No Bid Contracts and the Age of Transparency

(Reprinted from May 10, 2010 issue of HealthLeaders Media)

The “no-bid” contract: The phrase evokes all kinds of connotations about federal contracting: sweetheart deals for big corporations; the revolving door from government to industry and just about everything else wrong with federal contracting.

Just think of the controversial billion dollar “no-bid” contracts awarded to Halliburton or KBR throughout the wars in Afghanistan and Iraq; allegations about contracts being wired to those with connections, and you get the picture. While the majority of the most controversial no-bid contracts that come under scrutiny tend to be large defense contracts, healthcare contracts are also routinely awarded without competition—you don’t hear about them as frequently, primarily because they tend to be smaller by comparison, and as a result, manage to fly under the radar a lot easier.

While the public at large tends to see media reports of such contracts as fairly blatant abuse of the “system,” the reality, however, is not quite so black and white once you get beyond the five-second sound bite of the latest “procurement scandal” for the evening news. Indeed, the reality is that there are about seven or eight circumstances specified by statute when no-bid contracts can be legally awarded without competition.

For organizations interested in federal business, it’s important to understand how no-bid contracts can be legitimately awarded and how the process can be abused. In this article, we offer a brief primer on “no-bid” contracts to set the record straight, de-mystify the process and offer a simple, practical suggestion for how you may be able to actually get a shot at something that’s proposed to be awarded without competition.

First, a little terminology: While we frequently hear the term “no-bid”, the phrase is a bit of a misnomer; in federal contracting parlance, the term is more accurately referred to as a “sole-source” contract, a phrase taken from the statute. In general, an agency can award to a firm without competition under certain circumstances such as if the firm is the “sole” (i.e., only) source that can fulfill an agency’s requirements—with a number of caveats (the proverbial “fine print”).

Two things are supposed to happen before a sole source contract is awarded:

1. The government is supposed to prepare a Justification and Approval (the “J&A”) citing which of the applicable standards listed in the statute justifies waiving the requirements for competition.
2. The agency is supposed to provide public notice of its plans, in advance, so that information can be submitted by an interested party.

Until recently, most of the J&As were not routinely published for the public to view and remained hidden behind the scenes. It was like pulling teeth to get agency contracting personnel to release them. One very real change that has occurred with the new administration, however, is the public—and voluntary—release of many of the J&As prepared by agencies. It is a significant step forward, and represents another layer of procurement “fog” getting peeled away from the onion. But lest we congratulate ourselves for having finally arrived at the gates of transparency prematurely, let’s also be frank about exactly what it is that we can now see more clearly.

When “Urgent and Compelling” Applies
While it is true that we can now see more clearly how agencies justify awards without competition, unfortunately, we also see how dense the fog really is, and how many additional layers of the onion we may need to peel off before we reach transparency. Perhaps the most frequently cited reason for entering into a sole source contract is that there is an “urgent and compelling” need for the government to move forward without putting a contract up for competitive bid in order to avoid an interruption in critically needed services. In our opinion, this particular “justification” is among the most egregiously and flagrantly abused provisions in federal contracting.

For instance, in August of 2008, a federal agency in the Midwest issued a “sole source” contract “extension” for an interventional radiology contract. Because we were following this for a local IR group, we did a little research and quickly discovered that the contract was first put up for competitive bid and awarded in 2004, originally for a base year, plus two option years scheduled to end in 2007. So, if it takes, say, several months to plan an acquisition, solicit bids and evaluate offers, then you might reasonably assume that the government would start the re-procurement process some five or six months before the contract expires, so that they would be in a position to have a contractor in place and ready to begin as soon as the old contract expires. Well, guess what happens when you don’t (or won’t) plan ahead and are not ready to put a new contract in place? If you’re a government agency, you issue the proverbial J&A claiming there’s an “urgent and compelling” need to award the contract to the incumbent to avoid interruption of critical services.

In the example above, a contract that was known at the outset to run for three years is extended through a series of successive “interim” or “bridge” contracts for, say, three months, then six months, then another six months, etc. Before you know it, the incumbent has had its original three-year, competitively awarded contract extended by another three years without competition. And this is because of an “urgent and compelling need” that somehow unexpectedly occurs, almost like clockwork, right around the time when the current interim contract is about to expire. It seems that three years is woefully inadequate for an agency to plan well enough in advance to have put the contract up for competitive bid and select a new contractor, or even select the incumbent through a legitimate competition.

Virtually every administration—including the current one—pledges to rid the government of waste, fraud and abuse in contracting, and yet somehow, no-bid contracts seem to continue uninterrupted. It happens all the time. Shortly after President Obama came into office, he issued an executive order putting agencies and contractors on notice that there was a new “sheriff” in town, that no-bid contracts were shortly to be a thing of the past and that he had directed the OMB to issue guidelines to agencies that would clamp down on unnecessary abuse of contract abuses, such as inappropriate use of sole source contracts.

So it was with more than a little interest that we noticed several months ago a very brief announcement in Federal Business Opportunities (the government’s primary source of procurement information), about a sole source award for healthcare services coming out of the Executive Office of the President. The information indicated that the office was awarding a sole source contract for drug testing to a national laboratory firm. So of course we assumed in this new age of transparency this would be one of the times when the award would be thoroughly legitimate, fully transparent and fully documented.

We contacted two separate contracting personnel identified in the announcement and requested a copy of the J&A prepared by the government to justify the award. Two weeks later, after hearing nothing back, we sent another e-mail, this time enabling a request for a “Delivery” and “Read” receipt and again heard nothing back. We did a little more digging around and located the name and telephone number of another contracting person in the same office and decided we’d place a call and see if we could actually speck to someone. We left a voice mail with several ways to get in touch with us and we’re still waiting to hear back from someone in that office.

While the examples above are clearly disturbing, we don’t means to suggest that every J&A is an attempt to skirt requirements for competitive contracting. As we said earlier, there are many occasions when an award without competition is not only legal, but is absolutely legitimate. In spite of the examples above, there are some small, encouraging signs. As we also mentioned, the government is supposed to give companies a chance to submit qualifications before a proposed sole source award is actually made, so that it can actually compete a contract, if it is convinced that there is adequate competition.

We can confirm that recently, we have actually seen the government back-off plans for sole source awards, when it did receive information from organizations that made it clear there were other sources that could provide services in a cost-effective and timely fashion. So the lesson here is: if you learn about an opportunity that’s proposed to be awarded without competition, submit your credentials and qualifications; you may be able to create a competitive opportunity when there otherwise would have been none.