FAR 35.003:  Contracts, grants, and cooperative agreements, other transactions

Comptroller General - Key Excerpts

A prototype project can generally be described as a preliminary pilot, test, evaluation, demonstration, or agile development activity used to evaluate the technical or manufacturing feasibility or military utility of a particular technology, process, concept, end item, effect, or other discrete feature. Prototype projects may include systems, subsystems, components, materials, methodology, technology, or processes. By way of illustration, a prototype project may involve: a proof of concept; a pilot; a novel application of commercial technologies for defense purposes; a creation, design, development, demonstration of technical or operational utility; or combinations of the foregoing, related to a prototype.

AR, Tab 16, OT Prototype Guide, at 4.

We find that the original effort procured under the prototype OTA properly consisted of a prototype project. In this regard, the migration of TRANSCOM’s applications can fairly be called a “pilot” or “test” program, as well as a “demonstration” of REAN’s capabilities. The agency procured an “agile systems development enterprise” that included “the demonstration of a repeatable framework consisting of tools, processes and methodologies for securing, migrating (re-hosting) and refactoring, existing applications into a government-approved commercial cloud environment.” AR, Tab 6a, Prototype OTA, at 12. The initial award consisted of a proof of concept. AR, Tab 5a, Prototype OTA D&F, at 4.

Although the protester urges our Office to apply a dictionary definition of “prototype,” instead of that in the OT Prototype Guide, we decline to do so where the agency guidance was published well in advance of the AOI and the protester does not explain how the definition in the OT Prototype Guide is improper, ambiguous, or should be disregarded in favor of another definition. See, e.g., AINS, Inc., B‑400760.4, B-400760.5, Jan. 19, 2010, 2010 CPD ¶ 32 at 11 (relying on internal guidance for definition of terms); Protest at 22-23. On this record, we conclude that the underlying prototype OTA properly consisted of a prototype project.

Follow-On Production Transaction Without Competitive Procedures

This protest also challenges the agency’s use of its statutory authority to award a follow-on P-OTA under 10 U.S.C. § 2371b(f). Both Oracle and the Army agree that the P-OTA was awarded without competitive procedures, relying on the exception under subsection (f)(2). Protester Post-Hearing Brief at 22-25; Agency Post-Hearing Brief at 7. Oracle argues that the Army lacked the authority to award a follow-on P-OTA because the prototype OTA did not provide for a follow-on P-OTA, as required by subsection (f)(1). Protester Comments at 24-25. Oracle also alleges that the P-OTA award was improper because the prototype project is not complete, a prerequisite to award under subsection (f)(2)(B).[24] Protester Post-Hearing Brief at 64. The agency contends that its award of the P-OTA complied with the relevant statutory requirements to enter into a follow-on production transaction. COS/MOL at 50. Here, we find that the Army did not comply with the statutory provisions regarding the award of a P-OTA because the prototype OTA did not provide for the award of a follow-on production transaction and because the prototype project provided for in the prototype OTA has not been completed.

The provision at issue here, subsection (f), “Follow-on Production Contracts or Transactions,” states:

(1) A transaction entered into under this section for a prototype project may provide for the award of a follow-on production contract or transaction to the participants in the transaction. A transaction includes all individual prototype subprojects awarded under the transaction to a consortium of United States industry and academic institutions.

(2) A follow-on production contract or transaction provided for in a transaction under paragraph (1) may be awarded to the participants in the transaction without the use of competitive procedures, notwithstanding the requirements of section 2304 of this title, if—

(A) competitive procedures were used for the selection of parties for participation in the transaction; and

(B) the participants in the transaction successfully completed the prototype project provided for in the transaction.

(3) Contracts and transactions entered into pursuant to this subsection may be awarded using the authority in subsection (a), under the authority of chapter 137 of this title, or under such procedures, terms, and conditions as the Secretary of Defense may establish by regulation.

10 U.S.C. § 2371b(f).

The starting point for our analysis is the statutory language used by Congress. See Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108, 100 S. Ct. 2051, 64 L. Ed. 2d 766 (1980) (“We begin with the familiar canon of statutory construction that the starting point for interpreting a statute is the language of the statute itself.”). In construing the statute, “‘we look first to its language, giving the words used their ordinary meaning.’” Ingalls Shipbuilding, Inc. v. Director, Office of Workers’ Compensation Programs, 519 U. S. 248, 255, 117 S. Ct. 796, 136 L. Ed. 2d 736 (1997) (quoting Moskal v. United States, 498 U. S. 103, 108, 111 S. Ct. 461, 112 L. Ed. 2d 449 (1990)). Generally, we must give effect to all words in the statute, as Congress does not enact unnecessary language. Life Techs. Corp. v. Promega Corp., 580 U.S. __, __, 137 S. Ct. 734, 740, 197 L. Ed. 2d 33, 41 (2017) (citing Hibbs v. Winn, 542 U.S. 88, 89, 124 S. Ct. 2276, 159 L. Ed. 2d 172 (2004)). It is a cardinal principle of statutory construction that a statute ought to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant. TRW Inc. v. Andrews, 534 U.S. 19, 31, 122 S. Ct. 441, 151 L. Ed. 2d 339 (2001), citing Duncan v. Walker, 533 U.S. 167, 174, 121 S. Ct. 2120, 2125, 150 L. Ed. 2d 251 (2001). If the statutory language is clear and unambiguous, the inquiry ends with the plain meaning. Myore v. Nicholson, 489 F.3d 1207, 1211 (Fed. Cir. 2007) (internal citations omitted). GAO likewise applies the “plain meaning” rule of statutory interpretation. See, e.g., Technatomy Corp., B-405130, June 14, 2011, 2011 CPD ¶ 107.

Follow-on Transaction

Applying the principles above to the language of 10 U.S.C. § 2371b(f), we conclude that a follow-on P-OTA may only be awarded to the prototype transaction participants without the use of competitive procedures if the “transaction entered into under this section for a prototype project”--i.e., the prototype OTA itself--“provide[d] for the award of a follow-on production contract or transaction to the participants in the transaction.” 10 U.S.C. § 2371b(f)(1), (2). The Army acknowledges that the prototype OTA does not in any way “provide for” a follow-on P-OTA. Agency Post-Hearing Brief at 10. The agency contends, however, that the June 2016 CSO’s references to a possible follow-on P-OTA satisfy the statutory requirement to “provide for” a P‑OTA. Id. at 11 (“The language in the CSO has the same effect as if it were specifically incorporated in the individual prototype OTAs – it is clearly an optional part of the intent of the parties from the inception, if the prototype is successful.”); see also tr. at 257:5-13 (“Q. Where is your . . . authority to award a follow-on production transaction without having that follow-on transaction being initially provided for in a transaction under paragraph [(f)]1? A: Again, I point to the CSO and the fact that we had in there[,] in the solicitation document that we were going to potentially go to commercial.”).

The agency argues that the CSO’s language properly “provides for” a follow-on P‑OTA in accordance with subsection 2371b(f)(1), in order to allow for a non-competitive award of a P-OTA under (f)(2). Agency Post-Hearing Brief at 10-11. This position, however, fails to consider that such award is only permitted if there is a provision for follow-on production included in “[a] transaction entered into under this section.” 10 U.S.C. § 2371b(f)(1). In this regard, the CSO (and for that matter, the AOI) cannot be a “transaction [that is] entered into,” because it is a standalone announcement. Id. The “transaction” is the legal instrument itself, and not the solicitation documents. MorphoTrust, supra, at 6; see also Exploration Partners, supra, at 4. Thus, the only reasonable reading of this phrase is as a reference to the prototype OTA itself, which does qualify as a “transaction [that is] entered into.” Id. We therefore conclude that the Army’s argument as to the sufficiency of the CSO references is unreasonable because it neither reflects the ordinary meaning of the statute nor accounts for all of the phrases therein. TRW Inc. v. Andrews, supra; Alaska Dept. of Envtl. Conservation v. Environmental Protection Agency, 540 U.S. 461, 489 n.13, 124 S. Ct. 983, 157 L. Ed. 2d 967 (“a statute ought, upon the whole, to be so construed that, if it can be prevented, no clause, sentence, or word shall be superfluous, void, or insignificant”) (citation omitted).

Not only is this reading consistent with the plain meaning of the statute, but it is also concordant with the agency’s own internal guidance, which advises that the agency’s “acquisition approach should . . . [a]ddress the OT source selection process, the nature and extent of the competition for the prototype project, and any planned follow-on activities.” AR, Tab 16, OT Prototype Guide at 10; id. at 6 (“It is the Agreements Officer’s responsibility to ensure that the terms and conditions negotiated [for the prototype OTA] are appropriate for the particular prototype project and should consider expected follow-on needs.”). The agency explains, however, that although all of the DIUx OTAs contemplate that the prototype “projects may eventually result in follow-on production,” planning for a P-OTA was not addressed at the time of the award of the prototype OTA because “it’s too early in the process.” Tr. at 157:18-20; 158:1.

Thus, because the plain and unambiguous meaning of the statute provides that the Army only has the authority to award a follow-on P-OTA if it was provided for in the prototype OTA, and because the prototype OTA here included no provision for a follow-on P-OTA, we conclude that the Army lacked the statutory authority to award the P-OTA and sustain the protest on this basis.

Completion of Prototype Project

As another prerequisite to award of a P-OTA without competition, subsection (f)(2) states that “the participants in the transaction [must have] successfully completed the prototype project provided for in the transaction.” 10 U.S.C. § 2371b(f)(2)(B). Oracle asserts that the agency lacked authority to award the P-OTA because the prototype project was not completed. Protester Post-Hearing Brief at 63-64. The Army contends that “[t]he prototype project was successfully completed (as required by section (f)(2)(B)) under the prototype other transaction agreement awarded to REAN on May 23, 2017.” COS/MOL at 22.

The prototype OTA as awarded contemplated the migration of six applications, and the option to migrate an additional six. AR, Tab 6a, Prototype OTA, at 4, 7. The prototype OTA was subsequently modified to include enclave migration.[25] AR, Tab 7e, Amend. P0005, at 1 (“The purpose of this modification is to incorporate the movement of Enclaves into the prototype effort.”). The enclave work was not completed on February 1, 2018, when the Army signed the D&F approving the award of the P-OTA and awarded the P‑OTA. Tr. at 86:18-20.

The Army acknowledges that the enclave work is not complete, but contends that its award of the P-OTA was nevertheless in compliance with the statute because REAN had completed those “parts of the prototype” project that were included in the P-OTA. COS/MOL at 30 (“Only those same capabilities successfully prototyped are included in the production OT.”); tr. at 471:19. Because award of a P-OTA requires “successful[] complet[ion of] the prototype project provided for in the transaction,” the Army in essence argues that, for the purposes of awarding the $950 million P-OTA, the enclave work is not part of the prototype project. COS/MOL at 21; 10 U.S.C. § 2371b(f)(2).

We apply the same principles of statutory interpretation described above to determine whether the requirement for successful completion of “the prototype project provided for in the transaction” refers to all of the prototype project or only the project as initially awarded. Again, the plain meaning of the phrase “completed the prototype project provided for in the transaction” is the entire prototype project described in the transaction, i.e., the instrument itself. Here, the record shows that the transaction includes enclaves. Furthermore, if the enclaves were not properly part of the “prototype project,” then they would not be included in the Army’s award authority under 10 U.S.C. § 2371b(a).

The Army argues, on one hand, that the enclaves were properly added to the prototype OTA as an in-scope modification, and that the prototype OTA has not expired. Agency Post-Hearing Brief at 6. On the other hand, the Army asserts that the prototype project has been completed. COS/MOL at 21-23. These inconsistent positions are not persuasive, because it is unreasonable to simultaneously conclude that the modifications were effective to change the scope of work and extend the period of performance, but did not form part of the prototype effort. We agree with the Army that the prototype OTA was modified to include enclave migration. As a result, enclave migration now forms part of the prototype project. It is undisputed that this work is not complete. As a prerequisite to award of a P-OTA, the statute requires successful completion of “the prototype project provided for in the transaction.” 10 U.S.C. § 2371b(a). Because the prototype project provided for in the transaction has not been successfully completed, we conclude that the Army did not comply with the statutory requirements in awarding the P-OTA, and we sustain the protest.  (Oracle America, Inc. B-416061: May 31, 2018)

Under the Competition in Contracting Act of 1984 (CICA) and our Bid Protest Regulations, we review protests concerning alleged violations of procurement statutes or regulations by federal agencies in the award or proposed award of contracts for the procurement of goods and services, and solicitations leading to such awards. See 31 U.S.C. §§ 3551(1), 3552; 4 C.F.R. § 21.1(a). We have also found that agreements issued by an agency under its “other transaction” authority “are not procurement contracts, and therefore we generally do not review protests of the award, or solicitations for the award, of these agreements under our bid protest jurisdiction.” Rocketplane Kistler, B-310741, Jan. 28, 2008, 2008 CPD ¶ 22 at 3; see also Exploration Partners, LLC, B-298804, Dec. 19, 2006, 2006 CPD ¶ 201 at 3 (finding that “other transaction” agreements, cooperative agreements, and other non-procurement instruments are not procurement contracts); Strong Envtl., Inc., B-311005, Mar. 10, 2008, 2008 CPD ¶ 57 at 4 (GAO does not have jurisdiction to consider the award of a cooperative agreement); Sprint Commc’ns Co. L.P., B-256586, B-256586.2, May 9, 1994, 94-1 CPD ¶ 300 at 3. We will review, however, a timely protest that an agency is improperly using its “other transaction” authority. See Rocketplane Kistler, supra.

We find that TSA has statutory authority to enter into “other transaction” agreements, and the protester has not shown that TSA’s use of this authority for the Pre✓® Application Expansion Initiative is inconsistent with TSA’s statute.

Congress granted “other transaction” authority to TSA. Specifically, TSA “is authorized to enter into and perform such contracts, leases, cooperative agreements, or other transactions as may be necessary to carry out the functions of the Administrator and the Administration.” 49 U.S.C. § 106(l)(6) (emphasis added). Further, it is clear that the solicitation here for the TSA Pre✓® Application Expansion Initiative falls within the scope of TSA’s “other transaction” authority. Unlike the limited “other transaction” authority provided to certain other federal agencies, TSA’s “other transaction” authority may be used for any purpose “necessary to carry out” the agency’s functions. There is no express statutory prohibition on TSA using its “other transaction” authority for the Pre✓® Application Expansion Initiative, nor any statutory requirement that this particular program be done by means of a procurement contract.

Where, as here, a decision--such as whether to use “other transaction” authority--is authorized by statute or regulation, our Office will not make an independent determination of the matter. MCR Fed., LLC, B‑401954.2, Aug. 17, 2010, 2010 CPD ¶ 196 at 5; Knights’ Piping, Inc.; World Wide Marine & Indus. Servs., B‑280398.2, B-280398.3, Oct. 9, 1998, 98-2 CPD ¶ 91 at 6. Instead, our review of a discretionary agency action is limited to whether the action undertaken was a knowing and authorized one. See, e.g., CIGNA Gov’t Servs., LLC, B-401068.4, B‑401068.5, Sept. 9, 2010, 2010 CPD ¶ 230 at 14 (holding that our review of an agency’s discretion to waive an organizational conflict of interest was confined to whether the waiver outlined the extent of the conflict and was executed by a duly-authorized agency official).

Here we find TSA’s decision to use its “other transaction” authority unobjectionable. In this regard, the record reflects that the head of the TSA contracting activity prepared and duly executed a written determination that outlined the rationale for the agency’s use of its “other transaction” authority for the TSA Pre✓® Application Expansion Initiative. The determination first recognized the “other transaction” authority possessed by the agency. The determination also included a detailed discussion of the bases for his conclusion that an “other transaction” agreement would provide flexibilities necessary to the successful accomplishment of the program, and would be in the best interests of the government. See AR, Tab 2, TSA D&F, Dec. 12, 2014, at 1-2. Additionally, there is no dispute that the head of the TSA contracting activity was authorized to make such a determination, or that the resulting solicitation was consistent in scope with the approved use of the agency’s “other transaction” authority. We therefore have no basis to question the reasonableness of the agency’s actions. See CIGNA Gov’t Servs., LLC, supra.

MorphoTrust does not dispute that TSA possesses “other transaction” authority. Rather, MorphoTrust maintains that the agency is required by the Federal Grant and Cooperative Agreement Act (FGCAA) to conduct the TSA Pre✓® Application Expansion Initiative as a procurement contract. We disagree.

The FGCAA establishes the general criteria that agencies must follow in making the decision about whether to use a procurement contract, grant, or cooperative agreement when entering into a funding relationship with a state, locality, or other entity for an authorized purpose. 31 U.S.C. §§ 6301-6308. The FGCAA, however, makes no mention of “other transaction” authority which various federal agencies such as TSA possess. Thus, although the FGCAA provides applicable guidance to all federal agencies when the choices are limited to (1) procurement contracts, (2) grants, or (3) cooperative agreements, it provides no guidance when determining when an agency may properly use its other transaction authority. We find our decision in Assisted Housing Servs. Corp., et al., B-406738 et al., Aug. 15, 2012, 2012 CPD ¶ 236, which reviewed an agency’s intended use of a cooperative agreement under the FGCAA and upon which MorphoTrust repeatedly relies, to be inapposite to the present situation, since “other transaction” authority was not at issue.  (MorphoTrust USA, LLC B-412711: May 16, 2016)  (pdf)
 

The protesters each raise various arguments about the terms and conditions of the [notice of funding availability] NOFA. All of the protesters argue that HUD’s use of a NOFA, and the characterization of the [Annual Contributions Contract] ACCs that HUD seeks to award via this NOFA as cooperative agreements, are improper. The protesters contend that HUD is seeking contract administration services that must be solicited through a procurement instrument that results in the award of contracts.

The question of whether HUD is properly using a NOFA, rather than a procurement contract, involves our bid protest jurisdiction. As set forth more fully below, if HUD may properly use a cooperative agreement in this instance, we have no jurisdiction under the Competition in Contacting Act of 1984 (CICA) to hear disputes about these agreements. On the other hand, if the use of a procurement instrument is required, we have jurisdiction, and will consider whether HUD has complied with applicable procurement laws and regulations.

Under CICA and our Bid Protest Regulations, our Office reviews protests concerning alleged violations of procurement statutes or regulations by federal agencies in the award or proposed award of contracts for goods and services, and solicitations leading to such awards. 31 U.S.C. §§ 3551(1), 3552 (2006); 4 C.F.R. § 21.2(a) (2012). We generally do not review protests of the award, or protests of solicitations for the award, of cooperative agreements or other non-procurement instruments, because they do not involve the award of a procurement contract, and are thus beyond our jurisdiction. Energy Conversion Devices, Inc., B-260514, June 16, 1995, 95-2 CPD ¶ 121 at 2. However, we will review a timely protest asserting that an agency is improperly using a cooperative agreement or other non-procurement instrument, where a procurement contract is required, to ensure that an agency is not attempting to avoid the requirements of procurement statutes and regulations. Id.

Our Office has noted that the identification of the appropriate funding instrument (grant/cooperative agreement or contract) is important because procurement contracts are subject to a variety of statutory and regulatory requirements that generally do not apply to grants or cooperative agreements. As noted above, the misidentification of a procurement contract as a cooperative agreement could be used to evade competition and other legal requirements applicable to procurement contracts. Conversely, a legitimate assistance arrangement, such as a cooperative agreement, should not be burdened by the formalities of procurement contracts. GAO, Principles of Federal Appropriations Law, vol. II, at 10-18 (3rd ed. 2006).

The Federal Grant and Cooperative Agreement Act (FGCAA) establishes the general criteria that agencies must follow in deciding which legal instrument to use when entering into a funding relationship with a state, locality or other recipient for an authorized purpose. 31 U.S.C. §§ 6301-6308 (2006). In this regard, the FGCAA provides that an agency must use a procurement contract when “the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government;” or the agency otherwise “decides in a specific instance that the use of a procurement contract is appropriate.” 31 U.S.C. § 6303.

The FGCAA further provides that an “agency shall use a cooperative agreement” when the principal purpose of the relationship “is to transfer a thing of value to the State, local government, or other recipient to carry out a public purpose of support or stimulation authorized by law of the United States instead of acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government,” and “substantial involvement is expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement.” 31 U.S.C. § 6305.

Put differently, the use of a grant or cooperative agreement is appropriate if the principal purpose of the agreement is to provide assistance to the recipient to accomplish a public objective authorized by law. In contrast, if the federal agency’s principal purpose is to acquire goods or services for the direct benefit or use of the federal government, then a procurement contract must be used.

Our Office has recognized that it is often difficult to draw fine lines between the types of arrangements that require the use of procurement contracts and those that do not. Environmental Protection Agency--Inspector General--Cooperative Agreement--Procurement, B-262110, Mar. 19, 1997, 97-1 CPD ¶ 131 at 4. The principal purpose of the relationship between the federal government and the state, local government, or other entity is not always clear, and we have recognized that this can be particularly so where the federal government provides assistance to specified recipients by using an intermediary. GAO, Principles of Federal Appropriations Law, vol. II, at 10-20 (3rd ed. 2006); see 360Training.com, Inc. v. United States, 2012 U.S. Claims LEXIS 502 at *11-12 (Fed. Cl. Apr. 26, 2012). The intermediary or third party situation arises where an assistance relationship, such as a grant or cooperative agreement, is authorized to specified recipients, but the Federal grantor delivers the assistance to the authorized recipients by utilizing another party. GAO, Principles of Federal Appropriations Law, Vol. II, at 10-19. In such circumstances, “[t]he choice of instrument for an intermediary relationship depends solely on the principal federal purpose in the relationship with the intermediary.” S. Rep. No. 97-180, at 3 (1981) quoted in GAO, Principles of Federal Appropriations Law, vol. II, at 10-20.

In this regard, where the government’s principal purpose is to “acquire” an intermediary’s services, which ultimately may be delivered to an authorized recipient, or if the agency otherwise would have to use its own staff to provide the services offered by the intermediary to the beneficiaries, then a procurement contract is the proper instrument. Id; 360Training.com v. United States, Inc., supra; Civic Action Institute, B-206272, Sept. 24, 1982, 82-2 CPD ¶ 270 at 4, aff’d, Civil Action Institute--Recon., B-206272.2, Nov. 2, 1982, 82-2 CPD ¶ 399. On the other hand, where the Government’s principal purpose is to “assist” the intermediary in providing goods or services to the authorized recipient, the use of an assistance instrument, such as a cooperative agreement, is proper. GAO, Principles of Federal Appropriations Law, vol. II, at 10-20.

The FGCAA gives agencies considerable discretion in determining whether to use a contract, grant, or cooperative agreement, and our Office will not question such determinations unless it appears that the agency acted unreasonably, disregarded statutory and regulatory guidance, or lacked authority to enter into a particular relationship. Civic Action Institute, supra, at 3. In determining whether an agency’s selection and proposed use of a grant or cooperative agreement, rather than a contract, is reasonably based and consistent with statutory and regulatory guidance, our analysis of the nature of the contemplated relationship between the federal agency and the other party includes the consideration of the substance of the proposed agreement based upon the surrounding circumstances. B-257430, Sept. 12, 1994.

In contending that the instruments at issue here are properly designated cooperative agreements, HUD points out that The Housing Act of 1937, as amended and codified, provides that it “is the policy of the United States . . . to assist states and political subdivisions of States to address the shortage of housing affordable to low-income families.” 42 U.S.C. § 1437(a)(B); AR at 11; Supp. AR at 2. HUD maintains that the NOFA, which will result in the issuance of cooperative agreements, is in furtherance of the Act’s stated policy to provide assistance to states and political subdivisions of states. HUD specifically argues here that the “principal purpose of the ACCs between HUD and the PHAs is to assist the states and local governments by having PHAs, which are governmental entities, administer [HAP] contracts with property owners in order to serve the federal, state, and PHAs’ public purpose of promoting affordable housing for low-income families.” AR at 11.

Referencing the FGCAA criteria for cooperative agreements, HUD further explains that through the ACCs, HUD transfers a “thing of value” to the PHAs, by providing the PHAs with the funds necessary to make payments under the HAP contracts, as well as by paying the PHAs an “administrative fee” that compensates the PHAs for its services. AR at 12. HUD notes here that under the ACC, a PHA may use the “excess funds generated by the ACC to provide additional housing services” under other programs supported by the PHA, and that HUD is therefore supporting “the PHA’s public purpose.” Id.

HUD further maintains that it “is not assigning work to PHAs that it is otherwise required to do,” based upon its view that HUD “is not obligated to administer the HAP contracts itself.” AR at 13. HUD argues here that “[t]here is nothing in the United States Housing Act of 1937, or, more specifically, Section 8 of that Act, that obligates HUD to administer HAP contracts.” Supp. AR at 10. HUD also explains that the cognizant PHAs, rather than HUD, are listed as contract administrators on the majority of HAP contracts currently in effect, and that because of this, HUD is not obligated to serve as a contract administrator. Id. HUD thus concludes that its issuance of a NOFA providing for the issuance of cooperative agreements for the administration by PHAs of Project-Based Section 8 HAP contracts was reasonable and consistent with applicable statutes and regulations.

In addressing HUD’s arguments, we begin with the agency’s assertion that the principal purpose of the ACCs to be awarded under the NOFA--consistent with The Housing Act of 1937--is to “assist” PHAs “to address the shortage of housing affordable to low-income families” by providing a thing of value, that is, money, to the PHAs. See 42 U.S.C § 1437(a)(B); AR at 11; Supp. AR at 2. In this regard, we find unpersuasive HUD’s argument that its payments to property owners in accordance with the terms of its HAP contracts can properly be considered as the transfer of a thing of value to the PHAs. As set forth above, although the HAP contract payments are made through the PHAs in accordance with their obligations under the ACCs to administer the HAP contracts, the PHAs themselves have no rights to the payments (or control over them) once HUD authorizes the payments and transfers the funds to the PHAs for distribution. The PHAs, consistent with their roles as contract administrators, act only as a “conduit” for the payments. See AR, Tab 4, 53 Fed. Reg. 8050 (1988), at BATES 247 (HUD’s explanation as to why it views its Section 8 housing assistance payments as “outside the scope” of Office of Management and Budget’s Circular A-102 that governs grants and cooperative agreements with state and local governments). That is, and as described above, the PHAs have no right to retain or use for other purposes any of the funds it receives for payment to the property owners. In fact, the ACCs require that the funds, once received by the PHAs from HUD, be promptly transferred to the property owners, and require that any excess funds and interest earned on HAP funds by the PHAs be remitted to HUD or invested in accordance with HUD requirements. AR, Tab 3, ACC, at BATES 194.

Next, although we agree that HUD is clearly providing “a thing of value” to the PHAs through HUD’s payment of an administrative fee, we do not agree that the principal purpose of HUD’s payment of administrative fees to the PHAs is to “assist” the PHAs in the performance of their mission. Rather, as evidenced by the record, the administrative fees are paid to the PHAs as compensation for their provision of service--i.e., administering the HAP contracts. This arrangement, that is, the payment of fees by HUD for the PHAs’ services as contract administrators, is provided for by the NOFA and ACCs to be awarded. See AR, Tab 3, ACC, at BATES 194 (“The PHA shall use Administrative Fees to pay the operating expenses of the PHA to administer HAP Contracts”).

We also disagree with HUD’s assertion that it is under no obligation to administer the HAP contracts because the PHAs, and not HUD, are listed as the contract administrators on most HAP contracts. In this regard, the “HUD Occupancy Handbook” acknowledges, in the context of the Project-Based Section 8 rental assistance program, that “HUD has primary responsibility for contract administration but has assigned portions of these responsibilities” to PHAs whose “responsibilities focus on the day-to-day monitoring and servicing of Section 8 HAP contracts.” Supp. AR, Tab 17, HUD Occupancy Handbook 4350.3 REV-1, at BATES 533. Further, the Project-Based Section 8 HAP “Basic Renewal Contract” provided by HUD specifically obligates HUD, and not the contract administrator, to provide the housing assistance payments. Supp. AR, Tab 18, Project-Based Section 8 HAP Basic Renewal Contract, at BATES 546. HUD’s HAP Basic Renewal Contract notes elsewhere that “HUD shall take any action HUD determines necessary for the continuation of housing assistance payments to the Owner in accordance with the Renewal Contract” where a PHA, serving as the contract administrator, fails to transfer the housing assistance payments to the property owner as required under the relevant HAP contract. Id. at BATES 551.

Accordingly, we agree with the protesters that the circumstances here most closely resemble the intermediary or third party situation, which we described on page 10, infra. As applied here, HUD is providing assistance to low-income households, in the form of a rental subsidy paid to property owners, pursuant to the terms of HAP contracts. Rather than administering the program through which this assistance is provided, that is, the Project-Based Section 8 Rental Assistance Program--as HUD has in the past and continues to do in limited circumstances--HUD has retained, through its 1999 RFP and 2011 ISA, and is seeking to retain through this NOFA, the services of PHAs to perform the HAP contract administration services.

Given our view, as set forth above, that HUD is legally obligated to pay the property owners under the terms of the HAP contracts, and HUD’s recognition that it has primary responsibility for contract administration but has assigned portions of these responsibilities to PHAs, we also find that HUD’s principal purpose for its relationship with the PHAs as contemplated by the NOFA and set forth in the ACC, is to acquire the PHAs’ services as contract administrators. In this regard, the asserted “public purpose” provided by the PHAs under the NOFA--the administration of HAP contracts--is essentially the same purpose HUD is required to accomplish under the terms of its HAP contracts, wherein HUD is ultimately obligated to the property owners. As such, the principal purpose of the NOFA and ACCs to be awarded under the NOFA is for HUD’s direct benefit and use. B-257430, Sept. 12, 1994, at 4. Again, the NOFA provides, and HUD’s past practices demonstrate, that if a PHA is unable to provide contract administration services for the Project-Based Section 8 rental assistance program, HUD staff has provided and will provide such services. See 360Training.com v. United States, Inc., supra (an agency is acquiring the intermediary’s services for its own direct benefit or use if the agency otherwise would have to use its own staff to provide the services offered by the intermediary); see also GAO, Principles of Federal Appropriations Law, Vol. II, at 10-20.

For the reasons set forth above, we conclude that HUD’s issuance of a NOFA providing for the award of cooperative agreements was unreasonable and in disregard of applicable statutory guidance. We also conclude that HUD is required to use a procurement instrument that results in a contract in order to obtain the provision of contract administration services by PHAs for the Project-Based Section 8 HAP contracts. Finally, given our conclusion that HUD should use a procurement instrument that results in the award of contracts, rather than a notice that results in the execution of cooperative agreements, these protests fall squarely within the jurisdiction of our Office. See Energy Conversion Devices, Inc., supra.

The protesters also argue that certain terms of the NOFA are inconsistent with procurement statute and regulation, including the FAR, and are otherwise improper. We need not address these concerns. In this regard, HUD “admits that it did not follow the requirements in CICA or the FAR” in preparing its NOFA, and that it “would expect the protests to be sustained” should our Office determine, as we have, that the protests are within GAO’s jurisdiction. HUD Response to Protesters’ Requests for Documents (June 12, 2012) at 2. As a result, the protests are sustained.

RECOMMENDATION

We recommend that HUD cancel the NOFA, and solicit the contract administration services for the Project-Based Section 8 rental assistance program through a procurement instrument that will result in the award of contracts. In so doing, the agency should address the other concerns expressed by the protesters to the extent appropriate. We also recommend that the agency reimburse the protesters their costs of filing and pursuing the protests.  (Assisted Housing Services Corporation; North Tampa Housing Development Corporation; The Jefferson County Assisted Housing Corporation; National Housing Compliance; Southwest Housing Compliance Corporation; CMS Contract Management Services and the Housing Authority of the City of Bremerton; Massachusetts Housing Finance Agency, B-406738, B-406738.2, B-406738.3, B-406738.4, B-406738.5, B-406738.6, B-406738.7, B-406738.8, Aug 15, 2012)  (pdf)

The Library, as a legislative branch agency, is not subject to the Federal Acquisition Regulation (FAR), see 41 U.S.C. sect. 253(a)(1)(A) (2000); Carol Solomon & Assocs., B-271713, July 19, 1996, 96-2 CPD para. 28 at 1 n.1, but conducts its acquisitions in accordance with the LCR. The Library’s general procurement regulation, LCR 2110, “Procurement -- Supplies and Services,” states that it is the policy of the Library to follow the FAR in procurements of goods and services under LCR 2110 and that all deviations from the FAR under LCR 2110 must be documented by a D&F prepared in accordance with the FAR. However, LCR 2110 also states that “procurements conducted under other LCRs are not subject to the FAR unless specifically made subject thereto by the express terms of the regulation.” LCR 2120, “Cooperative Agreements without Transfer of Funds,” is one such “other LCR;” nothing in LCR 2120 makes the FAR applicable to actions taken under the provision. Therefore, the FAR is not applicable to Library agreements made pursuant to LCR 2120, and no D&F is necessary to allow such an agreement, provided that the agreement in fact falls within the definition of “cooperative agreement” in LCR 2120.  Section 4 of LCR 2120 defines a “cooperative agreement” as a “legal instrument reflecting a relationship between the Library of Congress and a . . . commercial organization, international organization, Federal, State, local or foreign government, individual, or other party, to establish a joint digitization or education project or other activity . . . that is consistent with the Library’s mission and intended for the parties’ mutual benefit.” In comparison, section 4 of LCR 2110 defines a “procurement contract” as a “legally binding instrument that obligates a seller to furnish goods and/or services to the Library for the Library’s direct benefit or use, and obligates the Library to pay for those goods and/or services.”  Here, the agreement between the Library and UNICOR provides that the Library may provide certain electronic equipment to UNICOR in lieu of abandonment and destruction and that UNICOR agrees to use the electronic equipment in meeting its mission of providing opportunities for job training and skills development. By the January 15, 2007 amendment to the MOU, UNICOR agreed to provide for the disposal of the NLS “talking book” players at no cost to the Library. Based on review of the MOU between the Library and UNICOR, we conclude that the MOU is a “cooperative agreement” subject to the provisions of LCR 2120, and not a “procurement contract” subject to the provisions of LCR 2110. Specifically, the fact that the MOU acknowledges the mutual benefit to the parties and the fact that the MOU does not obligate the Library to pay for the services provided by UNICOR indicate that LCR 2120 controls.  (Strong Environmental, Inc., B-311005, March 10, 2008) (pdf)

Under the Competition in Contracting Act of 1984 and our Bid Protest Regulations, we review protests concerning alleged violations of procurement statutes or regulations by federal agencies in the award or proposed award of contracts for procurement of goods and services, and solicitations leading to such awards. 31 U.S.C. sections 3551(1), 3552 (2000); 4 C.F.R. sect. 21.1(a) (2007). We have found that Space Act agreements, which are issued by NASA under its “other transactions” authority pursuant to the National Aeronautics and Space Act of 1958 (the Space Act), 42 U.S.C. sect. 2473(c)(5) (2000), are not procurement contracts, and therefore we generally do not review protests of the award, or solicitations for the award, of these agreements under our bid protest jurisdiction. Exploration Partners, LLC, supra, at 4-5. We will review, however, a timely protest that an agency is improperly using a non-procurement instrument, such as a Space Act agreement, where a procurement contract is required, to ensure that an agency is not attempting to avoid the requirements of procurement statutes and regulations. Id. at 5; Energy Conversion Devices, Inc., B‑260514, June 16, 1995, 95-2 CPD para. 121 at 2.  The Federal Grant and Cooperative Agreement Act establishes the general criteria that agencies must follow in deciding which legal instrument to use when entering into a funding relationship with a state, locality or other recipient for an authorized purpose. 31 U.S.C. sections 6301-6308 (2000). Under these criteria, an agency must use a procurement contract when:

(1) the principal purpose of the instrument is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government; or

(2) the agency decides in a specific instance that the use of a procurement contract is appropriate.

31 U.S.C. sect. 6303; see also Federal Acquisition Regulation (FAR) sect. 35.003(a) (“Contracts shall be used only when the principal purpose is the acquisition of supplies and services for the direct benefit of the Federal Government”). On the other hand, a procurement contract would not be required to carry out a public purpose of support or stimulation authorized by law, where the principal purpose of the agreement is not to acquire property or services for the direct benefit or use of the agency. See, e.g., 31 U.S.C. sect. 6305 (cooperative agreements); see also Rick’s Mushroom Serv., Inc. v. United States, 76 Fed.Cl. 250, 258 (2007) (agreement was not a procurement contract, where it did not contemplate the transfer of goods or services directly to the government; there was no evidence of a buyer-seller relationship; and no direct benefit accrued to the government.)  NASA contends that the principal purpose of the announcement is not to acquire goods and services for the direct benefit and use of NASA. Specifically, the agency notes that:

NASA obtains no vehicles, supply service, prototype, hardware, or other property, no systems or vehicle designs, and only the minimum Government-purpose data rights legally required by the Space Act. The Announcement does not provide NASA any right to future use of systems and vehicles developed and demonstrated under COTS Phase 1, for [International Space Station] supply missions or for any other purpose. The participant, not NASA, proposes the capabilities it will demonstrate and establishes the technical and schedule milestones for those demonstrations.

Agency Report (AR) at 2. Instead, NASA states that the purpose of the announcement is to “encourage the growth of a future U.S. commercial market in which space transportation services will be available for commercial and Government customers.” Id. This purpose differs from that of an R&D contract, the agency argues, because an R&D contract is used to obtain research, and the results of that research for an agency’s use, see FAR sections 35.010, 35.011, whereas here the announcement seeks to “incentivize the private sector to develop and demonstrate their own commercial technologies” and allows those firms to retain the maximum intellectual property rights allowed by the Space Act. Supp. AR at 2.  We find that the announcement did not principally provide for the acquisition of goods and services for the direct benefit and use of NASA. The record supports the agency’s arguments that the principal purpose of the announcement is to encourage, support and stimulate the development of a commercial market for space transportation, from which NASA could potentially acquire orbital transportation services. Although we agree with Rocketplane that such services in support of the growth of a commercial space transportation industry also support the government’s space exploration policy, which NASA is directed to foster, we do not find that supporting and stimulating efforts in support of a lawfully mandated public policy establishes that an agency is acquiring services for its own direct benefit and use. See Rick’s Mushroom Serv., Inc. v. United States, 76 Fed.Cl. at 258 (agreement was not a procurement contract, even though it was entered into to carry out a public purpose of support or stimulation authorized by law). Instead, we agree with NASA that the agreement’s purpose should control whether the services are “principally” for the agency’s direct benefit or use, or, as is the case here, to support or stimulate a public purpose authorized by law. Rocketplane also argues that NASA’s own policy directive states that funded Space Act agreements, such as that to be entered here, “may be used only when the Agency objective cannot be accomplished through the use of a procurement contract, grant, or cooperative agreement.” See NASA Policy Directive, NPD 1050.1H, Nov. 29, 2006, at 2. Rocketplane contends that the agency “failed to make any required baseline determination” as to whether the objectives contained in [the announcement] could not be accomplished through the use of an R&D contract. Protester’s Comments at 2. However, the record shows that NASA “considered the objectives and purposes of the COTS Demonstrations, and whether they were appropriate for and could be accomplished under a contract, grant, cooperative agreement, or ‘other transaction,’ when planning the project strategy prior to the original COTS announcement in 2006.” See Supp. AR at 3; AR, Tab H, Commercial Crew/Cargo Project Strategy Briefing, Nov. 15, 2005, at 15-16. NASA concluded, as noted above, that its primary purpose was to stimulate the commercial space industry to provide creative, innovative, cost effective solutions for space transportation and that the announcement would not seek the acquisition of goods and services for the agency. AR, Tab H, Commercial Crew/Cargo Project Strategy Briefing, Nov. 15, 2005, at 16. In any event, we generally will not review an alleged violation of an internal agency policy, such as NASA’s policy directive here. See Hughes Space and Commc’ns Co.; Lockheed Missiles & Space Co., Inc., B-266225.6 et al., Apr. 15, 1996, 96-1 CPD para. 199 at 17.  (Rocketplane Kistler, B-310741, January 28, 2008) (pdf)

Comptroller General - Listing of Decisions

U. S. Court of Federal Claims - Key Excerpts

U. S. Court of Appeals for the Federal Circuit - Key Excerpts