Page images
PDF
EPUB

INCREASED COST

Our recommendations to improve procedures for the resolution of contract disputes may involve some increased administrative costs, since the contractors will have more incentive to use the procedures. Ultimately, both the Government and its contractors will benefit from less complicated and more economical means for resolving disputes. At present, a contractor either is deterred by the high cost of litigation or must undergo lengthy processing that is expensive to it as well as to the Government. Several of our recommendations are pointed toward procedures tailored to the complexity of the dispute, so that small claims or less important issues can be disposed of without the expense of protracted litigation.

[blocks in formation]

Summary of Recommendations

AGENCY INFORMAL

REVIEW

We have concluded there is a need for improvements in the existing disputes-resolving procedures to accomplish the following objectives:

Induce resolution of more contract disputes by negotiation prior to litigation • Equalize the bargaining power of the parties when a dispute exists

• Provide alternative forums suited to handle the different types of disputes

• Ensure fair and equitable treatment of contractors.

We believe that these objectives are best met with a flexible disputes-resolving system that provides alternative forums for the resolution of disputes, with each forum designed to handle disputes of varying degrees of complexity, size, and importance. The claimant should, within certain parameters, be able to choose the forum best suited to his claim.

The major elements of our recommended system are shown in figure 2. Following a contracting officer decision adverse to the contractor, an informal review conference should be held by the agency to review that decision in an effort to seek resolution of the dispute

CONTRACTING OFFICER

DECISION

Source: Commission Studies Program.

Figure 2

prior to litigation. The claimant should be invited to attend the conference, and his attendance should be mandatory if he intends to take the dispute directly to court.

Should the informal review conference fail, we propose that the claimant be given a choice of three alternative forums: (1) an improved cognizant agency board of contract appeals, (2) a regional small claims board of contract appeals if the dispute involves less than $25,000, or (3) the Court of Claims, or a U.S. district court (up to $100,000).

The contractor, but not the Government, could obtain de novo review of a decision of the small claims board. We recommend, with five members dissenting, that both parties be granted appellate-type judicial review of adverse decisions of the agency boards of contract appeals. In addition, the present remand practice between the reviewing courts and the agency boards should be modified to allow the courts the discretion to take additional evidence necessary finally to dispose of the case.

We further recommend that the authority of the contracting officer and other officials to act in connection with each contract be made clear to the contractor; the present distinction between "breach of contract" disputes and disputes arising "under the contract" be abolished; the time periods for seeking review of adverse administrative decisions be uniform and relatively short; interest be paid on all claims awarded by administrative and judicial forums; and court judgments on contract claims adverse to the Government be paid from agency appropriations.

These recommendations are presented as a "package" approach to achieving our objectives. Some of the recommendations serve more than one objective. For example, the recommendation to pay interest when a contractor obtains a favorable board or court decision is intended to make it whole for the expense of obtaining what was rightfully due it. But it also represents a cost to the agency that should make the agency more management conscious about disputes, and thus cause the agency to improve its contract administration, as well as consider the possibilities of a fair and equitable settlement through negotiation.

We do not say that every recommendation is necessary in order to achieve the objectives described above, or that some adjustments in the recommendations would be fatal to the objectives. It will be important, however, to consider the individual recommendations in context with each other and the stated objectives, and to balance the effect of excising one or more of the recommendations. Should some recommendations be adopted and others not, the balance designed in the recommended system could be disturbed to the detriment of its efficient and fair operation.

Our recommendations dealing with the resolution of disputes arising in connection with contract performance are discussed in detail. in Chapter 2.

DISPUTES RELATED TO THE AWARD OF CONTRACTS

The Present System

Disputes also occur during the process that

leads to the award of a Government contract. These disputes are called "award protests" 1 and may be defined as complaints lodged by interested parties against any part of the contract award process. Protests are usually initiated by a company that has made an offer for a Government contract or would like to make an offer. Typical protests have included allegations that (1) the technical evaluation of a proposal was not properly conducted, (2) the type of solicitation used was not in accordance with statutes or regulations, (3) the low bidder was not qualified to perform the work, or (4) the bidder who was awarded the contract was not responsive to the terms of the solicitation.

Unlike disputes occurring under a contract, no clause in the solicitation gives the offeror a right to protest. Nor is such right found in any statutory language. The basic executive procurement regulations and procedures promulgated by the General Accounting Office (GAO) permit protests against the award of a contract to be lodged with the agency that solicited the award and with GAO. Protests also may be filed with U.S. district courts or the Court of Claims. This "award protest system" for resolution of disputes related to the award of a Government contract is outlined in figure 3.

PROCURING AGENCY

The executive procurement regulations do not provide detailed procedures on how a protest may be lodged with a procuring agency. They do require contracting officers to consider all protests involving the award of a contract, whether submitted before or after award. Unlike the requirements of the disputes clause, agency internal regulations govern whether contracting officers will decide protests submitted to a particular agency. Some agency regulations require most protests to be decided at a senior level within the agency, while the policy of other agencies is for the contracting officer to decide all protests unless special considerations require the forwarding of particular protests to higher headquarters.

1 Historically they have been called "bid protests." Since many protests today involve negotiated procurements, we have chosen "award protests" as a more accurate term.

6

DISPUTES RELATED TO AWARD OF CONTRACTS

THE PRESENT REMEDIAL SYSTEM

PROTESTOR MAY SEEK REVIEW OF ADVERSE DECISION

[graphic]
[ocr errors]

Source: Commission Studies Program.

Figure 3

Protests are considered informally within the agencies, and normally no hearings are held. The regulations do not provide for appeal of a protest decision within the agency to a judicialized forum such as a board of contract appeals.

Under certain conditions, the regulations also permit a contracting officer, subject to higher approval, to award a contract despite an active protest involving that contract. The procurement regulations generally leave it to agency discretion whether to halt performance of a contract if a protest is lodged after award.

GENERAL ACCOUNTING OFFICE

Any party who has an interest in a Government contract may lodge a protest against the award of that contract with GAO, provided that the accounts of the agency that solicited the protested procurement are subject to settlement by GAO. Protests are considered in

formally by an assigned attorney within the Office of General Counsel, and decisions are based on relevant documents submitted by the parties. Each decision is submitted to high-level review within GAO before it is issued as an opinion of the Comptroller General.

GAO has no power, when adjudicating a protest, to prevent the award of a contract or to have the contracting agency comply with the time requirements it has established for the processing of protests. GAO has never recommended money damages for a successful protestor, but it has recommended that the agency resolicit the procurement or terminate a previously awarded contract for the convenience of the Government.

FEDERAL COURTS

It is only since 1970 that the Federal courts have been available as a forum for resolving award protests. The Supreme Court of the

United States ruled in 1940 that protestors have no right (standing) to have their protests heard in a court of law, because the Federal procurement statutes confer no judicially enforceable rights on offerors for Government contracts. Later Supreme Court opinions broadening the concept of standing to sue the Government in other areas not related to Government contracts have led certain Federal courts to conclude that protestors also should have the opportunity to be heard.

In contrast to the procedure normally required under the disputes clause, no administrative remedy need be exhausted before a protest can be lodged in a court of law. The court may conduct a fresh trial of the evidence even if the protest has been previously considered by administrative forums. The Federal district courts can enjoin agency action, including stopping the award or performance of a contract, or direct the award of a contract to a particular party. The Court of Claims does not possess injunctive powers, but it may award damages to a successful protestor.

Summary of Findings

The award protest system, a necessary and beneficial aspect of the procurement process, needs improvement in the interest of greater fairness and effectiveness. The major problems confronting the system are (1) an absence of procedures and remedies that will assure fairness in the treatment of protestors; (2) delay in processing protests through the administrative forums; and (3) the lack of an effective plan for reducing the number of protests. At the heart of these problems lies the absence of a comprehensive, coordinated, and integrated regulatory scheme for administrative resolution and avoidance of protests.

FAIRNESS TO PROTESTORS

The value of the award protest system is that it provides a means of subjecting administrative decisionmaking to review and thereby acts to assure that Government officers follow

the procedures that have been established in the statutes and regulations governing the procurement process. It also serves to protect the contractor's right to be bargained with fairly and, in turn, to be provided a remedy when its rights are infringed. A system that will not assure a damaged protestor an adequate remedy unnecessarily creates a lack of confidence in the integrity of the methods by which Government contracts are awarded.

We have found that the system sometimes operates in that undesirable manner. Procedures that adequately inform the contractor how, when, and where to lodge protests have not been established in all cases. The best means are not always used to assure objective consideration of the merits of a protest. At times the protestor is not provided with a compensating remedy although he deserves

one.

Public interests require the efficient, economical, and timely acquisition of goods and services. This strong public interest, it is contended, often overrides the personal interests of the protestor when to dispense a remedy would unduly delay or increase the cost of a procurement. Overlooked, however, is the greater overall benefit that can be gained by dealing fairly with contractors and encouraging them to deal with the Government in the future.

UNDUE DELAY IN PROCESSING PROTESTS

The award protest, while serving several valuable functions in Government procurement, can also disrupt the normal flow of events. For example, in order not to prejudice the position of a protestor before the dispute is resolved, the award process or the performance of a contract should be halted when a protest is lodged. Yet, lengthy delay in the adjudication of a protest while the procurement is suspended can seriously impair Government programs and economically damage contractors as well.

Although GAO has taken significant steps that have achieved some reduction in the time needed to adjudicate protests, it is obvious that the problem cannot be solved by one agency alone. At present no Government-wide coordi

nated attack on the problem is being undertaken.

AVOIDANCE OF PROTESTS

The number of protests continues to rise each year. In fiscal 1972 over 1,200 protests were lodged with GAO alone. This represents a 16 percent increase over the number filed the previous year. The annual increase in the number of protests threatens to destroy the value of the award protest system by turning it into a device that potentially could impede the overall efficient functioning of the procurement process.

A reasonably effective scheme for reducing the number of protests does not exist. Better communication between contracting agencies and offerors is needed in order to eliminate protests that occur because of misinformation about contract award decisions. More comprehensive review of solicitation or award controversies by higher-level management officials is required in order to prevent protests based on improper management practices. Finally, there is a need for closer coordination of agency award protest procedures and practices.

Summary of Recommendations

The overall thrust of our recommendations is to revise, expand, and integrate the varying regulations governing the administrative resolution and avoidance of protests by promulgating adequate procedures for informing protestors of the steps that can be taken in order to resolve their complaints; establishing mandatory time requirements for processing protests; and providing more protection for protestors. We also recommend improving contracting agency debriefing procedures and urge periodic review by GAO of agency award protest procedures and practices.

These recommendations are discussed in detail in Chapter 3.

EQUITABLE AND SPECIAL MANAGEMENT POWERS UNDER PUBLIC LAW 85-804

The Present Act

Public Law 85-804 empowers the President to permit agencies that exercise functions in connection with the national defense to enter into, amend, or modify contracts without regard to other provisions of law pertaining to the making, performance, amendment, or modification of contracts. By Executive order the President has authorized the Department of Defense and ten other agencies to exercise the authority conferred by the act. Relief under the act must be accompanied by a determination that the exercise of its authority will facilitate the national defense, and the powers conferred by the act only may be used during periods of national emergency.

The primary purpose of the act is to provide authority for prompt administrative resolution of problems occurring in defense contracts that otherwise would not be solvable under the normal statutory, regulatory, and common-law principles governing the procurement process. Although not so classified under the act or implementing regulations, the powers of the act may be categorized broadly as those permitting certain management determinations and those allowing the correction of certain inequitable situations.

The management powers have been used to provide additional funds to a contractor whose performance is essential to a Government program but whose productive ability will be impaired by a threatened loss; to require special terms and conditions in Government contracts; and to dispose of Government property. The equitable remedial authority of the act has been used to settle breach of contract claims administratively, correct or mitigate the effect of mistakes, and formalize informal commitments.

Summary of Findings

Restricting Public Law 85-804 to contractual actions that facilitate the national defense pre

« PreviousContinue »