Link: Court of Federal Claims Opinion, Nos. 10-106C, 10-127C
Agency: U.S. Air Force
Disposition: Protest Granted.
Keywords: Exercise of Options; ID/IQ Contracts
General Counsel P.C. Highlight: In exercising the option on an ID/IQ contract, the Government must be able to consider the price element and if all contractual price commitments have been removed from the master ID/IQ contract, the Government may not exercise the option. It is not enough that the ID/IQ contract required consideration of price at the task order level, there must be limits in the ID/IQ contract itself prior to the exercise of an option.
In a request for proposals (RFP) issued in 2005 for a minimum of five indefinite delivery /indefinite quantity (ID/IQ) contracts for a four-year period, with two three-year options by the Air Force, offerors were required to submit pricing info including not-to-exceed (NTE) ceiling rates for sixty-eight health care service staffing positions.
The RFP also included an economic price adjustment to provide adjustments to contract price as a result of economic changes as the contracts aged. Contracts were eventually awarded to five companies, not including Magnum Opus Technologies, Inc. (Magnum) or The Healing Staff, Inc. (Healing). Magnum initiated two separate protests. One with the Small Business Administration (SBA), which found in favor of Magnum and the other with GAO, which recommended award to Magnum, after which an ID/IQ contract was awarded.
The Air Force found later that contractors were exceeding NTE rates even though the contracts stated that prices could not be more than the NTE price. The Air Force ultimately agreed to remove requirement to comply with NTE rates and issued contract modifications. The Air Force chose to exercise four contractors’ options and gave notice to Magnum and Healing that their options would not be exercised. Both filed protests with GAO, which were dismissed because the protests concerned matters outside scope of GAO bid protest function.
Magnum and Healing filed motions for reconsideration with GAO, which were not acted upon. The companies, therefore, filed a bid protest in the Court of Federal Claims asserting that because NTE pricing was eliminated from the contracts, the Air Force had exercised unpriced options violating Federal Acquisition Regulation (FAR) §17.207. Healing also alleged violation of §17.207 and further alleged that the Air Force wrongfully failed to disclose that it would use performance evaluations in determining whether to exercise options.
After establishing subject matter jurisdiction and standing, the Court of Federal Claims held that the Air Force failed to comply with FAR §17.207, specifically subsection (f), which states that for the Government to validly exercise an option, “the option must have been evaluated as part of the initial competition and be exercisable at an amount specified in or reasonably determinable from the terms of the basic contract.”
The Court of Federal Claims stated that following the modifications rendering the NTE rates non-binding, the price evaluation conducted at the time of the initial award was no longer useful. When the options were exercised, the NTE rates were only advisory, and contractors could increase their labor rates at will. Therefore, the relative costs to the Government of various contractors’ options, was entirely unknown. The pricing of the options, as exercised, was not “evaluated as part of the initial competition.”
The Air Force also failed to satisfy the second clause of FAR §17.207(f), that the option was “exercisable at an amount specified in or reasonably determinable from the terms of the basic contract.” The Court of Federal Claims held that it is impermissible to evaluate relative cost based only upon non-binding proposals, because such a comparison is not meaningful. Once the Air Force removed the NTE rates, it removed its only basis of meaningfully comparing the cost to the Government of the contractors’ options. The price of the options was not “reasonably determinable” from the ID/IQ contracts.
The Court of Federal Claims also stated that, “the statutory requirement that cost to the government be considered in the evaluation and selection of proposals for award is not satisfied by promise that cost or price will be considered later, during award of individual task orders.” The Air Force cannot substitute competition at the task order level for compliance with the applicable laws and regulations.
Finally, the Court of Federal Claims held that the maximum contract value for the ID/IQ contract did not establish price either. The contracting officer looked at the total contract value and made a guess as to how to divide it between the base period and two option periods, which is not “evaluated” price within the meaning of CICA and FAR.
As for remedy, the Court of Federal Claims ordered injunctive relief since the plaintiffs succeeded on the merits of the case, proved that they will suffer irreparable harm in the absence of injunctive relief, identified a number of mechanisms other than the contract options that the Air Force could use during pendency of an injunction, and public interest weighed in favor of granting the injunction.