Recent decisions from the General Accounting Office (GAO) cause us to question whether GAO has rejected its usual deference to agency discretion and reasonable interpretations of agency regulations. GAO here usurps its usual role of applying the statutes and the regulations to the facts in the cases that come before it—in these cases, unwittingly or otherwise, GAO has assumed the role of a rule-maker, rather than an impartial arbiter.
The first of these cases is Russo & Sons, Inc., B-280948, Dec. 11, 1998. At issue in Russo was the “late is late” rule that is applied in commercial item solicitations proceeding under Federal Acquisition Regulation (FAR) Part 12. The rule itself is set out in the INSTRUCTIONS TO OFFERORS—COMMERCIAL ITEMS (AUG 1998) provision:
Late Offers Offers or modifications of offers received at the address specified for the receipt of offers after the exact time specified for receipt of offers will not be considered.
This provision was added with Federal Acquisition Circular (FAC) 90-32, 60 Fed. Reg. 48231 (Sept. 18, 1995). The regulatory preamble to FAC 90-32 advises that the INSTRUCTIONS TO OFFERORS—COMMERCIAL ITEMS (AUG 1998) provision:
contains solicitation instructions unique to Government procurement and is based on existing FAR language. The information has been simplified and tailored to meet the requirements of commercial items solicitations. For the most part, the simplified paragraphs in the new provision do not contain new concepts.
FAC 90-32, 60 Fed. Reg. 48232 (Sept. 18, 1995). The Final Regulatory Flexibility Analysis, 5 U.S.C. § 604(a), published with FAC 90-32, advises that these regulations require:
that, when acquiring commercial items, the contracting officer use the solicitation provisions and contract clauses specifically established for acquiring commercial items. The contracting officer may tailor those provisions and clauses when the customary practices in the market dictate the use of other terms and conditions or when a waiver is approved.
FAC 90-32, 60 Fed. Reg. 48233 (Sept. 18, 1995).
Russo had mailed its competitive proposal by Express Mail Next Day Service one working day before the time specified for receipt of offers. Russo did not indicate on the outside of its proposal package that the package contained a competitive proposal, or the time specified for receipt, or the solicitation number. Russo’s proposal package arrived at the agency’s central mail facility only two hours before the time set for receipt of competitive proposals. Since the package was not identified as one containing a competitive proposal, it was not forwarded to the contracting officer until the afternoon mail run, after the time that was set for receipt of initial competitive proposals. Had the package been identified as containing a competitive proposal, it would have been immediately forwarded. The contracting officer rejected the proposal as late. Russo & Sons, B-280948, at 2.
Russo protested the rejection, contending that its proposal should have been accepted under the “government mishandling” exception set out in the INSTRUCTIONS TO OFFERORS—COMPETITIVE ACQUISITION (OCT 1997) provision, FAR 52.215-1(c)(3)(i)(B). GAO ultimately concluded, under this provision (which applies to competitive acquisitions conducted under FAR Part 15), that Russo’s competitive proposal could not be accepted as timely under the government mishandling exception because it was not sent by Express Mail Next Day Service at least two working days prior to the time specified for receipt of proposal, FAR 52.215-1(c)(3)(i)(C), and because the package containing Russo’s competitive proposal was not adequately identified as one containing a competitive proposal, ergo, not properly dispatched to the “address specified” by the solicitation. Russo & Sons, B-280948, at 3.
GAO thus did not need to consider the “late is late” rule under the INSTRUCTIONS TO OFFERORS—COMMERCIAL ITEMS (AUG 1998) provision. But it did so, and it engaged in a shocking bit of rule making:
Despite the language of FAR § 52.212-1(f), we do not think that agencies should reject a late proposal for commercial items where the evidence shows that mishandling by the government is the paramount cause for the lateness. In our view, to reject a proposal where the reason for the rejection is that it was late due solely to government impropriety is not in the government’s best interest—since it may be deprived of the most advantageous offer due solely to its own mishandling—nor does it benefit the competitive procurement system, given the perception of unfairness created by rejecting a proposal which is late through no fault of the offeror. In this regard, we see no reason to distinguish commercial item procurements from other types of procurements. Accordingly, we conclude that the government mishandling exception to considering late proposals applies to acquisitions of commercial items
Russo & Sons, B-280948, at 3. GAO gives no consideration to the regulatory preamble to FAC 90-32, or to the Final Regulatory Flexibility Analysis published with FAC 90-32. Instead, GAO simply substitutes its judgment for that of the Defense Acquisition Regulation Council and the Civilian Agency Acquisition Council. FAR 1.201-1.
The impact of this unfortunate decision will shortly be alleviated, since FAR Case 97-030 proposes to modify the INSTRUCTIONS TO OFFERORS—COMMERCIAL ITEMS (AUG 1998) provision so as to eliminate the “late is late” rule for commercial items acquisitions, thereby providing a “single standard for receipt of late offers under commercial, sealed bid, and negotiated acquisitions.” FAR Case 97-030, 64 Fed. Reg. 4248 (Jan. 27, 1999). In the meantime, a procuring contracting officer located in Nullus Locus, a procuring contracting officer with only the FAR for guidance, is in for a nasty surprise should she apply the “late is late” rule under a commercial items solicitation, and the offeror whose competitive proposal is rejected as late takes umbrage with her actions.
Bad as this is, there is more.
The “more” is the new requirement, in FAR 15.306(d)(3), that contracting officers engaged in discussions with competitive range offerors shall indicate or discuss “other aspects of [proposals] (such as cost, price, technical approach, past performance, and terms and conditions) that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award.” We reviewed this new requirement in Increased Scope of Discussions under the FAR Part 15 Rewrite (January 1998), and there we pointed out that the Final Regulatory Flexibility Analysis prepared for the FAR Part 15 Rewrite gave an explanation of this increased scope of agency obligations:
In response to public comments, the second proposed rule requires a more robust exchange of information during discussions. The language requires the Government to identify, in addition to significant weaknesses and deficiencies, other aspects of an offeror’s proposal that could be enhanced materially to improve the potential for award. This change should benefit all offerors, including small businesses, because it permits offerors to develop a better understanding of their proposal, and permits them to optimize their potential for award.
FAC 97-02, 62 Fed. Reg. 51229 (Sept. 30, 1997).
A Final Regulatory Flexibility Analysis is required to contain:
(1) a succinct statement of the need for, and objectives of, the rule;
(2) a summary of the significant issues raised by the public comments in response to the initial regulatory flexibility analysis, a summary of the assessment of the agency of such issues, and a summary of any changes made in the proposed rule as a result of such comments;
. . . .
(5) a description of the steps the agency has taken to minimize the significant economic impact on small entities consistent with the stated objectives of applicable statutes, including a statement of the factual, policy, and legal reasons for selecting the alternative adopted in the final rule and why each one of the other significant alternatives to the rule considered by the agency which affect the impact on small entities was rejected.
5 U.S.C. § 604(a). The federal courts pay close regard to Final Regulatory Flexibility Analyses when construing agency regulations:
The intent of the RFA is not to limit regulations having adverse economic impacts on small entities, rather the intent is to have the agency focus special attention on the impacts its proposed actions would have on small entities, to disclose to the public which alternatives it considered to lessen adverse impacts, to require the agency to consider public comments on impacts and alternatives, and to require the agency to state its reasons for not adopting an alternative having less of an adverse impact on small entities.
Associated Fisheries of Maine, Inc. v. Daley, 127 F.3d 104, 116 (1st Cir. 1997) (quoting from 61 Fed. Reg. 27721 (1996)).
And how has GAO treated the “material enhancements” discussion requirement in the FAR Part 15 Rewrite? A provision that, per the Final Regulatory Flexibility Analysis, is intended to “require a more robust exchange of information during discussions,” and to “benefit all offerors, including small businesses, because it permits offerors to develop a better understanding of their proposal, and permits them to optimize their potential for award.”
Surprise, surprise! In MCR Federal, Inc., B-280969, Dec. 14, 1998, GAO holds that “[w]e do not read the revised FAR Part 15 language to change the legal standard so as to require discussion of all proposal areas that could be improved.” Id., at 11. A little more than a week later, GAO provided a more extensive discussion of its views on this issue:
We view the statutory and regulatory mandate for discussions with all competitive range offerors, which was not changed in the FAR Part 15 rewrite, as requiring that such discussions must be meaningful, equitable and not misleading. See 41 U.S.C. § 253b(d)(1)(A) (1994); FAR § 15.306(d)(1). At issue here is whether the FAR Part 15 rewrite altered the rules governing the content of discussions in a way relevant to the outcome of this protest. We recognize that the FAR rewrite could be read to limit the discretion of the contracting officer by requiring discussion of all aspects of the proposal “that could, in the opinion of the contracting officer, be altered or explained to enhance materially the proposal’s potential for award.” We do not believe, however, that it was the intention of the rewrite to limit the contracting officer’s discretion in this manner. Cf. SDS Petroleum Prods., Inc. B-280430, Sept. 1, 1998, 98-2 CPD ¶ 59 at 5 (intent of Part 15 rewrite was to give contracting officers discretion to establish a more limited competitive range than was permitted previously). Consequently, we do not view the rewrite as having changed the prior legal requirements governing discussions in a manner which affects this case. See MCR Fed., Inc., B-280969, Dec. 14, 1998, 98-2 CPD ¶ at 10-11. The rule thus remains that, while an agency is required to conduct meaningful discussions leading an offeror into the areas of its proposal requiring amplification or revision, the agency is not required to “spoon-feed” an offeror as to each and every item that could be revised so as to improve its proposal. See Applied Cos., B-279811, July 24, 1998, 98-2 CPD ¶ 52 at 8. This is especially the case where, as here, the RFP evaluation criteria and instructions to offerors on proposal preparation are detailed and clear with respect to the problem areas. Id.
Du & Associates, Inc., B-280283.3, Dec. 22, 1998, at 7-8. In this decision, GAO does not discuss the Final Regulatory Flexibility Analysis for the “material enhancements” discussion requirement in the FAR Part 15 Rewrite. Neither does it conclude as a matter of law that this requirement for “a more robust exchange of information during discussions” violates existing statutes. Rather, GAO again makes new law, this time erasing a major provision of the FAR Part 15 Rewrite.
What is going on? GAO usually gives proper regard for agency interpretation of regulations. Just last spring, in Red River Service Corp., B-279250, May 26, 1998, 98-1 CPD ¶ 142, GAO placed extensive reliance on the Environmental Protection Agency’s (EPA’s) regulatory implementation of the Resource Conservation and Recovery Act of 1976, 42 U.S.C. § 6961(a), deciding that the EPA’s implementing regulations did not provide, for major federal facilities, a broad exemption from local solid waste requirements. GAO noted that “[w]e are required to give deference to EPA’s reasonable interpretation of its regulations,” Id., at 5-6, and it went on to overrule five of its previous decisions holding to the contrary of EPA’s views, Id., at 8-9.
Likewise, GAO has in the past held agencies to the regulatory preambles of final regulations, much like the regulatory preamble to FAC 90-32 concerning the INSTRUCTIONS TO OFFERORS—COMMERCIAL ITEMS (AUG 1998) provision, or like the Final Regulatory Flexibility Analysis for the “material enhancements” discussion requirement in the FAR Part 15 Rewrite. Consider PI Construction Co., B-272174, B-272177, Oct. 2, 1996, 96-2 CPD ¶ 128. At issue in PI Construction were Small Business Administration (SBA) regulatory requirements imposing geographic restrictions for construction requirements placed as competitive small disadvantaged business set-asides under section 8(a) of the Small Business Act, 15 U.S.C. § 637(a). The regulatory requirements limited program eligibility only to those entities “located within the appropriate geographical boundaries” of designated SBA offices, but the regulations did not define the basis upon which an entity would be considered to be located within the designated geographical boundary. Id., at 2.
The SBA had published a regulatory preamble that provided:
SBA believes that a Program Participant may be considered as being located within a geographical boundary if it regularly maintains an office which employs at least one full-time individual within that geographical boundary.
Id., at 3. At issue were two 8(a) set-asides for construction requirements in California and in Missouri. The SBA directed the requiring activities, the Air Force and the Army, to place a restriction in the solicitations limiting eligibility only to those firms whose principal places of business were located within the designated areas. The protester’s principal place of business was in Colorado, but it also had branch offices with at least one full-time employee in each of the designated areas. Id., at 1-2.
GAO sustained the protest, and in doing so, it relied heavily on the regulatory preamble:
The preamble to a regulation should be considered in construing and in determining the meaning of the regulation. See Wiggins Bros., Inc. v. Dep’t of Energy, 667 F.2d 77 (Temp. Emer. Ct. App. 1981). Under federal rules of construction of legislative regulations, definitions in a preamble may not be ignored. Id. While the term “may” in a regulation is generally construed as permissive, rather than mandatory, the construction of such term—whether discretionary or mandatory—is reached in each case on the context of the regulation and on whether it is fairly to be presumed that it was the intention of the agency to confer discretion or to impose an imperative requirement. See United Hosp. Center, Inc. v. Richardson, 757 F.2d 1445 (4th Cir. 1985). Courts have often interpreted “may” as connoting a mandatory meaning. Id.
Despite the SBA’s use of the term “may,” we conclude that the structure and the context of the regulatory preamble sentence at issue is one of definition, not one creating discretion. This sentence begins with a declaratory phrase, “SBA believes that,” followed by the SBA actually defining those 8(a) concerns which it believes are located within a designated geographic area, specifically, not only 8(a) concerns headquartered in these areas, but also 8(a) concerns with branch offices in these areas.2 This preamble language fills the definitional void in the regulations themselves, and it is the preamble which reflects the SBA’s intent regarding the basis for a determination of the eligibility of an 8(a) concern to compete for 8(a) construction requirements. We believe the SBA has provided no persuasive reason to ignore the definition in its preamble which supports the protester’s position that because it maintains a branch office in each of the designated geographic areas, it should be considered eligible to compete under the referenced 8(a) solicitations.
PI Construction, 96-2 CPD, at 4-5
It appears that GAO will hold agencies to regulatory preambles, while at the same time GAO can ignore regulatory preambles when necessary to support the result that GAO has decided is appropriate. It is not a stretch to suppose that neither the United States Court of Federal Claims, or the federal district courts, would decide cases touching on the INSTRUCTIONS TO OFFERORS—COMMERCIAL ITEMS (AUG 1998) provision, or on the “material enhancements” discussion requirement in the FAR Part 15 Rewrite, based on their own policy considerations, as GAO has done. The procurement community is not well served when the outcome of a particular dispute may depend on the forum in which it is filed.
— Cy Phillips
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