FEDERAL CONTRACT LAW

Court rules on the FAR's fuzzy language

Joseph J. Petrillo

As the number of orders placed under Multiple-Award Schedule contracts continues to climb, so do the judicial and administrative decisions interpreting the process for placing orders.

A key component of the ordering process is the so-called Rule of Three. When placing an order of more than $2,500, Section 8.404 of the Federal Acquisition Regulation states that agencies should consider information from three sources offering the same item. The information could come either from the General Services Administration's online Advantage service or by checking the catalogs of at least three schedule contractors.

Special ordering procedures, such as for services, state that a request for quotations 'should be provided to three contractors' if the order will exceed $2,500.

Opinions differ in the contracting community over whether soliciting three sources is mandatory. Now, the Court of Federal Claims has spoken.

In Cybertech Group Inc. vs. United States, a long and tortuous case, one of the issues was the meaning of the pivotal 'should' in the FAR rule. The court interpreted the word as denoting 'a request or suggestion.' Supporting this view is the FAR's use of 'shall' as an imperative. So, 'should' makes the Rule of Three merely advisory, not mandatory.

That's a setback to those seeking to increase competition in schedule contracting. Or perhaps it's an opportunity. GSA must decide whether to stick with the nonbinding language or to require some minimum competitive effort.

If GSA doesn't modify the regulations, agencies may run into another obstacle. Schedule orders meet the requirements of the Competition in Contracting Act only if they meet government needs at lowest overall cost. Without a basis for comparison, how can an agency make a lowest overall cost determination?

Many agencies solicit multiple proposals for schedule contracts anyhow. To its credit, the Education Department solicited 26 bids from schedule contractors for 10 to 12 orders for student loan collection services.

But Education failed to conduct a proper competition for those services, the General Accounting Office ruled in a recent decision on a protest brought by OSI Collection Services Inc. (I was the counsel for OSI, a division of Agilent Technologies Inc. of Palo Alto, Calif.)

The main problem arose in the evaluation of past performance. Some companies invited to compete were incumbents, already under contract with the department. The incumbents' performance was rated using a multifactor formula.

For incumbents, the solicitation stated that Education would review performance data it had on hand. As it turned out, only the incumbents with the top eight cumulative scores got orders.

But documentation showed the scores were virtually the only data used in evaluating the incumbents' performance. GAO found problems with the scores. The formula was built for a series of discrete periodic evaluations, not a cumulative evaluation. Education officials normalized the scores for each period to the best contractor's score. So the same performance in different periods resulted in widely fluctuating scores.

GAO faulted Education for what it termed an overly mechanical rating approach. It also found fault with comparing incumbents against nonincumbents.

Thus, the law of schedule buys continues to evolve.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell. E-mail him at jp@petrillopowell.com.

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