AMBIGUITY ABOUNDS: A PRIMER ON THE APPROPRIATE USE OF PROCUREMENT CONTRACTS AND ASSISTANCE INSTRUMENTS.
Trying to decide if a federal agency should use a contract or assistance instrument is a difficult task because of the ambiguity in the law. (2) A procurement is accomplished through a contract and is used to purchase things for the direct benefit of the government. (3) Assistance is accomplished through a grant or cooperative agreement and is used to transfer things of value in support or stimulation of geographic, scientific, or economic areas. (4) For example, if environmental protections are restricting training on a military installation, the Department of Defense (DoD) has the authority to enter into agreements for preserving habitat outside of the military installation in order to relieve the restrictions within the installation. (5) In this example, the decision of whether to use procurement or assistance is unclear because there could be a direct benefit to the government in the acquisition of property rights, and also the provision of support in the area of conservation. (6)
As will be discussed in section IV below, the ambiguity present in this example causes agencies to choose the wrong instrument, often with costly and time-consuming consequences. "[I]n 1972, the Commission on Government Procurement found that 'failure to distinguish between procurement and assistance relationships has led to both inappropriate uses of grants to avoid the requirements of the procurement system and to unnecessary red tape and administrative requirements in grants. '" (7) As section II.B will detail, this finding by the commission highlights a major advantage of using an assistance instrument, which is the inapplicability of the demanding statutory and regulatory requirements within procurement such as competition and the Federal Acquisition Regulation (FAR). (8) In response, Congress passed the Federal Grant and Cooperative Agreement Act of 1977 (FGCAA) to define procurement and assistance. (9) The FGCAA is a well-intentioned legislative attempt at defining procurement and assistance; however, ambiguity still existed following its creation.
Since the FGCAA was passed, the Office of Management and Budget (OMB) has issued administrative guidance, the Comptroller General has issued opinions, and the courts have issued decisions in attempts to better define the relationships. In spite of these attempts to reduce the ambiguity, understanding the relationship between procurement and assistance "continues to remain unsettled. Although Congress apparently demarcated the boundaries of the different legal instruments, the courts continue to find overlap between the two areas." (10) Practitioners need clarity in defining procurement and assistance because of the potential costs in time and money caused by improperly utilizing the easier to use assistance instrument and avoiding the competition requirements of procurement.
This primer will provide a framework for analyzing whether an agency should use procurement or assistance. First, section II will examine the significance between these two relationships, which is primarily the more arduous legal and administrative requirements applicable to procurement. Section II will also offer a brief history leading to the creation of the FGCAA, which provides important reasons for the act and the rationales for developing distinct relationships. Section III will evaluate how the FGCAA defines the procurement and assistance relationships and how the OMB administrative guidance provides further interpretation. Finally, section IV will conclude by explaining how the most recent court decisions in CMS Contract Management Services v. Massachusetts Housing Finance Agency and Hymas v. United States, while not entirely eliminating ambiguity, provide practitioners a useful framework for choosing between using procurement versus assistance.
II. Significance and History
The choice between using a procurement contract versus an assistance relationship is important. First, it is important because Congress states so in the FGCAA. (11) Second, procurement contracts have more arduous legal and administrative requirements, leading to more robust government obligations and contractor rights. (12) For example, if practitioners use an assistance instrument when a procurement contract is required, they could find themselves stuck in litigation or starting over the acquisition process. (13)
A. Congress States the Significance
The distinction between procurement and assistance is important because Congress, which controls federal funding, (14) passed the FGCAA, which establishes the purposes of the act. (15) In 1972, the Commission of Government Procurement found "[significant confusion over which Federal transactions should be subject to procurement procedures and which should be subject to assistance policies." (16) The commission made several recommendations, one of which was that each relationship should be clearly defined. (17) In response, the Senate Government Operations Committee commented on the need for legislation stating that federal grant expenses were increasing; that Congress had not been clear on when grants, as opposed to contracts, should be used; and that confusion and inconsistency led to waste and abuse. (18)
Thus, in 1977 Congress passed the FGCAA that establishes three purposes. (19) First, the FGCAA promotes a better understanding of expenditures and eliminates unnecessary administrative requirements by defining procurement and assistance. (20) Second, the FGCAA prescribes selection criteria in order to achieve uniformity and clarity and define responsibilities of the parties. (21) And lastly, the FGCAA promotes agency discipline in selecting the appropriate relationship, maximizes competition in procurement, and encourages competition in assistance. (22) The history and statutory purposes of the FGCAA provide important principles for practitioners when analyzing the appropriate relationship. Equally important are the different legal processes that apply to the distinct relationships.
B. Different Legal Processes Apply
The distinction between procurement and assistance is also significant because different legal processes, which define contractor rights and government obligations, apply to each relationship. (23) Different processes apply because procurement and assistance have contrary goals. Within the procurement process. Congress has stated that competition is paramount to the process because the government wants to obtain the best products for the best prices. (24) Compare that with assistance, in which sometimes it is better to award a grant to the least efficient grantee in order to stimulate increased efficiency in the geographic, scientific, or economic venue. (25) Therefore, generally, the demanding statutes and regulations governing the procurement process do not apply to assistance. (26) For example, the FAR and Competition in Contracting Act (CICA) do not apply to assistance. (27) Additionally, the Contract Disputes Act (CDA) is inapplicable to assistance. (28) Finally, Tucker Act jurisdiction only applies to procurement solicitations and contracts, and does not apply to assistance. (29)
However, assistance is not entirely unregulated, and is subject to OMB circulars and agency specific regulations. (30)
The OMB circulars are A-102, governing assistance relationships with state and local governments, and A-110, governing assistance relationships with higher educational institutions, hospitals, and other nonprofit organizations. (31) Within the DoD, assistance relationships are regulated by the Defense Grant and Agreement Regulatory System. (32) Due to the more onerous procurement process, practitioners need to avoid the trap of utilizing the easier assistance instruments; otherwise, they could find themselves stuck in litigation. Because the distinction is significant, practitioners need to understand how the FGCAA defines the procurement and assistance relationships and what guidance OMB provides on the relationships.
III. Definitions and OMB Administrative Guidance
While the legislative intent and statutory purposes of the FGCAA are insightful, the definitions contained within the FGCAA are the foundation for analyzing whether practitioners should use procurement or assistance. Additionally, the OMB administrative guidance on the FGCAA is significant in the analysis. After practitioners understand why the distinction between procurement and assistance matters, the FGCAA definitions and the OMB administrative guidance are where the analysis begins.
The analysis of procurement versus assistance begins with the definitions. The FGCAA does not define these instruments, but instead defines the situations in which they are used. First, the FGCAA states that a procurement contract shall be used when "the principle purpose of the instrument is to acquire ... property or services for the direct benefit or use of the United States Government...." (33) Next, the FGCAA states that the two assistance instruments, grants and cooperative agreements, shall be used when "the principle purpose of the relationship is to transfer a thing of value to ... [a] recipient to carry out a public purpose of support or stimulation authorized by a law of the United States...." (34) The difference between grants and cooperative agreements is that substantial involvement is expected from the agency in the cooperative agreement and not expected in the grant. (35) As will be discussed in section IV below, the principle purpose, direct beneficiary, thing of value, and authorizing law are essential factors in the analysis of whether to use procurement or assistance. Since the FGCAA does not contain much more than the definitions, practitioners need to consult the OMB administrative guidance.
B. OMB Administrative Guidance
After Congress defined procurement and assistance relationships in the FGCAA, the OMB issued administrative guidance. The OMB administrative guidance provides factors, such as agency mission, intent, and principal purpose of the relationship, for practitioners to consider. The OMB states that "[i]n most cases, agencies will have no trouble distinguishing between procurement and assistance. Where the distinction is hard to make, the OMB believes that the agency mission and intent must be the guide." (36) The OMB goes on to provide an example:
where an agency authorized to support or stimulate research decided to enter into a transaction where the principal purpose of the transaction is to stimulate or support research, it is authorized to use either a grant or a cooperative agreement. Conversely, if an agency is not authorized to stimulate or support research, or the principal purpose of a transaction funding research is to produce something for the government's own use, a procurement transaction must be used. (37)
Thus, agency mission, intent of the transaction, and principal purpose are important factors in choosing between procurement and assistance.
The OMB also provides guidance regarding substantial federal involvement to aid in distinguishing grants from cooperative agreements. Generally, substantial federal involvement includes agency collaboration, participation in the management of the project, or agency intervention. (38) These factors demonstrate agency involvement, but whether that involvement is substantial is still a balance depending on the circumstances. (39)
The OMB also provides important guidance as to agency discretion in choosing between procurement and assistance. The OMB states that "[t]he determinations of whether a program is principally one of procurement or assistance, and whether substantial Federal involvement in performance will normally occur are basic agency policy decisions.... Congress intended the [FGCAA] to allow agencies flexibility to select the instrument that best suits each transaction." (40)
In conclusion, the FGCAA definitions will guide the agency to the correct instrument most of the time; but when the distinction is difficult to make, agency mission, intent, and principal purpose should dictate. (41) Additionally, while agency discretion is not unlimited, as will be discussed in the case analyses in section IV, Congress did intend the FGCAA to allow for agency flexibility. (42)
IV. Case Analyses
Since the publishing of the OMB guidance, the Comptroller General has issued opinions and the courts have issued decisions in attempts to better define the relationships. CMS and Hymas are the most recent U.S. Court of Appeals for the Federal Circuit (CAFC) attempts at defining procurement and assistance. While the CAFC decisions do not entirely reduce the ambiguity, they do provide practitioners a useful and recent framework because the court's analyses apply the factors and principles from the FCGAA definitions and the OMB guidance. Practitioners can use the framework in combination with the FGCAA definitions and OMB administrative guidance to choose a procurement contract or an assistance instrument. Initially, however, it is helpful to examine some of the earlier Comptroller General opinions and court decisions. This helps to explain the continuation of the ambiguity and confusion.
A. Early Opinions and Decisions
Much of the ambiguity following the FGCAA and OMB guidance originates from the earlier Comptroller General opinions and court decisions that found overlap between procurement and assistance that created confusion among practitioners. (43) One of the earlier Comptroller General opinions is a letter to the Honorable Richard L. Ottinger. In that letter, the Comptroller General states that the FGCAA does not give an agency the authority to enter into grants and cooperative agreements. (44) The authority to enter into assistance instruments must be found in the agency's affirmative authorizing legislation. (45) For example, in the environmental example concerning DoD from section I above, the authorizing legislation allows the use of an assistance agreement. (46) While the letter to the Honorable Richard L. Ottinger is not confusing standing alone, it lays the foundation for the next opinion that complicates the principle purpose analysis by adding a party between the agency and assistance recipient, a third-party intermediary. (47)
Civic Action Institute deals with the complex issue of third-party intermediaries, which tweaks the principle purpose analysis. In that opinion, the General Accounting Office (GAO) (48) first held that it will review assistance awards if there is a showing that an assistance agreement was used to avoid competition requirements, thus providing standing at the GAO to challenge the agency choice of instrument. (49) The GAO then held that the direct benefit language used in the FGCAA is not necessarily the final question. (50) When thirdparty intermediaries are involved, the question becomes whether the principal purpose of the agency is to acquire that third-party intermediary's services in order to provide the assistance or whether the principal purpose is to assist the third-party intermediary in providing assistance. (51) This confusing twist ultimately calls into question the appropriateness of the agency's choice of instrument. The GAO relied heavily on the fact that while the agency had authority to use assistance, it had no affirmative authority in the authorizing legislation to use assistance with third-party intermediaries. (52)
These two opinions stand for the principle that practitioners need to critically examine the agency's authorizing legislation for the authority to use assistance and authority to use third-party intermediaries. If there is no authority to use third-party intermediaries, then selecting the proper instrument will turn on the more difficult purpose analysis as laid out in Civic Action Institute. Much of the confusion and ambiguity between procurement versus assistance stems from the principal purpose analysis within a third-party intermediary relationship, which will be highlighted in subsections B and C below discussing CMS and Hymas.
The next area of Comptroller General opinions further deal with the principal purpose analysis. First, in New York Telephone Company, the GAO found that an award intended to fulfill the mission of the agency is a procurement, even if the award results in assistance to the public. (53) In another opinion, West Coast Copy, Inc., the GAO similarly found that the relationship was procurement because the agency was benefiting from the award even though the services were being provided to the public. (54) And finally, in a letter to the Honorable Eleanor Holmes Norton, the Comptroller General stated the principal purpose test as whether the principle purpose is to serve the immediate needs of the government, or whether to provide assistance to a non-federal entity in serving a public purpose, as judged on the basis of all surrounding circumstances. (55) The principal purpose test focuses on whether the subject matter of the agreement falls within the duties or mission of the agency. (56) If so, then the principal purpose of that agreement is for the direct benefit of the agency because it assists the agency in fulfilling that duty or mission. (57) Accordingly, while examining the authorizing legislation and potential use of a third-party intermediary, practitioners need to focus on the principal purpose of the agreement and how it impacts the mission of the agency. (58)
While these GAO opinions focused on the confusion and ambiguity surrounding the concepts of authorizing legislation, third-party intermediaries, and principal purpose, the early court decisions focused on jurisdiction, and created ambiguity by inserting contract analysis into assistance relationships. The following court case analyses do not directly aid the practitioner in choosing between procurement and assistance, but illustrate where ambiguity and confusion exist. In Chem Service, Inc. v. Environmental Monitoring Systems Laboratory----Cincinnati, the Court of Appeals for the Third Circuit held that Chem Service had standing to challenge the use of an assistance agreement. (59) This finding follows the GAO opinions outlined above in which GAO found standing in similar circumstances. (60)
However, as compared to GAO's jurisdiction, which ends if an assistance relationship was properly used, (61) jurisdiction in the courts is unclear and confusing. (62) The ambiguity in jurisdiction stems from what appears to be directly conflicting case law. (63) For example, the United States Court of Federal Claims (COFC), in Trauma Service Group, Ltd. v. U.S., held that a cooperative agreement was not a contract and could not be enforceable under the Tucker Act.(64) However, in affirming the decision of the COFC, the CAFC stated that "any agreement can be a contract within the meaning of the Tucker Act, provided that it meets the requirements for a contract ... As such, contrary to the opinion of the trial court, a [Memorandum of Agreement] can also be a contract--whether this one is, we do not decide." (65) Additionally, the COFC held in Thermalon Industries, Ltd. v. U.S., that a grant satisfied the requirements of a contract and could be enforced under the Tucker Act. (66) This ambiguity and confusion stems in part from the use of the term contract in the Tucker Act (67) and the term procurement contract in the FGCAA. (68),
More recently, the COFC held in Ozdemir v. U.S. that a solicitation for assistance was subject to Tucker Act jurisdiction because jurisdiction is not limited to procurement matters. (69) But, the CAFC, in Resource Conservation Group, L.L.C. v. U.S., held that 28 U.S.C. [section] 1491(b)(1) of the Tucker Act "in its entirety is exclusively concerned with procurement solicitations and contracts," but that implied-in-fact nonprocurement contract jurisdiction under [section] 1491(a)(1) still existed. (70) In conclusion, jurisdiction in the courts regarding assistance is puzzling, and the courts' jurisdiction analyses have led to confusion in the use of assistance. While an understanding of this area can help practitioners understand the ambiguity and confusion, they should not let the courts' jurisdiction analyses get confused with the analysis needed in choosing between using procurement versus assistance. (71) The final sections of this primer will focus on the most recent court decisions in CMS and Hymas, and how they provide a useful framework for choosing between using procurement versus assistance.
B. CMS Contract Management Services v. Massachusetts Housing Finance Agency
CMS, in some ways, adds to the ambiguity and confusion in this area of the law. However, the analysis used by the court highlights what is important in deciding when to use procurement versus assistance. Based on the court's analysis in CMS, practitioners should focus on the principal purpose of the transaction, the direct beneficiary of the instrument, and what thing of value is being transferred to the other party to the transaction. (72) These terms originate from the FGCAA and the OMB guidance explained in section III.
The CAFC heard CMS on appeal by CMS after the COFC denied to find a Department of Housing and Urban Development (HUD) solicitation and award of contract administration services unlawful. (73) The CAFC held in favor of CMS stating that the proper instrument for the solicitation and award was a procurement contract. (74)
Under the Housing Act of 1937, the HUD was authorized to provide rental assistance benefits to low-income families, which included payments to owners of privately-owned dwellings (project owners), in order to allow for the subsidizing of rent. (75) After the 1974 amendments to the Housing Act, the HUD used two approaches to provide these payments. (76) Under the first approach, the HUD used Housing Assistance Program (HAP) contracts directly with the project owners. (77) Under the second approach, the HUD used annual contributions contracts (ACC) with a Public Housing Agency (PHA) that would enter into HAP contracts with the project owners. (78) CMS was a PHA under the second approach. (79)
In 1997, Congress passed the Multifamily Assisted Housing Reform and Affordability Act (MAHRA) that addressed the increasing inability of the HUD, due to budget cuts and staff reductions, to administer HAP contracts and ACCs. (80) The MAHRA allowed the HUD to transfer contract administration functions and responsibilities of these HAP contracts and ACCs to PHAs. (81) The HUD sought additional funding for this outsourcing, and stated that the benefits of this outsourcing included improved oversight of the HAP contracts and ACCs and release of agency staff for other duties. (82)
In 1999, the HUD began the process to award an ACC to a PHA in every state. (83) The ACCs provided for administrative fees and incentive fees, and each proposal would be evaluated on best value to the agency. (84) The ACCs were awarded and renamed Performance Based Annual Contributions Contracts (PBACC). (85) In 2011, the PBACCs were re-competed and re-awarded, and several protests were filed with the GAO arguing that "the PBACCs were procurement contracts and that the HUD had not complied with federal procurement laws." (86) The HUD took corrective action by withdrawing the awards and re-issuing the solicitation characterizing the PBACCs as cooperative agreements. (87) In the solicitation, the HUD restricted competition by giving priority to in-state PHAs over out-ofstate PHAs. (88)
CMS filed a pre-award protest with the GAO arguing that the PBACCs were procurement contracts and that the in-state priority violated competition rules under federal procurement laws. (89) The GAO agreed with CMS, stating the third-party intermediary rule as: "[t]he choice of instrument for an intermediary relationship depends solely on the principal federal purpose in the relationship with the intermediary." (90) The principal purpose in the PBACCs with PHAs is the administration of the HAP contracts with project owners, which is a direct benefit to the HUD because the HUD is obligated to provide that same administration under its direct HAP contracts with project owners. (91) The PHAs are not receiving assistance from the HUD, but are used to provide assistance to the project owners, which are the entities eligible for assistance. (92)
Furthermore, the payments made to PHAs to make the subsidy payments to project owners are not a thing of value under 31 U.S.C. [section] 6305 because the PHAs "have no rights to, or control over, the payments and that any excess funds and interest earned on those funds must be remitted to HUD or invested on its behalf." (93) Additionally, the administrative fees paid to PHAs are not a thing of value because the "purpose of the fee was not to assist the PHAs in carrying out a public purpose." (94) Transfer of a thing of value in order to carry out a public purpose is paramount to the definition of an assistance relationship. (95)
The HUD disregarded the GAO recommendation and continued with the cooperative agreement solicitation, and CMS filed a pre-award protest with the COFC. (96) The COFC ruled in favor of the HUD, and CMS appealed to the CAFC (97) The CAFC agreed with CMS and the analysis of the GAO, holding that in this third-party intermediary relationship, the proper instrument is a procurement contract. (98) The principal federal purpose of the PBACCs "is to procure the services of the [PHAs] to support [the] HUD's staff and provide assistance to [the] HUD with the oversight and monitoring of Section 8 housing assistance." (99) The PBACCs were used to outsource HAP management in response to budget restraints and sought to improve oversight of the Section 8 program. (100) Therefore, the beneficiary is the HUD because the HUD characterized the PBACCs as a solution for conducting its business during reductions in staff, intended to select awardees based on the best value to the HUD, and emphasized the support provided by the PHAs to the HUD. (101) Additionally, the CAFC found that nothing of value under 31 U.S.C. [section] 6305 was transferred to PHAs, using the same reasoning as the GAO. (102)
Based on the analysis in CMS, practitioners should focus on the principal federal purpose of the transaction, particularly any pronouncements made by the agency about the transaction. Additionally, practitioners should focus on the direct beneficiary of the instrument, particularly any benefits obtained by the agency, and whether the agency is obtaining something it has a duty or responsibility to do. Finally, practitioners should analyze what thing of value is being transferred to the other party to the transaction, particularly in third-party intermediary relationships. The next case, Hymas, builds upon this framework from CMS.
C. Hymas v. United States
As with the decision in CMS, the decision in Hymas adds to the confusion and ambiguity. With a similar set of facts, the court in Hymas comes to a different holding than the court in CMS. (103) However, the analysis attempts to differentiate the two cases. Even though this analysis is not perfectly clear, it does focus practitioners on the important factors in deciding between using procurement versus assistance. Building on the factors in CMS, those additional factors important in Hymas are: the language of the authorizing legislation, as mentioned in the early GAO opinions detailed in subsection A above, and agency discretion and flexibility, first detailed in the OMB administrative guidance as discussed in section III.B above.
The CAFC heard Hymas on appeal by the United States after the COFC held that the Fish and Wildlife Service (FWS) violated federal procurement laws when it used cooperative farming agreements (CFA) when it should have used procurement contracts. (104) The CAFC held in favor of the FWS, stating that the proper instruments were CFAs. (105) From the 1970s, the FWS entered into CFAs in which cooperators farmed parcels of public land, harvested seventy-five percent of the crop, and left twenty-five percent to feed migratory birds and wildlife. (106) The FWS advised cooperators on "(1) crop selection; (2) farming methods; (3) pesticide and fertilizer use; and (4) crop harvest." (107)
In 2013 and 2014, the FWS considered Mr. Hymas, but did not award him a CFA. (108) The FWS did not use formal procurement procedures or use full and open competition; instead the FWS relied "upon its priority selection system that gave preference to previous cooperators with a successful record of farming designated areas with the [public land]." (109) In 2013, Mr. Hymas filed a bid protest in the COFC alleging violations of the CICA and the FGCAA. (110) The COFC held that the FWS violated the CICA by not obtaining full and open competition, and that the priority selection system used by the FWS violated the FGCAA. (111) The United States appealed.
The CAFC first held that the FWS authorizing statutes and regulations allowed it to enter into cooperative agreements. (112) "[T]he [Fish and Wildlife Coordination Act of 1958] provides that the [FWS] 'is authorized to provide assistance to, and cooperate with, ... public or private agencies and organizations in the development, protection, rearing, and stocking of all species of wildlife resources thereof, and their habitat.'" (113) The CAFC then held that the FWS "properly construed [CFAs] as cooperative agreements." (114) In coming to this second holding, the CAFC first relied upon the definitions of when an agency shall use a procurement contract and when an agency shall use a cooperative agreement as outlined in the FGCAA. (115) Next, the court referenced the OMB guidance on the FGCAA, namely, that determinations on whether a program is one of procurement or assistance is a policy decision, and that the FGCAA gives flexibility to agencies in transaction instrument selection. (116) Finally, the CAFC stated the rule as "whether an instrument reflects a 'procurement contract' or a 'cooperative agreement' turns upon the principal purpose of the relationship." (117) If the principal purpose is for the agency to transfer a thing of value in order to carry out a public purpose of support or stimulation authorized by law, as opposed to acquiring property or services for the direct benefit of the agency, then the proper transaction instrument is a cooperative agreement. (118)
In this case, "the [FWS] principally intended the CFAs to transfer a thing of value (i.e., the right to farm specific refuge lands and retain a share of the crop yield) to carry out a public purpose authorized by law (i.e., to conserve wildlife on the refuges)." (119) The FWS did not intend to acquire faming services for the direct benefit of the FWS; thus, a procurement contract was not required. (120) As with most cooperative agreements, the CFAs indirectly benefit the FWS by advancing its mission, but the FWS does not directly benefit because "(1) it does not receive payment from the [cooperators] pursuant to the agreements, ... and (2) '[r]efuge crop shares are all used by wildlife in the field' or retained by the farmers, such that '[t]here are no excess crops for disposition' by the [FWS]." (121) Additionally, a procurement contract would not provide the flexibility to the FWS to advise on crop rotation, crop harvest, and crop management. (122)
Here, the CAFC disagreed with the COFC analysis in which the COFC, relying on the analysis in CMS, held that the cooperators were third-party intermediaries; the migratory birds and wildlife were the beneficiaries; and the principal federal purpose of the CFAs was not to benefit the cooperators, but to obtain their services to ultimately benefit the migratory birds and wildlife. (123) The CAFC distinguished CMS by stating that the third-party intermediary relationship in this case is different. (124) In CMS, the PHAs did not receive assistance, but they were used to provide assistance to project owners that were eligible for assistance under the authorizing legislation. In contrast, the FWS, under its authorizing legislation, negotiated with cooperators to provide assistance that furthered the goals of the authorizing legislation. (125)
Finally, the CAFC again touched upon agency discretion and flexibility in its analysis, stating that the congressional intent in the FGCAA was agency flexibility in transaction instrument selection. (126) Congress did not require the use of a particular instrument in particular situations; thus, it is an agency policy determination. (127) Lastly, CAFC stated that "[c]ourts should exercise caution before determining that any such decisions go beyond the policy making realm that rest within the agency's purview." (128)
Based on the analysis in Hymas, as in CMS, the principal federal purpose of the transaction is a primary focus of practitioners in deciding between procurement versus assistance. Also, the direct beneficiary and the thing of value being transferred are important factors. What Hymas adds is the importance of the language in the authorizing legislation, particularly in regards to third-party intermediary relationships; and the importance of agency discretion and flexibility. Therefore, practitioners should also focus on these two additional factors.
Despite the recent decisions in Hymas and CMS, ambiguity still exists in the area of procurement versus assistance. However, Hymas and CMS, in combination with the FGCAA, OMB administrative guidance, and prior GAO opinions, provide a framework for analyzing whether to use procurement or assistance. First, the definitions in the FGCAA are the foundation of the analysis. Second, the OMB administrative guidance states that when the distinction is not clear from the definitions, the agency mission and intent in the transaction are guiding. (129) The OMB guidance also highlights the importance of agency discretion and flexibility. (130)
Next, the early GAO opinions focus on the affirmative authorizing legislation and primary purpose analysis with third-party intermediaries. The court in CMS expanded on the principal federal purpose factor, focusing on agency pronouncements and actions regarding the transaction. The court in CMS also focused its analysis on the direct beneficiary of the transaction and the thing of value being transferred. Finally, the court in Hymas expanded the analysis in CMS by focusing on the importance of the language in the authorizing legislation and the importance of agency discretion and flexibility. In conclusion, in analyzing the decision between procurement versus assistance, practitioners should understand that the agency has discretion and flexibility, limited by the definitions in the FGCAA, the affirmative authorizing legislation, the principal federal purpose of the transaction, the primary beneficiary of the transaction, and the thing of value being transferred.
Major Jason W. Allen *
* Judge Advocate, United States Army. Currently assigned as Trial Counsel, Contract and Fiscal Law Division, U.S. Army Legeal Services Agency, Fort Belvoir, Virginia. J.D., 2013, University of Illinois at Champaign-Urbana; M.B.A., 2009, Arizona State University; B.S., 2005, Southern Illinois University-Edwardsville. Previous assignments include Trial Counsel, 1st Stryker Brigade Combat Team, 4th Infantry Division, Fort Carson, Colorado, 2015-2016; Administrative Law Attorney, Office of the Staff Judge Advocate, 4th Infantry Division, Fort Carson, Colorado, 2013-2014; Executive Officer, 106th Financial Management Company, Bamberg, Germany, 2009-2010; Disbursing Officer, 33rd Financial Management Company, 10th Mountain Division, Fort Drum, New York, 2007-2009; Assistant Finance Operations Officer, 10th Soldier Support Battalion, 10th Mountain Division, Fort Drum, New York, 2006-2007. Member of the bars of Illinois, the United States Court of Appeals for the Armed Forces, and the Supreme Court of the United States.
(1) Sanford Schane, Ambiguity and Misunderstanding in the Law, 25 T. JEFFERSON L. REV. 167, 167 (2002) (footnote omitted) (citing DAVID MELLINKOFF, THE LANGUAGE OF THE LAW, at vii (1963)).
(2) Grants and cooperative agreements are referred to as assistance relationships and are used to "provide domestic assistance to geographic, scientific, or economic venues of our nation," and contracts are referred to as procurement relationships and are used for the "acquisition of property or services." Kurt M. Rylander, Scanwell Plus: Challenging the Propriety of Federal Agency's Decision to Use a Federal Grant and Cooperative Agreement, 28 Pub. Cont. L.J. 69, 69-70 (1998).
(3) 31 U.S.C. [section] 6303 (2012).
(4) 31 U.S.C. [section][section] 6304-05 (2012).
(5) 10 U.S.C. [section] 2684a (2012).
(6) Fortunately for the Department of Defense (DoD), Congress allows for the use of cooperative agreements or grants even if property or services are acquired for the direct benefit or use by the United States. 10 U.S.C. [section] 2684a(c) (2012).
(7) Andreas Baltatzis, The Changing Relationship Between Federal Grants and Federal Contracts, 32 PUB. CONT. L.J. 611, 612 (2003) (quoting S. REP. No. 95-449, at 6 (1977)).
(8) See Alissa Marque, A New Appeals Board: Providing Consistency and Clarity in the Growing World of Grants and Cooperative Agreements, 41 PUB. Cont. L.J. 129, 134 (2011).
(9) Baltatzis, supra note 7, at 612-13 (quoting S. Rep. No. 95-449, at 7).
(10) Id. at 614.
(11) See 31 U.S.C. [section] 6301 (2012) (describing the purposes of the Federal Grant and Cooperative Agreement Act of 1977 (FGCAA)).
(12) See generally Rylander, supra note 2, at 70, 73 ("[T]hese grants and cooperative agreements proceed apart from the processes mandated by the Competition in Contracting Act of 1984 (CICA) and the Federal Acquisition Regulation (FAR)."); Marque, supra note 8, at 134 ("[R]egulations governing procurement contracts generally do not apply to [grants and cooperative agreements].").
(13) See Rylander, supra note 2, at 70 ("Both the Court of Appeals for the Third Circuit and the District Court for the District of Columbia have validated a small body of General Accounting Office decisions establishing that a contractor can protest a federal agency's award of a federal grant or cooperative agreement.").
(14) U.S. Const. art. I, [section] 8 (giving Congress the power to lay and collect taxes, pay debts, coin money, and provide for the defense and general welfare of the United States).
(15) Federal Grant and Cooperative Agreement Act of 1977, 31 U.S.C. [section][section] 6301-6305 (2012).
(16) Memorandum from the Office of Management and Budget to the President, subject: Enrolled Bill S. 1437-Federal Grant and Cooperative Agreement Act of 1976 Sponsor-Sen. Chiles (D) Florida and 12 Others, at 2 (Oct. 18, 1976) (on file with the Gerald R. Ford Presidential Library).
(19) 31 U.S.C. [section] 6301 (2012).
(20) Id. [section] 6301(1).
(21) Id. [section] 6301(2).
(22) Id. [section] 6301(3).
(23) Rylander, supra note 2, at 73.
(24) Id. at 72.
(25) Id. at 73. One area in which the DoD and U.S. Army use assistance relationships is research and development administered by the U.S. Army Research Laboratory. See U.S. ARMY RESEARCH LABORATORY, https://www.arl.army.mil/www/default.cfm (last visited Dec. 1, 2017).
(26) See Marque, supra note 8, at 134.
(27) Rylander, supra note 2, at 70. See also FAR 1.104, 2.101 (2013) (stating the FAR applies to acquisitions and defining an acquisition as acquiring, by contract, supplies and services by and for the use of the Federal government). The Competition in Contracting Act (CICA) mandates full and open competition through the use of competitive procedures in many, but not all, purchases of property or services. 10 U.S.C. [section] 2304 (2012).
(28) Rylander, supra note 2, at 73. The Contract Disputes Act (CDA) provides a comprehensive system for contractors and government agencies to resolve contract performance disputes. U.S. Dep't of Justice, U.S. ATTORNEYS' MANUAL, CIVIL RESOURCE MANUAL (1997) [section] 70 (2013).
(29) Hymas v. U.S., 810 F.3d 1312, 1329 (Fed. Cir. 2016). But see Res. Conservation Grp., L.L.C. v. U.S., 597 F.3d 1238, 1245-46 (Fed. Cir. 2010) (holding that [section] 1491(b)(1) jurisdiction is exclusion to procurement, but that implied-in-fact jurisdiction over nonprocurement solicitations still exists under [section] 1491(a)(1)). The Tucker Act waives sovereign immunity and grants jurisdiction to the United States Court of Federal Claims (COFC) to hear claims against the United States founded upon any express or implied contract with the United States under [section] 1491(a)(1), and grants the COFC the jurisdiction to hear protests by interested parties objecting to a solicitation or award, or alleging a violation of procurement statute or regulation under [section] 1491(b)(1). 28 U.S.C. [section] 1491 (2012).
(30) Rylander, supra note 2, at 73.
(31) Marque, supra note 8, at 134 (footnote omitted).
(32) See 32 C.F.R. [section] 21.200 (2016) ("The Defense Grant and Agreement Regulatory System (DGARS) is the system of regulatory policies and procedures for the award and administration of DoD Components' assistance and other nonprocurement awards."); U.S. DEP'T OF DEF., DIR. 3210.06, DEFENSE GRANT AND AGREEMENT REGULATORY SYSTEM para. 2 (6 Feb. 2014). ("This directive applies to [DoD Components] that are authorized to award or administer grants, cooperative agreements, and other non-procurement transactions subject to the DGARS.").
(33) 31 U.S.C. [section] 6303 (2012).
(34) 31 U.S.C. [section][section] 6304-05 (2012).
(36) Implementation of Federal Grant and Cooperative Agreement Act of 1977, 43 Fed. Reg. 36,860, 36,860 (Aug. 18, 1978).
(37) Id. at 36,862.
(38) Id. at 36,863. More specifically, agency involvement includes the ability to halt the project due to unmet performance specifications; stage-by-stage review and approval; sub-grant or subcontract review and approval; key personnel selection; joint participation by the assistance recipient and agency; ability to direct or redirect work based on interrelationships with other agency programs or projects; substantial involvement is anticipated to ensure statutory compliance with civil rights, environmental protection, and provisions for the handicapped; and prescriptive agency requirements regarding scope of services offered, organizational structure, staffing, operations, or management. Id. Substantial federal agency involvement does not include agency approval of plans before award; normal stewardship responsibilities such as site visits, performance and financial reporting, and audits; unanticipated agency involvement to make corrections; little involvement is anticipated to ensure statutory compliance with civil rights, environmental protection, and provisions for the handicapped; and general administrative guidance called for in the OMB circulars. Id. Finally, substantial involvement does not include providing technical assistance or guidance if the recipient requests it, the recipient is not required to follow it, or the guidance was provided before the relationship began and the recipient was aware of the guidance. Id.
(41) Id. at 36,862.
(42) Id. at 36,863.
(43) See Baltatzis, supra note 7, at 614.
(44) To Honorable Richard L. Ottinger, B-210655, 1983 WL 491638, at 3 (Comp. Gen. Apr. 14, 1983).
(46) 10 U.S.C. [section] 2684a(c) (2012).
(47) See U.S. GEN. ACCT. OFF., GGD-81-88, AGENCIES NEED BETTER GUIDANCE FOR CHOOSING AMONG CONTRACTS, GRANTS, AND COOPERATIVE AGREEMENTS, 10 (1981) ("An intermediary situation often arises where an assistance relationship is authorized with certain parties, but the Federal agency delivers the assistance by utilizing another party."). Since the intermediary is the recipient of the award, the choice of instrument depends on the purpose of the relationship with the intermediary. Id.
(48) The General Accounting Office (GAO) became the Government Accountability Office (GAO) in 2004. GAO Human Capital Reform Act of 2004, Pub. L. No. 108-271, [section] 8, 118 Stat. 811, 814.
(49) Civic Action Inst., 61 Comp. Gen. 637, 637 (1982). The GAO jurisdiction does not extend beyond this threshold question if the assistance relationship is proper. Sprint Commc'ns Co., B-256586, B-256586.2, 1994 WL 190255, at 2 (Comp. Gen. May 9, 1994) ("[O]ur review is limited to protests that the award ... of a 'contract' violates procurement laws and regulations, and thus in the context of protests of awards of cooperative agreements, our review is limited to protests that a cooperative agreement was used where a contract was required.").
(50) Civic Action Inst., 61 Comp. Gen. 637, 639 (1982).
(51) Id. See also U.S. GEN. ACCT. OFF., GGD-81-88, AGENCIES NEED BETTER GUIDANCE FOR CHOOSING AMONG CONTRACTS, GRANTS, AND COOPERATIVE AGREEMENTS, at 10-11 (1981) (distinguishing the government's purpose).
The fact that the product or service produced by the intermediary pursuant to the Federal award may flow to and thus benefit another party is irrelevant. What is important is whether the Federal Government's purpose as defined by program legislation is to acquire the intermediary's services, which happen to take the form of producing the product or carrying out the service that is then delivered to the assistance recipient, or if the Government's purpose is to assist the intermediary to do the same thing.
(52) Civic Action Inst., 61 Comp. Gen. 637, 639 (1982).
(53) N.Y. Tel. Co., 69 Comp. Gen 61, 63 (1989). In this case, the General Services Administration (GSA), solicited licenses allowing companies to furnish public pay phone services on GSA controlled property. Id. at 62. The GSA was required under its mission to provide these services to its employees, but the pay phones were also provided for use by customers conducting business with the GSA. Id. at 63.
(54) W. Coast Copy, Inc., B-254044, B-254044.2, 1993 WL 476970, at 4 (Comp. Gen. Nov. 16, 1993). In this case, the U.S. Bankruptcy Court for the Southern District of Florida solicited licenses allowing contractors space within the court to provide photocopy services to the public. Id. at 1. The GAO found that an award resulting in a concession or similar type contract that benefits the government, either in reduction of workload or fulfillment of mission, is a procurement relationship. Id at 4.
(55) To Honorable Eleanor Holmes Norton, B-257430, 1994 WL 612302, at 3, 5 (Comp. Gen. Sept. 12, 1994).
(56) Rylander, supra note 2, at 82.
(58) See, e.g., Id. at 87 (concluding that first, courts should determine the principal purpose of an agreement and compare it to the agency's mission, and second, courts should examine the authorizing legislation).
(59) Chem. Serv., Inc. v. Envtl. Monitoring Sys. Lab.--Cincinnati, 12 F.3d 1256, 1266-67 (3d Cir. 1993) ("[A]n agreement between the federal government and a non-federal party which manifests the features of a procurement contract requires the federal government to comply with the nation's procurement laws."). "To the extent that a[n agreement] is used to circumvent the statutory and regulatory requirements of the federal procurement laws, we find that Congress intended potential bidders to such a contract to be within the zone of interests." Id. at 1267.
(60) See Civic Action Inst., 61 Comp. Gen. 637, 637 (1982) (finding that standing exists when agencies use grants or cooperative agreements to avoid competition requirements).
(61) Sprint Commc'ns Co., B-256586, B-256586.2, 1994 WL 190255, at 2 (Comp. Gen. May 9, 1994) ("[O]ur review is limited to protests that the award ... of a 'contract' violates procurement laws and regulations, and thus in the context of protests of awards of cooperative agreements, our review is limited to protests that a cooperative agreement was used where a contract was required.").
(62) See generally Jeffrey C. Walker, Enforcing Grants and Cooperative Agreements as Contracts Under the Tucker Act, 26 PUB. CONT. L.J. 683, 685 (1997) ("Confusion surrounds the issue of whether assistance agreements are enforceable contracts, thereby resulting in inconsistent case law."); Marque, supra note 8, at 134 ("Court opinions and scholarly articles ... reveal a continuing debate as to whether [grants and cooperative agreements] can be construed as procurement contracts.").
(63) See Marque, supra note 8, at 137 ("Although the ... court ruled that the [Court of Federal Claims] has jurisdiction over [grants and cooperative agreements], it failed to rebut adequately a line of cases supporting a contrary outcome.").
(64) Trauma Serv. Grp., Ltd. v. U.S., 33 Fed. Cl. 426, 429-30 (Fed. Cl. 1995).
(65) Trauma Serv. Grp. v. U.S., 104 F.3d 1321, 1326 (Fed. Cir. 1997). A cooperative agreement could be enforceable under the Tucker Act if it meets the requirements of a contract with the government: mutual intent to contract, offer, acceptance, consideration, and a government representative with actual authority to bind the government. Id.
(66) Thermalon Indus., Ltd. v. U.S., 34 Fed. Cl. 411, 413 (Fed. Cl. 1995).
(67) 28 U.S.C. [section] 1491 (2012).
(68) 31 U.S.C. [section] 6303 (2012). See generally Walker, supra note 62, at 70001 ("Since 1982, the FGCAA has contrasted grants and cooperative agreements with procurement contracts and, thus, does not logically preclude grants and cooperative agreements from being contracts."). However, the FAR still uses the term contract when it should use the term procurement contract, thus, perpetuating the ambiguity and confusion. Id. at 685. See, e.g., FAR 2.101 (2013) (defining contract, not procurement contract, as excluding grants and cooperative agreements); FAR 35.003(a) (2013) (using the term contract instead of procurement contract).
(69) Ozdemir v. U.S., 89 Fed. Cl. 631, 634 (Fed. Cl. 2009) (finding that the phrase "in connection with a procurement or a proposed procurement" within the Tucker Act only qualifies the seven words preceding it, leaving the earlier clauses broader and not requiring a procurement connection). 28 U.S.C. [section] 1491(b)(1) (2012).
(70) Res. Conservation Grp., L.L.C. v. U.S., 597 F.3d 1238, 1245-46 (Fed. Cir. 2010) ("We conclude that the court's implied-in-fact jurisdiction over nonprocurement solicitations survived the enactment of 1491(b)(1).").
(71) See generally Walker, supra note 62, at 686 ("Although controversy surrounds the issue of whether grants and cooperative agreements are contractual in nature, it is well settled that they cannot be procurement contracts.").
(72) See CMS Contract Mgmt. Services v. Mass. Hous. Fin. Agency, 745 F.3d 1379 (Fed. Cir. 2014).
(73) Id. at 1381.
(74) Id. at 1386.
(75) Id. at 1381.
(76) CMS Contract Mgmt. Services v. Mass. Hous. Fin. Agency, 745 F.3d 1379 (Fed. Cir. 2014)Id at 1381-82.
(78) Id. at 1382.
(81) CMS, 745 F.3d at 1379.
(84) Id. at 1382-83.
(85) Id. at 1383.
(86) CMS, 745 F.3d at 1379C.
(89) Id. at 1384.
(90) Id. at 1381 (quoting S. Rep. No. 97-180, at 5 (1981)).
(91) CMS, 745 F.3d at 1384.
(95) See 31 U.S.C. [section] 6304-05 (2012).
(96) CMS, 745 F.3d at 1384-85.
(97) Id. at 1385.
(98) Id. at 1386.
(99) Id. at 1385.
(101) Id. at 1385-86.
(102) CMS, 745 F.3d at 1386.
(103) See Hymas v. U.S., 810 F.3d 1312 (Fed. Cir. 2016).
(104) Id. at 1314.
(106) Id. at 1314-15.
(108) Hyman, 810 F.3d at 1315-16.
(109) Id. at 1315.
(110) Id. at 1316.
(112) Id. at 1324.
(113) Hyman, 810 F.3d at 1327-28 (quoting 16 U.S.C. [section] 661 (2012)).
(114) Id. at 1324.
(115) Id. at 1325.
(116) Id. at 1325-26.
(117) Id. at 1327.
(118) Hyman, 810 F.3d at 1327.
(120) Id. at 1328.
(123) Hyman, 810 F.3d at 1326.
(124) Id. at 1328.
(126) Id. at 1329.
(128) Hyman, 810 F.3d at 1329.
(129) Implementation of Federal Grant and Cooperative Agreement Act of 1977, 43 Fed. Reg. 36,860, 36,860 (Aug. 18, 1978).
(130) Id. at 36,863.
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|Author:||Allen, Jason W.|
|Date:||Oct 1, 2017|
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