Contingency contractors should take note of a recent bid protest decision from the Government Accountability Office, which approved the Department of Defense's use of a special, non-transparent database to determine the responsibility of foreign-owned contingency subcontractors.
The GAO concluded that when a contracting officer queries the special database and obtains adverse information on a proposed subcontractor, a prime contractor may be found nonresponsible based on this information, without any advance notice, nor an opportunity to present rebuttal evidence.
This decision is an important reminder that a prime contractor can be found nonresponsible based solely on the past actions of a proposed subcontractor.
A non-transparent vetting process
The protester challenged the award of a task order by the US Army Contracting Command, under a request for a task order execution plan (RTEP), for logistics support services for the US Special Operations Command's Tactical Airborne Multi-Sensor Platform. The GAO denied the protest, concluding that the Army reasonably found the protester nonresponsible and that the Army was not required to conduct discussions with the protester regarding the negative responsibility determination.
The RTEP advised offerors that performance could take place at US government facilities within, and outside of, the United States. Performance also could involve work in remote, primitive or austere environments and could require subcontractor base access in certain locations. The RTEP also included provisions that called for oversight by, and compliance with, the Combatant Commander and subordinate task force commander policies and directives.
After evaluating proposals, the Army determined that the protester was in line for an award with the highest-rated technical proposal and the lowest evaluated cost. However, prior to making the award, the Army made a responsibility determination pursuant to Federal Acquisition Regulation (FAR) 9.103 and found the protester to be nonresponsible – and thus ineligible for an award – based on issues identified with one of its subcontractors.
In assessing responsibility, the contracting officer (CO) reviewed the Joint Contingency Contracting System (JCCS), a registration system for contingency contractors and subcontractors. During this review, the CO learned that one of the protester's proposed subcontractors had been assigned a "DELTA" status, indicating it did not have base access to certain government facilities due to force protection concerns. The CO also reviewed a classified report, detailing information behind the DELTA rating, which verified the JCCS rating as "current and reliable." Notably, access to the JCCS is restricted to government personnel, so the protester had no way of knowing its subcontractor had been assigned a DELTA status when it was preparing its proposal to the Army.
In challenging the Army's actions before the GAO, the protester argued that the information in the JCCS was outdated and that the subcontractor should have been classified as a US company, rather than a foreign company, for which the DELTA rating is not available.
The GAO disagreed. Instead, the GAO endorsed the Army's position finding that (1) there is a requirement for contingency contractors to register in JCCS regardless of country of origin, and (2) a contractor's adverse rating in the JCCS is driven by the Combatant Commander's denial of base access, not country or origin or incorporation.
The GAO noted that the CO's broad discretion in making a responsibility determination is limited by a military commander's decision to deny base access when that decision is based upon force protection concerns. This responsibility determination, however, "must be factually supported and made in good faith" and will only be overturned if a protestor demonstrates bad faith or the lack of a reasonable basis for the determination.
In this regard, the GAO found the protester's country-of-origin argument unpersuasive because it did not address the force protection and security concerns that formed the basis of the underlying decision denying base access. Instead, the GAO explained that the Army acted reasonably because the CO based his determination on the information available to him in JCCS and a classified report supporting that information at the time the determination was made. Thus, having found that the Army acted reasonably, the GAO determined that the Army was not required to engage in discussions with the protester to address this adverse information.
Notably, the GAO approved the Army's use of the non-transparent vetting process even though it does not provide a contractor with prior notice of its ineligible status or an opportunity to present rebuttal evidence. Relying on prior decisions from the US Court of Federal Claims, the GAO upheld this denial of due process because due process varies in a war-zone environment. In this regard, the GAO explained that due process must yield to national security concerns, such as force protection, because any required notice would "necessarily disclose classified material and could compromise national security."
The JCCS and the exclusion process
The JCCS, also known as JCXS, is a real-time contract data repository and reporting tool for contingency contracts in Iraq and Afghanistan, available to all DoD contracting commands. The JCCS consists of two parts: (1) a desktop application for use by the contracting command, and (2) a website used by both the contracting command and vendor community. Companies seeking contracting opportunities must register in the system and provide identifying information, including the name of the company, names of company key personnel and business license numbers. Once registered and approved, companies may view solicitation and bidding opportunities and can submit proposals in response. Similarly, COs may search vendor profiles to look for products and services that meet their needs.
Once a contract is completed by a JCCS-registered vendor, a CO may also enter past performance information that is accessible only to the contracting commands. Also available only to COs, JCCS includes information about registered companies that allows the contracting commands to "vet prospective non-US vendors to prevent insurgents, terrorists, criminals, and militias from using contract proceeds to fund their operations."
What is publicly known about this vetting process has been revealed in a series of unclassified decisions at the Court of Federal Claims based on its review of the acquisition instructions and fragmentary orders (FRAGOs) issued by the combatant commands and contracting authorities in Afghanistan. According to the documents reviewed by the court, vendors on JCCS are assessed by risk to mission and are classified as "'MODERATE,' 'SIGNIFICANT,' 'HIGH,' or 'EXTREMELY HIGH.'" Vendors assessed as "HIGH" or "EXTREMELY HIGH" require a "Validation Panel" to determine whether the vendor should be "approved" or "rejected" within three days after consideration of certain relevant information. A "rejected" vendor is ineligible to receive contract awards in Afghanistan.
Importantly, vendors under this process are only notified of their ineligibility if (1) the vendor would otherwise be the "apparent successful offeror," and (2) the vendor requests a debriefing. Even after requesting a debriefing, the CO may only inform the contractor of the following, in writing:
You were determined to be ineligible for award of subject contract by United States Forces—Afghanistan/Iraq. You may submit a written request for reconsideration of this determination to USFOR–A/USF–I, through the Contracting Officer, within 60 calendar days of this notification.
In the event that the rejected company is not the apparent awardee, the CO is instructed as follows: "[i]f an offeror is not the apparent successful offeror, follow normal procedures. DO NOT MENTION THEIR INELIGIBILITY." Contractors should be re-vetted every 180 days; however, if the contractor is not re-vetted, the original vetting is effective for one year.
Another vetting process is also in play under NDAA Section 841
The JCCS exclusion process is not the only special vetting process used by the DoD. Sections 841 through 843 of the National Defense Authorization Act of 2015 (NDAA 2015), entitled "Never Contract with the Enemy," expanded previous authority aimed at avoiding contracts with persons or entities "actively opposing United States or coalition forces in a contingency operation." This legislation authorizes the CENTCOM commander to identify and designate persons actively supporting an insurgency or otherwise opposing United States or coalition forces in coordination with the commander's intelligence program.
Importantly, however, unlike the JCCS process outlined by the Court of Federal Claims, this legislation provides due process for excluded companies. First, contractors are entitled to notice if the Head of Contracting Activity decides to "terminate, void, or restrict a contract" within 30 days of that action. Second, the legislation allows a contractor an "opportunity to challenge the action by requesting administrative review within 30 days after receipt of notice the action."
On September 15, 2015, DoD issued Class Deviation 2015-O0016 to implement this legislation. The deviation instructs contracting officers to use the clause in solicitations and contracts exceeding $50,000 that will be performed in a contingency environment. The deviation also instructs contracting officers to bilaterally modify existing contracts to include the contract clause.
The clause requires prime contractors to exercise "due diligence" to ensure compliance with the Section 841 legislation, but it does not define the term. Additionally, contractors are instructed to review the prohibited/restricted sources list in the System for Award Management (SAM), prior to subcontract award and at least on a monthly basis. Lastly, contractors must terminate any subcontract with a person or entity listed on SAM as a prohibited or restricted source. Notably missing from the clause are the due process requirements outlined in Section 841(e)(1) and (2) of the NDAA 2015. Instead, the due process requirements are only outlined in the written procedures to DoD personnel as part of the Class Deviation memorandum. Thus, a contractor may not be aware of these obligations on part of the government since they are not specifically included in the clause. Further, the Section 841 process is "in addition to, and not to the exclusion of, any other authorities available to executive agencies to implement policies and purposes similar to those set forth in this section." Therefore, this statutory process does not supersede or replace the vendor-vetting process implemented through CENTCOM's combatant authorities that influence a contracting officer's responsibility determinations.
An important reminder for prime contractors about their subs
The recent GAO decision provides an important reminder that a prime contractor could face a nonresponsibility determination if one of its subcontractors is found nonresponsible. Such nonresponsibility determinations may be based on DoD-unique processes, like the JCCS or the Section 841 process, or could arise as a result of standard responsibility determinations under FAR Part 9.
To reduce risk – particularly on contingency contract procurements – prime contractors should ensure they have robust systems in place to review and vet prospective subcontractors. Contractors also should consider requiring each potential subcontractor to (1) certify that, to the best of its knowledge, it is not subject to any base-access or other security restrictions that would impair its ability to perform under the contract, and (2) provide evidence of its recent access to relevant US Government bases in the applicable region. Contractors also might consider seeking an indemnity for losses caused by the subcontractor's nonresponsibility.
Find out more about this decision and its implications for your business by contacting any of the authors.