If you’re at all familiar with the world of Suspension and Debarment, then you are well aware that the Government is very much concerned with the responsibility of its contractors. However, in suspending and debarring contractors, the Government is addressing the issue of responsibility retrospectively. The Government also takes certain steps to ensure that contractors are cleared as responsible in advance. This post will be the first in a series of articles focusing on Federal Acquisition Regulations (“FAR”) Subpart 9.1, Responsible Prospective Contractors, and the manner in which the rules contained therein may impact your business.
What is the Policy Behind FAR Subpart 9.1? FAR Subpart 9.103(a) stipulates that, “Purchases shall be made from, and contracts shall be awarded to, responsible prospective contractors only.” The rationale behind this assertion is spelled out in FAR Subpart 9.103(c), in an unusually lengthy policy explanation:
“The award of a contract to a supplier based on lowest evaluated price alone can be false economy if there is subsequent default, late deliveries, or other unsatisfactory performance resulting in additional contractual or administrative costs. While it is important that Government purchases be made at the lowest price, this does not require an award to a supplier solely because that supplier submits the lowest offer. A prospective contractor must affirmatively demonstrate its responsibility, including, when necessary, the responsibility of its proposed subcontractor.”
The dynamic addressed by FAR Subpart 9.103(c) is a straightforward but vital one. The Government deploys a myriad of mechanisms to ensure that it procures goods and services at the lowest possible cost. However, such bargains are worthless, and fleeting, where the contractors promising them are incapable of delivering on their promises. A determination of nonresponsibility at the outset is a strong method of avoiding these types of situations.
Who Determines Responsibility? According to FAR Subpart 9.103(b), responsibility is determined by the contracting officer. However, the contracting officer is not merely confirming that the contractor at issue is not nonresponsible; rather, he/she must make an “affirmative determination of responsibility.” Furthermore, there is no middle ground between responsibility and nonresponsibility. That is, under FAR Subpart 9.103(b), “In the absence of information clearly indicating that the prospective contractor is responsible, the contracting officer shall make a determination of nonresponsibility.” In short, either your business is considered responsible or it is considered non-responsible.
How is Responsibility Determined? FAR Subpart 9.104-1 identifies seven qualities that the contracting officer must consider in making his/her responsibility determination. Essential here is that a contractor must satisfy each of these factors in order for it to be identified as responsible. For some of the factors discussed below, protests before the Government Accountability Office (“GAO”) have been cited as examples, to provide some valuable context.
First, per FAR Subpart 9.104-1(a), contractors must “[h]ave adequate financial resources to perform the contract or the ability to obtain them…” According to FAR Subpart 9.104-3(a), the ability to obtain the requisite financial resources can generally be proven by evidence of “a commitment or explicit arrangement, that will be in existence at the time of contract award, to rent, purchase, or otherwise acquire the needed facilities, equipment, other resources, or personnel.” In XO Communications, Inc., B-290981, the GAO held that the General Services Administration “reasonably determined that [XO Communications, Inc.] was nonresponsible” because, among other reasons, ”the contracting officer performed a detailed financial review which established that [XO Communications, Inc.'s] unsatisfactory and deteriorating financial condition made it an unacceptible financial risk…”
Second, per FAR Subpart 9.104-1(b), contractors must “[b]e able to comply with the required or proposed delivery or performance schedule, taking into consideration all existing commercial and governmental business commitments[.]”
Third, per FAR Subpart 9.104-1(c), contractors must “[h]ave a satisfactory performance record…” The FAR is careful to avoid discriminating against early entrants to the area of federal procurement by stipulating that, in general, “[a] prospective contractor shall not be determined responsible or nonresponsible solely on the basis of a lack of relevant performance history…” FAR Subpart 9.104-1(c). The FAR further expounds on this standard, identifying strong indicators of nonresponsibility in this regard. Specifically, under FAR Subpart 9.104-3(b), “[a] prospective contractor that is or recently has been seriously deficient in contract performance shall be presumed to be nonresponsible, unless the contracting officer determines that the circumstances were properly beyond the contractor’s control, or that the contractor has taken appropriate corrective action.” Furthermore, “[p]ast failure to apply sufficient tenacity and perseverance to perform acceptably is strong evidence of nonresponsibility.” Lastly, FAR Subpart 9.104-3(b) provides that ”[f]ailure to meet the quality requirements of the contract is a significant factor to consider in determining satisfactory performance.” However, FAR Subpart 9.104-3(b) also provides what could be interpreted as mitigating factors, in this regard, stipulating that “[t]he contracting officer shall consider the number of contracts involved and the extent of deficient performance in each contract when making this determination.” In Daisung Company, B-294142, the GAO held that the Department of the Army appropriately found that Daisung Company was nonresponsible “where the determination was based on [an] audit and [a] criminal investigation that resulted in specific findings of improper conduct by [Daisung Company] under [a] recent contract for [the] same requirement.”
Fourth, per FAR Subpart 9.104-1(d), contractors must “[h]ave a satisfactory record of integrity and business ethics…”
Fifth, per FAR Subpart 9.104-1(e), contractors must “[h]ave the necessary organization, experience, accounting and operational controls, and technical skills, or the ability to obtain them (including, as appropriate, such elements as production control procedures, property control systems, quality assurance measures, and safety programs applicable to materials to be produced or services to be performed by the prospective contractor and subcontractors).” As with the ability to obtain resources, FAR Subpart 9.104-3(a) identifies generally acceptable evidence of the ability to obtain these controls and skills. In Kilgore Flares Company, LLC, B-406139, the GAO held that the Navy properly determined the protester as “nonresponsible to perform [a] contract for the manufacture of flares where the record [reflected] outstanding concerns relating to the safety of the firm’s manufacturing facility.”
Sixth, per FAR Subpart 9.104-1(f), contractors must “[h]ave the necessary production, construction, and technical equipment and facilities, or the ability to obtain them…” As with the ability to obtain resources, controls, and skills, FAR Subpart 9.104-3(a) identifies generally acceptable evidence of the ability to obtain these facilities.
Seventh, per FAR Subpart 9.104-1(g), contractors must “[b]e otherwise qualified and eligible to receive an award under applicable laws and regulations…” The ambiguity of this standard is such that it serves as sizeable catch-all. In this respect, it is arguably the preemptive equivalent of FAR Subpart 9.406-2(c), which stipulates that a contractor may be debarred “based on any other cause of so serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor.”
Small Business? Come Back Next Week! The FAR prescribes modified rules for the determination of responsibility for small business concerns. These modified rules will be addressed in next week’s post.
So What? An oft-repeated theme of this blog is that the Government is not your ordinary buyer, and the Government’s prioritization of responsibility is yet another example of the manner in which the Government distinguishes itself in this respect. The Government is often paying for goods and services the production and provision of which can take months, if not years. Furthermore, the true consumer of such goods and services are the American people, both at home and abroad. Accordingly, contractors must do more than simply underbid their competitors in order to secure public contracts. In addition, they must demonstrate that they have the ability to perform in a sustainable, reliable, and ethical manner. As a contractor, carefully review the seven factors identified above, and confirm that your business unquestionably satisfies each requirement. Doing so is equally important to ensuring that your business provides affordable solutions. In fact, it is arguably more important, as a preemptive confirmation of responsibility can help prevent costly and fatal determinations of nonresponsibility by the Government in the future.
Adam Munitz is a lawyer at Fluet Huber + Hoang, a full service law firm focused on the needs of growing government contractors. Adam specializes in Government Contracts Law and Export Compliance. You can reach him by email here.