How can the government influence a contractor's staff selection?

The following topic was raised by a government program manager: Our office is planning to acquire professional services under a new contract. We plan to require letters of commitment from key personnel identified in the proposals to ensure that they will actually be available when the contract is awarded. However, we are concerned about the possibility of staff turnover after the commitment period ends. What can we do to ensure that the key staff stays with the contract?

It is only natural that an agency would want the successful offeror on a services contract to provide those key staff members to the government whose qualifications were the basis on which the company was selected for award. Thus, many agencies require the offerors to provide letters of commitment from their key personnel.

Typically, these letters promise that the persons who sign them intend to work on the contract. The letters can be an effective way to ensure that the winning contractor shows up with the right people when performance starts. However, they have little value after the initial performance period.

Accordingly, many agencies require contractors to obtain approval from the contracting officer before changing any of the key personnel. Under such requirements, the government must allow reasonable requests to substitute persons of equal qualifications. But the government is not required to approve substitutes of lesser quality. See National Medical Staffing Inc., ASBCA No. 40391, 92-2 BCA 24,837 (Default termination was proper where proposed replacements for key personnel failed to meet required qualifications.).

The case of Urban Institute for Human Services Inc., ASBCA No. 28795, 84-2 BCA 17,260, is particularly interesting. In that case, the contractor's project director resigned from the company, and the contractor sought to replace him with another member of its staff. The government allowed the replacement to assume the duties as acting project director but withheld permanent approval of the change.

The contractor sought payment for the individual at the rate negotiated for the project director. When the government refused to pay the higher rate, the contractor submitted a claim.

The Armed Services Board of Contract Appeals found that the contract's Key Personnel Clause required the contractor to obtain government approval for the change. The board found that the only individual authorized to approve the change was the contracting officer and, absent express approval, the contractor could not recover the cost. The board was clearly sympathetic to the government's arguments that retention of approval authority for key personnel was an important element of the contract.

As an alternative approach to this problem, some agencies with large professional-services contracts require offerors to provide details on their proposed employee compensation plans as part of the proposal process. After all, most staff turnover is likely to be related to compensation levels.

Requiring offerors to provide this information can give an agency a better idea of the personnel quality that can be expected during the contract period. Agencies generally have much discretion in using such requirements to help assess proposal risk, but the exercise of this discretion must be reasonable.

A particular area of concern for agencies has been the use of uncompensated overtime for executive and professional employees. Occasionally, an offeror will propose to require its exempt employees to work a certain number of overtime hours without compensation as a way to lower its evaluated cost for doing a particular job.

Agencies often believe that the use of uncompensated overtime can affect the quality of the work. Under most solicitations, agencies may consider any risk associated with the proposal of uncompensated overtime as part of the proposal evaluations.

Thus, in Lockheed Engineering & Sciences Co. v. NASA, GSBC No. 12702-P, 94-2 BCA 26,885, the General Services Administration's Board of Contract Appeals denied a protest in which Lockheed argued that NASA had unfairly penalized it for proposing to require its professional employees to work a minimum number of hours of uncompensated overtime each week. According to the decision: "We do not agree that NASA effectively prohibited mandatory, uncompensated overtime. Without question, at least some NASA personnel were quite hostile to the idea. This hostility, however, proceeded from legitimate concerns about the impact of the practice on morale. Lockheed's proposal amounted to a pay cut, and NASA reasonably feared that it would create considerable resentment."

Obviously, requiring offerors to provide detailed information on employee compensation plans adds cost and difficulty to both the offerors' and government's efforts on a procurement. However, for some large procurements, the cost may be worthwhile.

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Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn, Washington, D.C. His column can be read on FCW's Web page at http://www.fcw.com. For more information, contact him at carl@carl.com.