FEDERAL CONTRACT LAW

By GCN

| September 8, 1999

The General Accounting Office continues to ratchet up its reviewing of orders placed under contracts with the Federal Supply Service.

The General Accounting Office continues to ratchet up its reviewing of orders placed under contracts with the Federal Supply Service. As an arm of the General Services Administration, FSS awards multiple contracts for a variety of goods and services. If you are placing orders that include incidental items, watch out.In 1984, the Competition in Contracting Act made orders under schedule contracts exempt from the requirement for full-and-open competition. In the last few years, GSA has made it increasingly easy to order items from its FSS schedule contracts. For example, buyers no longer face maximum-dollar ceilings on orders, nor must intentions to buy be publicly announced in the Commerce Business Daily. Spot pricing discounts on individual orders are also now permissible.With each order carrying a 1 percent ordering service fee, GSA has every incentive to increase schedule business. Schedule order dollars are rising by the billions.In the view of some procurement experts, though, loosening restrictions on FSS orders is becoming a way for federal agencies to circumvent the requirement for competition in contracting. Perhaps in response, GAO is cracking down on such orders through its bid protest decisions.In the past few years, GAO has heard and decided protests alleging a lack of competition held under the FSS program. Instead of issuing an open request for proposals, federal agencies will sometimes invite two or more FSS contractors to submit proposals in response to a statement of requirements.Although not a classic negotiated procurement process, GAO uses its bid protest process to police these informal competitions and enforce fundamental notions of fairness.Recently, GAO struck down the inclusion of so-called incidentals in FSS orders in a decision involving Pyxis Corp. of San Diego. Following the lead in a Court of Federal Claims decision, GAO held that all items purchased in an FSS order must already be listed in the schedule contract.

Joseph J. Petrillo

Lenient past

In a line of cases stretching back over a decade, GAO had not been so strict. If an order included a small amount of items which were not included in the contractor's schedule contract, these were considered incidental and did not invalidate the order. A printer cable is a classic example.

The Court of Federal Claims, however, took a different tack in a 1997 decision, ATA Defense Industries Inc. vs. the United States. The court found no justification in the Competition in Contracting Act for an incidentals exception. Either the items ordered were included in the schedule contract or they were not. If not, their prices had not been negotiated or evaluated by GSA and therefore did not qualify for the exemption from the requirement for competition which CICA carved out for GSA contracts.

GAO ultimately found this position persuasive and adopted it in the Pyxis protest. What makes this turnabout even more striking is that the matter of the incidentals wasn't even raised in a timely fashion.

The protester first learned of them in its copy of the agency's report to GAO on Pyxis' protest over another matter. When it learns of an additional ground for protest, a protester can add it to the protest, but must do so within 10 days.

The protester fell into a common trap. It asked for and received an extension of time to reply to the agency report, which put this reply beyond the 10-day deadline. The protester did amend its protest within the 10 days but didn't raise the incidentals challenge until the reply to the agency report.

GAO ruled that this part of the protest was untimely. But it then invoked a little-used exception to the timeliness rules for what it termed a significant issue. What made this issue so important was the conflict between the Court of Federal Claims and prior GAO case law.

Giving in

GAO resolved the conflict by acceding to the court ruling and withdrawing its case-made exception for incidentals. Also noteworthy is that the dollar value of the incidental items in Pyxis was small'no more than 6 percent of each of three protested orders. There seems to be no wiggle room under the newer and stricter rules.

This ruling may detract from the utility of FSS' schedule contract program. But if FSS can streamline the process of adding items by contract amendment, it may create a workaround for agencies that want to buy more than is on a particular contract and that need the protection of a single contract document.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell, PLLC. E-mail him at jp@petrillopowell.com.

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