Winning the Corrective Action, and Using Clarifications Instead of Discussions

Protests and LitigationIn a recent Protest Roundup, we discussed Dell Federal Systems, LP v. United States, 2017 WL 2981811 (Fed. Cl. July 3, 2017), a case in which a contractor successfully challenged the scope of the voluntary corrective action an agency took in response to bid protests filed with the Government Accountability Office (GAO).  In this post, we’ll take a closer look at the light that the case sheds on where and how contractors can try to minimize the effect of a lost protest or to ensure that a hard-fought protest victory does not get wiped away in corrective action.  In addition, we’ll examine the court’s distinction between clarifications and discussions and how it may signal another area of divergence from the GAO

I. Background

The Army issued a solicitation for commercial off-the-shelf (COTS) hardware through indefinite delivery, indefinite quantity (IDIQ) contracts.  The Army received 58 proposals, only nine of which were found to be technically acceptable.  Without conducting discussions, the Army awarded contracts only to the nine technically acceptable offerors, whereupon 21 of the 49 unsuccessful offerors (a number of which had lower prices than the awardees) filed protests at the GAO.  The protesters argued inter alia that the solicitation contained ambiguous directions concerning how to fill out two required spreadsheets.  Several of the protesters were found technically unacceptable for incorrectly filling out the spreadsheets – errors the protesters argued could have been easily corrected in clarifications or discussions.

The Army determined that the protests posed significant litigation risk in two regards.  First, the solicitation’s spreadsheet instructions should have been clearer and likely were the reason so many offerors made the same errors.  Second, the Army determined that DFARS 215.306(c) likely required the Army to conduct discussions with the offerors, inasmuch as the procurement’s value exceeded the regulatory threshold, and the Army did not appear to have a reasonable basis for forgoing discussions.  In light of this analysis, the agency chose not to fight the protests and instead committed to sweeping voluntary corrective action that included opening discussions with “virtually all of the offerors” and soliciting new proposals with revised pricing (even though the original awardees’ prices had been disclosed).  This made it likely that all proposals would be technically acceptable, meaning that the nine original awardees’ contracts would be in jeopardy in this Lowest Price Technically Acceptable procurement.  Six of the original awardees then filed suit at the Court of Federal Claims, challenging the agency’s announced corrective action.

II. Overly Broad Corrective Action

The court agreed with the Army that the ambiguities in the solicitation spreadsheet and the failure to hold discussions in a procurement of this size were rational bases for the agency’s decision to take voluntary corrective action, even though both issues likely were untimely as protest grounds either at the court or at the GAO.  The court disagreed, however, with the scope of the proposed corrective action.  Although it recognized that contracting officers are afforded broad discretion in taking corrective action, the court found that the agency’s proposed corrective action was not rationally related to the defect to be corrected.

What, then, is the proper correction of a failure to hold discussions with the offerors?  The court held, at least under the facts here, that it was too late to open discussions after awards had been made (and the awardees’ prices revealed):

If the Army wished to comply with the GAO’s SAIC decision [regarding the requirement to conduct discussions pursuant to DFARS 215.306(c)], it would have been reasonable for the Army to conduct open-ended discussions before it awarded its contracts.  However, now that the contracts have been awarded, any damage caused by not holding discussions—including the disqualification of several offerors as a result of clerical errors—has been done.  The question now is whether holding post-award discussions is a rational remedy for failing to hold pre-award discussions, and the Court finds that this conclusion does not follow.  After all, constructing a henhouse gate is not an appropriate remedy after the fox has done its work—one instead needs new chickens.

The court then noted that the Army failed to consider a narrower solution:  conducting clarifications (rather than discussions) and reevaluating the existing proposals in light of the clarifications.  Clarifications would be sufficient to correct the minor errors in the offerors’ spreadsheets, while leaving unacceptable those proposals that contained more substantive problems.  Because the court found that a more narrowly targeted solution existed to the problem of the spreadsheet errors and lack of discussions, the court held that the agency’s broad corrective action was arbitrary and capricious.

This holding, although in harmony with a number of other Court of Federal Claims’ decisions on overly broad corrective action, is in tension with the GAO’s strong deference to agencies’ corrective action choices.  Compare WHR Group, Inc. v. U.S., 115 Fed. Cl. 386 (2014) (holding that the corrective action was not rationally related to any procurement defect); Sheridan Corp. v. U.S., 95 Fed. Cl. 141 (2010) (finding agency’s intended corrective action should have been more narrowly tailored), with Alliant Enterprise JV, LLC, B-410352.4, Feb. 25, 2015, 2015 CPD ¶ 82 at 2 (“[T]he corrective action taken here is well within the broad discretion afforded to contracting agencies.”); Solution One Industries, Inc., B-409713.3, Mar. 3, 2015, 2015 CPD ¶ 167 at 3 (holding that agencies have broad discretion in crafting proposed corrective action).  In the end, whether an agency’s corrective action goes too far often comes down to a judgment call.  As Dell illustrates, the court traditionally is more disposed to second-guess agencies than is the GAO.  For that reason, the court may be a better forum than the GAO for parties unhappy with an agency’s choice of corrective action.

III. Clarifications vs. Discussions

The second interesting twist in Dell is the court’s distinction between discussions and clarifications.  The decision describes only one illustrative ambiguity in any detail.  Nineteen offerors in Dell misunderstood the solicitation’s spreadsheet form and mistakenly put “N/A” for certain supplies instead of a price, based upon differing thicknesses of the spreadsheet’s dividing lines.  The agency evaluators thought “N/A” meant the offerors would not provide those supplies, in accordance with the spreadsheet instructions not to leave any entries incomplete or blank.  The offerors apparently thought those entries were optional subcomponents and did not need to be completed.

The court found that the unacceptable offerors’ spreadsheet problems were “minor or clerical errors” that could be corrected by clarifications rather than full-blown discussions:

Many of the offerors here did not make material mistakes; rather, they filled out a confusing Excel spreadsheet incorrectly. . . .  Similarly, the Army here knew that ambiguities in its spreadsheet had likely caused offerors to make clerical errors.  Indeed, the [memorandum for record] itself acknowledges the “logical conclusion” that offerors were disqualified because of “mere [ ] compliance issues with filling out the form rather than a deficiency in the item proposed.”  If this language does not suggest the Army knew that offerors had made clerical errors, it is difficult to see what would.

As such, it was irrational for the Army not to seek clarification from all offerors it knew had been directly affected by the ambiguities it had identified in its own spreadsheet.  Doing so would not have given all offerors the chance to make their proposals technically acceptable—there are several offerors who made more wide-reaching errors—but it would have given the offerors who justifiably thought they were proposing compliant equipment the chance to show that they were in fact proposing compliant equipment.  The Army then could have reevaluated the offerors’ proposals instead of resoliciting new proposals.

Discussions are “[n]egotiations . . . between the Government and offerors, that are undertaken with the intent of allowing the offeror to revise its proposal . . . [and that] take place after establishment of the competitive range.”  FAR 15.306(d).  Clarifications, by contrast, are “limited exchanges, between the government and offerors that may occur when award without discussions is contemplated.”  FAR 15.306(a)(1).  These limited exchanges allow offerors to clarify certain aspects of their proposals, such as past performance information, or to resolve minor or clerical errors.  The distinction between clarifications and discussions is usually characterized as a question of whether the offeror is allowed to revise its proposal.  See, e.g., JWK Int’l Corp. v. United States, 52 Fed. Cl. 650, 661 (2002), aff’d, 56 F. App’x 474 (Fed. Cir. 2003) (Clarifications “are not to be used to cure proposal deficiencies or material omissions, materially alter the technical or cost elements of the proposal, or otherwise revise the proposal.”).  GAO and the court have long struggled with finding the dividing line between discussions and clarifications, with the court showing more tolerance for conducting extensive communications under the guise of clarifications.

In Level 3 Communications v. United States, for example, the Court of Federal Claims found that an inquiry into a missing file would be a clarification instead of a discussion because the file would simply allow the contracting officer to confirm the offeror’s proposal without an opportunity to revise it.  129 Fed. Cl. 487, 504 (2016).  And in Rivada Mercury v. United States, the court found that hundreds of questions, hours of oral presentations, and yet more follow-up questions constituted clarifications rather than discussions.  131 Fed. Cl. 663 (2017).  In several instances, the question-and-answer process allowed the awardee to change its proposal, but the court nevertheless determined that because the procurement was large and technical, extensive exchanges were reasonable as “clarifications.”

The GAO, on the other hand, historically has taken a harder line on clarifications, finding discussions to occur whenever an offeror is allowed to revise its proposal.  See, e.g., Manthos Eng’g, LLC, B-401751, Oct. 16, 2009, 2009 CPD ¶ 216 at 2 (denying protest where protester failed to provide required option year prices); Battelle Memorial Inst., B-299533, May 14, 2007, 2007 CPD ¶ 94 at 4 (“[O]mission of the option year pricing is material, given the RFP’s requirements to provide detailed option year pricing for evaluation, and any attempt to cure this omission would necessitate submission of a revised proposal and would constitute discussions.”); Gulf Copper Ship Repair, Inc., B-293706.5, Sept. 10, 2004, 2005 CPD ¶ 108 at 6 (finding that an agency opened discussions by affording one offeror the opportunity to revise the past performance section of its proposal).

The Dell court, like the Rivada court and unlike the usual GAO approach, appears to have employed an expansive interpretation of clarifications.  Although the decision does not describe the ambiguities in detail, the spreadsheets’ confusing instructions in Dell apparently led many offerors not to provide pricing for certain supplies.  Where an offeror did not propose pricing for an item (based on a reasonable but mistaken belief that it was not required to supply that item), it is difficult to see how an opportunity to add pricing for an item that the offeror did not intend to supply constitutes a clarification rather than discussions.  Although the correction is minor and easily accomplished, it appears to constitute a revised proposal – a hallmark of discussions.

Outside the area of corrective action, these recent decisions employing a more accommodating definition of “clarifications” dovetail with the court’s greater willingness to scrutinize the reasonableness of an agency’s decision not to conduct clarifications in the first place.  The GAO invariably refuses to second-guess an agency’s discretion not to conduct clarifications in FAR Part 15 procurements.  See, e.g., CJW—Desbuild JV, LLC, B-414219, Mar. 17, 2017, 2017 CPD ¶ 94 at 4 n.2 (refusing to apply Court of Federal Claims case law and holding that failure to submit proof of a joint venture agreement was not a minor clerical error); Cubic Simulation Systems, Inc., B-410006; B-410006.2, Oct. 8, 2014, 2014 CPD ¶ at 7 (holding that agency was within its rights to refuse to conduct clarifications and refusing to apply Court of Federal Claims case law); PN & A, Inc., B-406368, Apr. 23, 2012, 2012 CPD ¶ 145 at 3 (holding that agency was not required to conduct clarifications).  The court, on the other hand, has held that agency discretion not to conduct clarifications is not unlimited and, under the right circumstances, may be arbitrary and capricious.  See, e.g., Level 3 Communications., LLC v. United States, 129 Fed. Cl. 487 (2016) (decision not to seek clarifications was arbitrary and capricious where the protester’s price was much lower than the awardee’s and protester’s proposal did not clearly show its proposed working path did not go through Iran); BCPeabody Constr. Servs., Inc. v. United States, 112 Fed. Cl. 502 (2013) (contracting officer abused her discretion by refusing to seek clarification regarding a “copying mistake” in the protester’s offer).

The upshot of these cases is that, if a company loses a competition due to a relatively minor mistake that should have been obvious to the evaluators and could have been easily corrected to the Government’s benefit, the company may be better off protesting at the court rather than the GAO.