Public Acquisition Contracts: USPS Case - Research Paper Example

Introduction This paper examines the issues with the United s Postal Services in their contract with potential airliners. The research examines the core elements the report on the matter and examines the Federal Acquisition Regulation (FAR) rules relevant to the matter. The research invokes the rules to the case at hand and goes on to evaluate the recommendations in light with the issues raised by the FAR. The research identifies elements of contracts in this matter in relation to acquisitions. Postal Service Issue According to the issue at hand, the United States Postal Services (USPS) needed to cut down the cost of airline transportation that it bore. Prior to 1993, it had a four-year contract with Eagle Network that provided airline services for $120 million at a lower level of efficiency. In the end of 1993, it sought it create a 10-year contract with a more efficient airline service provider. This will lead to a spread of fixed costs over a longer period of time and leverage the resources to be used. Also, the 1993 contract offer was meant to promote efficiency through the award of overnight transportation of mails throughout the United States. USPS therefore opened a bid for contracts with the view of cutting down costs and improving efficiency in 1993. There were 4 bids from 4 companies. Postal Air offered the lowest bid of $85 million to carry out the contract. Their bid was reduced to $80 million. The contract was eventually awarded to Postal Air. However, the next lowest bidder, Emery raised an issue with the contract process. Emery sent the issue to court and it was held that there were conflict of interest issues, insider issues that helped Postal Air to acquire the contract. Eventually, the court granted the contract to Emery. The Postal Service was to pay $10 million to Postal Air whilst Emery was to pay $8.5 million to Postal Service. Although this is not clearly defined, it could be seen as some kind of compensation to Postal Service for the inconveniences caused. The report in question identifies the justification for these payments. It examines three key issues in relation to the contract. It identifies the motive for the payments made to Postal Air for seemingly no consideration. Secondly, the report addresses the fundamental contract issues that caused the problems. Finally, it addresses why the contract was not re-opened after the court found issues in the case. FAR Rules The first identifiable rule of the contract award system in a public sector institution like the FAR is that, there should be a clear acquisition plan (FAR 7.101). In this plan, a government agency will have to outline the terms of the contract that it seeks to offer. In the plan, they should clearly state the important elements of the contract at hand and provide relevant details (Federal Acquisition Circular, 2003). The Acquisition Plan should be drawn after a relevant market research is conducted. The market research must be supported by a Written Acquisition Plan. This should be supported by a Determination of Fair Price (FAR 19.202-6). This will form the yardstick for the award of the contract to a relevant party. With this in sight, a public sector institution must be clear about the terms and conditions that they desire. This should be supported by two fundamental principles that are set out by the FAR rules: 1. Confidentiality 2. Full and open competition. Integrity in the FAR is about guarding against improper conduct and activities that can destroy or modify situations in an unfair manner. Confidentiality refers to preserving unauthorized restrictions on access and disclosure of information. Also, there is a case for full and open competition that must emanate from all capable and qualified applicants. In such situations, there is the need for a public sector institution to allow all parties to be given an equal chance to bid and compete in the drive to seek a contract award. The False Claims Act (FCA) was enacted in March 1863 this is to prevent false claims by government vendors (Girgenti, 2011 p2). In 1986 and 2008, these rules were tightened. This meant that government officials need to do a number of things: 1. Public officials must disclose all forms of criminal acts like fraud, bribery and conflict of interest. 2. False claims must be disclosed by responsible officials in public sector. 3. Significant overpayments and the like must be disclosed by public officials (Girgenti, 2011, p3). This means that public officials need to ensure that every suspicious action or issue that comes up in the contract is duly reported. In other words, the elements of the award of a contract to a bidding firm that does not seem consistent with competition rules and is in relation to financial malpractice matters must be noted and reported duly. Failure to do so makes the contract flawed and inappropriate on the grounds of insider dealing. This has legal implications for the persons involved as well as those who failed to disclose the flaws when they became aware of them. The Federal Acquisition Regulations makes it clear that disputes that arise in public contracts can be dealt with under the Contract Disputes Act, 1978. The Act requires disputes relating to contracts to be submitted to the Government's Contracting Officer. Claims above $100,000 must be made in good faith by the party involved and it should be backed by documentary evidence and proof (FAR 7.103). However, if the contract stated that there would be another form of dispute resolution like ADR (alternative dispute resolution like arbitration), that stated means must be used to resolve a dispute. Also, when a party is dissatisfied with the way the Contracting Officer dealt with the case, the matter can be sent to court for redress. The court has the power to award damages in contracts that are presented to it. In this sense, there is the need for the basic principles of justice to be applied, even if a public sector entity is involved in the matter. Article 14.404.1(d) of the FAR states that in case a public sector contract is canceled, there should be resoliciting which will involve the opportunity to open up for bids when there is an issue with a contract. This means that a public sector contract that is flawed significantly must be opened again for competition on the part of suitable candidates to apply for the contract. Application to the USPS Case In this case, there should have been a clear acquisition plan. In the acquisition plan, a proper market research should have been conducted and details specified. Although the report says nothing about the acquisition plan stage, it appears that some confidentiality and integrity requirements for this phase were not respected. Due to that, some significant portions of the contract were leaked to third parties which resulted in Post Air acquiring the contract. This suggests that there was some kind of unprofessional conduct in the contracting process. As such, the attainment of the contract by Post Air was highly questionable and potentially flawed. There should have been identifiable individuals who were responsible for this malpractice. Under False Claims Act, there are some responsible individuals in this contract who should have been indicted in the wider sense of the case. Due to this, the whole process should have been given a much more critical treatment than the report suggested. Emery should have also exhausted their options with the contracting officer before going to court. This raises an issue about the dispute resolution system that existed in the public sector. It appears that there are some significant issues with the confidence level that was applied to the Contract Disputes Act in this matter. The court's decision to hand the contract to Emery is also questionable. It raises issues about the other companies that applied for the contract. This is because they should have been considered in this matter. The resoliciting clause in the FAR rules were not respected. This causes suspicions about why the court allowed the company that raised issues to get preference over the others in the case. Finally, there is an issue of the compensation being granted to Post Air. Clearly, Post Air did not merit this on normal grounds. However, the court might have invoked some significant elements of the law that granted a reasonable grounds for the award of those damages. Although this paper does not question the decision of the court, there is the need for this situation to be examined further and people responsible for the case to be identified and proper measures taken. Assessment of Recommendations The recommendations on this acquisition by the General Accounting Office is within scope. In other words, the GAO did what they had to do in terms of investigations and the terms of reference for the investigations they conducted. However, in my opinion, I think the recommendation should have been a little more critical to act as a corrective tool and precedence to prevent future recurrence of such issues. This is because there are some significant matters in this case that should have been given a very strong attention by the GAO which were given a mild response. The report identifies three main things: first of all, it identifies that there was a breach of contract between USPS, Emery and Post Air. Secondly, it identifies that USPS ignored the advice of their lawyers. Thirdly, it states that the choice of court approved resettlement was against the resoliciting requirement of the law. Although I think all the major pointers were raised, there were some extras that the investigators should have hit upon. First of all, there was a breach of contract because Post Air spent money and made some commitments in the contract. They identify that some of the claims were overstated. Personally, I think that if they acquired the contract fraudulently and illegally, they waive the right to make claims for compensation. Secondly, the attempt to overstate things shows that Post Air is not honest enough. I think the GAO should have made some recommendations that would attract some punitive measures from the state. Secondly, it is quite serious for the responsible parties in USPS to ignore the advice of their legal advisers. There should have been some kind of investigation to identify the reason for this. Parties that ignored the recommendations of the experts should have been identified and punished accordingly. Thirdly, there should have been some investigations into the choice for court approved resettlement which led to the transfer of the contract to Emery. It is highly dubious and reflects a degree of irresponsibility. As such, the GAO should have investigated the matter in-depth and identified the reasons behind it and the parties involved. Pointers for Undergraduate Students From this report, an undergraduate business student must identify that: 1. Contract disputes in the public sector often result from the lack of integrity, improper planning, lack of confidentiality and insider issues by the parties responsible for the award of the contract. 2. Contract disputes must be dealt with according to the default legal positions, however, in either cases, an aggrieved party can take the case to court for redress. 3. Although cases can be taken to court, it is always best to solve them according to laid down procedures. Courts must be last resort. 4. The court's decision is final, however, it has strong implications on the parties that were responsible for the issues at hand. Conclusion The report had issues with the award of the contract to Post Air. Post Air benefited from some insider issues and this led to Emery to protest. The matter was sent to court. Post Air lost the contract and Emery was given the contract. This led to some legal issues about professional conduct of the members of USPS involved in the contract. The report's findings state the main matters in a descriptive manner and there are some things that could have been addressed by the report which were omitted. References Federal Acquisition Circular (2003) FAC Available online at: https://www.acquisition.gov/far/fac/fac01017.pdf Accessed: March 11, 2012. Federal Acquisition Regulations (2007) Vol 1: Parts 1 – 50 Available online at: https://www.acquisition.gov/far/current/pdf/FAR.pdf Accessed: March 11, 2012. Girgenti, R. H (2011) “Falsifying Government Claims” in Fraud Magazine. Association of Certified Fraud Examiners. United States General Accounting Office (1994) Postal Service: Issues Related to Settling a Disputed Contract for Air Transportation Available online at: http://www.gao.gov/products/GGD-94-92 Accessed: March 11, 2012. Read More