For federal government contractors, agencies’ past performance evaluations are important. A favorable evaluation can result in a stronger customer relationship, an enhanced reputation, and a better chance of winning future contracts. Correspondingly, an unfavorable evaluation can cause difficulties with the customer, a damaged brand, and problems securing future work.

Given that these evaluations “are extremely important to both the Government and to contractors, . . . requirements are necessary to help ensure their integrity and fairness.” Todd Constr., L.P. v. United States, 656 F.3d 1306, 1314 (Fed. Cir. 2011) (quoting Past Performance Information, 58 Fed. Reg. 3,573, 3575 (Jan. 11, 1993)). Thus, the Federal Acquisition Regulation (FAR) allows contractors to petition for review of adverse past performance evaluations “at a level above the contracting officer.” See FAR 42.1503(b). The FAR Councils, however, are currently soliciting public comments “on a proposal to remove the appeal language [in the FAR] to improve economy and efficiency.” 77 Fed. Reg. 54864, 54865 (Sept. 6, 2012). The comments period closes November 5, 2012. This development should be of concern to contractors.

The current law: review of past performance evaluations “at a level above the contracting officer” and in the courts

Under current law, agencies are required to submit a past performance evaluation for most categories of contracts that exceed the simplified acquisition threshold. FAR 42.1502(b). The evaluation should be submitted after the contract or order is completed, and contracts that exceed one year require additional interim evaluations. FAR 42.1502(a).

The evaluation process contemplates contractor input. Specifically:

Agency evaluations of contractor performance prepared under this subpart shall be provided to the contractor as soon as practicable after completion of the evaluation. Contractors shall be given a minimum of 30 days to submit comments, rebutting statements, or additional information. Agencies shall provide for review at a level above the contracting officer to consider disagreements between the parties regarding the evaluation. The ultimate conclusion on the performance evaluation is a decision of the contracting agency.

FAR 42.1503 (emphasis added).

In addition, contractors may appeal an adverse past performance evaluation to the Court of Federal Claims and, if needs be, to the Federal Circuit. See Todd Construction, L.P. v. United States, 656 F.3d 1306, 1313–14 (Fed. Cir. 2011) (holding that the Court of Federal Claims has jurisdiction over a challenge to an unsatisfactory evaluation because such a challenge is a claim for relief “relating to the contract,” id. at 1311 (quoting FAR 2.101)).

The possible change: past performance evaluations reviewed only in the courts

The FAR Councils recently submitted their latest version of a proposed rule revamping the past performance evaluation system. See Federal Acquisition Regulation; Documenting Contractor Performance, 77 Fed. Reg. 54,864 (Sept. 6, 2012). The proposed rule would replace large portions of FAR Subpart 42.1500, which subpart governs agencies’ creation and submission of past performance reports. The proposed rule would standardize past performance evaluation criteria, consolidate databases that store store evaluations, and require agencies to step up their efforts to comply with the requirement that they produce evaluations.

The proposed rule, however, also contains a notice that should trouble contractors. This notice, located in the proposed rule’s background comments, states that the FAR Councils are “soliciting comments on a proposal to remove the appeal language at [current] FAR 42.1503[] to improve economy and efficiency.” Id. at 54,865. Presumably, the removed language would be the sentence, “Agencies shall provide for review at a level above the contracting officer to consider disagreements between the parties regarding the evaluation.” FAR 42.1503.

The consequences: not good for contractors

Removal of this language could damage the integrity of the procurement process and, ironically, add expense and inefficiency. First, as recognized by GAO, it is “critical that federal agencies have the information necessary to properly evaluate a contractor’s prior history of performance and better inform agencies’ contract award decisions.” GAO, Better Performance Information Needed to Support Agency Contract Award Decisions, Report GAO-09-374 (Apr. 2009). An avenue for appeal within the agency encourages contractors to come forward with inaccurate past performance evaluations and have them corrected. This incentivizes agency evaluators to use care, so that costly appeals inside and outside the agency do not occur. More importantly, it results in more accurate evaluations for future qualifications and procurements. And more accurate evaluations mean better procurement decisions, which ultimately benefit the Government and the taxpayer.

Second, without an internal appeals process, aggrieved contractors may instead resort to the Court of Federal Claims for relief, after following the claim-final decision process under the Contract Disputes Act. This exercise would possibly result in greater expense, and would surely result in greater delay, than an informal resolutions process at the agency. Moreover, the Court gives substantial deference to the agency’s substantive evaluation and will limit its review, for the most part, to whether the agency followed the proper procedures in rendering its evaluation. This is a one-two punch for both contractors and the Government: less accuracy and more delays.

Thus, the utility of the FAR Councils’ potential rule may be far outweighed by the costs imposed. The rule could impel a new flow of litigation while doing little to improve the integrity of the procurement process.