for each count - cannot re-litigate facts if there has been a parallel criminal proceeding - Civil Investigative Demands: pre-filing discovery (power of grand jury in civil case) o Relator can’t use this - Qui-tam provisions ▪ Halper: criminal conviction insulates defendant from FCA judgment under double jeopardy - overruled a decade later: can have both United States ex rel. Kelly v. Boeing, S.Ct., 1994 (p.286)

▪ Qui-Tam suit: the plaintiff is a former employee who alleged that Boeing, as a subcontractor to the government, improperly charged the government with lease costs (CPFF). The government elected not to intervene. ▪ Boeing moved to dismiss on four constitutional challenges: - Standing: the relator has no standing to sue since they did not suffer harm. - Separation of Powers: Congress can’t assign prosecutorial powers to persons not under control of executive branch; lack of removal provision violates President’s exercise of his functions; quit tam allows judicial branch to encroach on executive authority - Appointments Clause: relator has so much government power that they should be appointed; only officers of the US can litigate for government - Due Process: Boeing was deprived property without due process by allowing a financially interested party to prosecute who has no duty to see a fair and just result ▪ held: Qui Tam statutes affirmed - Standing: the relator stands in the government’s shoes – assignment theory (unilateral contract). Express language of FCA allows assignment (the word “assign” is not necessary). Policies of standing are satisfied because relator has a personal stake in the outcome: fund the suit, gets money if prevails, may have to pay if it is frivolous - Separation of Powers: all prosecutorial power doesn’t need to belong to the executive branch. Under Morrison, the independent counsel had much broader investigative authority, prosecutorial discretion, and authority to use resources - and it was constitutional. Also, the government has a lot of power if it intervenes. There is no office to remove a relator from, but government can end the litigation and remove the relator in that sense. FCA doesn’t let the judiciary intrude on prosecutorial authority anymore than in Morrison. - Appointments Clause: the relator has no actual government power; the activities can still be limited by the court. Only get to litigate the one case that they know about. - Due Process: prosecutors don’t have to be neutral. There is a single interest between the relator and the government in a successful litigation.

H. Criminal Prosecution: A Risk of Transacting Business with the Government

Criminal Prosecution

United States v. Matzkin, 4 th Cir., 1994 (p.305) ▪ Matzkin is an attorney for a contractor who had an informant in the Navy who gave information about competitor’s bids in a competitive negotiation. Matzkin acquitted on bribery charge and conversion of government property, but convicted on conspiracy to defraud. ▪ conversion: Matzkin says the bids couldn’t be the government’s property under the statute ▪ held: the government had enough interest in the information that it was their property and they don’t need the sole interest in it; it was something of value ▪ for the most part, criminal defenses and charges in government contracts are not anything different than usual; adaptations of the norm (ex; conversion) – courts are lenient with prosecutors applying criminal standards in new ways ▪ standard offenses (311):

I. First Amendment Protections for Government Contractors

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 20 Board of County Commissioners v. Umbehr, S.Ct., 1996 (p.312) ▪ Umbehr, a trash contractor, sued the government claiming he lost the contract because the board was retaliating against him for his criticism. Board said they terminated per their reserved right under the contract (it was automatically renewed every year unless one party wanted to terminate (needed 60 days notice)). ▪ Umbehr filed claim under 42 USC § 1983 – claims he is entitled to same 1st Amendment protection as that afforded to public employees (concerned about “chilling effect” of termination) ▪ Board argues that a contractor is not as vulnerable as an employee because an employee stakes her whole livelihood in the job and a contractor does not. Umbehr argues that a government contractor needs stronger protection. ▪ held: government contractor has same 1st amendment protections as government employee - TEST: contractor needs to show: o Termination motivated by speech on a matter of public concern o Government needs to show that the contract would have been terminated anyway OR that interests of government somehow outweigh the first amendment right interests ▪ dissent: Scalia very upset about this decision. Says anti-discrimination laws and competitive bidding already protect contractors. Says there are some contexts where the government should discriminate on political grounds (don’t give racist organizations a security job in housing projects).

II. Protests, Claims and Disputes: Adjudication of Controversies Concerning Contract Award and Contract Performance

A. Contract Award Controversies – Bid Protests

▪ There were as many as five bid protest forums and now we seem to be down to two: - GAO (Comptroller General) and Court of Federal Claims - Used to be: GSBCA and US District Courts (lost jurisdiction in 1/2001) - Government contracts bar wants the option to go to district court o they think CFC favors the government o CFC and GAO know a lot about government contracts law – that’s why government contracts bar doesn’t like them! ▪ 1996 amendment of the Tucker Act: - broadened jurisdiction of the CFC - codified jurisdiction of district courts with a “sunset provision” for the end of 2000 o provision said if Congress did nothing further, jurisdiction would end 1/2001 o “apparent” loss of jurisdiction – the language used in the sunset provision has a possible critical ambiguity; so the jurisdiction may not be abolished . Schwartz thinks jurisdiction is gone

1. Bid Protest Jurisdiction of GAO

Historically, the GAO is the forum of choice for bid protests ▪ authority to hear protests is codified by the Competition in Contracting Act ▪ Standing: “interested party” – satisfied if party can show they would be better off had they gotten the contract (31 USC § 3551)

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 21 ▪ Right of action: an interested party can bring a bid protest (31 USC § 3552) ▪ Automatic stay provision and scheduling (31 USC § 3553, Ameron) ▪ Decision timetable (31 USC § 3554) – very speedy timetable ▪ Interrelation of forums and GAO decisions becoming party of record (31 USC § 3556) ▪ Remedies (31 USC § 3554(b) and (c)) - Recommendations are quite powerful - Can recommend an award of bid preparation costs and bid protests costs o Bid protest costs = attorney’s fees o Bid preparation costs = costs incurred when preparing bid

In the matter of Dyneteria, Comp.Gen., 1975 (p.333) ▪ government was buying 3 years of meals for the air force and issued an IFB (sealed bidding) ▪ Dyneteria: was the fifth lowest bid; top 3 were not responsible, but one of them, Tombs, got a COC from SBA (4th lowest not in this case) - Dyneteria cannot show that if their claims are meritorious that they are the party that would and should get the contract (the fourth lowest should) – this shows the relaxed view of standing in the GAO ▪ Dyneteria wants the GAO to review the SBA’s award of the COC, alleging it was fraudulently given (GAO has no authority to review unless there is fraud). They allege collusive bidding, Tombs not a small business, and they altered their price upward after award was given. ▪ rec: GAO takes a very deferential approach to looking at the agency’s records (no collusive bidding). SBA said Tombs was a small business (deference). Adjusting prices was illegal; however, the GAO’s hands are tied because the first year of the contract is up, and so the next two option years have to be re-solicited. ▪ This is exactly what led to the automatic stay provision – the contracts would be already under way by the time a decision was rendered without it.

2. Award Controversies in the CFC Prior to 1996

CFC – no automatic stay provision ▪ can issue injunctions and declaratory relief

Tucker Act – 28 USC § 1491 ▪ first paragraph (historic Tucker Act) can be broken into three parts - Provides a waiver of US sovereign immunity jurisdiction for CFC ▪ Three kinds of claims may be heard: - Statutory – claims upon Constitution and any law of Congress o Construed narrowly o Only applies where the violated provision itself gives monetary damages – “must be clearly interpretable as mandatory compensation” United States v. Testan . Only the Takings Clause applies because it provides a basis for recovery of money damages against the US - Claims upon any express or implied contract with the government o Interpreted almost literally o only contracts implied in fact apply here

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 22 . implied in fact contracts are real contracts: looks at behavior to see if an agreement was made . implied in law contracts are not real: contracts created in the name of justice o Government procurement contracts usually handled under CDA, but government contracts that don’t deal with procurement fall under this - Claims for liquidated or un-liquidated damages in cases not sounding in tort o This provision seems like it’s been read out of the statute altogether; it’s never used o It can’t mean what it says because those cases are covered by other provisions

Heyer Products v. United States, Ct. Cl., 1956 (p.349) One of the seminal cases in government procurement law ▪ the government issued IFB for low voltage circuit testers and the award was given to someone who was the seventh lowest bidder ▪ Heyer says it’s retaliation for Senate committee testimony and it’s favoritism for Weidenhoff. Army says it was technical reasoning that justified its decision (one of “other factors considered” under section 3(b) of the ASPA). - Later on, Congress splits the criteria and says that price should be the only criterion in some cases and non-price factors should be the only criterion in other cases ▪ Heyer wants bid preparation costs ($7K) and expectation damages ($38K) and Army moved to dismiss for failure to state a claim ▪ held: this is not a claim under the first provision of the Tucker Act; a bid protester doesn’t have standing to complain about statutory violations because the statutes were passed to benefit the public, not the bid protester. THIS IS NO LONGER GOOD LAW!!! - Merriam: changes the law as it is today and gives standing to bid protesters - the result would be the same today because the statue in question doesn’t give mandatory compensation, so expectation damages would not be given ▪ held: Expectation damages can’t be given because there was no contract here – but there was an implied unilateral contract that the bid would be fairly considered, so bid preparation costs (restitution) can be recovered - implied unilateral contract: o offer: if you will bid, we will fairly consider your bid o acceptance: bid submitted ▪ Sharp limitations for implied contract theory of bid process - If claim was that a solicitation was unduly restrictive, it doesn’t work – the implied contract to treat a bid fairly doesn’t cover harsh rules because the government did what they said they would do - Only deviations from the solicitation or unfair treatment allows a Heyer Products claim - see Coastal, Fed. Cir. says no BCA jurisdiction for implied contract theory for bidding

Comparative Law Note (p.359) ▪ Canada courts held that a contract arises between the government and all those who bid in response to an invitation ▪ Canada went further than Heyer Products; it awarded expectancy damages

Between Heyer Products and 1996

- Congress made ineffective attempts to broaden the remedial authority of the CFC - 1982: split the old Court of Claims into two courts - There was pressure to open up the district court forum because relief in the CFC was so limited and to improve the CFC as a bid protest forum

Little Tucker Act ▪ 28 USC § 1346 ▪ allows the district courts concurrent jurisdiction over claims with the CFC core jurisdiction (see above), as long as the claim did not exceed $10,000 ▪ relevant for a small business that wants to go to district court, but not a very effective remedy

Keene Corp. v. United States, S.Ct., 1993 (p.366) ▪ seems like district court is out of business, so this case may not matter ▪ government contractor has been sued by many individuals for injuries suffered from asbestos exposure (no contractor defense yet) - Keene filed four different actions within days of each other o #1, #3 filed in district court o #2, #4 filed in the CFC while #1 and 3 were still pending - the theories were not identical, but they arose out of the same common nucleus of operative facts, similar relief, but different legal theories o #1 (tort), #2 (breach of warranty), etc. ▪ held: the claims cannot be brought to CFC if also pending in District Court. 28 USC § 1500 – CFC doesn’t have jurisdiction over a claim if there is a simultaneous related claim in dist. courts - the statute goes beyond claim and issue preclusion – the statute operates at an earlier time, before final judgment (as required for res judicata) when the case is still pending (it’s like a statutory extension of res judicata) - statutory bar applies even if the theories behind the claims were different ▪ does this statute work the other way around? - if the claims were filed in the CFC first, is jurisdiction denied to the district court – but this is undecided ▪ lesson: although this was not a bid protest, don’t file bid protests in two different forums!

3. U.S. District Courts under the APA

Administrative Procedure Act – 5 USC § 701, et. seq. (374) ▪ this applies today to bid protests in CFC; used for bid protest jurisdiction in district court ▪ not until 1970 was this statute used for bid protests ▪ § 701 – broad definition of what an agency is: any instrumentality that works for US, with some exceptions - presumption in favor of judicial review ▪ § 702: standing to those aggrieved within the meaning of a relevant statute - look to statute allegedly violated, APA is just a procedural statute. - Relief does not include money damages – it’s equitable ▪ § 704: agency decision is subject to judicial review - finality requirement; need final agency action

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 24 ▪ § 706: scope of review – arbitrary and capricious standard - Congress said this standard of review applies in all bid protests forums - deferential to the agency on issues of fact and policy and not deferential for interpretation of statutes (unless agency is charged with administration of a statute and Congress has not resolved the issue; or ambiguous - Chevron) ▪ bid protests in district courts: definition of agency is broad enough to encompass the decision of a federal agency to award a contract to one bidder or another (so maybe jurisdiction is not gone)

M. Steinthal & Co. v. Seamans, D.C. Cir., 1971 (p.378) ▪ seminal case that invented the idea of bid protests being in district courts via the APA - Scanwell, 1970 – used APA to give a bid protester standing in district court ▪ government is buying parachutes. Steinthal think they have 120 days plus a reasonable amount and Pioneer thinks it was firm 120 days to issue bid. Steinthal is the lowest bidder and took 150 days ▪ CO: says the government should re-solicit - Air Force issues new solicitation and everyone protests to the Comptroller General ▪ GAO denies protest and upholds the re-solicitation ▪ district court: rules in favor of Steinthal, no re-solicitation ▪ held: reversed, Pioneer wins. The district court improperly applied the standard of review and didn’t give the proper deference to the contracting officer, who got instructions from superiors ▪ importance: applicable to CFC exercise of expanded jurisdiction, post 1996

Merriam v. Kunzig, 3d Cir., 1973 (p.398) ▪ procurement for office space from the GSA. Merriam is an unsuccessful bidder and formerly held the contract to provide the office space; seeks an injunction ▪ Does an unsuccessful bidder have standing to challenge a contract award even if they can’t prove they would get it? ▪ District Court: dismissed, said Merriam lacked standing (Perkins) - the statute said “price and other factors considered” – this changes for Shoals ▪ Court of Appeals: disappointed bidders have standing if they satisfy a two-part test: - need to establish the plaintiff was injured in fact o Merriam lost contract and future profits, money spent on bid o No need to show that “but for” the wrong Merriam would have had the contract, just that Merriam was injured by not getting it - need to show that the plaintiff falls within the zone of interest protected by the statute that the plaintiff said was violated o government contracts statutes don’t just protect the public and the government, but also protect the bidders (contrary to Heyer Products) o Might not be good enough to just show that they would have or should have bid ▪ GAO – they think that disappointed bidders have standing, so the court thinks they should defer to their point of view - confusion: court isn’t realizing that GAO is an arm of the legislature, so because it’s not a court, they don’t have to meeting judicial standing rules in their bid protests ▪ Courts of Appeals have fallen in line with Merriam ▪ this case is a good example of the state of the law for bid protests ▪ CFC: unclear what standing is; can use this one or GAO’s version

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 25 Shoals American Industries v. United States, 11 th Cir., 1989 (p.404) ▪ statute changed: narrowed scope of factors that the government can look at in picking offers - price and other factors  price and other price-related factors - now it is clear that the statute tells the government to give the contract to the responsible bidder with the lowest price (much less discretion) ▪ Navy issued a sealed bidding for shipping containers; they amended the solicitation after the IFB, increasing the number of containers it wanted. Shoals bid didn’t conform to the amendment (used the old form), but had a price per unit that was the lowest. The CO asked Shoals about the ambiguity and Shoals said they meant to offer that price for the larger amount. The CO granted the contract to Shoals, but Bertolini protests. CO says defect was minor. Bertolini protests to the GAO, who thinks the Shoals defect is material. Shoals brings the case to the district court ▪ The district court rules for Shoals, the defect was minor; validates the government’s initial opinion, but not the final decision of the government (GAO) ▪ held: reversed, there should be more deference to GAO and procuring agency (APA/Chevron) - what would happen if Navy and GAO disagreed? Who gets more deference? o Supremes in Martin suggest that deference is given to the procuring agency

4. An Unavailable Alternative: Boards of Contracts Appeals

Coastal Corporation v. United States, Fed. Cir., 1983 (p.415) ▪ GSBCA denied as a bid protest forum ▪ Coastal is trying to use Heyer Products claim, but the court distinguishes this here ▪ US was soliciting bids for petroleum storage facilities through a two stage solicitation. US cancelled the procurement entirely after the second stage (reserved right). Coastal sued for preparation costs. ▪ Coastal argues that there was an implied contract to finish the solicitation ▪ district court: BCA doesn’t have jurisdiction for bid protests, only claims protests; and on the merits, Coastal was not entitled to bid preparation costs because the government reserved the right not to award them ▪ Coastal tries to allege that the government waived jurisdiction by going to the BCA ▪ held: jurisdiction cannot be waived; even if no one raises it (Art. III). This is not like Heyer Products, CDA only covered implied procurement contracts, not implied contracts for bidding

▪ Brooks Act: 1984-1996: GSBCA had specialized jurisdiction to hear bid protests that involved computer procurement…this has been repealed

5. Judicial Bid Protest Jurisdiction Following the 1996 Tucker Act Amendments

1996 Tucker Act Amendments CFC: dramatically expanded the bid protest jurisdiction ▪ 1491(b)(1): codifies bid protest jurisdiction of the CFC - Heyer Products: codified, not you can challenge the terms of the solicitation - Standing: an interested party has standing o Schwartz: thinks we take district court standard o Fed. Cir.: follow GAO approach insofar as it is narrower (426)

▪ 1491(b)(2): injunctive and declaratory relief awarded; money damages only for bid preparation costs (Heyer Products codified) - Cannot get expectation damages - combining remedies: usually can’t get both injunctive relief and monetary relief; wouldn’t get proposal costs if award was enjoined ▪ No attorney’s fees or bid protest costs in the CFC under Tucker Act - can use EAJA: can only get attorney’s fees if government’s position was not substantially justified and net worth is less than certain minimums ▪ Standard of Review: APA standard (Steinthal/Shoals); arbitrary and capricious standard - deference on policy and fact; ambiguous statutes (Chevron) - no deference to interpretations of generally applicable statutes or FAR ▪ APA: still controls matters not specifically governed by new language of Tucker Act District Courts ▪ Congress was in debate about the number of bid protest forums – they compromised - Sunset provision: the big compromise; the district court and the CFC would hold concurrent bid protest authority (codified Scanwell/Steinthal doctrine) o If Congress did nothing by the end of 2000, then the jurisdiction would lapse o It appears that the district court is out of bid protest jurisdiction ▪ Is the bid protest jurisdiction of the district courts abolished? - the drafting is sloppy; the legislative history looks like it was intended to take the bid protest jurisdiction away from the district courts - No one changed the language of the APA (the language of Scanwell/Steinthal) o It is still unresolved whether the district courts have jurisdiction under APA o There is dicta from the DC Circuit that the district courts may still have this jurisdiction; the federal circuit has said the opposite in dicta o Schwartz thinks the district court is out of the business ▪ Savings provision: assumes the district court is out of business

6. The Relationship between Bid Protest and Performance Dispute Forums

United States v. Amdahl, Fed. Cir., 1986 (p.430) ▪ Treasury got authority from GSA under Brooks Act to procure using sole-source procurement. Amdahl protests because they think there was no basis for using sole-source and they had issues with the advanced payment provision. Amdahl protested to the GSBCA because the issue dealt with computers ▪ GSBCA upheld the procurement, but ruled against agency for the advanced payment provisions. - the remedy given: revoke the delegation of special authority - this was not clear at all – did Treasury have to give computer back? ▪ Issue: what do you do when someone gets awarded a contract and then the bid protestor wins (this issue can still arise even though Brooks Act has been repealed) ▪ Treasury argues that the computer was delivered and accepted, contract is presumed valid. Amdahl says contract was flagrantly illegal, it is only presumed to be valid and that is a rebuttable presumption – this contract is void. ▪ held: the question of whether a contract is void or voidable, and how much the rejected contractor should be paid, is a claims matter, not a bid protest matter, and a bid protest forum doesn’t get to hear these questions. The court accepts that the computer was delivered and accepted (don’t need to return it), and says but the contract is not void, but voidable (see below)

▪ the government should terminate the contract, make a proposal for how much to pay the terminated contractor, and then IF there is no agreement, they bring the case to a contract disputes forum (CFC: bid protest forum and claims forum; but Amdahl tells us you can’t do this all in one proceeding.) ▪ Has Amdahl won anything? They won on the merits, but contract was already performed. Moral: don’t let the contract be performed, go the GAO and get a stay so that the contract isn’t already performed when the dispute is heard! Example Situation: bid protest tribunal decides/recommends that the protest should prevail (contract given to wrong guy) and there was no stay ▪ Preliminary injunctions/temporary restraining orders can be obtained if the plaintiff asks and certain requirements are met ▪ If there is an injunction or a recommendation (GAO), the ball is in the agency’s court - It must terminate the contract with the “wrong” guy - Then they must figure out how much they owe to terminate (if they work it out, then there is no problem) - If they don’t agree, then there will be litigation and the key holding of Amdahl is that bid protest tribunals never decide how much the government must pay the terminated contractor; that is a claims protest - If there is a dispute about how much the terminated contractor should be paid: it can be o (1) a “termination for the convenience of the government” . contractor will be well taken care of - get performance costs and a reasonable profit thereon . it will go to a performance tribunal . it will presume the contract is voidable, not void (a little illegal, not totally illegal) - (2) quantum meruit or quantum valebant o a lesser standard of recovery: get paid whatever benefit was conferred; what products/services were worth o presumption that contract is voidable is rebutted, the contract is void (government did something so illegal that the contractor should have realized it) ▪ money for these settlements can come from the original appropriation or the judgment fund

7. International and Comparative Law Notes Regarding Bid Protests

International and Comparative Law Notes (p.446) ▪ US procurement law has preferences favoring US goods - these preferences are overridden by applicable trade treaties ▪ GPA and NAFTA - Each of these treaties requires the US to open procurement to foreign offerors and imposes requirement of remedies that must be made available ▪ GATT (WTO): - fundamental provision: excludes procurement from free trade requirements o shows strong attachment to protectionist policies - also a desire to work towards trade liberalization in government procurement o GPA: created an optional side agreement that interested GATT members could join…commit to opening certain sectors of government procurement to entities from other GPA member nations . Has been a disappointment

o EU and US are members…China coming along o Substantive requirement: member nations must treat supplier of other nations no less favorably than their own domestic suppliers (national treatment) - bid protest procedures: o GAO and CFC satisfy standards to bid protest tribunals o May be able to raise claims of domestic procurement law violations . CICA and Tucker Act don’t disqualify foreign protesters o standing: like the GAO “actual or prospective” bidder test . GPA standing might not measure up to CFC (district court standard) o automatic stay provision of GAO satisfies challenge procedures o Remedies: correction of breach or compensation for loss suffered . GAO: probably doesn’t satisfy (recommendation only) . CFC: satisfies ▪ NAFTA: - requires member nations to not discriminate against foreign suppliers - does not seek to regulate quality of bid protest tribunals (like GPA) ▪ EU: not binding on US (more similar than dissimilar) - Review Directive: nations must created procedures for prompt review of challenges to procurement decisions that allegedly violate EU law - Standing: mix between GAO and district court standards - Remedies: o Interim measures: like automatic stay provision o Contract set aside and damages (maybe expectancy) . Nations get to limit authority of review bodies to just monetary . Our tribunals get to decide corrective or monetary remedies

B. Contract Performance Disputes: The Contracting Officer and the CDA

1. Introduction to the Disputes Process

Contract Disputes ▪ deals with the class of disputes that arise out of the performance of government contracts subsequent to the time of the award - two sub-categories (this distinction is obsolete now): o Traditional breach of contract o Constructive changes (equitable adjustments) . Contract provides for a remedy and there is a dispute about its obligation or how much money should be paid - these two sub-categories used to have different methods for handling them - Contracts Disputes Act (CDA): abolished the distinction ▪ CDA, 41 USC § 601 et seq.: tries to simplify contract disputes system - gives two choices of forums: agency BCA or CFC (appeal to Fed. Cir.) o jurisdiction is for breach disputes and constructive change disputes - claim must be initially presented to CO ▪ Wunderlich Act: made judicial review available on all questions of law; on questions of fact review is available if contracting officer’s findings were made in bad faith/arbitrary/capricious - Didn’t used to be judicial review of administrative decisions o U.S. v. Wunderlich – no review of administrative decisions on fact

- Penner: example of bad faith

International and Comparative Law Bearing on Contract Administration and Disputes (p.456) ▪ GPA/NAFTA do not undertake to regulate contract administration or remedies for breach - left to national law - Schwartz sees this as a new frontier

2. The Role of the Contracting Officer

41 USC § 605 (CDA) – Decision by Contracting Officer ▪ all claims must be in writing and submitted first to CO (goes both ways) (see 505) ▪ CO’s decision must be in writing, the decision must contain reasons ▪ decision are final except as made reviewable by the statute - even though CO’s decision is a final decision of an administrative agency, you may not go to district court under the APA (like you can for bid protests in Scanwell/Steinthal) - Scanwell doctrine does not apply - Can go to BCA or bring an action de novo in CFC ▪ clauses requiring continued performance during claim disputes are authorized and standard ▪ claims over 100K must have CO certification of accuracy and good faith (see Grumman) - Adm. Rickover: purpose of certification is to make officers subject to criminal penalties for fraudulent statements ▪ CO must make a prompt decision

Keystone Coat & Apron Mfg. Corp. v. United States, Ct.Cl., 1960 (p.457) ▪ illustrates role of contracting officer – old case, but basics have not changed ▪ government demands payment from contractor. Contractor seeks explanation because the contract is complete. Contractor receives an explanation letter, but wanted more time. CO said no, he already decided the issue, so no more time is necessary. ▪ Contractor appeals to BCA. BCA dismisses the appeal because it was not timely. ▪ held: the CO didn’t make a proper decision, so the time to appeal never started running. A unilateral assertion was made and no opportunity was given to contractor to make their argument. ▪ Dual role of the contracting officer: (1) the government’s advocate - At the initial stage, where the CO has the claim, there is no lawyer that is the advocate for the government, the CO does it (2) neutral judicial-type figure ▪ if the process is not fair, the decision will be overruled

Penner Installation Corp. v. United States, Ct. Cl., 1950 (p.462) ▪ claim to CO for money for changes made to the contract. The CO rejected almost the entire claim. Contractor appealed to head of the agency, who upheld the CO decision. Contractor appealed to the Court of Claims. The government invoked the defense that under the disputes article the decision of the CO is supposed to be final and non-reviewable. ▪ held: CO decision is final unless the decision is arbitrary or made in bad faith. Bad faith is shown when the CO doesn’t show due regard for both parties. Here, the CO failed to do so. ▪ if a decision is unsupportable – bad faith will be inferred

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 30 3. Choice of Forum and Procedures under the Contract Disputes Act (see chart)

41 USC § 606 (CDA) – Right of Appeal to BCAs ▪ can appeal (to BCA) the decision of the contracting officer within 90 days

41 USC § 607 (CDA) – Agency Boards of Contract Appeals ▪ can appeal a BCA decision to the Federal Circuit within 120 days ▪ each agency may form a BCA

▪ The government cannot appeal a CO decision, but may appeal a BCA/CFC decision. For BCA appeal, need permission from Attorney General.

United States v. Grumman Aerospace Corp., Fed. Cir., 1991 (p.480) ▪ DCAA informs Grumman they will not repay Grumman for dividends they issued. Grumman submits an uncertified claim to the CO, followed by a certified claim from VP/Treasurer. The CO denied the claim on its merits. Grumman appealed to the ASBCA. ▪ The government moves to dismiss because they say the claim wasn’t properly certified (wrong person). This issue was never raised to CO and the CO never ruled on it. The BCA says it was a proper certification; awarded some money on merits. The government appeals to Fed. Circuit. ▪ held: the court vacates the BCA decision because of improper certification under FAR. Only a senior official with authority at the location OR an even more important person with overall responsibility with authority to bind the contractor can certify the claim (CEO or top guy at location). The court held that agency’s rule is valid because there is a gap in the statute. - Chevron: agency’s can fill gap if not inconsistent with the statute or unreasonable ▪ dissent: Not an appropriate regulation because it’s going too far to prevent fraud. The contractor should be able to verify authority, shouldn’t need CEO. ▪ certification of a claim affects SM jurisdiction and it can be raised at any time. ▪ Grumman can start all over by properly certifying and resubmitting the claim, however, there is no pre-judgment interest and it will be costly to go through the process again.

Congress responded to the Grumman decision ▪ amended § 605 – agree more with dissent ▪ Today, this is not jurisdictional, a defective certification can be corrected - not clear what happens with an absent certification (maybe just defective) - statute of limitations doesn’t stop running until there is a valid certification (claim) ▪ Just need a duly authorized officer as a matter of corporate law

Reflectone, Inc. v. Dalton, Fed. Cir., 1995 (p.491) ▪ deals with the fact that there are two kinds of claim: routine and those that are not routine ▪ Reflectone asked for an equitable adjustment (EA). The CO rules on it, denies part of it. Reflectone appeals. According to ASBCA, the EA would have to be brought to the CO, who would rule on it as the government’s advocate and then rule on it again as an adjudicator. After the first ruling, the amount of payment would be in dispute. Otherwise, a routine request for payment is not a claim (need a dispute). ▪ held: an EA is a claim even though the amount is not yet in dispute. The dual role formalities of the contracting officer is not necessary.

▪ overrules Dawco (no demand for payment can be a claim unless the amount of payment had been put in dispute – a request for an EA is not a claim because it first requests an amount and then there is a dispute)

8 elements of a claim: (1) in writing; (2) request a final decision; (3) seek payment as a matter of right; (4) include a sum certain; (5) be non-routine (or in dispute); (6) be made with sufficient specificity; (7) be certified if above 100K; (8) be submitted to the CO.

Transamerica Insurance Corporation v. United States, Fed. Cir., 1992 (p.506) ▪ decided before Reflectone, but on a different issue (Reflectone controlling because en banc) ▪ Trans asked for an EA for roof work (drawing wrong). The CO adjusted the contract a little, but not for the full amount (Trans should have known). Trans appealed to CFC. The government claims that CFC lacked jurisdiction because Trans never requested a final decision, also, it was qualified. The CFC accepted this argument. Trans appealed. ▪ held: Federal Circuit said that there does need to be an explicit request for a final decision; the parties can be negotiating and asking for a final decision at the same time as long as the desire for a final decision is evident. The court says this was a binding certification because there was substantial compliance with the certification requirements (even though contractor certified to info he didn’t know about the subcontractor). ▪ all that is needed is that (1)the contractor asserted in writing and with sufficient specificity a right to additional compensation, (2) the government disputed that right, and (3) the contractor communicated his desire for a contracting officer decision. ▪ this is a still a good test for routine disputes, but after Reflectone, non-routine requests do not require a government dispute of that right.

III. Formation of Government Contracts

▪ Many of the rules about formation of government contracts come from private contracts law (offer/acceptance, consideration, statute of frauds, etc.). - government follows general contract law unless a statute says otherwise ▪ There are also procedural rules and requirements that have no analogue in private contracts.

A. Basic Principles of Government Contract Formation

Requirements contract  promise that whatever the government needs, they will get from the contractor - consideration: if we buy, we buy from you - consideration is needed for government contracts unless a statute says otherwise

United States v. Purcell Envelope Company, S.Ct., 1919 (p.519) ▪ Post Office advertised for bids (sealed bidding) for a requirements contract. Purcell won the contract award, they were considered responsible, and they signed the blank contract the PO sent to them. The Post Gen sent a letter to them saying that they haven’t signed the contract and all action should be suspended. Purcell already started making arrangements. A new Post Gen then comes in and decides that Purcell is not responsible and cancels the contract. Purcell says the bid was the offer and the government accepted the bid, so there is a contract.

▪ held: there was a contract because accepting the bid and entering an order was a sufficient acceptance. When the government awards a bid in a sealed bidding and sends a contract, all the terms are definite. The entering of the award was the acceptance of Purcell’s offer. ▪ if a person with delegated authority exercises it, the government is bound ▪ In a sealed bidding, Purcell is the law: an offer and acceptance is found when the bid is accepted and entered. ▪ In a competitive negotiation, formal acceptance is necessary. The RFP is not an offer because it is just asking for proposals; there are no definite terms that have been agreed to.

Torncello v. United States, Ct. Cl., 1982 (p.525) ▪ what Torncello says about the scope of termination for convenience has been superceded, but the part about consideration is still good law ▪ the contract was a requirements contract for grounds services for the Navy and it was entered into through sealed bidding. The government hired someone else to do pest control because Torncello’s price was high. Torncello went to the CO who denied their request. ▪ Torncello appealed to the ASBCA, who ASBCA said it was a constructive termination for convenience, didn’t decide if it was a requirements contract. - College Point Boat: actions by a contracting party can be supported at any later date by any reason that could have been advanced at the time of the actions ▪ Torncello says that the ASBCA decision allows government to walk away from all contract obligations. Government says it was an indefinite quantity contract. ▪ held: the court says this was not an indefinite quantity contract without a minimum requirement because that is illusory and therefore it lacked consideration. To form a binding government contract, you still need consideration. So, this must be a requirements contract. This was not a termination of convenience because there were no unforeseen changed circumstances between signing the contract and the time of the purported termination. ▪ termination for convenience: - The doctrine arose out of the Civil War and it was extended into the peacetime context. - Eventually it was expanded into termination for convenience for exculpation (can terminate whenever). - This court overruled the broad ability to terminate and said there must be changed circumstances. A contract that is able to terminate at any time lacks consideration. ▪ where contract terms are ambiguous, use the consideration requirement to clear up the terms

Algonac Mfg. Co. v. United States, Ct. Cl., 1970 (p.544) ▪ Algonac did some work for the US, with armored plate provided by the government. Afterwards, there was extra armored plate and Algonac wanted the government to pick it up. The government sent some forms with questions about storage, but they never came. Algonac continued for 10 years. The CO then made a finding that the armored plate was abandoned. So, Algonac wanted storage payment. The C”O refused. Algonac went to the ASBCA, but they said they didn’t have jurisdiction. Appealed. ▪ held: Based upon the conduct of the parties and the provisions of the contract, the court found a contract implied in fact to pay for storage. (The contractor had to keep it or they would be liable and the government inquired about storage). ▪ implied in fact: conduct of the parties is such that a contract was implied ▪ implied in law: a contract is created for public policy reasons or equity

- The court does not have jurisdiction under the Tucker Act because the sovereign immunity waiver doesn’t apply to those - exceptionalism – don’t want courts to make up public policy about government contracts ▪ CFC no longer hears cases that went to BCA first

Hercules, Inc. v. United States, S.Ct., 1996 (p.553) ▪ Hercules made Agent Orange for government during Vietnam. A bunch of veterans got hurt and filed a class action. Hercules and others settled. Hercules wants to recover the settlement amount from the government under theory of implied warranty and indemnification. - government would be immune via Feres doctrine and discretionary function exception - no government contractor defense at time Hercules settled; would have worked ▪ held: The implied warranty argument fails because the Court found that the conditions were not such that the government would extend the implied warranty to 3rd party claims – the government is just warranting that the specifications will work. A promise to indemnify was not implied because there was no appropriation (ADA) for 3rd party tort claims. The CO would not have agreed to an open-ended indemnification. It could have been contracted for. ▪ This is exceptionalism: use of the ADA and lack of appropriation is unique to the government ▪ Algonac is still good law – the court found an implied-in-fact agreement (based on contract and circumstances), and here there was not one found (harder approach). - the court insisted, unlike Algonac, to say that it takes two sides to make an implied-in- fact contract ▪ Winstar: Schwartz has trouble with how these two cases are reconciled: there was no appropriation in Winstar either

United States v. American Renaissance Lines, D.C. Cir., 1974 (p.560) ▪ the government put out an IFB by telegraph (invitation in writing). ARL responded by telephone as requested (oral offer). The government accepted the bid orally (oral acceptance). The parties were eventually going to put the agreement in writing in a form contract. ARL breached the agreement and the government sued for the cost of cover (shipping, handling, storage, etc). The case went to district court because the US was the plaintiff. The district court sent the issue of whether an oral agreement is binding on an interlocutory appeal to the DC Circuit. ▪ The government says statute in question is for auditing (for recording the transaction to see what fiscal year it was entered). ARL says it establishes a statute of frauds for government contracts. ▪ held: government contracts must be in writing; oral agreements are not enforceable. The court finds for ARL and says that there must be mutuality. If the writing requirement was one- sided in favor of the government, then the government would always be able to get out of oral contracts and that is not consideration. Also, the blank form shows that there was going to be final written agreement and complex transactions favor written agreements. ▪ this doesn’t apply to implied in fact contracts; the part that is implied need not be in writing because that would eliminate all such contracts

B. Competition Policies

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 34 10 USC § 2304 –Competition Requirements of ASPA (military provision) (p.574) 41 USC § 253 (civilian provision) All of these provisions have been amended by the Competition in Contracting Act of 1984 ▪ (a): must have full and open competition - “Full and Open” (F&OC) is defined by the OFPP – a system of acquisition in which all responsible sources are permitted to participate - in US law, there is a question of whether or not to use competitive procurement o YES: the statute creates a presumption that you need it, but there are exceptions o NO: the exceptions are in subsection (b), (c), and (g) - what kind/procedure for F & OC? o (2)(A) Sealed bidding and (2)(B) competitive negotiation o There are other specialized procedures - inherent tension: F&OC and closed procedures to ensure competence ▪ (b): small business provisions ▪ (c): exceptions from the competition requirement - not a total exception to competition: still need to use as much competition as the circumstances permit (not sole source procurements) - (1): when the good or service is available from only one or a few responsible sources and there is no acceptable substitute - (2): partial exception for emergency procurements o (e): still need to do as much competition as there is time for o (f)(5)(A): can’t use this when there has been poor planning - (3): it is essential to target the award to a particular contractor o makes it legal to alternate contracts between two sources to keep companies viable (government has an interest in keeping more than one business alive to make the product) - (4): accommodates treaties and int’l agreements that require use of other procedures - (5): when there is explicit statutory authorization for name brand product - (6): can limit number of sources solicited to protect national security o (e): still need to seek as many sources as consistent with national security - (7): when it is in the public interest and Congress is informed in writing 30 days before the contract is awarded; justification must be explicit o amended in 1984: added competitive negotiation and fewer exemptions. Still, they knew that there would be unforeseen circumstances, so (7) is a catchall for anything missed that needs less competition. ▪ (e): despite exceptions, offers must be sought from as many sources as possible in the time available ▪ (f): Justification requirement – requires contracting officers to prepare written justification for using an exception and to get approval for use of other-than-competitive procedures - as the dollar amount of the contract increases, the approval must be secured at higher levels of authority - the justification must (1) I.D. the exception, (2) explain reason, (3) show that the cost will still be fair and reasonable despite lack of F&OC - the justification must be made public under FOIA ▪ (g): simplified application procedures (SAP) - an attempt to deregulate some aspects of government procurement - special provisions that simplify procedures for contracts below certain dollar amount thresholds (e.g. 100,000 and $2,500).

Globalization: the terminology and structure is different from the rest of the world. They all have three types of bid procurement (competitive, semi-competitive, and non-competitive). The “annoying” thing is that they call non-competitive procurement: negotiated procurement.

Deregulation: The government has been interested in deregulation, but now that seems to be turning around because of abuses with government credit cards. ▪ SAP –struck a deal; made special rules for small purchases and large purchases - below certain thresholds, the contracting officer doesn’t need to follow these rules - at a certain amount, no rules need to be followed - the abuse will never really go away ▪ simplified procedures for commercial purchases also – exceptions to TINA that we will see later

Matter of Public Sky Supply, Inc., Comp. Gen., 1987 (p.579) ▪ this is a bundling case (lots of parts in one contract) and a duration-of-the-contract case ▪ The Air Force awarded a 5-year requirements contract to Allison for aircraft parts. Pacific Sky is an interested party who protests for violation of the CICA: no qualification standards, term is too long and anti-competitive, and it violates synopsizing requirements. AF claims it was justified because at the time of acquisition no other supplier was approved to provide each of the 294 parts. Also, there was a line-item deletion clause that allowed breakout procurement to get new sources. ▪ rec: sole source procurements are scrutinized; there must be a reasonable basis for the stated needs (deferential). Here, AF provided no justification for bundling all 294 parts, except convenience of the contracting officer, which is not enough. Also no justification for the long term of the contract; it is non-competitive. Admitting that there may be other competitors in the next 5 years just weakens the argument for having such a long contract (non-competitive). ▪ standing: Pacific Sky is an interested party (zone of interest in district court does not always cover bidders who never bid in sole source procurements) ▪ standard of review: GAO says it is deferential; but are they really? ▪ administrative convenience of the contracting officer in the procurement process is never enough, but administrative convenience of the agency can be enough to violate F&OC

Protest of Memorex Corporation, GSBCA, 1985 (p.584) ▪ government held a competitive negotiation for disk drives for DLA computers. Memorex objects because it says the performance specifications were too restrictive and impermissible. Memorex took the protest to the GSBCA (special computer status). ▪ held: the standard of review is de novo. A specification violates F&OC when it is an unreasonable and unnecessary restriction on competition (burden supposed to be on protester). The R+ requirements were not acceptable because it was a third party standard and it was made an absolute criterion of eligibility (abdicated all discretion). The cache storage requirements were fine – the protestor didn’t establish that the DLA was unjustified (and DLA allowed those without cache to compete with a penalty imposed – not an absolute bar). ▪ Schwartz: that one reason GSBCA lost special jurisdiction because they showed no deference ▪ There is a real difference between making something an evaluation factor and making something an absolute that will lead to disqualification

Ways to Get Around F&OC (unless abused)

▪ Change orders used to enhance scope of work under previously awarded contract - (effectively sole sourcing) ▪ Sole source procurement: ▪ Orders above the minimum under indefinite quality contracts (a kind of sole sourcing) ▪ Restrictive design and performance specifications that limit field of competition ▪ Extension of contracts, renewing leases, etc. ▪ Restrictive responsibility determinations ▪ Use of bundling and long term contracts

Comparative Law Note on Specifications (p.618) ▪ specifications used to limit competition may burden foreign competition ▪ EU: member nations must state specifications in European standards, not national standards ▪ GPA: member nations must use available international standards when available

Procedures for Sealed Bidding How to do a Sealed Bidding – 10 USC § 2305 ▪ Invitations for bids (IFBs) are part of the process of sealed bidding ▪ preparation - agency must specify needs in a manner designed to achieve F&OC - specifications should be stated in terms of function, performance, or design reqs - solicitation must state all significant factors used in evaluation and importance of them - synopsis of solicitation must be published first - IFB mailed out to prospective offerors o It is an invitation to deal, not an offer o Typically contain all the terms of the contract ▪ evaluation - agency must make an award solely on factors specified in solicitation - all proposals can be rejected if agency so chooses; not committed to making award - sealed bids: o must be opened publicly o award must be made with reasonable promptness to most advantageous contract, considering only price and price-related factors o award made to lowest responsible bidder whose bid is responsive - competitive negotiation: o ultimate criterion is “best value”: responsible and advantageous, considering cost/price and the other factors in the solicitation - unsuccessful offeror can request a debriefing on why they lost

Maxim of procurement procedures: the government has to say what it is going to do in the first place and then do what it said it was going to do

In the matter of Comnet, Comp. Gen., 1975 (p.606) ▪ the government agency was buying a data processing system for NOAA. The government issued one solicitation and got some bids, but they cancelled the bid because the specifications were inadequate, as pointed out by Comnet. The agency issues a new solicitation, Comnet protests.

▪ Claim: The IBM 370/158 or equivalent requirement restricted competition because there were no specs on what the equivalent would be. - rec: not proper because the item desired should set forth the characteristics which are essential to the needs of the government, Comnet may be able to comply. ▪ Claim: The Tektronic software requirement restricted competition because it was a brand name and an equivalent would be just as good - rec: too specific by using brand name, no opportunity for equivalent ▪ Claim: The priority reset requirement restricted competition because any economic loss would be made up with the saved cost (its like having power windows instead of manual). - rec: administrative convenience is okay (people performing), but convenience of CO is not ▪ Claim: 1 bid was stamped with confidential – so the transparency that is needed was not present - rec: removing stamp is not enough – two bites at apple – after seeing bids they can decide not to keep bid, keep stamp; decide to stand by bid, take off stamp. ▪ agency’s have the right to reject all the bids

C. Alternative Procedures

▪ 1984 Competition in Contracting Act: Congress authorized federal agencies to choose between two forms of competitive procurement: sealed bidding and competitive negotiations. - competitive negotiation: an alternative means of competitive procurement - pre-1984 was too restrictive (only one way) and too lax (too many exceptions) ▪ 10 USC § 2304: must use sealed bidding or competitive negotiation unless an exception is met

1. Sealed Bid Contracting

How to do a Sealed Bidding – 10 USC § 2305 (see above) When to do a Sealed Bidding – 10 USC § 2304(a) ▪ (1)(B): shall use that which is best suited to the procurement ▪ (2)(A): should use sealed bidding when: - time permits - the award is based on price and other price-related factors (as opposed to quality factors) - it is not necessary to have discussions with offerors - there is a reasonable expectation of receiving more than one sealed bid ▪ (2)(B): should use competitive negotiation when sealed bids are not appropriate ▪ an agency still has a lot of discretion because there is no mandate of when to use price-related factors, so competitive negotiation can be used if non-price-related factors are used - if they do, they must build a foundation for that choice by laying out what the evaluation factors will be and how they will be used

FAR § 14.406-3: a bid may be withdrawn because of a mistake by the offeror embodied in the bid even after opening if the evidence “reasonably supports the existence of a mistake.” ▪ if you can show a mistake that should have been obvious to government, the you can withdraw your bid (Refining Assoc)

▪ permission to correct a bid is viewed with more skepticism: must show by clear and convincing evidence that an error occurred, how it occurred, and what the intended price was

Refining Associates v. United States, Ct. Cl., 1953 (p.623) ▪ RA thinks it is not liable for breach because under private contracts you can revoke before acceptance. Government says that doesn’t apply to government contracts. Government claiming difference between what they paid and contract price with plaintiff. ▪ held: when an offer is submitted in government contracts, the offeror cannot revoke the bid after the opening of the contracts. Unless there is clear evidence of mistake, there is no injustice in holding the bidder to the conditions in the IFB. ▪ consideration: The consideration for the bid is that the government will treat the bid fairly (Heyer Products). But, when the regulations are clear, the government doesn’t need to have consideration. Here the regs said the bid could be withdrawn only before bids are opened. ▪ this case is a good example of exceptionalism at work

Prestex Inc. v. United States, Ct. Cl., 1963 (p.630) ▪ government wanted some white cloth and sent out an IFB. They rejected both as too high and got the same two back. Prestex was the lowest bid, but they included a sample and said the bidding was on the enclosed sample. The sample, after testing, was found to deviate substantially and was rejected. Plaintiff already made the product in entirety. ▪ The government says there was no contract and they don’t owe anything. Prestex said there was a contract on their terms. ▪ held: the contract awarded must be the contract advertised and, if it is not, the government is not bound since the contracting officer cannot bind the government beyond his actual authority (unfair to other bidders). Bid must be responsive (small deviations okay). Here it was not. ▪ Substantial deviations (price, quality, quantity) are not fair to other bidders who bid higher, but conformed to better quality. ▪ Sometimes the government has to give relief when there has been unjust enrichment, but here the government didn’t accept the goods. ▪ exceptionalism here, but congruence could reach the same result - no meeting of the minds

2. Competitive Negotiation

Procedures for Competitive Negotiations – 10 USC § 2305(b)(4) ▪ agency must first produce a source selection plan: develop criteria and procedure to be used ▪ RFP – request for proposals - must lay out criteria in the RFP and stick to them o there are detailed requirements about the criteria o if the agency wants to change criteria, they must start over - proposals are not available to the public; the agency has a proprietary interest in the solution (unlike sealed bidding) ▪ Decision to make award - proposals evaluated: o merits assessed under criteria previously determined o non-responsive bids are not rejected because the RFP is usually vague and lacks specificity, so there can be discussions

o can make an award on initial offer (if reserved right in RFP) or go forward with discussions and negotiations - If negotiations are going to happen, the agency must narrow the competitive range and see who is left standing o 1996 Clinger-Cohen Act (Far part 15): you can artificially constrict the competitive range for competitive efficiency, even throwing out realistic contenders (RFP must give notice of this) o first, find all the highly-rated proposals; then, winnow this group further - after restricting the competitive range, negotiations continue o all parties get chance to make a final proposal revision; also known as “best and final offer” – BAFO - best value standard is used one the final proposals are received o must be responsible and advantageous (cost/price and other factors) o evaluation criteria is a standard like responsiveness, but criteria are not pass/fail

Matter of Essex Electro Engineers, Comp. Gen., 1986 (p.638) ▪ Essex protests the terms of a solicitation for 24 electric generator sets (prospective bidder), alleging that it did not use sealed bidding as required and the evaluation criteria lack specificity required. The solicitation said the proposals would be evaluated on overall lowest price and a pass/fail evaluation (go, no go) of technical criteria. ▪ The Army says competitive negotiation was used because their technical personnel needed discussion concerning the understanding of the technical proposal. Essex disagrees and says that the Army could have uses a pre-award survey to accomplish negotiation of terms (survey used to determine responsibility). ▪ rec: the pre-award survey is used to determine financial and resource capabilities, not for negotiation. Negotiations go through the contract terms and define and frame them. The CG uses a deferential standard of review – don’t question method used unless it is unreasonable (business judgment of the contracting officer). Protest denied. ▪ if an agency says a small business is non-responsible, SBA gets the last word - competitive negotiation: can put responsibility into selection criteria because SBA doesn’t get to second-guess the agency judgment

Matter of Racal Corp., Comp. Gen., 1990 (p.643) ▪ Army using competitive negotiations to get gas masks. Racal says they should have used sealed bidding. The RFP sets out price and other price-related factors. Army said they needed discussions to make sure the solicitation is understood (proves too much) and for convenience because there might be changes (also proves too much). ▪ Held: Here, Army was choosing on price, not a technical proposal, so discussions were not necessary. Negotiated procedures are okay where there are technical proposals, but not when it is for understanding of routine matters. The risk for change is always present and does not justify competitive negotiations. ▪ standing: “I would have bid differently” approach

*** strongest justification for competitive negotiation is necessity for discussion when a technical proposal is given and there is a rating system (“go, no go” is not as strong)

Comparative Law Note Regarding Procurement Procedures – (see chart, Volume II) (p.651)

▪ be able to describe aspects of the US procurement system that would qualify under EU and GPA ▪ EU: not binding on US - open tendering, restricted tendering, negotiated procedures (non-competitive) o open tendering: any interested party may bid for contract o restricted tendering: competition only between those invited to participate - there is a lot of discretion in choosing between open/restricted, but there are strict rules that limit the ability to use the negotiated procedures o see wavy line, double lines on chart - restrictive tendering would not be allowed under F&OC in the US o gives almost complete discretion to select invitees, no genuine competition - open tendering would be allowed under F&OC in the US o open tendering is broader than sealed bidding: allows a choice between two selection criteria: lowest price or best value . lowest price is the default o open tendering is not readily comparable to competitive negotiations either because that type of negotiation isn’t likely permitted in open or restricted procedures - negotiated procedures restrictions are similar to F&OC exceptions o EU list is more extensive o A written justification must be presented, not published like in US (FOIA) o Restrictions less meaningful in EU – can still use restrictive tendering ▪ GPA: binding on US - Open tendering, selective tendering, limited tendering o Limited: non-competitive procedure – like exceptions to F&OC - There is a lot of discretion in choosing between open and selective, but sharp restrictions on limited tendering (like EU, see wavy, double lines) - open tendering would be allowed under F&OC in US o uses lowest price and best value criteria (like EU) o Competitive negotiation would be a legit form of open tendering under GPA . Can use them if reserve right in solicitation or if no solicitation is obviously the most advantageous - selective tendering would not be allowed under F&OC in the US o can (1) use lists of previously established qualified bidders or (2) qualify/select bidders on a procurement by procurement basis (latter is like EU) . (1) would be impermissible pre-qualification device . (2) would frustrate F&OC o GPA makes more of an effort than EU to make it competitive: bids must be invited from max number of suppliers - Limited tendering restrictions are similar to F&OC exceptions o Similar to EU list o limited ability to use the wholly-non-competitive kind of procurement is good for us, because if it was more restrictive than the statute, we’d have to follow the treaty (complying with US law is not violating the limited section)

D. Qualification

Qualification Terminology

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 41 ▪ suspension, debarment, and de facto debarment: - involve a determination that based on past conduct or performance a given contractor out to be generally ineligible to receive government contracts - suspension: an interim remedy - debarment: disqualified from government contracts permanently - de facto: actions that have the practical effect of debarment o court label: agency should have followed debarment procedures ▪ responsibility: - determination is specific to the particular procurement - involves present capability/eligibility of contractor to perform particular work ▪ pre-qualification: - intended to make it possible to make a generic determination of responsibility and capability to perform a particular class of contract in advance (winnow field) - legally controversial: undermine F&OC

▪ Generic v. Contract specific refers to what happens to the contractor Consequences  Generic Contract-specific

Standard based on Past (bad) conduct Suspension, debarment, de facto Criminal prosecutions or civil debarment fraud Present Capability Pre-qualification (almost always Responsibility illegal in the US because it restricts F&OC)

1. Debarment and Suspension

Suspension and Debarment ▪ suspensions/debarments  represent blanket determinations of non-responsibility ▪ agencies have inherent authority to not to business with people they think are unsuitable - don’t need express statutory authorization; implicit in mandate to award contracts only to award contracts to responsible bidders ▪ Part 9.4 FAR: procedures for suspension and debarment - debarment from government contracts is executive-wide - central registry lists all the debarred contractors - notice must be given; usually 30 days to respond - oral argument provided; evidentiary hearing not required if debarment is based on criminal conviction - not the responsibility of the CO, but a debarring official o CO must deny award to a debarred contractor (non-responsible) ▪ three basic categories: 1. criminal conviction or civil judgment (fraud) 2. history of contract violations 3. any cause of a serious and compelling nature that affects responsibility ▪ debarment: must be for a determinate period of time (not more than 3 years) ▪ suspension: based on pendency of investigation that may lead to debarment - can be triggered by indictment or adequate evidence

- limited to 12 months (can extend to 18) ▪ judicial review in district courts under APA – deferential standard of review - challenge to a final agency action (also de facto debarments)

Gonzalez v. Freeman, D.C. Cir., 1964 (p. 656) ▪ the government temporarily suspended Gonzalez because he was being investigated for misuse of inspection certificates. Gonzalez challenged the suspension in district court - suspension, debarments and de facto debarments are litigated in the district courts under the APA ▪ Gonzalez argues the debarment was not authorized by statute, regulation, and violated due process (the government didn’t allow the agency to be heard, no notice given, etc.). ▪ held: agencies are allowed to debar someone; it is necessary and inherent to government contracting. In order to debar a contractor, the agency must give notice about charges, make record, give opportunity for cross, etc. (unless you’ve been convicted of fraud or criminal charges). The debarment is invalid: no hearing, no evidence recorded, no findings made. ▪ reverse congruence: the government is saying they should have same rights as a private contractor to do business with whom they choose. - congruence helping government here, can debar, but must have procedures - when exceptionalism helps the contractor  government contractor defense. ▪ court interpreted APA to find that agency must have procedures for debarment. That analysis no longer applies because the FAR now requires such procedures. The general point still applies.

2. Responsibility

▪ Responsibility requirement: makes sure the government doesn’t give contract for a cheap price to someone who cannot do the work - Responsible = capable of doing the job (describes bidder) o Burden of proof on the bidder to show they are responsible - Offer must be responsive = it satisfies IFB requirements (describes offer)

Responsibility ▪ there isn’t a lot of procedural protection or judicial review available, unless you are a small business or there are due process aspects ▪ CO must make an affirmative determination of responsibility before contract awarded - burden on contractor - CO does have some duty to make an investigation ▪ CO cannot look past responsibility because of a low price - responsibility is a pass/fail factor in evaluation ▪ must be able to do the work or show you can get it - have the contracts or sub-contracts in place ▪ special rules for small businesses - if there is a determination of non-responsibility, the SBA gets is - the CO must follow the SBA determination

Comparative Law Note on Responsibility

▪ EU: they do responsibility check first, of all the offerors (presumption of non-responsibility), unlike in the US where we give the presumption that the contractor will be responsible ▪ range of selection criteria are similar ▪ EU – award criteria must relate to the product/performance rather than the contractor; can’t use responsibility criteria as evaluation factors (no overlap)

Matter of SAFE Export Corp., Comp. Gen., 1983 (p.672) ▪ SAFE submitted the lowest bid, but the government found that SAFE was not responsible and awarded the bid to someone else. The CO asked an Army agency about SAFE and got some adverse information; he rejected SAFE without notice. They say that the CO failed to consider the pending appeals, overlooked the satisfactory performances, and should have looked to more than one source. SAFE protested to the Comptroller General (bid protest). ▪ held: there is a lot of discretion given to the contractor in making the responsibility determination (deferrential). The contractor must show bad faith or lack of a reasonable basis.. There can be two opposite conclusions reached from the same set of facts. There is no obligation to look to other sources unless the contract is for more money or the source didn’t have a lot of experience. ▪ this is true deference ▪ there are two things that make a difference on responsibility determinations: dollar amount of contract and amount of experience that the source has with the contractor

What if the contractor is a small business?

Matter of JR Youngdale Construction Co., Comp.Gen., 1985 (p.676) ▪ JRY is a small business; allege that the CO ignored the SBA determination that they were responsible. JRY was the lowest bidder, but the CO didn’t want to give them the contract because they did a poor job on their last 7 contracts. JRY appealed to the SBA – regional office issued a COC (certificate of competency) and told the CO – the CO disagreed and challenged to the central office. The central office didn’t have time to review, CO gave an extension, and they approved the COC before the extension time was over. ▪ held: The CO should not have given them the extension to begin with (then he could have not heeded their COC), but once the COC was issued the CO must follow it. The CO cannot disregard a COC decision because of concern over how they reached it. The SBA has conclusive authority in this area. ▪ this case reminds us that we should make the competition a competitive negotiation with responsibility criteria used as evaluation factors (SBA can’t touch that).

Judicial Review of Favorable Responsibility Determination in Bid Protest ▪ when contractor challenges a non-responsible determination… - that is an award protest and review is available in forums where disappointed bidders may bring bid protests ▪ more difficult when contractor alleges that a competitor was erroneously determined responsible: - Keco II: presumption against claim; deferential standard of review o CO has a lot of discretion

o Agency has incentive to watch out for its own interests (deference) o Under Heyer Products, must find bad faith (tough burden) - challenging responsiveness is not as hard ▪ post-1996 Tucker Act: - Impresa: Fed. Cir. declined to follow Keco II - Standard of review is governed by APA; don’t need to show breach of implied contract like in Heyer Products - CO still has broad discretion

Old Dominion Dairy Products v. Secretary of Defense, D.C. Cir., 1980 (p.685) ▪ ODDP sells milk products to the military. They were audited and irregularities were found. While bidding for another contract, the CO saw this and found them non-responsible. This happened with another contract at almost the same time. ODDP was the highest bidder on both. The CO gave them no notice. ▪ ODDP argues there was no rational basis for finding them non-responsible and that there was no due process in the procedures (de facto debarment). ▪ held: there are due process limit on responsibility determinations. Contractor can be stigmatized by such a decision and go out of business. The contractor must be given notice of the charges opportunity to respond. The court uses a deferential standard of review – says there was a rational basis on merits, but due process was violated by procedures. ▪ notice and opportunity to respond  doesn’t need to be a judicial hearing ▪ de facto debarment argument: no decision, but court says that the determination was close enough to one that there was more required in the way of notice. ▪ due process: corporations have a protected liberty interest - there was an injury because of the sudden loss of business and the risk of going out of business (need recurrence, stigmatization and economic injury) - there was not sufficient process available – subsequent procedures were inadequate ▪ remedy: award not set aside, remanded to see if any proceedings have cured constitutional defect 3. Pre-Qualification

Pre-Qualification - 10 USC § 2319 ▪ controversial: restricts F&OC - American law is hostile to this – lots of limits and great incentive for not using it ▪ provisions designed to restrict use of pre-qualification devices - must be justified in writing - must be least restrictive means available - must be able to add on contractors at the last minute; give chance to qualify o must be open rather than closed and absolute rather than relative - feed back must be given on why a contractor didn’t qualify ▪ might as well not bother

Comparative Law Note on Pre-Qualification (p.710) ▪ argument that US law fosters competitive process more by not winnowing the field until after the award criteria have been applied (EU does it first) ▪ EU tolerance for unregulated use of restricted tendering procedures, and GPA use of selective tendering seriously restrict competition. In sharp contrast to hostility in US to pre-qualification.

Multiple Award Schedules (p.711) ▪ device that exists in tension with competition policies and consideration requirement - awards umbrella contract to multiple vendors of comparable products and services at varying prices and then creates a “supply schedule.” - Agencies must order from the supply schedules even if they can find a comparable product for less. - subset of Federal Supply Schedules; created by GSA ▪ the pretense is that the schedules represent the actual award of a contract: - not a selection of a preferred group of contracts - awarded when you get on the schedule ▪ under a MAS, there are no requirements (23 vendors approved to sell pencils) – so why is there a contract? This sounds like pre-qualification! - Schwartz thinks this is pretty much pre-qualification o Some minimal requirements, but really just nominal amounts o No one appears to have standing to litigate this – those off the list might think they are illegal, but they want to be a part of it don’t want to upset the agencies o Tax payers don’t have standing either - Congress knows this is going on and doesn’t do anything about it

In the matter of Dep’t of Agriculture’s Use of Master Agreement, Comp.Gen., 1975 (p.702) Facts: Here the Dep’t of Agriculture asked for a decision concerning the propriety of a procedure resulting in solicitation of offers from predetermined classes. Holding: The CG finds this impermissible because it is unduly restrictive on F&OC. Sometimes these devices are okay but this is too restrictive.

Pre-Qualification Devices OKAY NOT OKAY Those that deal with absolute qualification (those Those that deal with relative qualification (those kept off the list just can’t do the work) kept off the list may be able to do the work) List open to potential responsible contractors List closed to potential responsible contractors Compelling justification No compelling justification

E. Types of Contracts

Contract Requirements ▪ competitive negotiation contracts can be of any type which the agency decides will be in the best interest of the government ▪ BARRED: cost-plus-a-percentage-of-costs system of contracting

Sealed Bidding Fixed Price Competitive Negotiation Cost Reimbursement

There are different contract types based on method of payment ▪ Fixed Price - the basic rule: sealed bidding must produce a fixed price contract (48 CFR § 16.102)

o otherwise, it wouldn’t make sense to award contract to lowest price - these include firm fixed price and fixed price with economic price adjustment - don’t need to be audited - payment occurs at completion ▪ Cost-reimbursement contracts: there are variations (FAR 16.3) - get costs back after audit and determination that cost can be reimbursed (FAR 16.301) - these contracts encourage diseconomy; audit helps to counter inefficiency - payment occurs in periodic payments - cost-plus a percentage of cost (CPPC) o illegal: ripe for abuse . there is a strong incentive for cost overruns (get more money) and a disincentive to keep costs down o government and tax payers are the only ones protected by this prohibition, so the competitor doesn’t have standing to challenge in district court - cost plus fixed fee (CPFF) o Allowed as long as the fee percentage is not too high (usually 10% of cost) - cost plus incentive fee (CPIF) o like CPAF, designed to increase incentive to keep costs down by shifting benefit of cost savings to contractor - cost plus award fee (CPAF) ▪ Requirements/Indefinite Quantity Type

Risk Allocation (p.721) ▪ COs have a lot of discretion to choose between a fixed price and cost-based contract - not going to see this raised in a bid protest – no effective judicial review - choice of contract is related to cost of performance and allocation of risk o use fixed price where cost of performance is foreseeable and risk is low; use cost-based where cost of performance is highly uncertain and risk is high o with fixed price contracts, if the risk and uncertainty is too high, then you get little or not competition or very high prices (self-insure from a big cost overrun) ▪ Congress gets involved every once in awhile; tries to push fixed price contracts

Urban Data Systems, Fed. Cir., 1983 (p.722) ▪ contract between SBA and GSA. SBA sub-contracted to UDS. The price terms were CPPC contracts: one gave a 10% profit to actual costs and one gave costs plus 5%. ▪ held: for 10%, contractor has incentive to increase costs. For 5%, contractor has incentive to incur costs within 95% of original contract price (less motivation to do good work). Anything that creates these types of incentives is bad. ▪ small business are not exempt from these requirements ▪ review of no estoppel against the government for using terms: - pre-Richmond, but still no estoppel - no profound or unconscionable injury (no affirmative misconduct) ▪ review of Amdahl: Board said the contracts were void ab initio as CPPC

Criteria for determining whether a contract is a CPPC contract (p.721): ▪ payment is on a predetermined percentage rate; ▪ the predetermined percentage rate is applied to actual performance costs; ▪ the contractor’s entitlement is uncertain at the time of contracting; AND

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 47 ▪ the contractor’s entitlement increases commensurately with increased performance costs

Auditing Authority ▪ 41 USC § 254b and 254d create three types of auditing authority: - agency auditing authority - GAO auditing authority - TINA auditing authority

Agency Auditing GAO Auditing TINA Auditing Authority Authority Authority

Who has the Procuring Agency GAO Procuring Agency authority? Authority to audit cost-based or cost- Those produced by Those subject to TINA: produced by which contracts? reimbursement “other than sealed “other than sealed bidding” and meet contracts bidding” - fixed price threshold of 500k price or cost-based Statute granting 41 USC § 254d(a) 41 USC § 254d(c) 41 USC § 254b authority (1) Types of records No limiting language “Directly cost and pricing data; all factors that pertinent” records – would reasonably affect price at time See Bowsher of negotiations (must ask up front) Exceptions to submitting cost and pricing data under TINA: (1) adequate price competition; (2) prices fixed by law or regulation; (3) contracts for acquisition of a commercial item; (4) or exceptional situation where agency determines it should be waived and provides written justification

TINA: contractors hate this – exceptionalism at its worst form ▪ when defective or inaccurate data is given: the prices can be readjusted or there are False Claims Act and fraud liabilities

Bowsher v. Merck, Inc., S.Ct., 1983 (p.741) ▪ contract entered by negotiation; fixed price based on the commercial catalogue price (GAO auditing authority). CG wanted all direct (manufacturing, overhead, delivery) and indirect costs (marketing/promo, research/development, distribution, administrative). District Court says GAO can audit direct records, but not indirect records. ▪ what does it mean to be a “directly pertinent” record in a fixed price contract? ▪ held: CG can access direct costs but not indirect costs. Court looks at legislative history and finds that Congress did not want unrestricted snooping or privacy violations. Also, there is no problem with Congress compiling info that it lawfully obtains, don’t need statutory authorization. ▪ Supremes split: two say that the cost is not at issue so only catalogue price should be given; two say that all records should be given because indirect costs are defrayed through these contracts. ▪ extended GAO auditing authority: - cost reimbursement contracts: agency can get all information that bears on costs - fixed price contracts: agency can get only direct, and not indirect, cost information

▪ pre-Chevron cases have stare decisis effect even though they didn’t defer to the agency (Chevron: agency deference on ambiguous statute interpretation) - Congress has essentially ratified the Merck decision when re-codifying the statute by not changing the language ▪ Blackmun: nothing is directly pertinent if it is a fixed price contract

F. Collateral Socio-Economic Policies

Introduction ▪ controversial: some people get helped by them and some people get hurt by them ▪ no definitive decision in this area by the Supreme Court

Types of collateral socio-economic policies ▪ small business preferences - certain contracts are restricted to small businesses ▪ preferences for disadvantaged business owners - constitutionality continues to be debated ▪ domestic preference policies - increasingly trumped by international trade agreements ▪ equal employment opportunity policies - sanctions: contract cancellation and debarment ▪ labor standards - Davis-Bacon Act: construction contracts of over $2K for work on a public building must specify that the minimum wage will be paid to contract workers. - Walsh-Healey Act: contracts over $10K must pay workers the minimum wage, no employee work more than 40 hrs a week, and no convicts or workers < 16 - Service Contract Act: for contracts over $25K, contractors must pay min. wage, fringe benefits with a 5-year limit and new wage determinations every 2 years - ▪ two kinds of policy and legal issues: - Problem one: are they worth the trade off? (best value for the government and preventing fraud, favoritism versus slave or child labor, etc.) o both republicans and democrats have different views – no legal analogue o Reich: dealing with Clinton’s executive order to prevent hiring permanent workers in economic strikes – invalid under NLRA o Republican Version: Allbaugh . Executive order from Bush which bans use of pre-hiring agreements in federally subsidized contracts (method of paving the way for unions – must pay union dues to work under a certain contract) . Clinton repealed the order, Dubya reinstated it, the district court struck it down citing Reich and the court of appeals reversed. o Democrat version: Clinton Responsibility Rule . effort to put more pressure on employers to follow labor, other policies . Collateral consequences for having a bad track record - problem two: is it fair that government contractors are subject to dual regulations? o Are there some things that taxpayers just don’t want their money spent on, thus justifying dual regulations? o Legal analogue in Reich

D:\Docs\2018-04-08\0f5f0b659a26f69c07eb967909988819.doc Page 49 . Constitutional claim: non-delegation – that claim almost never wins . We have a long history of doing this…Reich mentions some examples . Reich didn’t decide that issue…NLRA trumped the executive order

Chamber of Commerce v. Reich, D.C. Cir., 1996 (p.761) ▪ NLRA: employer cannot hire permanent striker replacements in a strike for working conditions, etc; but can hire permanent striker replacements in a purely economic strike. ▪ Clinton tried to bar use of permanent striker replacements in economic strikes. The NLRA allows such a thing, but doesn’t require it. ▪ held: under procurement statutes the government doesn’t have to deal with certain contractors and can restrict those who hire permanent striker replacements – broad approval of use of this authority. However, the executive order conflicts with the NLRA ( policy of allowing contractors a choice), so the executive order is a back door regulation. The court says the government is not acting as a market participant here, but acting as a regulator (hard to distinguish when the line is crossed – courts says it’s an objective test of how it affects the world). ▪ Schwartz thinks the sheer number of people who would be affected by these regulations pushed the court over the edge into thinking the government was acting as a regulator. ▪ Allbaugh: no NLRA pre-emption because government was acting as a market participant - regulation was within government’s authority under procurement act ▪ government’s real motivation at issue: - Clinton: best value for the government: quality of products/services will be affected - Other side: this is a pay-off to the unions and is a matter of labor policy

Clinton Responsibility Rules ▪ broad attempt to have collateral dual regulations: no contracts if contractor had a bad reputation in certain areas…leads to non-responsibility determination - changing responsibility regulations o Clinton would say its “front door,” not back door o others would say you get onerous penalties for violating rules that already have their own penalties in the statutes ▪ Bush suspended them indefinitely - government contractors hated these regulations - there were several cases pending until it was suspended Comparative Law Note on Collateral Socio-Economic Policies (p.773) ▪ all other countries have problems with collateral socio-economic policies as well - protection of domestic suppliers ▪ EU/GPA rules: can’t discriminate in favor of domestic firms - so countries write rules that don’t look like they favor domestic firms in form, but do in practice (contracts favoring rural, poor areas would help Sicily and not Rome).

IV. Administration of Government Contracts

A. General Approach to Contract Interpretation

General Approach ▪ try to write contracts without ambiguities that prepare for any contingency ▪ government drafters have the advantage of repetition

- not always effective: impossible to foresee everything; not always cost-effective ▪ Part 52 of the FAR: library of standardized contract clauses - Christian: if you forget a standard clause, it’s still read into the contract - Interpretation problem: court looks to judge-made federal common law after the statutory and regulatory alternatives are exhausted o Clearfield, Kimbell Foods – there will hardly ever be a gap in federal law o Sometimes borrow state contract law (Wegematic)

Equitable Adjustment: ▪ get one when there is a: - compensable delay - change order - express/implied/constructive change ▪ a remedy that enables the contractor to seek additional compensation that is available under typical federal procurement contracts in a variety of circumstances that do not necessarily amount to a breach of contract by the government. ▪ Changing the contract is called “reformation of the contract” in regular contract law, but called “equitable adjustment” in GC law. It is more common in GC law.

Contractor’s Rights: ▪ delay, suspension  EA ▪ changes, constructive changes  EA

Government Prerogatives: ▪ termination for convenience (TFC) ▪ Inspection and acceptance ▪ termination for default (TFD) ▪ strict compliance

United States v. Wegematic Corp., 2d Cir., 1966 (p.777) ▪ FRB invited electronic manufacturers to submit proposals for a computing system; the invitation stressed early delivery. WC won the contract; a provision said that if WC failed to comply with any provision, FRB could get services from someone else and get excess cost from WC. WC delayed delivery several times and then ultimately cancelled the contract and asked that damages not be levied. Government sues to recover difference it had to pay to get equipment elsewhere. ▪ WC argues impossibility (too expensive to do). ▪ held: Here there is no federal case law on point. The court looks to UCC § 2-615 for law on impracticability (basic assumption). The court find that the assumption was that they would perform or pay damages, not perform within cost limits. The risk is on the contractor. They should have contracted out of risk, but here they expressly agreed to damages for this contingency. ▪ court looks to UCC, calls it the “federal” law of sales - essentially borrowing state law in this case because it had been widely accepted and is on its way to becoming national law - other alternative would be to create federal common law o Judge decides it is better to look to UCC than to make up federal common law as was done in Swift v. Tyson

o Better to go to UCC because of its uniformity . Kimbell Foods: uniformity was a factor

B. Contractor’s Rights

1. Delay

Excusable delay: those caused by “Acts of God,” provided that the cause was neither foreseeable nor the fault of the contractor (war, floods, fire, strikes, unusually severe weather, etc.) ▪ contractor should be excused from sanctions for late performance

Compensable delay: the delay caused by the government entitles the contractor to additional compensation (equitable adjustment) ▪ found in suspension of work clauses - (a) clause: power of CO to suspend for convenience of government - (b) clause requirements: o time of delay was unreasonable o delay was not contractor’s fault o delay caused by act of CO or failure to act ▪ delay: get extra cost, not profit (change order: get cost and profit) ▪ notice requirement: must give notice of delay and that the requirements are met - when tardy claim is brought, the contractor is time-barred to the first part of the claim (only get adjustment for 20 days prior to notice) - doesn’t apply with express suspension order, just constructive suspensions (delays) o with changes, it doesn’t matter what kind it is (express, constructive, oral) o need to give notice within 30 days that there is a change

Freuhauf Corp. v. United States, Ct. Cl., 1978 (p.783) ▪ FC was supposed to build a post office, but was delayed in starting and the working conditions were deplorable. The delays and problems were the fault of the other contractors hired by the government. FC incurred extra costs by having to hire additional people, fix other contractor’s problems, etc.; they want an equitable adjustment. ▪ held: contractor is entitled to equitable adjustment. The contractor was not at fault, there was an unreasonable delay, and the delay was not necessarily caused by the CO (controversial here), but the CO should have acted and it is clear it was for the convenience of the government. ▪ this seems to be an acceptable interpretation of the suspension of work clause: adding convenience factor of (a) clause to the (b) clause requirements

Hoel-Steffen Construction Co. v. United States, Ct. Cl., 1972 (p.798) ▪ HS contracted with the government to part of an arch. Other contractors were hired for other parts. HS claims it was unable to complete its work on time because the CO gave priority to the other contractors and demands an equitable adjustment. ▪ Government argued that HS didn’t file their notice of claim in writing in a timely manner. ▪ held: BCA had two notice requirements for constructive delay that they confused: (1) give notice of problem and (2) submit request for EA when you’ve figured out how much you’re entitled to. Court said you have 20 days to give first notice that there is a delay (no need to give cost).

2. Changes

Changes ▪ fundamental requirement: need a written change order - except when there is a constructive change - change must be within scope of original contract o contractor rarely objects to excessive change orders, will ask for more money o this really protects F&OC – don’t want infinite tacking on to an original contract for new goods and services without competition o would be outside scope if it evoked an entirely different field of competition o contractor must still proceed with performance of change; but can litigate later . see this in W.H. Edwards ▪ equitable adjustment covers additional costs AND reasonable profit ▪ requirement of timely notice for equitable adjustment - gives CO notice that changes has increased cost of performance - more difficult when there is a constructive change ▪ when EA decision is unsatisfactory, remedies are governed by CDA (BCA/CFC) ▪ changes can go either way and compensation can go up or down

W.H. Armstrong & Co. v. United States, Ct. Cl., 1943 (p.807) ▪ Armstrong contracted to build some officer’s quarters for the government. It submitted its bid after seeing the kind of bricks that the government would provide and making its price based on that. After a month of performance, the CO directed Armstrong to stop using the nice bricks and to use (and clean) the nasty bricks. The nasty bricks required cleaning and extra mortar (cost more). Armstrong protested to CO, who orally agreed to pay extra costs. ▪ issue: oral change orders ▪ held: where there has been performance based on reliance on an oral change order by someone with authority, the government must pay additional compensation ▪ the oral contract is binding because the CO had authority; if not, estoppel would not work and the contractor would be shit-out-of-luck.

3. Constructive Changes

Constructive Changes (820) ▪ not recognized by FAR Changes clause - gradually it has been accepted by government contracts law ▪ four categories of constructive changes: - (1) government incorrectly interprets contract, forcing contractor to perform more extensively or with more expense/difficulty o equitable adjustment for constructive change is alternative to liability for breach o additional compensation is incentive to continue performance - (2) Defective specifications or governmental nondisclosure o government misleads contractor as to nature/extent of performance o construction: special provisions for EA for differing site conditions - (3) Acceleration o there are circumstances for excusable delay, but government insists on on-time performance imposing additional costs

- (4) Lack of appropriate government cooperation in facilitating performance o government fails to take reasonably expected measures to facilitate performance ▪ notice requirements are not strictly applied (hard to give date) - duty to protest to CO so that he is made ware of circumstance - must give notice within 30 days of constructive change

W.H. Edwards Engineering Corp. v. United States, Ct. Cl., 1943 (p.807) ▪ Edwards contracted to do some rehabilitation work for the government. When makings its bid, it assumed all three boilers would be shut down. During performance, the contractor was told it could not, so it performed anyway and experienced delay. ▪ held: this was a misunderstanding that was not in bad faith on either side. Since the government drafted it, it is construed against them. Therefore, this is a constructive change where the contractor reserved its right to litigate, but performed anyway. There can’t be a written change order here because the CO denied there was a change, so none was needed, but the contractor must be paid for it.

C. Government Prerogatives

1. Termination for the Convenience of the Government

TFC first recognized in Corliss Steam Engine

Termination for Convenience - 48 CFR § 52.249-2 ▪ language is very broad ▪ may terminate, in whole or in part, if the CO determines that a termination is in the government’s interest (nothing to do with whether this is really in the government’s interest) - Krygoski: bad faith standard – can only look to see if CO really made the decision ▪ CO must give written notice to the contractor that indicates the scope of the termination ▪ contractors submits a TSP (termination settlement proposal) - if not approved, there is a dispute governed by Contract Disputes Act - the TSP triggers the CO’s obligation to make a decision ▪ contractor is entitled to compensation: - contract price for work completed and accepted - costs for work performed, unavoidable costs for work not performed - fair, reasonable profit for work performed o unless contractor would have taken a loss - NO anticipated profits for work not performed ▪ government never has an obligation to terminate for convenience (Wegematic) ▪ termination for convenience is what the government does when the award has been improperly made or the award wasn’t stayed as a result of a bid protest (Amdahl) - except when the contract is so flagrantly illegal (void ab initio) - termination: costs, plus profits for work done - void: market value of benefit conferred

Constructive TFC ▪ erroneous termination for default  termination for convenience - College Point Boat (Torncello)

- Termination for default v. termination for convenience o Default: stop work, if succeed in litigation, it will turn into a termination for convenience (only issue is whether or not in default) o Can’t fight about the termination ▪ wrongful performance under requirements contract  termination for convenience ▪ government fails to abide by contract  constructive TFC o Torncello ▪ protects government from liability for breach

When can the government terminate for convenience?

Torncello v. United States, Ct.Cl., 1982 (p.823) ▪ invented the idea that there must be changed circumstances for a TFC to be valid - should not be available just because government realizes it chose wrong offer when the facts were present all along ▪ classical logical error: historically there had been changes when it was used - those clauses were always worded broadly, just used in a particular way ▪ the TFC in this case was wrongful under any test you can imagine, unlike the TFC in Krygoski ▪ sloppy dictum: suggests bad faith is the test (terminate for better price); unclear about terminating when price goes down

Krygoski Construction Co. v. United States, Fed. Cir., 1996 (p.824) ▪ appears to be the law today ▪ government discovered work involved was bigger than they thought, so they cancelled the earlier solicitation to encourage more competition (nothing wrong with that) ▪ CFC: termination improper because there were not changed circumstances and bad faith. \ ▪ Fed.Cir.: bad faith test…TFC is valid as long as the CO made the determination in good faith - bad faith: (95%) o TFC to get a better price is bad faith (better for contractors than Torncello) o you’re the contractor I’m using, even if another one that is cheaper comes along - in some cases, don’t need bad faith (5%) o the court also say the changed circumstances test only applies when the government entered into the contract all along intending from the outset not to honor the contract (this is really about bad faith) o if something comes along that actually changes, that is good faith, so this is what must be shown . if you start out in bad faith, but then there is a good reason, like changed circumstances, then that can be good faith

Did gov’t enter contract intending not to honor it? (bad faith?)

Yes. No. Are there changed TFC in bad faith? circumstances?

Yes. TFC in bad faith? No – invalid TFC Yes – invalid TFC No – valid TFC

Yes – invalid TFC No – valid TFC

2. Inspection and Acceptance

Inspection and Acceptance These cases are either about timeliness or quality: ▪ timeliness is easy: it’s either there or not ▪ (on-time performance with sub-standard quality; opportunity to cure and substantial compliance doctrine determine whether it’s a time problem or a quality problem) ▪ quality is harder to determine in terms of conformity - inspection provisions are important

Standard Inspection Clause (48 CFR § 52.246-2) ▪ requires contractor to set up an inspection system - allows government to oversee inspection system - inspection must be reasonably calculated to ascertain compliance with the contract - each party bears the expense of its own inspections; contractor must pay for additional inspections ▪ government entitled to inspect at either place of delivery or place of manufacture - contractor must still inspect, despite the fact that the government failed to inspect ▪ final acceptance is conclusive, unless there is fraud, latent defects, gross mistakes amounting to fraud, or as otherwise provided in the contract - only part of clause that is not pro-government o trade-off for the extensive inspection rights o person making acceptance must have authority - “or as otherwise provided”…: warranties take government outside of acceptance clause (not common); government contracts often have limited, weak warranties ▪ pushing the contractor to perform at a higher standard can be a constructive change - if inspection really burdens the operation, that can be a constructive change also, unless it is reasonable - if CO detects non-conformity, but accepts it, that is a constructive change ▪ government can reject, or require the contractor to cure - if government is not happy, they can replace at contractor’s expense, or terminate for default, or adjust the contract and pay less

C.H. McQuagge v. United States, W.D. La., 1961 (p.839)

▪ The specifications of the contract were not met. The government knew the requirements were not met, but gave final acceptance anyway ▪ held: since there was no fraud or latent defects (obvious defects here), the acceptance is final and the government cannot recover for breach for failure to meet specifications ▪ could argue this as a constructive change: CO had authority to accept, and by accepting performance that didn’t meet requirements, he initiated a constructive change and is bound by it ▪ estoppel: government can be estopped when the government enters market place (congruence) - Richmond: Supremes have become more exceptionalist on estoppel issue o In other areas, Supremes have been sympathetic to congruence idea o Appropriation here probably didn’t mention specifications, probably general, so Richmond isn’t helpful here - Pre-Richmond, government still shouldn’t be estopped unless there is affirmative misconduct - Schwartz: not estoppel if binding the government by the action of a person who had lawful authority to make a decision (finality doctrine) o Estoppel helps us when someone who didn’t have authority acted on behalf of the government

3. Strict Compliance

The government is entitled to insist on strict compliance (exceptionalism)

Arrow Lacquer Corp., ASBCA, 1958 (p.852) ▪ contract for paint; it was oh-so-slightly off color and government wanted contractor to change it. The contractor wanted government to accept it as it was ▪ held: Government has right to terminate contract for smallest non-compliance ▪ fairness to competition: CO shouldn’t be forced to accept something that doesn’t meet specifications, contractor may be doing it cheaper, thus violating F&OC ▪ influence of military procurement: many developing nations want to exclude military procurement from government contracts law - we did things just the opposite - courts and BCAs were very reluctant to second-guess the CO’s judgment on a military contract; because of that reluctance courts have not been willing to second-guess the CO’s judgment on non-conforming goods (law has backed this up)

4. Default Termination

Standard Termination for Default Clause – 48 CFR § 52.249-8 ▪ inserted into fixed-price contract ▪ permitted when contractor: - fails to perform on time (missed deadline) o this is waivable if the government: . fails to terminate in a reasonable time after default, and . contractor relies on failure to terminate and continued performance, with government’s knowledge and implied/express consent - fails to make reasonable progress so as to endanger timely performance o happens when there aren’t interim deadlines in the contract

o don’t have to wait for failure to meet performance (not on track) o more vulnerable to dispute - fails to fix quality defects (found in inspection); failure to cure ▪ must give a cure notice before defaulting contractor (unless deadline has passed) - in other words, only applies to second and third reasons for default - notice requirement, only get 10 days ▪ contractor is liable for excess costs of re-procurement ▪ government must pay for completed goods, delivered and accepted - disputes handled under CDA ▪ if determined there was no default, or it was excusable, it becomes a TFC ▪ non-conforming goods delivered on time - don’t have to cure if it is a time problem; do have to cure if it is a quality problem - substantial compliance doctrine determines if a cure notice is given: o bars immediate default termination o must show (1) defects are minor and easily correctible and (2) contractor reasonably believed that the goods were conforming - if still not exactly right after curing, the strict compliance kicks in and the government can terminate for default

DeVito v. United States, Ct. Cl., 1969 (p.860) ▪ Seaview (DeVito) was terminated for default for failure to make timely delivery of goods. Performance was delayed by several factors, some of which were excusable. The due dates continued to be pushed back. The revised deadline passed and there was not prompt termination, meanwhile Seaview continued to perform. ▪ held: Seaview relied on the government failure to terminate promptly, so there was a waiver. They should have receive a cure notice. ▪ government’s right to terminate without a cure notice in category-one situations is waivable ▪ moral: when in doubt, give a cure notice

Politically Influenced Terminations ▪ A-12 case: McDonnell Douglas says decision to find default was not on merits, it was politically motivated (subjective motivation) - CFC: termination was improperly pre-textual, despite a technical default, and converted it to a termination for convenience - Fed. Cir.: remands to see if there was actually a default; o CFC: says CO made decision ▪ Schwartz: entirely appropriate for elected and appointed officials to participate in making the decision for default termination - not an illicit termination for default just because official makes the decision - what would make it wrong is if there was not in fact a default, regardless of who decides

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