May 30, 2012

Build to Budget: New Developments in Federal Procurement Law

What Build to Budget Means and Why it Matters Just last Wednesday, the U.S. Court of Federal Claims issued its decision in the matter of CBY Design Builders v. United States. In its decision, the court addressed several key issues regarding the Build to Budget approach of construction project delivery. This decision will likely have a major impact on federal, state and local government procurement law in the coming years. Although this case is not binding on state and local government agencies, the rationale behind the decision appears highly likely to eventually become adopted by many. On some recent projects, state, federal and local governments have attempted to solicit construction projects on a design / build basis with a pre-set budget. In general, this approach is similar to a CM at Risk approach with a GMP, but with the government setting the GMP (or in this case the budget) in the Solicitation itself. Bidders are required to meet the budget in their design / build proposals or they will be deemed nonresponsive and therefore rejected. Until the case of CBY Design Builders was decided, it was questionable whether a governmental agency could deem a bidder who bid under the government's mandatory budget nonresponsive. Why it Matters: In the CBY Design Builders case, the government set the project budget at $ 700 million and advised all bidders that any proposals over that amount would be rejected. Five bidders submitted proposals. Four bidders submitted prices of exactly $ 700 million. The Plaintiff submitted a price that was below the $ 700 million budget. The case initially started as a bid protest with the GAO. Two other bidders intervened. The record indicates that there was some confusion by the parties as to whether or not it was permissible for a bidder's price to come in under the government's budget. From a design and estimating standpoint, not knowing whether price is a factor is of course absolutely essential in preparing a proposal. For Build to Budget projects, the question of whether price is a mandatory factor to be considered by the government has

now been answered. The court's reasoning in the CBY Design Builders case could conceivably be applied to other methods of construction project delivery as well. What the Court Said: The court held that the government cannot require all bidders to match the government's budget. Although bidders can be excluded for pricing that is over the government's budget, the government cannot reject proposals simply because they are under the government's budget. In reaching its decision, the court stated that government agencies must include pricing as a factor in making award decisions. In the CBY Design Builders case, the court found that requiring all bidders to submit the very same price ran afoul of federal law and the FARs. This is because if all numbers are exactly the same. the agency is unable to make any price comparisons or distinctions amongst the bidders. The CICA requires government agencies to include cost as a factor and the agency must give that factor meaningful consideration. Failure to do so could violate federal law. Practical Tips: When bidding on a federal job that includes a Build to Budget provision in the Solicitation, federal law mandates that you be allowed to submit a bid that is lower than the agency's budget. If the government agency has stated that it will not allow you to do this, you may have at least two potential grounds for the filing of a bid protest. The first potential ground could arise as a pre-award protest contesting the agency's stated position as a violation of federal law. If the agency's position is not entirely clear, a pre-bid question on the record could be used to clarify the matter. The second potential ground for the filing of a protest could possibly be a post-award protest claiming that the agency failed to give pricing any meaningful analysis and consideration prior to making the award. Whether either of these grounds are viable on any particular Solicitation will continue to be determined on a case-by-case basis. However, understanding this new legal development can help you know where you stand a little bit better on that next Solicitation.

Good Luck on that next bid!

Frank V. Reilly 101 NE Third Avenue, Suite 1500 Fort Lauderdale, FL 33301 (561) 400-0072 phone frank@frankvreilly.com www.frankvreilly.com