“Industry Insight” articles like this one below are submitted to NASBP by those knowledgeable of important industry topics who are providing their insight for the benefit of NASBP members, affiliates, and associates.

The Increasing Importance of Federal Government Past Performance Evaluations and Contractor Options Following a Bad One

A. IntroductionBen Franklin once said, “[i]t takes many good deeds to build a good reputation, and one bad one to lose it.” Nowhere is that adage more applicable today than in the performance evaluations of contractors on federal construction projects. A contractor’s performance on earlier projects is a major factor analyzed by the Government to evaluate eligibility and competitiveness for “best value” contract awards. This article is intended to provide a general overview of the history of past performance evaluations (“PPE”) and how the courts and agency boards of contract appeals have addressed recent contractor challenges to unfavorable PPEs.

B. Historical Context

The use of past performance as a factor for future federal contract awards began evolving in 1994 when Congress passed the Federal Acquisition Streamlining Act (“FASA”). Under FASA, Congress mandated the evaluation of a contractor’s performance on prior federal procurements when determining whether that contractor would be eligible to perform future services for the Government. Essentially, the Government was a full decade ahead of modern-day customer review websites that enable dissatisfied customers to bash bad restaurants and hotels. Like these current online sites, FASA ushered in a new era of contractor accountability that marked a significant departure from the prior government contract award environment. The U.S. Court of Federal Claims (“COFC”) explained that before FASA, Government contracts were typically awarded to the low bidder, and “it was not unusual for a contractor to be terminated for default on one contract and shortly thereafter receive an award of another contract.” Todd Construction, L.P. v. United States, 85 Fed. Cl. 34, 41 (2008), citing Thomas J. Kelleher, et al., CONSTR. DISP. PRAC. GUIDE § 5.06 (2d ed. 2002). The same Court added,

This creation of mandatory performance reviews, databases archiving those reviews, and the requirement to consider those archiving materials in future contract awards means that a negative review is potentially devastating to a contractor who may have no opportunity – or very little opportunity – to mitigate the impact that review will have on future awards.

Because of this Government contracting reality, coupled with the slow-to-rebound private construction market, it comes as no surprise that litigation arising out of PPEs has increased drastically. The cases discussed below demonstrate that while contractors have a few options when challenging unfavorable PPEs, they must exercise caution in outlining their allegations and the relief requested.

C. Relief Options for a Negative PPE

1. Contractors May Choose the Forum for Contesting PPEs
   Beginning in 2008, the Todd Construction litigation involved a series of four separate decisions by the COFC which ushered in further evolution of the PPE dispute process. In Todd I, a roofing contractor challenged an unsatisfactory overall performance evaluation from the U.S. Army Corps of Engineers (“Corps”) following a hangar roof repair project at the Seymour Johnson Air Force Base, North Carolina. Todd contested the unsatisfactory performance rating by submitting a written explanation to the Contracting Officer (“CO”) regarding why it believed the ratings violated established evaluation procedures and lacked factual support. Despite Todd’s explanations, the CO issued a final unfavorable evaluation, and the contractor’s subsequent appeal to the Corps failed to prevent the negative evaluation from being input into the Construction Contractor Appraisal Support System (“CCASS”).

   Undeterred, Todd filed a lawsuit in the COFC wherein it sought the deletion or amendment of the Corps’ evaluation. The Government argued that Todd’s non-monetary claims were not viable under the Contract Disputes Act and, therefore, the Court did not have authority to provide the relief sought. The Court rejected the Government’s defenses and explained that Congress’ 1992 amendment of the Tucker Act, 28 U.S.C. § 1491(a)(2), was intended to clarify the Court’s authority to hear appeals of all Contracting Officers’ final decisions regardless of whether the dispute involved a claim for monetary relief. The decision confirmed that the Tucker Act amendment restored the ability of contractors to choose between the Court and the agency boards for appeals of a final CO decision – a right the Contracts Disputes Act granted to contractors. The Court further held that its jurisdiction over non-monetary disputes required a contractor’s submission of a claim to the CO and receipt of a decision thereon – both of which were satisfied by Todd. The Court concluded Todd I by requesting additional arguments on whether it had the power to remove or amend the unfavorable PPE from the Government’s electronic database.

2. The Court Cannot Require Specific PPE Findings
   In Todd II, 88 Fed.Cl. 235 (2009), the Court analyzed the limits of its authority to award non-monetary relief to Todd. Todd argued that the Corps should not have issued an unsatisfactory PPE following the project because the primary negative factors – deficient and untimely performance by Todd’s subcontractors and unfavorable field conditions – were out of Todd’s control. Todd claimed that the PPE was arbitrary, represented an abuse of the Corps’ discretion and should be removed from CCASS.

   Todd and the Government agreed that the Court lacked the authority to provide injunctive and equitable relief, meaning that the Court required a statutory basis to delete or amend Todd’s negative evaluation. Having established in Todd I that the Contracts Disputes Act provided jurisdiction over non-monetary disputes, the Court explained that it possessed the authority to “declare the law.” In other words, if there were procedural deficiencies or unfairness in the Government’s preparation of PPEs, i.e., the evaluation process, the Court’s declaratory authority enabled it to return a case to the issuing agency with “proper and just” instructions on how to address identified concerns. Otherwise, the Court noted, it makes “little sense for the court to simply inform the agency that they got [the PPE] wrong and to go back and try again …” Significantly, however, the Court held that its directives to the agencies could not mandate that a particular conclusion be reached on the merits of a contractor’s PPE, i.e., the substance of the evaluation.

   In summary, Todd II concluded with an explanation by the Court that it could not judicially determine that the Corps’ evaluation was unlawful and subject to removal from CCASS. Instead, the Court could only review the manner and basis of the evaluation and, if flawed, it could instruct the agency to re-examine its rating and support it with project-related information in the record. Because Todd’s complaint failed to include sufficient factual allegations to return it to the Corps for reconsideration, the Court instructed Todd to amend its pleadings with more specific contentions.

3. Failure to Allege Prejudice or Injury May Result in Dismissal
   In Todd III, 94 Fed.Cl. 100 (July 30, 2010), the Court focused on the content of Todd’s amended complaint in which it claimed that the Corps failed to comply with procedural evaluation requirements, thereby resulting in an inaccurate and unfair PPE. Todd argued that its subcontractors’ deficiencies leading to the unfavorable PPE were not caused by Todd nor reflective of its management or supervisory capabilities. In response, the Government requested dismissal of the claim for Todd’s failure to allege a causal connection between the claimed procedural violations and an actual injury.

   The Court agreed with the Government and found that the amended complaint did not allege that the Corps’ procedural errors themselves resulted in injury – only that the flawed process resulted in a bad evaluation with which Todd disagreed. Explaining that procedural errors alone do not give contractors the basis to assert a claim when there is no actual injury, the Court held that Todd failed to show that the Corps would have issued a favorable PPE if it had complied with established evaluation procedures. Todd conceded that the Government complained of subcontractor performance issues during the project, but disclaimed responsibility for its subcontractors’ actions – a position inconsistent with the law in that contractors are generally responsible for subcontractor performance The Court ruled that Todd’s amended complaint contained only legal conclusions that were insufficient to prove that the unsatisfactory PPE represented an abuse of the Corps’ discretion. Consequently, the lawsuit was dismissed because Todd failed to state a claim upon which the relief it sought – deletion or amendment of the evaluation from the CCASS – could be granted.

   This past summer, the U.S. Court of Appeals for the Federal Circuit reviewed the three Todd decisions from the COFC. See Todd Construction, L.P. v. United States, 656 F.3d 1306 (2011). In “Todd IV“, the appellate court agreed that Todd “alleged nothing to indicate that the outcome of the [PPE] would have been any different if the [Corps’] purported procedural errors had not occurred.”

D. Disputes in ASBCA – Similar Limited Remedies

The increased importance of contractors’ reputations in the competition for future Government contracts resulted in recent litigation over unfavorable PPEs in the Armed Service Board of Contract Appeals (“ASBCA”) in a manner similar to the Todd cases in the Court of Federal Claims. Versar, Inc., 10-1 BCA ¶ 34437, ASBCA No. 56857 (May 6, 2010), involved a contractor’s efforts to have the ASBCA order the Air Force to rescind its “red (i.e. unfavorable) rating” on an indefinite delivery indefinite quantity contract. The Board concluded that although it had jurisdiction to determine whether the Government “acted reasonably” in issuing the negative PPE, it lacked the power to order the removal of the evaluation from the Government’s database.

The following month, the ASBCA issued a decision in Colonna’s Shipyard, Inc., 10-2 BCA ¶ 34494, ASBCA No. 56940 (June 24, 2010), a matter involving a PPE appeal by a contractor that performed major alterations to a U.S. Navy warship. The repair contractor alleged that Navy officials breached the parties’ contract by “improper, erroneous, arbitrary and capricious scoring” in the PPE and requested the Board revise the evaluation or remand it to the Contracting Officer.

Like the Todd I and Vespar decisions, the Board held that it possessed the jurisdiction to decide any appeal from a Contracting Officer’s decision “relative to a contract” – a jurisdictional scope that included the right to evaluate and declare parties’ rights arising from any contract clause. The Board explained that its contractual interpretation jurisdiction “need not be limited to the language of a clause in dispute but may involve a decision as to the correctness of actions taken under the contract in light of the clause and associated regulations.” On the basis of this determination, the Board held that it was authorized to determine whether the PPE rating was arbitrary and capricious and/or an abuse of discretion. Additionally, the Board held that it was authorized to determine if the Government’s actions breached its implied contractual duty of good faith and fair dealing. As in Vespar, the Board found that it could not vacate or revise the Navy’s negative PPE of the contractor.

E. Conclusion

The standards set by the COFC and the ASBCA pose a formidable challenge to contractors who seek to clear their good names with the Government. Requiring the recipient of a negative PPE to demonstrate prejudice on account of CO’s project assessment or that the Government’s actions were “arbitrary and capricious” are extremely difficult burdens and require considerable thought and planning during the claim and appeals process. Further, recent cases confirm that regardless of the forum selected, relief from a negative PPE is limited to an order by the COFC or the Board returning the matter to the agency with “proper and just” instructions on how to address any procedural evaluation deficiencies. Irrespective of these limitations, the decisions discussed above represent positive developments for the government contractor community because they provide some mechanism by which they can attempt to protect their reputations and future business interests. Because contracting officers are now on notice of these new standards for PPE reviews, these recent decisions should prompt them to exercise greater discretion and fairness in their objective evaluations of contractor performance. After all, everyone has a reputation to uphold.

The opinions expressed in this article are those of the authors and do not necessarily represent those of NASBP.

		Garrett Miller, the principal author of this article, is an attorney in the Atlanta office of Smith, Currie & Hancock, LLP and is licensed to practice law in Georgia and Mississippi. With offices in five states and Washington, DC, Smith Currie has specialized in serving the needs of its clients in the areas of construction law, government contracts, environmental law and general commercial litigation since 1965. For additional information on topics discussed in this article, contact Miller at gemiller@smithcurrie.com or any Smith Currie & Hancock attorney at (404) 521-3800.
		Steven L. Reed, who assisted Garrett Miller with this article, is a partner in the Atlanta and Washington, DC offices of Smith, Currie & Hancock, LLP. Reed can be reached at slreed@smithcurrie.com. Reed retired from his position as an Administrative Judge at the ASBCA, and formerly served as a trial attorney for the U.S. Army Corps of Engineers. He is licensed to practice law in Georgia and the District of Columbia. Please visit Smith, Currie’s website at www.smithcurrie.com.