Thursday, May 31, 2012

Decision Comes Down in Surge Protection Protest

The United States Court of Federal Claims decided CBY Design Builders v. US, 2012 WL 1889299 (2012) on May 11.  This protest arose out of the Corps of Engineer’s solicitation for the construction of the Permanent Canal Closures and Pumps to aid in the protection of the city of New Orleans from flood damage.  The goal in the project is to achieve a 100 year level of storm surge risk reduction and to allow rainwater to be evacuated from the city.   In the procurement, the Corps established a “build to budget” amount of $700,000,000.  The solicitation quoted the DBIA definition of “build to budget” as “a method to help owners ensure proposed prices are affordable while further enhancing the focus on technical excellence instead of proposed initial cost.”  The solicitation went further to state, “we expect our solutions to utilize the full budget available and not focus on providing a low bid design.  Attempts to offer lower priced technical solutions may be determined to be non-competitive and result in elimination accordingly.  Offerors shall maximize the capability of the [Permanent Canal Project] within the available budget.”   In addition, the solicitation stated that offers that exceeded the budget would be eliminated from the competition without further consideration.
There were initially five shortlisted proposers; however, two of them submitted offers that exceeded the $700,000,000 ceiling. The three remaining shortlisted proposers were CBY Design Build, a joint venture of Brasfield & Gorie LLC, CDM Constructors and W.G. Yates Sons Construction Co; Bechtel Infrastructure Group; and PCCP Constructors, JV.  Initially, CBY was selected as the successful proposer; however, a series of protests by Bechtel and PCCP to the Government Accountability Office (GAO) delayed the award.  The protests centered around three issues.  First, was there an organizational conflict of interest with respect to the fact that CBY hired a former Corps employee who had worked on the surge protection project?  Second, was the solicitation misleading in that Bechtel and PCCP interpreted the “build to budget” language as not allowing the proposers to submit a budget lower than the $700 million in the procurement?  Third, was the Corps evaluation of the proposals improper because it failed to consider CBY’s proposed foundation and pile design?  The GAO determined that there was no conflict of interest, but it also determined that the rules regarding price in the solicitation were unclear and that the Corps should have evaluated CBY’s design.  The GAO recommended that the Corps issue a corrective action and allow for additional submittals from the parties, and the Corps accepted that recommendation.  CBY appealed the Corps’ decision to issue a corrective action to the Court of Federal Claims.  The Court of Federal Claims was reviewing whether the Corps’ decision to issue the corrective action was “arbitrary and capricious.”
With respect to the first issue, the court agreed with the GAO’s determination that there was no organizational conflict of interest.  Although the former Corps employee had previously worked on the surge protection project, the court ruled that any access to competitively useful non-public information occurred too long prior to the procurement (3 ½ years) to constitute an organizational conflict of interest.
The court’s evaluation of the “build to budget” issue was of more substantive interest.  The problem arose because CBY submitted a cost that was approximately $25 million below the $700,000,000 ceiling, and the Corps evaluated the $25 million savings in CBY’s favor.  Bechtel and PCCP both submitted a budget of exactly $700,000,000, testifying that they believed that the “build to budget” solicitation required that all proposers submit that number.  The court discussed the “build to budget” concept extensively and essentially ruled that requiring proposers to submit the same budget number was not allowed under the Competition in Contracting Act (CICA) or the Federal Acquisition Regulations (FAR).  “A process in which all prices must be the same is one in which price does not matter, running afoul of CICA and the FAR.”  The court cited 10 USC §2305(a)(3)(A)(ii) [the citation is for you legal geeks out there] in stating, “Congress has mandated that in prescribing the evaluation factors for competitive proposals, an agency ‘shall include cost or price to the Federal Government as an evaluation factor that must be considered in the evaluation of proposals.’”  In addition, cost must receive “meaningful consideration” in the evaluation of the proposals.  “If the build-to-budget language in the solicitation were construed to mean that all offerors’ prices would be the same, then the price would not even be a nominal consideration – it would be eliminated as a factor, in violation of CICA and the FAR.” The end result is that the court ruled that the Corps could favorably evaluate the $25 million difference in price and that Bechtel’s and PCCP’s interpretation of the solicitation was unreasonable.   Although the court ruled that the Corps could not accept the GAO recommendation, the court allowed the Corps to re-issue the RFP on other grounds and held that it was not error for the Corps to clarify the budget issue in the re-issued RFP.
The final issue of interest (to me, anyway) is whether the Corps could accept the GAO recommendation to amend the procurement to allow further technical submissions and a substantive review of the submissions.  Bechtel and PCCP argued that the GAO’s recommendation was valid because the Corps violated the procurement requirements by failing to evaluate the CBY’s foundation proposal.  Bechtel submitted testimony that the proposal submitted by CBY was not sufficient to meet the procurement requirements.  The Corps testified that it didn’t really look at the foundation proposal.  CBY argued “that because this was a design-build contract, there was no need for detailed analysis of CBY’s foundation prior to award, and that offerors only had to include ‘design concepts’ in the proposal rather than the full design.”  The court, however, agreed with Bechtel and PCCP.  Because the procurement required that offerors submit their “proposed approach to fully perform the requirements of the RFP,” the Corps had to evaluate the submissions provided by the parties, and its failure to do so justified re-issuing the RFP. 
In the end, the court held that the Corps could re-issue the RFP, clarify the basis on which award would be made and allow for revised submissions from the parties.  Note that procedural posture in this case is a bit awkward.  The Corps was arguing in favor of re-issuing the RFP.  In fact, in the testimony regarding the review of the submissions, the Corps witnesses testified that it did not, in fact, properly evaluate the submissions.  Also, the court was reviewing the Corps actions on an “arbitrary and capricious” standard.  My guess is that if the Corps was on the other side of this case, decided not to amend the RFP and testified that it had, in fact, considered the materials submitted by the parties, that the Corps actions in that case would also be upheld because the “arbitrary and capricious” standard allows for broad discretion on the part of the governmental agency.  Despite the procedural posture of the case, we can glean a few nuggets of wisdom from the court’s ruling.
First, watch out for organizational conflicts of interest.  If there is even a hint of an OCI, make sure that the issue is disclosed and discussed.  The potential OCI in this case could have negated the entire procurement for CBY.
Second, “build-to-budget” procurements in the federal sector may be a problem.  The court very clearly stated that the federal government is required under the CICA and the FAR to meaningfully evaluate price.  We don’t know what “meaningful evaluation” means, but we do know that at least the Federal Court of Claims does not believe that “build-to-budget,” where all of the parties submit the same price, complies with federal law. 
Third, follow the procurement instructions.  The Corps is not required in every procurement to obtain and evaluate final plans; however, when it states in the procurement that final plans should be submitted and that those plans will be evaluated, then the rules have to be followed.  Certainly, agencies could carefully consider language that would require final plans of any sort in a procurement.  Those drafting the RFQs and RFPs should always allow for maximum discretion on the part of the governmental agency.  The point of a design-build procurement should be to evaluate experience and approach, not final plans.
What’s next, you may ask?  There is always the possibility of an appeal, but in the meantime, the Corps is free to re-issue the solicitation and re-evaluate the proposals.  CBY may very well be the successful proposer after the re-evaluation, but with this large a project and with this much money at stake, I’m guessing that we haven’t heard the last of this dispute.