Why Can’t MDA Manage its Programs?
Recently we inquired
into the program management problems at the Department of Homeland
Security. In the past, we asked similar questions of NASA and DOD. Now
we turn our attention to the Missile Defense Agency (MDA), asking why
“DOD’s largest single acquisition program” is having performance
problems. Related to that overarching inquiry are two other
questions—(1) why do seven of 14 MDA prime contractors have noncompliant
EVM systems, and (2) why do two of 14 MDA programs assessed have such
unreliable EVM data that GAO was unable to “identify significant
performance drivers or forecast future cost and schedule performance.”
We shall start our investigation with this GAO report,
entitled “Missile Defense Program Instability Affects Reliability of
Earned Value Management Data.” In that report, GAO made its annual
assessment of progress made by the MDA in developing and fielding the
nation’s Ballistic Missile Defense System (BMDS). The report
supplements a previous GAO assessment.
By way of background, the GAO report states—
MDA’s
mission is to develop an integrated and layered BMDS to defend the
United States, its deployed forces, allies, and friends. In order to
meet this mission, MDA is developing a highly complex system of
systems—land-, sea- and space-based sensors, interceptors and battle
management. Since its initiation in 2002, MDA has been given a
significant amount of flexibility in executing the development and
fielding of the BMDS.
Unlike
other major defense acquisition programs, the BMDS has been exempted
from the requirements of 10 U.S.C. § 2435 (which requires the programs
to establish the total scope of work and total cost baselines), because
the Secretary of Defense “delayed” entry of BMDS into DOD’s formal
acquisition cycle. The lack of an established baseline prevents GAO
from evaluating progress of the program as a whole; instead, it has to
look at each BMDS program on an individual basis. In this report, GAO
looked at 14 MDA programs.
The
first thing GAO noticed was that two important programs—Ground-Based
Missile Defense (GMD and Targets/Countermeasures—couldn’t be assessed.
The two programs couldn’t be assessed because their Earned Value
Management (EVM) data “were not sufficiently reliable to analyze” the
contracts’ cost and schedule performance. What’s going on here?
First,
the two programs each had baselines that were “no longer representative
of the program of record.” With respect to the GMD program, GAO
reported that the contractor (Boeing) had “experienced difficulty”
incorporating “numerous changes to the program and [resulting]
modifications to the contract.” GAO reported—
For
example, although the GMD program experienced a $1.3 billion dollar
restructure in 2007, another major restructure beginning in fiscal year
2008 for over $500 million that was completed in fiscal year 2009, and a
third in fiscal year 2010 for over $380 million, the GMD program has
not conducted an IBR [integrated baseline review] since December 2006.
DOD’s acquisition policy states that an IBR is to be conducted within 6
months after contract award, exercise of contract options, or major
modifications to a contract. DCMA officials told us that the GMD
program had an IBR underway following the restructure that began in
fiscal year 2008 and completed in fiscal year 2009, but in May 2009 the
program was again redirected and the baseline review was cancelled. The
Director, MDA explained that some of the GMD program’s baseline
instability from frequent restructures was related to the changing GMD
role in European defense. …
The Director told us that these European capability requirements changes
drastically affected the GMD program as a significant amount of work
had to be restructured.
With
respect to the Targets and Countermeasures program, the prime
contractor (Lockheed Martin) was “unable to update its baseline because
of numerous program changes.” GAO reported—
In
September 2007, when the delivery order for the launch vehicle-2 was
approximately 60 percent complete, Lockheed Martin signaled that its
baseline was no longer valid by requesting a formal reprogramming of the
effort to include an overrun in its baseline for this delivery order.
MDA allowed the contractor to perform a schedule rebaseline and remove
schedule variances – but did not provide any more budget for the
recognized overrun in the performance measurement baseline. As a result,
DCMA reported that the performance indicators for this delivery order,
needed to estimate a contract cost at completion, were unrealistic.
According to the Director, MDA did not believe the contractor had
justified that there was a scope change warranting additional budget in
the performance measurement baseline. He said he believed doing so would
mask problems the contractor was experiencing planning and executing
the contract which he identified as the issue as opposed to changes in
the contract’s scope. According to the Director, one example of the
issues the contractor was experiencing on this delivery order included a
failure rate of 64 percent on production qualification components. … In
addition … program changes since fiscal year 2008 on one delivery order
included over 20 contract changes to the scope of work or corrective
actions to quality issues.
GAO
noted that seven of the 14 programs it reviewed were managed by
contractors whose EVM systems had been assessed by DCMA as being
“noncompliant” with the applicable criteria of the ANSI/EIA standard
governing earned value management systems. Despite this situation, GAO
used the EVM data to evaluate the other 12 programs. It noted that “We
reviewed the basis for the noncompliance and unassessed ratings and
determined that” the EVM data was reliable enough “for our purposes.”
This finding, of course, begs the question of why DCMA evaluators
would find the EVM systems to be inadequate while GAO found the EVMS’
outputs to be good enough. Some in industry have accused DCMA
evaluators of being overly picky in their evaluations … but that topic
is probably better left to another article. We’ll leave it with an
example of GAO’s comments—
For
example, the EVM system of the STSS contractor Northrop Grumman was
deemed noncompliant because of two low-level corrective action requests
related to issues with other contracts that did not materially affect
the performance baseline for the STSS contract we assessed. Also, the
C2BMC’s contractor Lockheed Martin Information Systems & Global
Services received a rating of noncompliant during 2009 because of a
corrective action request that stated that major subcontractor efforts
were not specifically identified, assigned, or tracked in the
organizational breakdown structure. However, after the noncompliant
rating was given, DCMA reversed its decision and decided to close the
corrective action without requiring the contractor to change its
methods.
Looking
at the 12 programs GAO felt it could review, it noted mixed results.
Some programs performed adequately while others experienced cost growth
and schedule slips stemming from such issues as “technical complexity,”
“quality issues,” “unanticipated design changes,” “late receipt of
hardware and production-level drawings,” etc. For example, with respect
to the Command and Control, Battle Management, and Communications
(C2BMC) program, GAO reported—
These
budgeted cost overruns are driven by increased technical complexity of
Spiral 6.4 development, and more support needed than planned to address
requests from the warfighter for software modifications. The $4.2
million of unaccomplished work on the agreement is driven by efforts in
the Part 5 portion of the agreement, including delays in system level
tests, late completion of C2BMC interface control document updates, and
unexpected complexity of algorithm development and network design.
GAO
also noted that the STSS program (managed by Northrop Grumman) was on
schedule, but nearly $73 million overrun against budget. There were
various reasons attributed to the cost growth, including slippage of the
launch dates. GAO asserted that—
If
the contractor continues to perform as it did through September 2009,
our analysis projects that at completion in September 2010, the work
under the contract could cost from $620.9 million to $1.6 billion more
than the budgeted cost of $1.6 billion.
Similarly,
the development contract for THAAD (Terminal High-Altitude Area
Defense, managed by Lockheed Martin) has experienced cumulative cost
overruns of $262 million and is also behind schedule. GAO reported—
The
contractor attributes overruns to the missile, launcher, and radar
portions of the contract. The missile’s unfavorable cost variance is
driven by unexpected costs in electrical subsystems, propulsion, and
divert and attitude control systems. Also contributing are issues
associated with the optical block, range safety, communications systems,
and boost motors. The launcher has experienced cost growth because of
inefficiencies that occurred during hardware design, integration
difficulties, quality issues leading to delivered hardware
nonconformances, and ongoing software costs being higher than planned
because of rework of software to correct testing anomalies. These
problems resulted in schedule delays and higher labor costs to correct
the problems. In addition, cooling and power issues with the radar have
contributed to overruns with the prime power unit. Numerous fan motor
control system redesigns and retrofits for the cooling system drove
costs by the supplier. Inexperience with building a prime power unit and
a limited understanding of the true complexity and risks associated
with the system led to significant cost growth and delivery delays.
As
we have noted with respect to other Executive Agencies, MDA seems to
have experienced the standard challenges associated with developing
technically challenging weapon and defense systems. Requirements
changes drive design changes, which affect manufacturing schedules.
Managing changes requires staff and other administrative resources, and
often requires technical personnel to take time away from their program
“day jobs” to support the administrative change management
processes—meaning the program work doesn’t get accomplished as planned.
This
GAO report seems to confirm what we’ve been hearing from industry—that
DCMA EVMS functional specialists are nit-picking and looking for reasons
to withhold EVM system approvals. GAO was able to find reliable data
to evaluate, despite numerous so-called noncompliances. We hope DCMA quits
treating EVMS like Government Property control systems, and develops a sense of
materiality and proportionality in its system reviews.
On
the two MDA programs with unreliable program baselines, we look to MDA
itself as the culprit. On one program, numerous program restructurings appeared to have
significantly impacted the prime contractor’s ability to maintain baseline
control. On the other program, it was MDA’s decision not to revise the
baseline when appropriate to do so, that led to the situation where GAO
felt the baseline no longer represented a meaningful point from which
to measure performance variances. In addition, GAO noted numerous
program changes that impacted the contractor’s ability to maintain
baseline control, of such impact that GAO apparently believed the baseline should have been revised.
Here’s
the lesson in all this—at least from our point of view. If you have a
technically challenging, complex development program—especially one
where requirements are fuzzy and likely to change over time—then you
need to expect
significant changes. You need to plan for the changes, and have a plan
to manage them. You need to anticipate the administrative resources
necessary to identify, process, and incorporate changes into both the
baseline and the contract. And you need to anticipate the technical
resources involved in that process as well.
Change
control is one of the key processes that distinguish contractors in the marketplace.
Contractors that have robust change control processes, and that
proactively manage the inevitable changes, do better than those that do
not. Period.
So how is your change control process working out for you?
It’s Not Always Government Contractors …
We
write quite a bit about alleged and/or admitted fraud by Government
contractors. We have posted many articles about alleged and/or admitted
fraud by military and civilian government officials. We’d post links
but, frankly, there are already too many corruption stories here and all you have
to do is visit the News Archive to find them for yourselves.
But
today we take a different slant on things. Today we look at fraud,
alleged and/or admitted, outside the Governmental arena. Why do we do
that? We do that because we hope it will be instructive. Generally and
broadly speaking, internal controls are largely the same whether one is
a defense contractor or a manufacturer of consumer electronics. The
need for segregation of duties, for example, is largely the same—as is
the need for an involved senior management and board of directors.
So
let’s peek outside our box of government contracting; let’s look up
from perusing the FAR and trying to interpret CAS for just a few
minutes, and let’s see what the rest of the world is up to—in terms of
fraud and corruption—courtesy of daily Department of Justice press
releases.
First we look at two stories of international corruption.
Technip S.A. Resolves Foreign Corrupt Practices Act Investigation and Agrees to Pay $240 Million Criminal Penalty – There have been bigger FCPA penalties, but not very many. According to this DOD press release,
the Paris-based “global engineering, construction, and services
company” agreed to pay that ginormous penalty in order to resolve FCPA
charges related to “its
participation in a decade-long scheme to bribe Nigerian government
officials to obtain engineering, procurement and construction (EPC)
contracts.” The DOJ release stated, “At crucial junctures… a senior
executive of Technip, KBR’s former CEO, Albert "Jack" Stanley, and
others met with … the executive branch of the Nigerian government to …
designate a representative with whom the joint venture should negotiate
bribes to Nigerian government officials. The joint venture paid
approximately $132 million to a Gibraltar corporation controlled by
Tesler and more than $50 million to the Japanese trading company during
the course of the bribery scheme.”
Continuing our theme of international corruption, we offer the following.
Italian Executive Extradited from Germany to the United States to Face Foreign Bribery Charges – Another DOJ announcement stated, “Italian
citizen Flavio Ricotti, a former executive of Rancho Santa Margarita,
Calif.-based valve company Control Components Inc. (CCI), has been
extradited to the United States from Germany in connection with his
alleged participation in a conspiracy to secure contracts by paying
bribes to officials of foreign state-owned companies as well as officers
and employees of foreign and domestic private companies.” Allegedly, “Ricotti,
who served as CCI’s vice president and head of sales for Europe, Africa
and the Middle East from 2001 through 2007,” oversaw more than $1
million worth of “corrupt payments” that were allegedly designed to
secure work for his company. In addition, five other CCI executives
were charged in the 16-count indictment, including, “five former CCI
executives also charged are Stuart Carson, CCI’s former chief executive
officer; Hong (Rose) Carson, CCI’s former director of sales for China
and Taiwan; Paul Cosgrove, CCI’s former director of worldwide sales;
David Edmonds, CCI’s former vice president of worldwide customer
service; and Han Yong Kim, the former president of CCI’s Korean office.”
Next,
looking at the domestic U.S. commercial marketplace, we bring you the
final story of corruption, as abetted by stupidity and naïveté.
Former Koss VP of Finance Pleads Guilty to Embezzling Millions and Millions
-- We have been following the tale of Koss Corporation and its former
Vice President of Finance, Sujata Sachdeva, for some time. On July 17,
2010, Ms. Sachdeva pleaded guilty to six counts of
wire fraud for embezzling roughly $34 million from her employer over a
period of approximately 11 years. Ms. Sachdeva (or “S-Squared” as she’s
called on www.goingconcern.com, where one can find quite a few stories on this topic), faces anywhere from 6 to 20 years in prison. According to this story,
“she stole the money from the headphone maker to pay for extravagant
shopping sprees and lifestyle amenities that included using Koss funds
for clothes, cars, trips, china, statues and home furnishings.“
According
to the stories linked-to above, S-Squared admitted that, “During the
12-year span she authorized the issuance of more than 500 cashier's
checks costing Koss about $17.5 million. That figure includes $10
million to American Express, plus payments to high-end retailers,
including Neiman Marcus and Saks Fifth Avenue. Payments also went to
charitable groups.” In addition, “From February 2008 to December 2009,
she authorized 206 wire transfers totaling $16 million from Koss
accounts to American Express to cover items she bought with the credit
card.” The plea agreement stated that Koss employees worked ‘in concert
with Sachdeva or at her direction’ to make fraudulent entries to the
company's books to conceal the embezzlement. ‘These entries would
falsely overstate assets, understate liabilities, understate sales,
overstate cost of sales, and overstate expenses,’ and the false entries
‘concealed the actual receipts and profitability of Koss,’ allowing the
scheme to continue.
S-Squared
knew how the company’s auditors worked. According to the plea
agreement, “Sachdeva did not fraudulently take money from Koss accounts
at Park Bank during the month of June, because transactions during that
month were reviewed by outside accountants.”
According
to the news reports, the scheme “came to light in December when
American Express told Michael Koss - who at the time held five
high-level titles at the company, including CEO and chief financial
officer - that money was being transferred from company accounts to pay
for Sachdeva's luxury shopping bills.”
This blog post by Francine McKenna at www.retheauditors.com makes some good points about Sachdeva and Koss. Here are a few of Ms. McKenna’s comments—
- Listing standards for the NYSE require an internal audit function. NASDAQ, where Koss was listed, does not.
- Management
oversight of the financial reporting process is severely limited by Mr.
Koss Jr.’s lack of interest, aptitude, and appreciation for accounting
and finance. Koss Jr., the CEO and son of the founder, held the titles of COO and CFO, also. Ms. Sachdeva, the Vice President of Finance and Corporate Secretary who is accused of the fraud, has been in the same job since 1992 and during one ten year period worked remotely from Houston!
Despite
the foregoing, the Koss Corporation has filed suit against American
Express (contending that it should have alerted the company earlier),
against former auditors Grant Thornton (contending that it should have
detected the embezzlement during performance of audit procedures), and
against Ms. Sachdeva herself (d’oh).
Conclusion
Each
of the stories included herein describe unfortunate actions of a
corporate executive management team, actions that violated law as well
as ethical standards. In some instances, the executives colluded with
each other, or with executives of other companies, in order to carry out
their schemes. DCAA audit procedures direct that an assessment be made
of management integrity and “tone at the top.” We don’t know, exactly,
how one does that. But we do know that these stories reinforce the
importance of doing so.
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Government Contract Math: False Timesheets Equal False Statement Equals Prison Time Plus Fine
For
some of us, Algebra was our Waterloo. Others had trouble with
Geometry. Still others made it to Trigonometry, Statistics, Calculus,
and/or other college and graduate-level courses. The point is, almost
everybody struggles with math at some point in their lives. Most of us
get just so far, but no further. At point, we hit the math wall and we
give up.
For
Donna Mitchell, her moment of surrender came at age 69, when she
encountered Government Contract Math. Her sad story can be found here.
Ms.
Mitchell was employed by Dragon Development Company, a government
contractor. Dragon Development was acquired by CACI, International,
Inc.—another government contractor—in November, 2007. At the time of
acquisition, Dragon Development was a subcontractor to the Titan
Corporation, who had a prime contract with the National Security Agency
(NSA) for “document delivery services.”
From the period January, 2006 through December 28, 2007 (a full two years), Ms. Mitchell—
--submitted
timesheets to Dragon and CACI falsely claiming that she had worked 752
hours more than she had actually worked on the Services Contract.
Mitchell represented in some of the timesheets that on 24 days she
worked an average of eight hours, when in fact, she did not work at all
on those days.
So over a two-year period, Ms. Mitchell over-reported her time by about 20 percent (752 / 4,360 = 17.25%, to be exact).
Dragon/CACI
invoiced Titan for Ms. Mitchell’s inflated labor costs. In turn, Titan
invoiced NSA. NSA paid the contractors “approximately $81,859” for the
unworked hours.
On
July 21, 2010, Ms. Mitchell pleaded guilty to “making false statements
arising from the number of hours she claimed she worked.” According to
the DoJ press release (link above), “Mitchell faces a maximum sentence
of five years in prison and a $250,000 fine.”
We call that learning math the hard way.
Post-script—
In August, 2009, we posted
a point of view regarding the necessary due diligence to be performed
during a merger/acquisition between two government contractors. At that
time, we said—
When
contemplating the acquisition of any business that sells goods and/or
services to the Federal government, it is important to evaluate the
probability of contingent liabilities, and factor them into the deal. Government contracts, by their very nature, have long tails. … Thus,
after an acquisition an allegation of wrongdoing can surface that
relates to actions that took place literally years before. Records can be missing, personnel may have departed, but the acquiring company still has to deal with the issue(s). It is critical to structure the deal so as to protect the acquiring entity from such contingent liabilities. Typically this is done either through purchase price adjustment, establishment of an escrow fund, or both.
During the due diligence phase of the acquisition,
it is critical to evaluate existing internal and operational controls,
administrative attention to detail, and to try to assess the probability
that a contingent liability will surface after acquisition. …
We
see no reason to change our point of view on this topic. We don’t know
the depth and/or rigor of CACI’s due diligence efforts during its
acquisition of Dragon Development. We don’t know whether CACI was held
liable in a separate proceeding, or if the company was able to negotiate
its way out of trouble. But we do know that if Ms. Mitchell’s “math
difficulty” had been identified as a potential contingent liability
prior to the acquisition, CACI could have taken steps to protect itself.
Organizational Conflicts of Interest – A Success Story!
The Federal
Acquisition Regulations (FAR) define an organizational conflict of
interest as a conflict that may occur when “because of other activities
or relationships with other persons, a person is unable or potentially
unable to render impartial assistance or advice to the Government, or
the person’s objectivity in performing the contract work is or might be
otherwise impaired, or a person has an unfair competitive advantage.”
Accountants don’t care very much about organizational
conflicts of interest (OCIs). OCIs have nothing to do with debits or
credits or dollar signs. But companies who want to successfully capture
government work need to care about OCIs—quite a bit, actually. We’ve
previously discussed OCIs here and also
here, and also over here, noting that—
Savvy readers will understand
that the regulations are just words, and that the words are given
meaning and come alive via interpretations provided by the Courts. So it is, with respect to OCIs, that
the Government Accountability Office (GAO) and the U.S. Court of Federal
Claims (CoFC) have interpreted various aspects of OCI rules in their
bid protest decisions.
OCIs are intractable little problems, both vague and complex
by their very nature. Normally, one hears about OCIs when somebody protests
an award. Sometimes OCIs arise in the
context of testing products for acceptance
and/or suitability. Here’s a story about an OCI in the context of a bid
protest. What makes this story different is that the Court found the
elimination of a bidder, based solely on an alleged OCI, to be
unreasonable. We think it’s worth exploring a little.
On July 16, 2010, the U.S. Court of Federal Claims issued a decision in the matter of Turner Construction Co., Inc. v. United
States, with McCarthy/Hunt, J.V. and B.L. Harbert-Brasfield & Gorrie, JV, as
intervenors. At stake was the contract to replace the Army Community
Hospital at Fort Benning, Georgia. The contract was originally awarded
to Turner in September, 2009, after 15 months of conducting the
procurement and evaluating offerors. Two competitors (the “intervenors”
in the current action) protested the award to the Government
Accountability Office (GAO). In February, 2010, GAO recommended that
the Army should “strip Turner of the contract” because of Turner’s
alleged OCIs, and “reprocure the contract.” In March, 2010, the Army
announced that it would “not waive” Turner’s OCIs, and follow the GAO
recommendation. Turner protested that
decision before the Court of Federal Claims.
Turner
argued that the GAO bid protest decision and subsequent recommendation
to the Army “lacked a rational basis.” In addition, Turner argued that
the Army accepted GAO’s recommendation without evaluating it, and did
not “reasonably evaluate” Turner’s request to waive its OCIs. Turner’s
alleged OCIs are rather complex so we’ll devote some space to discussing
them.
To develop its hospital design, the
Army obtained technical design assistance from a Joint Venture
consisting of Hayes, Seay, Mattern, & Mattern (HSMM) and Hellmuth,
Obata & Kassbaum, Inc. (HOK). HSMM was a wholly owned subsidiary of
AECOM. As part of its duties, HSMM assisted the Army’s Technical
Review Board in evaluating proposals received from bidders on the
hospital replacement project. Turner was not only the lowest price
offer, but the company also scored well in the technical evaluations.
Turner’s proposal anticipated awarding a subcontract to a
Joint Venture consisting of Ellerbe Becket (EB) and another firm. In
October, 2009, after a long courtship, EB was acquired by AECOM. In
July 2009 (during the courtship), it came to the attention of one the
HSMM participants that an OCI might exist, as AECOM was then in
negotiations to acquire EB. (Note that the OCI might be created because
AECOM would own a participant in the proposed project (EB) and a
participant in the project design (as well as a participant in the
technical evaluation) (HSMM). This “alignment of interests” might be
sufficient to create an OCI.) The HSMM employee immediately brought the
matter to the attention of the Contracting Officer and the Army’s legal
counsel. They decided that the one HSMM participant who knew of the
potential merger would recuse himself from further participation in the
proposal evaluations, but that the other HSMM participants, who were not
aware of the ongoing discussions between EB and AECOM, would be allowed
to continue their participation.
We have
discussed before the three “different flavors” of OCI. With respect to
the award of the hospital replacement contract to Turner, “both
protesters alleged the existence of ‘biased ground rules’ and ‘impaired
objectivity’ OCIs, and McCarthy/Hunt additionally alleged an ‘unequal
access to information’ OCI,” according to the Court.
During the protest proceedings before the GAO, the Contracting
Officer “addressed each possible type of OCI and found that no OCIs
existed prior to award of the contract.” However, GAO “disagreed” with
those conclusions, and “sustained the ‘unequal access to information’
and ‘biased ground rules’ protests.”
While the
protest was pending before the GAO, much discussion and debate ensued
regarding whether the Army would waive any OCIs. As the Judge Futey
(writing for the Court) reports, ultimately the Army decided not to
grant Turner a waiver.
After receiving the GAO’s
recommendation, the Army terminated Turner’s contract and Turner filed a
protest with the CoFC. Based on the protest grounds, the Court needed
to review the GAO’s decision, even though normally such decisions are
granted “a high degree of deference.” But the deference shown to GAO’s
decisions is not absolute, and executive agencies cannot simply rely on a
GAO decision to implement an unreasonable course of action. As the
Judge Futey wrote, “an Agency’s decision to follow the recommendation of
the GAO in a bid protest decision is arbitrary and capricious if the
GAO decision was irrational.” Judge Futey found—
According to Turner, the GAO conducted a de
novo review of the record that supplanted the
CO’s decision, which was based on ‘hard facts,’ with a decision based on
‘mere inference and suspicion.’ … plaintiff [Turner] argues that ‘the
assessment of OCIs is a fact-specific inquiry the CO must undertake, and
under the facts here, the CO reasonably concluded there was no OCI, and
GAO erred in substituting its judgment for that of the CO.’
Judge Futey concluded that, “it was irrational in this case to
depart from precedent and not consider the factually-based arguments of
Turner and the Army, especially when the GAO was tasked with looking
for ‘hard facts’ of an OCI.” Moreover, Judge Futey wrote that—
This Court thus finds that the GAO lacked a
rational basis because it overturned the CO’s determination without
highlighting any hard facts that indicate a sufficient alignment of
interests. Because the GAO lacked a rational basis, the Army was not
justified in following its recommendation. …
… the GAO failed to adhere to the proper standard of review.
The GAO’s task was to review the agency’s decision for reasonableness.
That agency decision, as described above, tracked the precise state of
negotiations between AECOM and EB, the exact dates upon which critical
changes to the RFP occurred, the exact employees that could have known
of the merger, and numerous other facts. Using this data, the CO
concluded that no OCI existed. The GAO failed to address this OCI
decision; in fact, the GAO decision on a biased ground rules OCI does
not even cite the agency decision that it was
tasked with reviewing. Instead, the GAO cites exactly one piece of
information—the text of AECOM’s contract with the agency—to support its
finding that the record ‘suggests’ that AECOM had ‘special knowledge’
that would have given Turner an unfair advantage.
(Emphasis in original.)
Turner was granted the permanent injunction it sought. The
Army was ordered by the Court to “restore” the original hospital
replacement contract to Turner and “not reprocure the contract to
another firm.”
Are there any lessons to be learned
here? We think so. When two Government contractors are considering a
merger/acquisition, it is important to review existing contractual
relationships to see if any actual, or potential, OCIs might exist. And
it is not only existing contracts that need to be reviewed, but also
future contracts and pending proposal submissions. Pipelines of
potential contract activity need to be reviewed with a discerning eye,
to see if a situation like that experienced by Turner might exist.
And please note that Turner itself did not have the alleged
OCI. It was Turner’s subcontractor, EB (who was actually one member of a
Joint Venture), that had the alleged OCI. This fact suggests that the
level of due diligence inquiry needs to be quite a bit more granular
than simply looking at the two prime contractors to see if a potential
OCI might exist. This is a demanding task, and one that time and
budgetary constraints might not always permit. But as this article
demonstrates, one ignores that level of inquiry at one’s own peril.
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