Use of Contract Claims History in Past Performance Evaluations

Two GAO decisions issued earlier this year finally provide guidance on the use of contract claims history in past performance evaluations. This issue has been around for a while, but it is one on which the Federal Acquisition Regulation Part 15 rewrite took a pass in September 1997:

(e) Responding to adverse past performance information. We considered alternatives relating to two issues in this area.

(1) Prohibition on the use of certain types of past performance information. The proposed rule did not prohibit the use of adverse past performance information. Several public comments suggested that past performance information on contracts in litigation or dispute should not be used until the litigation or dispute is resolved. The rule requires the contracting officer to evaluate the currency, relevance, source, context, and general trend of the past performance information. We did not adopt this alternative because the requirement to evaluate the context of the information already addresses this concern. In addition, we were concerned that the suggested alternative may encourage litigation for the purpose of avoiding the inclusion of adverse past performance information in future acquisitions. . . .

Federal Acquisition Circular Number 97-02, 62 Fed. Reg. 51228 (1997). Thus it is that Federal Acquisition Regulation 15.305(a)(2) is silent on the use of claims history in past performance evaluations. Rather, Federal Acquisition Regulation 15.305(a)(2) provides only that: “The currency and relevance of the information, source of the information, context of the data, and general trends in contractor’s performance shall be considered.”

Use of contract claims history in a past performance evaluation first surfaced in AmClyde Engineered Products Co., Inc., B-282271, June 21, 1999. At issue there was a solicitation for portal cranes, a solicitation that required evaluation of five years’ performance under contracts for portal cranes of “similar capacity and complexity.” The protester had substantial relevant past performance history, but this experience was discounted because “[t]heir past performance history has been weak in customer satisfaction because of failure to meet milestone schedules, reliability problems, documentation inaccuracies and claims.” Id., at 4. It turned out that the agency was able to readily document defects in product design and manufacturing, as well as errors in drawings and maintenance manuals. Thus GAO sustained the agency’s past performance evaluation. But in doing so, GAO laid down a warning for future cases:

While the claims apparently had no impact here, we agree with the protester that, absent some evidence of abuse of the process, agencies should not lower a firm’s past performance evaluation based solely on its having filed claims. Contract claims, like bid protests, constitute remedies established by statute and regulation, and firms should not be prejudiced in competing for other contracts because of their reasonable pursuit of such remedies in the past.

Id., at 6 n.5.

GAO soon got just such a case, this one a solicitation for a construction contract for pierside construction projects. Nova Group, Inc., B-282947, Sept. 15, 1999. The agency made a best value selection decision, awarding the contract to the offeror with the best technical rating, an offeror whose proposed total price was just under one percent more than the protester’s proposed total price. The protester had been rated only as “satisfactory” under past performance, and this was “based on [Nova’s] identification of nine claims since claims was considered a weakness in terms of customer satisfaction (e.g., effectiveness of management, reasonableness of price cooperation/responsiveness).” Id., at 8. The agency got nowhere with its attempt to characterize the issue as one of customer satisfaction, rather than contract claims history:

While it is true that these disputes are instances where the parties failed to reach agreement without recourse to the statutory claims resolution process, the agency’s resulting conclusions are not reasonable. For example, since Nova’s claims have largely been resolved with Nova receiving most or all of the claimed amounts, this suggests that it was ultimately found that the prices claimed were not unreasonable. Also, since there is no evidence suggesting that Nova failed to perform the contract changes effectively, delayed contract performance, or failed to respond to or cooperate with the agency in performing the contract changes, the record does not evidence that these claims indicate problems in management effectiveness, responsiveness or cooperation.

We find from this evaluation record that Nova was downgraded simply because it has actively pursued claims through the statutory contract claims resolution process on nine occasions over 15 years. Such an evaluation essentially penalized Nova simply for using the contract dispute process. The RFP did not state or reasonably indicate that this was how claims histories would be considered in the evaluation process. Nor would such consideration be proper, given that the protester was merely using the framework for resolving such disputes that Congress established in the Contract Disputes Act. We think that it would be improper for contracting agencies to impose evaluation penalties merely for an offeror’s having availed itself of the contract claims process, such as occurred here; imposing such penalties would create barriers to legal remedies created by Congress.

Id., at 9.

While we’ll have to wait for further cases to develop this area, it is at least now abundantly clear that agencies may not adversely rate past performance based only on a history of contract claims.

— Cy Phillips