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GAO Review of Agency Award Protest Procedures and Practices

Recommendation 20. Conduct periodic reviews by GAO of agency award protest procedures and practices.

not regularly conduct comprehensive reviews of agency award protest procedures and practices.

We believe that periodic, objective appraisal of agency award protest procedures and practices is desirable as a means of calling attention to management practices that must be corrected if protests are going to be reduced. Such a regular review would assist in achieving the comprehensive and coordinated set of award protest procedures that the award protest system needs.

GAO conducts hundreds of independent audits and reviews of executive branch programs that are “intended to give the Congress, as well as the agency heads, an objective appraisal of the operations of the agency or activity covered which ... need congressional or executive branch attention." 93 However, GAO does

* Statement of Hon. Elmer B. Staats, Comptroller General of the United States, Hearings on the Capability of GAO to Analyze

and Audit Defense Expenditures Before the Subcomm. on Executive Reorganization of the Senate Committee on Government Operations, 91st Cong., 1st Sess., Exhibit 1, at 29 (1969).

CHAPTER 4

Equitable and Special Management Powers Under Public Law 85-804

price to an amount higher than the lowest rejected bid of any responsible bidder when the contract was negotiated because the bids received after formal advertising were unreasonable or collusive ? • Formalization of an informal commitment, unless it is found that at the time the commitment was made it was impracticable to use normal procurement procedures. 8

Public Law 85–804 1 empowers the President to authorize Government agencies that exercise functions in connection with the national defense to enter into, amend, or modify contracts without regard to other provisions of law relating to the making, performance, amendment, or modification of contracts. Currently, the Department of Defense and ten other agencies have been authorized by Executive order 3 to utilize Public Law 85–804 when exercise of its powers will "facilitate the national defense." 4

Although the act permits an agency to use the authority without regard to other provisions of law relating to the making, performance, amendment, or modification of contracts, it does not authorize:

• Use of the cost-plus-a-percentage-of-cost
system of contracting 5
• Any contract in violation of existing law
relating to limitation of profits 6
• An amendment to increase the contract

Moreover, it cannot be used as general authority for the negotiation of contracts," nor does it permit the waiver of any bid, payment, performance, or other bond required by law.10 The act also requires that any commitment in excess of $50,000 must be approved by an official at the Secretarial level or by an agency contract adjustment board. 11

The act and the Executive order describe only in broad terms the appropriate situations for use of the authority. More detailed guidance is found in the Armed Services Procurement Regulation (ASPR),12 Federal Procurement Regulations (FPR),13 and certain agency internal regulations. 14 ASPR and FPR provide that three types of action are permitted under the act: (1) contractual adjustments; (2) making advance payments; and (3) exercise of “residual powers.” 15

* Act of Aug. 28, 1958, 72 Stat. 972 (codified at 50 U.S.C. & $ 143135 (1970)). For a further discussion of this law, see Part H, Chapter 3.

2 50 U.S.C. $ 1431 (1970).

' Exec. Order No. 10789, 3 CFR at 332 (1972), 50 U.S.C. $ 1431 (1970), as amended by Exec. Order No. 11051, 27 Fed. Reg. 9683, 9689 (1962); Exec. Order No. 11382, 32 Fed. Reg. 16247, 16248 (1967); Exec. Order No. 11610, 36 Fed. Reg. 13755 (1971). Presently authorized agencies are the departments of Agriculture, Air Force, Army, Commerce, Defense, Interior, Navy, Treasury, and Transportation; and AEC, GPO, GSA, NASA, and TVA. Although 14 agencies are listed, the military departments and Department of Defense are counted as one agency in the text. Exec. Order No. 11051, 27 Fed. Reg. 9683, 9689 (1962) deleted the Office of Civil and Defense Mobilization. Exec. Order No. 11382, 32 Fed. Reg. 16247, 16248 (1967) deleted the Federal Aviation Agency and added the Department of Transportation.

*50 U.S.C. & 1431 (1970).
350 U.S.C. $ 1432 (a) (1970).
€ 50 U.S.C. $ 1432(b) (1970).

750 U.S.C. $ 1432 (e) (1970). See 10 U.S.C. $ 2304 (a) (15) (1970) ; 41 U.S.C. $ 252(c) (14) (1970).

$ 50 U.S.C. & 1432 (f) (1970).

950 U.S.C. $ 1432 (c) (1970). The act states that it is not to be construed to constitute authorization for “the negotiation of purchases of or contracts for property or services required by law to be procured by formal advertising and competitive bidding."

19 50 U.S.C. $ 1432(d) (1970).
11 50 U.S.C. & 1431 (1970).
12 See ASPR Section XVII.
13 See FPR Part 1-17.

14 See, e.g., AF ASPR Supp. Part 1017; DSPR Part 1217; AECPR Part 9-17; NASA PR Part 17.

sentiality of the contractor.23 In such case the contract may be adjusted only to the extent necessary to avoid or remove the impairment to the contractor's productive ability.24

Contractual Adjustments

AMENDMENTS WITHOUT CONSIDERATIONGOVERNMENT ACTION

Four types of contractual adjustments are specified in the regulations. The first two are labeled together as “amendments without consideration,” 16 although each is authorized on a significantly different basis. 17 The last two are "correction of mistakes” 18 and “formalization of informal commitments.” 19

AMENDMENTS WITHOUT CONSIDERATION-ESSENTIALITY

When a contractor becomes financially unable to fully perform a Government contract, the Government normally will terminate the contract and reprocure the supplies or services from another contractor.20 In certain circumstances the needs of a procurement program are so urgent that the program will be damaged irreparably if subjected to lengthy delays while supplies or services are reprocured. A more feasible alternative for the Government in this situation is to amend the contract without consideration and provide the contractor with the additional funds it will need to continue performance.21

Public Law 85–804 provides a legal basis for amending a defense contract where the contractor's productive ability will be impaired by an actual or threatened loss and its continued performance on any defense contract or its continued operation as a source of supply is essential to the national defense.22 This contractual adjustment is called an amendment without consideration based on the es

An amendment without consideration also is authorized when a contractor suffers a loss (not merely a diminution of anticipated prof. its) on a defense contract because of Government action.25 This authority is used to provide relief to a Government contractor where an administrative remedy is not otherwise available. For example, a contractor may have a remedy against the Government in a court of law for breach of a defense contract because of Government interference with the performance of the contract, but it has no administrative remedy because neither the contracting officer nor the board of contract appeals has jurisdiction to settle such a claim.26 The provision additionally may be used to provide relief to a contractor where the Government is not liable as a matter of law but fairness dictates that some adjustment be made in the contract. In contrast to the first type of amendment, concern about the accomplishment of a particular program objective is not relevant to the issue of whether an amendment without consideration should be granted based on Government action. In this situation, fairness is the primary concern for making a contractual adjustment.27

23 For an analysis of contract adjustment board decisions concerning amendments without consideration based on essentiality, sce C. Lakes, Extraordinary Contractual Authority in Government Defense Procurement 75-98 (1962 unpublished doctoral dissertation No. 5877 in the George Washington University Library) ; Jansen, Public Law 85-804 and Extraordinary Contractual Relief. 55 Geo. L. J. 959, 974-980 (1967); O'Roark, Extraordinary Contractual .Ictions in Facilitation of the National Defense From a Department of Defense Attorney's Point of View, 47 Mil. L. Rev. 35, 55-66 (1970). 24 ASPR 17-204.2(a) ; FPR 1-17.204-2(a).

25 ASPR 17–204.2(b) ; FPR 1-17.204-2(b). The regulations state that "the character of the Government action will generally determine whether any adjustment in the contract will be made and its extent." Id. The example given states “[w]here the Government action is directed primarily at the contractor and is taken by the Government in its capacity as the other contracting party, the contract may be adjusted if fairness so requires...." Id. Thus, the regulation implicitly distinguishes between Government actions in its capacity as the other contracting party and those in its sovereign capacity. See Lakes, supra note 23, at 100 ; Jansen, su pra note 23, at 981-85; O'Roark, su pra note 23, at 68-69.

28 This deficiency would be largely corrected by the Commission recommendations that contracting officers or boards of contract appeals be empowered to settle or decide breach of contract claims. See pp. 22-23, su pra.

15 ASPR 17-103 ; FPR 1-17.103.
16 See ASPR 17-204.2; FPR 1-17.204-2.
17 See pp. 52-53, infra.
19 ASPR 17–204.3; FPR 1-17.204-3.
19 ASPR 17-204.4 ; FPR 1-17,204-4.
20 See ASPR Section VIII ; FPR Part 1-8.

91 According to the usual principles of contract law, a Government contract generally only may be amended to benefit a contractor if the Government receives some benefit (“consideration") in return for the contract change. See 47 Comp. Gen. 170 (1967); J. J. Preis & Co. v. United States, 58 Ct. Cl. 81 (1923); R. Nash, Jr. & J. Cibinic, Jr., Federal Procurement Law 201-06 (2d ed. 1969).

22 ASPR 17-204.2(a) ; FPR 1-17.204-2(a).

CORRECTION OF MISTAKES

this or other provisions of the regulations treating the disclosure of mistakes after award must be processed under the authority of Public Law 85–804.34

Under Public Law 85–804, a defense contract may be amended or modified to correct or mitigate the effect of a mistake, which may include a mutual mistake as to material fact, a contractor's mistake so obvious it was or should have been apparent to the contracting officer, or a failure to express in the contract the agreement as both parties understood it.35 This provision provides a speedy administrative remedy for the correction of mistakes, thus avoiding the necessity of bringing a suit in the courts or going to the General Accounting Office.36 Currently, the most extensive use of Public Law 85–804 authority is for correction of mistakes.37

FORMALIZATION OF INFORMAL COMMITMENTS

The basic procurement regulations provide that in formally advertised procurements, mistakes in bids (other than clerical mistakes) shall be corrected at a high executive level within the agency if the mistake is alleged after opening of bids and prior to award of the contract.28 Such correction may take the form of permitting the bidder to withdraw its bid, or, in the case of clear and convincing evidence establishing the existence of a mistake and the bid actually intended, to correct the bid.29 Mistakes prior to the award of a negotiated procurement normally do not require a special procedure to be invoked, because the offeror in a negotiated procurement may usually withdraw or change its offer up until the time for contract award.30

The Comptroller General has ruled that contracting agencies have no authority to reform contracts on the basis of a mistake discovered after award.31 However, he has “delegated" authority to the contracting agencies to reform contracts to correct mistakes up to $1,000.32 The primary regulations provide that highlevel officials may rescind or reform a contract when a mistake is discovered after award, provided either that reformation will not reduce or increase the contract amount by more than $1,000 (and does not cause the corrected price to be more than the price of the next higher bid) or, in a contract to be rescinded in its entirety, the total contract amount does not exceed $1,000.33 All cases not covered by

In contrast to the law governing private exchanges, which provides that the acts of an agent may bind the principal if the agent had apparent authority to do 30,38 Government contract law states that the Government as a buyer is not bound by its agents unless they possess actual authority to bind the Government.39 Thus, when a seller furnishes goods or

27 For an analysis of contract adjustment board decisions concerning amendments without consideration based on Government action, see Lakes, su pra note 23, at 99-122 ; Jansen, supra note 23, at 980-87; O'Roark, supra note 23, at 66-75.

28 See ASPR 2-406.3; FPR 1-2.406–3. 29 Ibid.

* For a discussion of the rules which apply to mistakes in bids, see Welch, Mistakes in Bids, 1 The Briefing Papers Collection 47 (1970); Doke, Mistakes in Government Contracts-Error Detection Duty of Contracting Officers, 18 S.W.L.J. 1 (1964); Nash & Cibinic, su pra note 21, at 267-73.

31 See 20 Comp. Gen. 782 (1941).

22 This delegation is limited to reforming contract prices which are erroneous, and “[a]ll other matters of reformation which have not been specifically granted by (GAO) are considered to have been reserved by [GAO) and should continue to be submitted for its consideration." 45 Comp. Gen. 496, 499 (1966).

23 ASPR 2-406.4 (b) (advertised); 3-510 (negotiated); accord, FPR 1-2.406-4 (b) (advertised) : 1-3.104 (negotiated).

34 ASPR 2-406.4 (g). See FPR 1-2.406–4(b).
33 ASPR 17–204.3; FPR 1-17.204-3.

23 The Court of Claims and the Federal district courts have the power under the Tucker Act, 28 U.S.C. $8 1346 (a) (2), 1491 (1970), to reform or rescind a Government contract on the basis of mistake. See United States v. Milliken Imprinting Co., 202 U.S. 168 (1906); Southwest Welding & Mfg. Co. v. United States, 179 Ct. Cl. 39, 373 F.2d 982 (1967) ; Poirier & McLane Corp. v. United States, 128 Ct. Ci. 117, 120 F. Supp. 209 (1954); Universal Transistor Products Corp. v. United States, 214 F. Supp. 486 (E.D.N.Y. 1963); Rash v. United States, 175 Ct. Cl. 797, 360 F.2d 940 (1966) : Nash & Cibinic, su pra note 21, at 965–73. The Comptroller General, under his authority to settle and adjust all claims, 31 U.S.C. $ 71 (1970), will also reform or rescind contracts based upon mistake. See The George Washington University, Correction of Mistakes in Contracts Under Public Law 85-804 22-23 (Government Contracts Monograph No. 1, 1961) ; Ramey & Erlewine, Mistakes and Bailouts of Suppliers under Government Contracts and Sub-Contracts--a Study of Doctrine, Practice, and Adhesions, 39 Corn. L.Q. 634 (1954) ; Welch, Mistakes in Bids, 18 Fed. B.J. 75 (1958) ; Nash & Cibinic, supra note 21, at 973–76. The boards of contract appeals have ruled that they do not have the authority to reform or rescind a contract. See authorities cited in Nash & Cibinic, supra note 21, at 874 n.1.

37 See table 6, p. 56, infra. For a discussion of contract adjustment board decisions concerning correction of mistakes, see Lakes, supra note 23, at 123–72; Jansen, supra note 23, at 987-93; O'Roark, supra note 23, at 75-87.

as See Restatement (Second) of Agency $ 159 (1958).

39 See McIntire, Authority of Government Contracting Officers: Estoppel and Apparent Authority, 25 Geo. Wash. L. Rev. 162

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