ABC - Past Performance Evaluations on Federal Construction Contracts

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PAST PERFORMANCE EVALUATIONS ON FEDERAL CONSTRUCTION CONTRACTS (02/10/2011)

By Reggie Jones and Alexa Santora, Construction Executive

In today’s economy, positive past performance evaluations are essential for contractors pursuing federal government construction work. A poor evaluation can effectively destroy the possibility of being awarded future work for the federal government.

The government states it evaluates a contractor’s past performance to determine its potential future performance, but some contractors believe the government evaluates past performance to dissuade contractors from asserting claims for additional time or costs on current and future projects. Ultimately, the government uses past performance evaluations as both a carrot and a stick, depending on the circumstances.

It’s important for contractors to understand how the government evaluates their performance, as well as whether—and to what extent—a contractor can challenge an inaccurate past performance evaluation.

What Does the Government Evaluate?
The importance of past performance evaluations has skyrocketed as the federal government began to solicit construction services primarily through competitively negotiated or “best value” procurements (i.e., request for proposals instead of invitation for bids). Under “best value” solicitations, Federal Acquisition Regulation (FAR) 15.304(c)(3)(i) requires source selection officials to consider past performance in all negotiated procurements above the simplified acquisition threshold ($100,000). According to FAR 42.1501, past performance information includes the contractor’s record of conforming to contract requirements and to standards of good workmanship, its record of forecasting and controlling costs, its adherence to contract schedules, and its history of reasonable and cooperative behavior and commitment to customer satisfaction. In short, a past performance evaluation looks subjectively at all of the contractor’s project management abilities.

Although pertinent statutes and the FAR require the government to evaluate price in making contract awards, the government is permitted to consider performance history as more important than price. This causes challenges for contractors that typically submit hard bids. With a typical RFP, the government evaluates four criteria: technical approach, past experience, past performance and price. It is common for price to be considered the least important factor and past performance to be considered one of the most important factors.

FAR 42.1502(e) requires government officials to evaluate contractor performance on every construction contract greater than $650,000. Past performance evaluations rate various aspects of contract performance, such as quality of performance, timeliness, effectiveness of management, cost control, compliance with a small business subcontracting plan, and compliance with safety and labor standards. The contractor can be given an overall rating of unsatisfactory, marginal, satisfactory, very good or exceptional.

The contracting officer is required to notify the contractor when the initial evaluation is completed. The contractor then has 30 days to submit written comments, statements or rebuttals responding to the evaluation. If the contractor and evaluator disagree, the dispute is considered by an agency official one level above the contracting officer. FAR 42.1503(b) dictates that the “ultimate conclusion on the past performance evaluation is a decision of the contracting agency.” That is little comfort to contractors.

Contractors executing contracts of more than $650,000 always receive evaluation. The government retains discretion, however, to evaluate contracts of less than $650,000, and to issue interim evaluations during contract performance. Interim evaluations inform contractors if their performance is deficient so they may take corrective measures to make improvements before contract completion. The content of interim evaluations can be copied onto the final evaluation. The evaluating official will state on the final evaluation whether the contractor improved performance after receiving the interim evaluation.

Completed past performance reviews are stored on a government electronic database, the Past Performance Information Retrieval System (PPIRS). Once submitted, the evaluations are available for use in future source selections for all government agencies. Evaluations are not publicly disclosed documents and only can be used by government agencies for procurement purposes. Evaluations may be used in source selections and in making responsibility determinations for a period of six years.

Can Past Performance Evaluations Be Challenged?
Despite the importance of past performance, the FAR provides remarkably few remedies for a contractor to challenge a procedurally or substantively incorrect performance evaluation beyond the contracting agency. Until recently, neither the U.S. Court of Federal Claims nor agency contract appeals boards entertained suits challenging faulty past performance evaluations. Only recently has the Court of Federal Claims recognized that it has jurisdiction under the Contract Disputes Act of 1978 (CDA) to hear contractor challenges of faulty performance reviews.

The CDA permits contractors to appeal final decisions of a contracting officer on a contract claim to a board of contract appeals or the Court of Federal Claims. The contractor first must submit a written request for a final decision from the contracting officer. The contractor’s request must seek relief, as a matter of right, that relates to or arises under the contract.

Once the contracting officer issues a final decision, or time for reaching a decision expires, the contractor may choose to appeal to either an agency board of contract appeals or the Court of Federal Claims. A contractor may appeal an adverse decision to the U.S. Court of Appeals for the Federal Circuit.

Challenging Past Performance Evaluations as CDA Claims
In the recent Todd Construction trilogy of cases—known as Todd I(2008), Todd II (2009) and Todd III (2010)—the Court of Federal Claims held for the first time that contractors may challenge faulty past performance evaluations under the CDA.

While this series of cases marks an important step toward a remedy for faulty past performance evaluations, it stopped short of directing the contracting agency to change the evaluation or remove it from PPIRS. At most, the court will issue declaratory relief and remand the matter to the contracting agency with instructions to reevaluate the past performance evaluation when an evaluation is procedurally or substantively inaccurate.

Courts generally are reluctant to direct agencies on how to handle procurement matters and only guide the agency to reevaluate areas of the past performance evaluation where it did not adequately justify the given rating.

In Todd I, the contractor filed a lawsuit seeking review of the contracting officer’s decision to reject its agency-level challenge to the performance evaluation, based on the contractor’s belief that its unsatisfactory past performance evaluation was both unjustified and a violation of U.S. Army Corps of Engineers’ regulations. For the first time, the court held that disputes regarding the accuracy of a performance evaluation are appealable claims for purposes of the CDA. The court held that when a contractor first sends a written request to the contracting officer to change the evaluation, and the contracting officer denies the request, the contractor’s request ripens into a claim for purposes of appealing to the court.

According to the Todd I court, when an agency requires a performance evaluation, the contractor implicitly becomes entitled to an accurate and fair evaluation. The court concluded that past performance evaluations are “related to, or arise under” the contract because there would be no performance evaluation without the underlying contract.

In Todd II, the court addressed the proper standard of review and availability of relief for a contractor seeking to change its performance evaluation. The court adopted two separate standards of review: abuse of discretion for the content of the evaluation; and de novoreview for procedural conformity.

Stated more simply, a contractor may obtain relief when challenging a faulty unsatisfactory rating only if the rating was “arbitrary and capricious.” The court also held it could issue declaratory relief and remand the case to the agency with proper and just directions to reevaluate the evaluation if the contractor were to prevail on its claims.

However, the court has no authority to direct the agency to set aside the evaluation or order the Corps to remove the evaluation from the database, as the contractor requested.

In Todd III, the court dismissed the claim regarding procedural deficiencies because the contractor failed to establish a causal connection between the procedural improprieties and its injury. Specifically, the contractor could not show that its rating would have been higher than unsatisfactory if the Corps followed the proper procedures. The Corps’ failure to notify the contractor of specific performance evaluation factors was not actionable because those factors were listed in the FAR. The Corps’ failure to request remedial measures before issuing the evaluation also was not actionable because the contractor did not show it was prepared to take remedial measures, or that remedial measures would have improved the evaluation.

Ultimately, the court found the Corps’ rating was not arbitrary and capricious, and issuing a rating of unsatisfactory was not an abuse of the Corps’ discretion. The rating was based on the poor work of Todd’s subcontractor, and prime contractors generally are held responsible for subcontractor work.

Reggie Jones is a partner with Smith, Currie & Hancock LLP, Washington, D.C., and Alexa Santora is a third-year law student at George Washington University’s School of Law. For more information, call (202) 461-3111 or email rmjones@smithcurrie.com.