GSA challenged over global equipment purchase agreement
An old lesson got a new airing when a contractor challenged the establishment of a global purchase agreement. The General Services Administration wanted to use a system of technically reasonable, top-ranked pricing to award equipment contracts under federal procurement schedules. It’s a no-no, like Federal Drive with Tom Temin heard from procurement attorney Joseph Petrillo of Petrillo and Powell.
Tom Temin: Joe walks us through this case because it’s, I think, one of the iconic cases where something like a pandemic really forces an agency to rethink their contracting strategy.
Joe Petrillo: Yes, that is absolutely correct. For your information, I think most of us are familiar with the Federal Housing Administration, which insures certain mortgages federally. This means that in the event of default on an FHA insured mortgage, the lender can foreclose on the property and transfer the property to the FHA and the lender gets paid. And now it’s the FHA’s problem to deal with a foreclosed property. And HUD, which is the parent agency of FHA, awards contracts so that contractors can handle this portfolio of foreclosed homes. These are single family homes, and can be sold to cover mortgage losses.
Tom Temin: So it would be bidders, or like brokerage firms or real estate firms.
Joe Petrillo: I suppose. I believe there is a real industry that offers this type of service for HUD and probably private lenders as well. So we have a situation where there was a large procurement that HUD was running, and they were going to award a single indefinite quantity contract for each of the 11 regions that they manage that have this program. The evaluation criteria were technical acceptability, ie pass, fail, past performance, which was going to be evaluated comparatively, and price. It was a total small business set aside. The FHA issued a solicitation and amended it several times. And in the middle of this process, the COVID-19 pandemic began. The COVID-19 pandemic has of course had an impact on the housing situation. Specifically, we made legislative and policy changes to address the economic pressure that landlords were under. The CARES Act provided for a moratorium on foreclosures, the initial duration was, I believe, six months, which could be extended for another six months. So there is a possible year, no foreclosures under these properties. Additionally, HUD changed some of its policies and added mortgage payment relief programs to reduce the number of foreclosures. Despite these changes, the FHA has not changed, the RFP has not changed its statement of requirements, has not revised its estimated quantities. And those estimated quantities were based on historical volumes of seizures that predated COVID.
Tom Temin: Of course, and quantities can affect the price a bidder is willing to bid. If you have to sell a house, there is a certain commission, but if you sell 1000 houses, you may take a lower commission, for example.
Joe Petrillo: Sure. And of course, this reflects the infrastructure you need to build and maintain to fulfill the contract. And this is also a very important factor. So when the FHA refused to make changes to the solicitation, three bidders protested, they were able to make a pretty convincing case that the changes in the law establish changes and requirements. And that would have the effect of drastically reducing the number of foreclosures and maybe even eliminating it for a while. And then the protesters made a pretty good case that after the moratorium is lifted, there may be a flood of foreclosures, because of economically debilitated people who can’t get back on their feet and have time to fix their mortgages .
Tom Temin: And by the way, these protests are happening after they initially submitted bids?
Joe Petrillo: I believe there were no offers yet at this stage of procurement. We have a situation where the solicitation is always modified.
Tom Temin: And so the protest went to court or to the GAO?
Joe Petrillo: This is a demonstration of the GAO. I’m glad you mentioned that. This is important and the name of the protest is Chronos, it was one of the first protesters, Chronos solutions LLC. The question here now is what is the GAO going to do about it? And that basically supported the protest. I mean, the FHA said the changes in the estimates were speculative and the contracts being considered were of indefinite quantity, so they had flexibility built in, but that didn’t clear it with the GAO. The GAO felt it was necessary for the solicitation to reflect actual FHA requirements, which included changes to the law. And they also thought that it would probably be necessary to revise these estimates in light of these developments. So the GAO has upheld the protests, the FHA needs to go back to the drawing board, take a look at these things, and modify the solicitation as needed.
Tom Temin: And as far as we know, now, if ever the election is settled, and the new Congress comes and the new administration comes, there could very well be new legislation that could even change the conditions once again.
Joe Petrillo: Absolutely, it’s not over yet. And we could see, I think, a possible extension of the moratorium or other policy changes that are going to affect this contract and how it works.
Tom Temin: So what should an agency do in general, then I guess, pay attention to the weather. And if you have already issued the RFQ, not information, but real RFQ, RFP, Tender – suppose the offers have come in, is it possible for the agency to say that I send back these offers, everything is modified, here are the new conditions, the new call for tenders, the new requirements?
Joe Petrillo: Well, absolutely. And depending on the type of contract, you could actually, if you don’t, expose yourself to some potential claim. What you might have is that a contractor who doesn’t even have the ability to make a claim is so weak that they’re going to default. This is not a good situation in many ways.
Tom Temin: And it also seems like there was a little miscommunication within HUD since HUD policy, from one perspective, was reacting to COVID-19. pandemic, the Federal Housing Administration which is part of HUD as you pointed out, you think there would have been some kind of channel to say hello guys on this foreclosure deal that you’re trying to assign, things have changed.
Joe Petrillo: Yeah, I’m a little confused about that part too, because of course these are changes that directly affect the Federal Housing Administration, which is the requesting agency for this supply. So there should have been some awareness that it needed to be redone.
Tom Temin: So right now it’s back to the drawing board.
Joe Petrillo: Yes it’s sure. It’s back to the drawing board and we’ll see what the FHA does with the supply.
Tom Temin: Joseph Petrillo is a public procurement lawyer at Petrillo and Powell. As always, thank you very much.
Joe Petrillo: Thanks Tom.