Many federal systems integration contracts contain provisions allowing changes in the products and services to be delivered over the contract term. Among these provisions are the familiar “Changes” clause, which allows agencies to order changes within the scope of the contract, product substitution clauses that require contractors to offer state-of-the-art replacements and allow contractors to replace discontinued products, and engineering changes clauses that give the contractor the right to propose, and the agency the right to accept, improved or innovative products or services that become available during the contract term. Clauses such as these are used by agencies to satisfy the broad requirement in subsection 201-20.203-5 of the Federal Information Resources Management Regulation, 41 C.F.R., ch. 201, that agencies “determine strategies for maintaining up-to-date FIP [Federal In formation Processing] resources and avoiding outdated FIP resources over the system life.”
A matter to be considered before an agency issues or accepts a contract modification is whether the modification is within the scope of the original competitive procurement, or instead is tantamount to a new acquisition that falls under statutory competition requirements, and therefore must be separately competed. Contract modifications allowing a change in the products or services, or quantities, to be delivered, and agency exercise of an option or change order, are all subject to challenge by competing vendors. The issue in such cases is whether the modification is so substantial as to change the nature of the contract, thus requiring a new competition, or whether the option was evaluated as part of the original competition, and is unilaterally exercisable at a price specified in the contract, or reasonably determinable from its terms.
The leading case is AT & T Communications, Inc. v. Wiltel, Inc., 1 F.3d 1201 (Fed. Cir. 1992). Wiltel reverses a decision of the General Services Administration Board of Contract Appeals (GSBCA), Wiltel, Inc. v. General Services Administration, GSBCA No. 11857-P, Aug. 4, 1992, 93-1 BCA ¶ 25,314. In the decision below, the GSBCA held that a modification adding dedicated telecommunication services on fiberoptic cable (T3 service) to the ten-year, comprehensive FTS2000 contract was outside the scope of the original competition, and was therefore a new service requiring a new competition. The statement of work required dedicated transmission services, and described these services as analog voice and data at speeds up to 9.6 kilobits per second, digital data at speeds up to 64 kilobits per second, and nonchannelized dedicated telecommunications services on terrestrial copper cable (T1 service). The solicitation al lowed offerors to propose additional features, and while both offerors proposed T3 service as an additional feature, GSA did not accept, or evaluate this or any other offered additional feature.
The GSBCA had looked to a long line of General Accounting Office (GAO) decisions to decide whether T3 service was outside the scope of the original competition. Id., at 126,110-11. Focusing on a factor announced by the GAO to be considered in these cases, whether the offer ors would have anticipated such a modification, the GSBCA concluded that since GSA had not accepted, or even evaluated, offers of T3 service, the offerors would not have expected that T3 service could be purchased. Id., at 126,111. While the GSBCA recognized that the FTS2000 contracts include a “Service Improvements” clause allowing the contractors to propose improvements to offered services or features, the GSBCA concluded that T3 service was a new or additional service, and not an improvement. Id., at 126,112.
On appeal, the Federal Circuit held that the GSBCA had erred in its reading of the Services Improvements clause, and that the “sweeping language” of this clause allowed the contractors to offer “any service advantage.” 1 F.3d at 1206. The Federal Circuit looked to a previous GSBCA decision on modifications within the scope of the FTS2000 contracts, MCI Telecommunications Corp., GSBCA No. 10450-P, Feb. 28, 1990, 90-2 BCA ¶ 22,735, and noting the GSBCA’s conclusion there that “all of the offerors . . . believed that the successful vendors would provide virtually all commercially available intercity telecommunications services,” held that the GSBCA should have similarly concluded in Wiltel that the offerors would also have believed T3 service to be within the scope of the contract. Id., at 1207. The Federal Circuit went on to hold that GSA’s nonacceptance, or refusal to evaluate offers of T3 service under the solicitation, was not a rejection, nor the sort of disapproval that would have led a reasonable offeror to conclude that offers of T3 service were out side the scope of the proposed contract. Id.
In Wiltel, the Federal Circuit recognizes that the Competition in Contracting Act of 1984 offers no guidance to decide when a modification of a contract requires a new competition, else falls within the scope of the original competitive procurement. Id., at 1205. The Federal Circuit could have looked to the Federal Acquisition Regulation (FAR), 48 C.F.R., ch. 1, but there it would have learned only that contract modifications “within the scope of the contract” are exempted from competition requirements, FAR 6.001(c), just as are exercises of options that were evaluated under the original competition, and can be exercised at prices “specified in or reasonably determinable from the terms of the basic contract . . . .” FAR 17.207(f).
There are many GAO cases that consider the issue whether a subsequent contract modification is within the scope of a competitive procurement. GAO has viewed any analysis of this issue as one:
to be determined by examining whether the alteration is within the scope of the competition which was originally conducted. Ordinarily, a modification falls within the scope of the procurement provided that it is of a nature which potential offerors would have reasonably anticipated under the changes clause. To determine what potential offerors would have reasonably expected, consideration should be given, in our view, to the procurement format used, the history of the present and related past procurements, and the nature of the supplies or services sought. A variety of factors may be pertinent, including: whether the requirement was appropriate initially for an advertised or negotiated procurement; whether a standard off-the-shelf or similar item is sought; or to whether, e.g., the contract is one for research and development, suggesting that broad changes might be expected because the Government’s requirements are at best indefinite.
American Air Filter Co., DLA Request for Reconsideration, B-188408, June 19, 1978, 78-1 CPD ¶ 443, at 9-10.
GAO has expressly rejected the contention that the issue should be decided on “cardinal change” principles. The “cardinal change” doc trine is now only a historical artifact. Once a cardinal change served to distinguish between those changes in the contract work that could be ordered by agencies under the Changes clause, and those changes so drastic that they resulted in performance of duties “materially different from those bargained for.” Allied Materials & Equipment Co. v. United States, 569 F.2d 562, 56364 (Ct. Cl. 1978).
It needs to be remembered that the “cardinal change” doctrine was important only before the Contract Disputes Act of 1978. A cardinal change was by definition a breach of the under lying contract, and back then claims arising under the contract were decided by agency boards of contract appeal, and breach claims, claims outside the contract, were decided in the United States Court of Claims. The Wiltel court recognized that the case before it was a different one from the cases that produced the cardinal change doctrine: “The cardinal change doctrine asks whether a modification exceeds the scope of the con tract’s changes clause; this case asks whether the modification is within the scope of the competition conducted to achieve the original contract.” 1 F.3d, at 1205.
GAO thought any analogy to the cardinal change doctrine was inappropriate because it allowed the introduction of self-serving evidence:
Application of the cardinal change doctrine assumes a set of relationships between the litigants the Government on one side, the claimant on the other. The cases applying the doctrine reflect that relationship, molded by constraints inherent in the rules of evidence, drawing into focus what the contracting parties are deemed to have had in mind when they executed the contract. In contrast to circumstances reflecting disagreement between the Government and its contractor, contract modification flows from the parties’ willingness to agree. For an in crease in price, the contractor may be expected to be amenable to performing the additional work. Such a contractor, obviously will not seriously question whether the award is outside the scope of the original contract and we do not expect the contractor to concern itself with the technical niceties of the statutory requirement that the Government award contracts competitively. Such a contractor will be prone to view the additional work as a logical extension of the original agreement.
Id., at 89.
Wiltel rejects GAO’s view that the issue whether a subsequent contract modification is within the scope of a competitive procurement should proceed from an analysis of that which potential offerors reasonably would have expected. The GAO analysis is unworkable for the same reason that GAO concluded an analysis on cardinal change principles is unworkable, viz., both depend on self-serving evidence.
The terms of the solicitation and the contract that resulted from the solicitation are the only reliable sources for a determination of the contract’s scope, particularly so in federal systems integration contracts when the issue whether a modification is within the scope of the original competitive procurement is likely to arise years after the original procurement was concluded. This view of Wiltel is confirmed in recent GSBCA decisions.
Consider Pacific Bell v. National Aeronautics and Space Administration, GSBCA No. 12814-P, June 29, 1994, 94-3 BCA ¶ 27,067. At issue here was a modification issued late in 1993 to a telecommunications systems contract awarded in 1987. The contract provided for installation and maintenance of a digital telecommunications system (a system of lines and private branch exchanges (PBX’s)) at NASA’s Ames Research Center (Ames). The contract required that the system be expandable from the 4,000 lines installed at cut-over to a minimum of 15,000 lines. The con tract required that the contractor engineer, furnish, and install any required expansions when ordered.
Since it was not possible to anticipate just what technologies might become available over the ten-year systems life, the contract did not specify the methods or equipment to be used for any required expansions, and instead required the contractor to submit engineering change proposals when necessary to provide a required expansion. The contract contained no geographic limits or prohibitions as to possible expansions. Id., at 134,871.
Ames is located at Moffett Field, also the site of the former Moffett Field Naval Air Station. Five years after contract award, Moffett Field Naval Air Station was closed, and Ames became the host activity for all federal activities located at Moffett Field. Ames expanded into areas vacated by the Navy, and so it became necessary to expand the digital telecommunications system to 10,000 lines. NASA contracting personnel unfamiliar with the particulars of the competition concluded five years earlier decided that it was necessary to conduct a new acquisition for the expansion into the vacated areas. They did so because they viewed it as “inconceivable,” five years earlier when the competition was conducted, that the Navy would have closed its operations at Moffett Field. Id., at 134,87172.
These contracting personnel did not review the contract, and apparently were unaware that it could be modified to add equipment not included in the price tables when doing so was necessary for expansion purposes. It turned out that the expansion required the use of remote switching centers (this because the distance between service points in the former Navy areas and the host PBX’s exceeded the length of the local loop that could be reliably electrically driven from a host PBX). This requirement for remote switching centers was yet another reason NASA contracting personnel concluded that the expansion was outside the scope of the original competitive procurement. Id., at 134,87273.
NASA modified the contract under a written justification for other than full and open competition, and this was protested as an illegal sole source procurement. Although it recognized that the original requirements on which the contract was based did not contemplate expansion into areas vacated by the Navy, the GSBCA decided the contract modification was nonetheless within the scope of the contract, this based on a reading of the contract terms, rather than on any determination of the offeror’s expectations in the original competition:
We do not agree with the protester that in order to prove the work under modification 66 was within the scope of the contract, respondent must show that at the time of the contract, the offerors contemplated that [Ames] would expand into the Navy areas of Moffett Field during the ten-year contract period. Offerors were not charged with knowing how [Ames] might grow. While it may not have been possible to predict how [Ames] might expand over the next ten years, the contract was to provide a [system] with a minimum expansion capacity and provide expansion as needs arose. In performing the work under modification 66, Nortel will not exceed that expansion capacity. The [system] as configured, after the work is per formed under modification 66, is within the parameters of the contemplated expansion as set forth in the contract, and therefore, by the very terms of the solicitation and the con tract, within the contemplation of the offerors.
Id., at 134,785 (emphasis added).
Given the rationale in Pacific Bell, that it is the terms of the solicitation and the resulting contract, and not some determination of offeror’s expectations at the time of the competition, that counts in deciding whether a contract modification is within the scope of the original competitive procurement, the result in a subsequent case, AT & T Global Business Communications Systems v. Department of the Army, GSBCA No. 12937-P, Nov. 22, 1994, 95-1 BCA ¶ 27,379, is not at all surprising. At issue there was a June 1994 announcement in the Commerce Business Daily that the Navy would satisfy its needs for a replacement PBX at the Cherry Point, North Carolina, Marine Corps Air Station by placing an order against an Army contract awarded in 1991 for integrated services digital network capable PBXs.
The Army contract required the contractor to engineer, furnish, install, test and cut-over PBXs at up to thirty-nine selected sites over a systems life of ten years. The contract contained no geographical limitations, and to provide flexibility needed to respond to changing priorities and funding, contemplated the substitution of sites throughout the systems life. Id., at 136,451. AT & T elected not to compete for the contract be cause it sold little telecommunications equipment to the Army, and while it sold significant quantities of this equipment to the Navy, it did not expect the program to extend other than to Army activities its experience in such instances was that if an agency planned to acquire supplies and services for other agencies, the solicitation would say so. Id., at 136,453.
It turned out that base closures and realignments resulted in a substantial reduction in Army requirements for upgraded PBXs, and when the Navy learned from the contractor that systems were available, the Army sought and obtained an amended delegation of procurement authority allowing all DoD activities to place orders under the Army’s contract. Id., at 136,45557. When AT & T learned that Cherry Point Marine Corps Air Station and other Navy activities were placing orders under the contract, it protested, arguing that the contract allowed only for systems funded by the Army.
The result was predictable. Whether or not AT & T had reasonably expected three years earlier that only Army activities could place orders under the contract, the GSBCA held that it was the contract language, and not anyone’s reasonable expectations, that controlled its decision on the issue whether the subsequent contract modification was within the scope of the competitive procurement: “Here, the solicitation specifically contemplated the substitution of different sites for those listed on the upgrade list, and there was no explicit restriction that replacement sites could only be Army sites,” Id., at 136,459.
Provisions of the Federal Acquisition Streamlining Act of 1994 that authorize civilian agencies to enter into multiyear contracts and encourage interagency and intra-agency acquisitions under the Economy Act ensure future controversies over whether a particular contract modification is within the scope of the original competitive procurement. Multiyear contracting raises many of the same issues as does the “systems life” concept required for federal information technology acquisitions, including the likelihood of contract modifications to accept improved or innovative products or services that be come available during the contract term, and, as in Wiltel, whether such modifications are within the scope of the original competitive procurement. Interagency and intra-agency Economy Act acquisitions will make for contract management issues like those encountered in Pacific Bell (many agencies lack experience as servicing agencies and are unaware of the broad sweep of their current contracts), and will require, as in AT & T Global Business Communications Systems, that offerors carefully consider just where particular contract requirements may originate.
— Cy Phillips
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