Contractor qualifications: responsibility

As reported in last year's Year in Review, (1) in Impresa Construzioni Geom. Domenico Garufi v. United States (Impresa), (2) the United States Court of Appeals for the Federal Circuit (CAFC) applied a rational basis standard to judicial review of contracting officer responsibility determinations. (3) When the CAFC applied this standard to the facts of Impresa, however, it could not assess the reasonableness of the contracting officer's determination "because the contracting officer's reasoning supporting that determination is not apparent from the record.: (4) The CAFC remanded the case to the Court of Federal Claims (COFC) for a deposition of the contracting officer to determine specifically "(1) whether the contracting officer, as required by 48 C.F.R. [section] 9.105-1(a), possessed or obtained information sufficient to decide the integrity and business ethics issue, including the issue of control, before making a determination of responsibility; and (2) on what basis he made the responsibility determination." (5)

On remand, the COFC determined that the "contracting officer, based on his deposition testimony.... failed to conduct an independent and informed responsibility determination." (6) More specifically, the COFC found that the contracting officer unreasonably relied on the technical evaluation board's review, which was "limited to checking the master list of debarred firms and curiously confirming the offeror's satisfactory performance on past contracts." (7) Additionally, the contracting officer failed to inquire independently about JVC's responsibility or investigate the terms of the receivership agreement, despite knowing of an ongoing investigation of bid-rigging at Sigonella and the Italian court actions against JVC, the apparent awardee. (8) The court found that the contracting officer instead "made assumptions about the terms of the receivership agreement, but he did not himself read it nor did he obtain assistance in reading it." (9) Because the contracting officer "lacked sufficient information to be in a position to make the assumptions he did and because he failed to make an affirmative assessment of JVC's responsibility," the COFC held that the contracting officer failed to conduct a reasonable responsibility determination and sustained the protest. (10)

The Times, They Are A-Changing

Last year's Year in Review reported that the standard set forth by the CAFC in Impresa conflicted with the General Accounting Office (GAO) bid protest rule addressing affirmative responsibility determinations. (11) In light of the CAFC's decision, the GAO announced in February 2002 that it was considering a revision of its bid protest rules and welcomed comments. (12) After considering the comments, the GAO proposed revising its affirmative responsibility rule at section 21.5(c) to expand its consideration of such determinations "where there is evidence raising serious concerns as to whether the contracting officer unreasonably failed to consider available relevant information, or otherwise violated a statute or regulation" (13) Such protests must be based on more than "mere information and belief or speculation" and must be "substantial enough to bring into question whether the affirmative determination could have a rational underpinning." (14) Under the proposed language, the "GAO anticipates that allegations most commonly will be based on the alleged failure of the contracting officer to consider publicly-available relevant information," as occurred in the CAFC's Impresa decision. (15) To date, however, the GAO has not changed its bid protest regulations, meaning that the "GAO's long held view that such determinations are so subjective that they do not lend themselves to reasoned review" remains. (16)

Bankruptcy and Responsibility

Both the CAFC and the GAO had the opportunity to address the impact of a prospective contractor's bankruptcy filing upon the contracting officer's responsibility determination. While bankruptcy is obviously a factor that the contracting officer must consider, both the CAFC and the GAO have recently held that a prospective contractor is not necessarily nonresponsible just because it has filed for bankruptcy. These decisions further illustrate the discretion that contracting officers exercise in making their responsibility determinations, and the emerging importance of documenting the determination process.

In Bender Shipbuilding & Repair Co. v. United States, (17) the CAFC affirmed a COFC decision upholding the contracting officer's affirmative determination that Halter Marine, Inc. (Halter Marine), the awardee of an Army contract for the construction of specialized ships, was a responsible prospective contractor, even though Halter Marine and its parent company had filed for Chapter 11 Bankruptcy reorganization shortly before the award. In light of this bankruptcy filing and given that a "responsible" contractor under FAR 9.104-1(a) must "have adequate financial resources to perform the contract, or the ability to obtain them," (18) Bender Shipbuilding and Repair Company alleged that the contracting officer's responsibility determination was "arbitrary and capricious, an abuse of discretion, or otherwise not in accordance with law." (19) The CAFC disagreed and denied the appeal, concurring instead with the COFC's finding that "the contacting officer made an informed, complicated business judgment based on ample factual support in the record, and the agency provided a coherent, reasonable explanation for the exercise of the contracting officer's decision." (20) The CAFC considered information from two preaward surveys by the Defense Contract Management Agency (DCMA), as well as other financial reports and expert advice the contracting officer relied on to make his responsibility determination. (21) The CAFC agreed that "[a]lthough Halter Marine and its parent had financial problems, we cannot say the contracting officer's determination that Halter Marine was financially responsible was arbitrary and capricious or without adequate factual basis." (22)