DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Virgin Islands Department of Human Services
Docket No. 87-193
Decision No. 980
DATE: August 30, 1988
DECISION
The Virgin Islands Department of Human Services (Virgin
Islands,
appellant) appealed a determination by the Administration on
Aging,
Office of Human Development Services (Agency), disallowing $293,058
in
federal financial participation for funds charged to a grant
awarded
under Title III-C of the Older Americans Act. The disallowance
is for
payments made under two contracts between the Virgin Islands and a
food
service provider, Duvergee, Inc. (Duvergee), for the period September
1,
1986 through March 13, 1987. The Virgin Islands had appealed an
earlier
disallowance concerning the same contracts for the period February
11,
1986 through August 31, 1986, in which the Board upheld the Agency
in
full. Virgin Islands Commission on Aging, DGAB No. 890 (1987),
Docket
No. 87-34.
The basis for the disallowance, that Duvergee was not the
lowest
responsible bidder, was essentially identical in both cases and
the
disallowance for the present appeal incorporated by reference
the
disallowance determination in Docket No. 87-34. In the course of
this
appeal, the Virgin Islands clarified that it was both
requesting
reconsideration of Decision No. 890 and seeking review of
the
disallowance for the later period of time. The parties submitted
briefs
separately on the reconsideration request and the Board denied
that
request in a ruling on March 23, 1988. Board Docket No.
88-4. As
reflected in Board rules, the accepted standard for
considering a
request for reconsideration is narrow: whether the party
making the
request has promptly alleged a clear error of fact or law.
See 45
C.F.R. 16.13. By contrast, the appellant has been allowed in
this
appeal to present any additional arguments or evidence in support of
its
position that the disallowance for the second disallowance period
should
be overturned.
After considering the new arguments raised in this appeal, we have
again
decided to uphold the Agency. We have first rejected an argument
of the
Agency that the appellant is precluded under the doctrine of
collateral
estoppel from challenging any issue that was considered in the
earlier
appeal. Nevertheless, after considering the appellant's
arguments as to
the merits of the disallowance, we have concluded:
Duvergee was not the
lowest bidder since the local preferred bidders statute
could not
preempt federal regulations; the Agency was correct in finding that
the
sanitary conditions of Duvergee's kitchen facility on the island of
St.
Thomas were so poor that, with no evidence to the contrary,
Duvergee
could not be said to be responsible during the period of
this
disallowance; and Duvergee breached the contracts by its
poor
performance and appellant should not have made payments to it.
We
therefore sustain the disallowance. We do, however, give the
Virgin
Islands an opportunity to show the Agency that Duvergee had
entirely
separate kitchen facilities on St. Croix which were unaffected by
the
conditions on St. Thomas, and thereby reduce the amount of
the
disallowance on the contract payments on St. Croix.
I. Factual and Procedural Background
The factual background of the disallowance actions was not in
dispute.
Under Title III-C of the Older Americans Act, the Virgin
Islands
received grant funds from the Agency, starting in 1983, to provide
meals
for the elderly. The Virgin Islands published a request for
proposals
to obtain bids from catering service companies for furnishing meals
for
the fiscal year (FY) 1984. Duvergee was awarded the contract to
provide
services on the islands of St. Thomas and St. John, and
Marriott
In-Flite Services (Marriott) was awarded the contract for St.
Croix.
These contracts were extended through FY 1985.
For FY 1986, the Virgin Islands again solicited bids to continue the
food
services program. Both Duvergee and Marriott made bids to
provide
services on St. Croix, and Duvergee and Hughsons, Ltd. (Hughsons)
made
bids for the island of St. Thomas. Agency's Ex. R-1 in Docket
No.
87-34. Since both Marriott and Hughsons made lower bids than
Duvergee,
they were awarded the contracts for FY 1986.
On January 10, 1986, Duvergee filed suit in the Territorial Court of
the
Virgin Islands to set aside the contract awards to Marriott and
Hughsons
on the grounds that Duvergee was a local company, while its
competitors
were not, and that Duvergee should be accorded preferential
treatment
under a Virgin Islands "preferred bidders" statute designed to
promote
local entities in the awarding of government contracts.
Appellant's Ex.
B in Docket No. 87-34. The effect of the preferred
bidders statute
would be to add 15 percent to the per meal bid of
Duvergee's
competitors, enough to qualify Duvergee as the lowest bidder for
FY
1986. The Virgin Islands, represented by its Attorney General's
Office,
opposed Duvergee's suit on the bases that the funds in dispute
were
federal funds; that the preferred bidders statute did not apply
to
federal procurement; and that Duvergee did not have the best
sanitary
conditions of the bidders, so that Duvergee should have been denied
the
bid for this reason.
The Territorial Court, in a decision on January 30, 1986, agreed
with
Duvergee that the company was entitled to the benefit of the
preferred
bidders statute. Appellant's Ex. C in Docket No. 87-34 (the
Court's
transcript of proceedings in the trial court action), pp.
295-298. The
Court also found on the basis of the testimony presented
that Duvergee
was the most responsible bidder, and therefore issued a
permanent
injunction against awarding the contracts to Duvergee's competitors
and
ordered that the contracts should be awarded to Duvergee, effective
for
one year beginning on February 11, 1986. Id., pp. 300-304.
The Virgin
Islands appealed this decision to the Appellate Division of the
Virgin
Islands District Court. The Virgin Islands had not informed us
of a
disposition of this appeal by the date of our decision here.
On February 3, 1987, the federal Commissioner on Aging issued
a
disallowance for the funds involved in the contract awarded to
Duvergee
for the period February 11, 1986 (the date the contract with
Duvergee
for St. Thomas went into effect) through August 31, 1986. The
Virgin
Islands appealed that disallowance to the Board in Docket No.
87-34. In
its briefs to the Board, the Virgin Islands admitted that the
preferred
bidders statute should not have been applied when federal funds
were
concerned, that Duvergee was not the most responsible bidder, and
that
Duvergee should not have been awarded the contracts. The Virgin
Islands
argued that the Board should nonetheless reverse the disallowance
since
the territory had no choice but to comply with the order of
its
Territorial Court. The Virgin Islands also argued that the
federal
government had an obligation to intervene in the Territorial
Court
action if it intended to disallow the funds in question.
The Board in Decision No. 890 concluded that it had no choice but
to
uphold the disallowance. The appellant had in effect admitted
the
merits of the Agency's disallowance determination, and the Board
found,
as argued by the Agency in that case, that the Board was not
legally
bound by the decision of the Territorial Court. We also saw no
merit in
the appellant's argument that the Agency had some obligation
to
intervene in the local court proceeding; on the contrary, if there
were
any obligation regarding intervention, the Virgin Islands should
itself
have requested the intervention of the federal Agency in the
court
action. DGAB No. 890, p. 2.
In the present appeal before the Board, by contrast, the Virgin
Islands
contested the merits of the Agency's position. It took the
position
that, while it still ultimately contested the decision of
the
Territorial Court, the Agency was obligated to defer to the reasoning
of
that decision, since it concerned purely local matters, i.e.,
the
applicability of the preferred bidders statute and whether Duvergee
was
a responsible bidder.
II. Whether the appellant's arguments are
precluded under the
doctrine of collateral estoppel
The doctrine of collateral estoppel provides that, once a tribunal
has
decided an issue of fact or law that is essential to a final
judgment,
that issue may not be relitigated by the same party in a
later
proceeding. The Agency argued here that two matters which were
decided
by Decision No. 890 may not be raised again by the Virgin Islands
in
this proceeding: whether the Agency must defer to the judgment of
the
Territorial Court as to the awarding of a bid under the Virgin
Islands'
preferred bidders statute, and whether Duvergee was a
responsible
bidder. The parties in their briefs agreed as to the
elements of
collateral estoppel and also agreed, based on applicable
authority, that
the doctrine should apply in administrative settings as well
as in court
proceedings.
Four criteria must be met in order for the doctrine of collateral
estoppel
to apply:
(1) [T]he issue sought to be precluded must be
the same as
that involved in the prior litigation;
(2) [T]hat issue must have been actually litigated;
(3) [I]t must have been determined by a valid and
final
judgment; and
(4) [T]he determination must have been essential to
the prior
judgment.
Haize v. Hanover Insurance Co., 536 F.2d 576, 579 (3d Cir. 1976),
quoted
in Agency's Brief, p. 8.
The Virgin Islands argued essentially that the second prong of the test
in
Haize was not met here, i.e., whether the legal and factual issues
now under
dispute were actually litigated in the prior proceeding.
Appellant's Reply
Brief, pp. 3-7. As to the legal issue considered in
Decision No. 890
(the significance of the Territorial Court order on the
federal
determination), the Virgin Islands contended that this matter
was not
actually litigated in the prior proceeding since the Board
explicitly based
its decision there on an admission by the Virgin
Islands that the federal
Agency was not legally bound by any such
determination, and the Virgin
Islands made no other argument as to why
we should reverse the Agency's
determination. In this proceeding, by
contrast, the Virgin Islands
argued that, while the federal government
may not be legally bound by the
Territorial Court order, it nonetheless
is obligated to defer to the
reasoning of that decision on matters of
purely local law unless it finds
such a decision to be clearly
erroneous.
Regarding the collateral estoppel effect of the factual issue
considered
in Decision No. 890 (whether Duvergee was a responsible bidder),
the
Virgin Islands argued again that this issue was not actually
litigated
in the prior proceeding since the Virgin Islands admitted in
that
proceeding that the federal government was not bound by the
Territorial
Court order. Furthermore, the Virgin Islands observed that
the issue of
whether Duvergee was a responsible bidder was not the same issue
as that
considered in the first appeal, since the disallowance under
dispute
here involved a later period of time.
We agree with the Virgin Islands that a party should not be precluded in
a
later proceeding before this Board from raising the same issue as
considered
in a prior proceeding when the explicit basis for the
decision in the prior
proceeding was an admission by the party. Both
the First and Second
Restatements of Judgments, as well as at least one
federal court of appeals,
adopt the view that a matter has not been
litigated for purposes of
collateral estoppel if the matter was admitted
or stipulated to in the prior
proceeding. Restatement (First) of
Judgments (1942), section 68,
comments f and g; Restatement (Second) of
Judgments (1980), section 27,
comment e; Otherson v. Department of
Justice, 711 F.2d 267, 274-275 (D.C.
Cir. 1983).
As to the factual issue of whether Duvergee was a responsible
bidder,
appellant did not dispute the Agency's finding on the factual issue
in
the prior Board proceeding, and thus one cannot properly say that
the
matter was "litigated." Indeed, as we noted in Decision No. 890,
the
appellant in that appeal never actually discussed the issue of
whether
Duvergee was a "responsible bidder," but instead adopted the position
it
took before the Territorial Court that Duvergee was not the
"most
responsible bidder." DGAB No. 890, p. 3 (emphasis added). In any
event,
regardless of the prior proceeding, the present appeal presents
the
entirely new factual question of whether Duvergee was a
responsible
bidder for the period of the later disallowance, and for that
reason
alone appellant would not be estopped from presenting arguments on
the
issue before the Board in this appeal.
III. Whether Duvergee was the lowest bidder
The appellant invited bids for the food contracts by competitive
bidding
as required by the Older Americans Act. The Agency based
the
disallowances on Department procurement regulations. Appendix G of
45
C.F.R. Part 74 (hereinafter cited as Appendix G, made applicable to
the
Older Americans Programs by 45 C.F.R. 1321.5), provides at
section
11.b.:
In competitive sealed bids (formal advertising),
sealed bids are
publicly solicited and a
firm-fixed-price contract (lump sum or
unit price)
is awarded to the responsible bidder whose bid,
conforming with all the material terms and conditions of
the
invitation for bids, is lowest in price.
Furthermore, section 10.a. of Appendix G provides, "All
procurement
transactions . . . shall be conducted in a manner that provides
maximum
open and free competition consistent with this attachment."
Although Appendix G makes no particular reference to local
preferred
bidder rules, it does refer generally to the issue of whether state
and
local laws governing procurement practices are applicable:
Grantees shall use their own procurement procedures
which reflect
applicable State and local laws and
regulations, provided that
procurements for Federal
Assistance Programs conform to the
standards set
forth in this attachment and applicable Federal law.
Appendix G, section 2.b. The Agency found here that the Virgin
Islands
preferred bidder statute, Title 31, Chapter 23, Virgin Islands
Code,
section 236(a), was directly in conflict with the federal rule that
a
grantee may award a bid only to the responsible bidder whose bid
is
lowest in price. The Agency also cited a section of the Virgin
Islands
Code itself, which states that "[n]o provision of this chapter
[which
includes the preferred bidders law] shall apply where Federal funds
are
involved. . . ." Title 31, Chapter 23, Virgin Islands Code,
section
249(b).
The Virgin Islands argued that the federal Agency was obligated to
defer
to the ruling of the Territorial Court on the issue of the
applicability
of the preferred bidders statute, since this was a matter of
"local law"
which may be ignored only when it is found to be "inescapably
wrong."
Gumataotao v. Government of Guam, 322 F.2d 580, 582 (9th Cir.
1963),
quoting Bonet v. Texas Co. (P.R.), Inc., 308 U.S. 463, 471 (1940).
The federal rules cited specifically provide for a competitive process
in
the awarding of bids, and both the federal rules and Virgin Islands
law allow
for the use of local procurement rules only when they are not
in conflict
with the federal rules. It is difficult to imagine a
situation in which
local practice might be more contrary to the clear
directive of the federal
rules than it is here. The local rule here
conflicts with the concept
of free and open competition and results in
the award of a contract to a
party which is not the lowest bidder in
fact.
Further, we do not agree that the question involved here was a matter
of
"purely local law." The law that was primarily being interpreted
here
consisted of federal regulations. While the determination of
whether a
preferred bidders statute should be applied may have involved
some
understanding of how the local statute operated, the ultimate
question
was whether federal regulation permitted its applicability in
the
circumstances here. The Territorial Court ruling itself recognized
the
importance of interpreting federal regulations. Appellant's Ex. C
in
Docket No. 87-34, pp. 296-297. Thus, appellant's reliance on
the
Gumataotao and Bonet cases, which did involve matters of purely
local
law, is misplaced.
We also do not find availing the Virgin Islands' argument that the
process
by which the contracts were awarded to Duvergee was indeed
"competitive"
within the purpose of the federal regulations. The Virgin
Islands
argued here that the Agency had "mechanically" applied the
federal
regulations, and that, when all of the federal rules were
considered in light
of how the bidding process worked in the Virgin
Islands, the Board should
conclude that the disallowances were improper.
Appellant's Opening Brief, pp.
16-17.
The appellant pointed to the language in section 11.b.(2)(d) of
Appendix
G, which provides that a contract must be awarded to the
lowest
responsible bidder, whose bid ". . . conform[s] to the invitation
for
bids. . . ." See Appellant's Opening Brief, pp. 17-18. The
Virgin
Islands appeared to argue here that a determination of whether the
bids
conformed to the invitation for bids would require a consideration
of
whether a bidder was entitled to the 15 percent preference under
local
law. The clear purpose of this provision, however, is that the
bidder
meet any substantive requirements that may be necessary to fulfill
the
contract. In this light, we fail to see how the bids of
Duvergee's
competitors could be construed as not in "conformity" with
the
invitation for bids because they did not incorporate the 15
percent
increase in the amount of their bids.
The Virgin Islands also cited section 10.b.(2) of Appendix G
which
provides that:
Awards shall be made only to responsible contractors
that possess
the potential ability to perform
successfully under the terms and
conditions of a
proposed procurement. Consideration shall be
given
to such matters as contractor integrity,
compliance with public
policy, record of past
performance, and financial and technical
resources.
While this regulation may give recognition to matters of local
public
policy, the first sentence of the provision clearly indicates that
it
requires consideration of public policy only in the context
of
determining whether a bidder was a responsible bidder, and would be
able
to "perform successfully" under the proposed contract. The
regulation
does not provide that matters of local public policy should
override an
ultimate determination of who is the lowest responsible
bidder.
The Virgin Islands also argued that once the Territorial Court made
the
decision that the contracts should be awarded to Duvergee, the
territory
in effect had no choice but to comply with this decision in order
to
ensure the continued operation of the program. Appellant's Brief,
p.
19. The appellant cited section 11.b.(2)(e) of Appendix G,
which
provides that "[a]ny or all bids may be rejected when there are
sound
documented business reasons in the best interest of the program."
The
appellant maintained that the continued operation of the program in
the
context here was a "business reason" to award the contracts to
Duvergee.
This argument in our view stands things on their head. Allowing
such
matters to be considered valid "business reasons" for awarding
a
contract would in many cases make the federal government prey
to
internal disputes that might cause a state or territory to award
a
contract to a particular bidder. By interpreting this provision
of
Appendix G in such a manner, the Virgin Islands would have us in
effect
subvert other requirements of the federal rules designed to ensure
the
fairness and efficiency of the bidding process. The
unreasonableness of
this interpretation is readily apparent in the case at
hand, since it
would dictate a result that would directly conflict with the
rules
requiring an open competitive bidding process.
In sum, we find that Duvergee was not the lowest bidder; there were
other
lower bids; the preferred bidders statute could not be applied to
change the
standing of the bidders; and the contracts should not have
been awarded to
Duvergee. The order of the Territorial Court to the
contrary is not
binding on the Agency or this Board. The next issue is
whether Duvergee
was a "responsible" bidder.
IV. Whether Duvergee was a responsible bidder
As already noted, the regulations require that the award be to the
low
"responsible" bidder. 45 C.F.R. Part 74, Appendix G, section
11.b.
"Responsibility," in a procurement context, is a long-used term
meaning
essentially that a contractor is qualified and competent to perform
a
particular contract. Responsibility determinations consider
factors
such as history of satisfactory performance and integrity,
skills,
production capability and resources to perform the job in
question. See
R.C. Nash, J. Cibinic, Federal Procurement Law, Vol. 1,
pp. 181-82.
Our Order to Develop the Record raised the question whether Duvergee was
a
responsible bidder when the contracts were awarded. The
Agency's
determination that Duvergee was not a responsible bidder was based
on a
finding that Duvergee's "sanitation standards" were not
satisfactory.
February 3, 1987 disallowance determination, p. 2. The
Agency
introduced into the record three documents which it relied upon
in
making this finding. The first two dated from August and
September
1984.
The third document was a May 23, 1986 inspection report from the U.S.
Food
and Drug Administration which detailed numerous deficiencies and
recommended
that the company's classification be "non-approved."
Agency's Ex. R-3 in
Docket No. 87-34.
The appellant argued that the Agency's determination that Duvergee was
not
a responsible bidder was incorrect for the following reasons:
the
Agency examined services only on the island of St. Thomas,
and
Duvergee's contract in 1986 and 1987 also included the island of
St.
Croix; it did not consider the conclusions of and evidence presented
to
the Territorial Court; and it was based on "insufficient and
outdated
facts." Appellant's Opening Brief, p. 20.
We agree that St. Croix should be considered separately, as we
discuss
below. We do not need to consider the proceedings before
the
Territorial Court in January 1986 because they applied to
conditions
before the May 1986 report. We also do not consider the 1984
reports
which appellant claimed were outdated.
As we indicated in our Order, the evidence impugning
Duvergee's
performance and capabilities shortly before the second
disallowance
period began could -- and did -- reasonably lead the Agency to
refuse to
participate in the contract costs thereafter, irrespective of
the
accuracy of the "responsibility" label. Therefore, it was not
necessary
for us to make any finding whether Duvergee was a responsible
bidder
when the contracts to it were awarded.
A. The May 1986 report
On May 23, 1986 the local office of the Food and Drug Administration
(FDA)
conducted an inspection of the Duvergee facilities in St. Thomas.
The report
noted 15 separate deficiencies, including live insects and a
cockroach inside
food packages, inadequate handwashing facilities, and
toilet facilities not
accessible to employees. The investigator
concluded that "since 5 out
of seven critical items were checked the
classification should be the lowest
(non-approved)." Respondent's
Exhibit R-3. (In Board Docket No.
87-34)
Appellant never made any attempt to refute these findings. It did
not
allege that the report was incorrect, nor did it present affidavits
or
any other evidence to demonstrate that the FDA findings were wrong.
B. Inferences from the May 1986 report
Appellant also never presented any affidavits or other evidence to
show
that the deficiencies found in the May 1986 report were corrected
during
the disallowance period.
However, appellant argued that there was no evidence pertaining to
the
sanitary conditions during the time period covered in this appeal,
which
is after the May 1986 inspection. "At most," said appellant,
"the
report from May 1986, indicates there were deficiencies for a
reasonable
time around that date." Appellant's brief, p. 22.
Appellant concluded
therefore, that the report "is not proof that those
deficiencies always
existed or that they were never corrected." Id.
Appellant's Memorandum in reply to the Board's Order to Develop the
Record
repeats the same theme, that the May report showed deficiencies
for only a
reasonable period of time after the inspection, that the
conditions could
have been corrected later, and respondent must show
they were not.
While the May report revealed deficiencies which
were in existence
during the time of the FDA
inspection, no evidence has been offered
to show
that the deficiencies continued throughout the
period
affected by the disallowance . . . The
scope of the May 1986
report must be limited to a
reasonable period around that date . .
.
Respondent's inability to build an evidentiary record must
lead
the Board to conclude that respondent's data
was completely
inadequate to justify the
disallowance.
pp. 4-5.
The obvious answer to appellant's contention is that there is no reason
to
assume, in the absence of evidence to the contrary, that the
conditions found
in May 1986 did not continue until the end of the
disallowance period in
February 1987. Moreover, it was appellant which
administered the
nutrition program. It either supervised the
performance under the
contract, or should have. It would be the one to
have any evidence
available to show that Duvergee corrected the
conditions found in May
1986. Under these circumstances it is
reasonable to place the burden of
going forward to show that conditions
improved after the May 1986 inspection
on the appellant, rather than on
the respondent to show that they did
not.
There is, moreover, one element which appellant overlooked which
shows
that even the Territorial Court, hardly hostile to Duvergee,
was
impressed with the deplorable sanitary conditions of Duvergee in
1986.
Appellant in its brief in Board Docket No. 87-34 referred to
a
significant fact:
It should be stated that in January and February of 1987
the
[Territorial] court again considered the bid award for
the
food for the senior citizens under this contract, and
taking
into consideration the sanitary conditions of
Duvergee as
cited by the Federal Government during the
1986 performance,
the court made a determination to award
the contract to other
bidders and not to Duvergee.
p. 11 (emphasis supplied).
Appellant did not tell us in this case that the same Territorial
Court
which had ordered the 1986 contracts awarded to Duvergee when it
found
Duvergee the "most responsible bidder" refused to award the contracts
to
Duvergee for 1987, based on the sanitary conditions during 1986.
This
alone should be enough to establish that appellant should not have
paid
Duvergee after May 1986 and appellant should not receive FFP in
those
payments.
C. Failure of Duvergee to perform satisfactorily under
the
contract
As we noted above, appellant substantially conceded that Duvergee was
not
"responsible" for a "reasonable period" around the date of the May
1986
inspection. We have pointed out that it was the duty of the
appellant,
and not the respondent, to prove, if it could, that the
reported conditions
did not continue on until the end of the 1986
contracts.
Appellant had the opportunity throughout this appeal to present
any
evidence it might have to show that during the period of
the
disallowance in the appeal before us Duvergee did in fact correct
the
conditions found in the 1986 inspection, and so became and
remained
"responsible" from September 1986 to March 1987 and entitled to
payments
under the contracts. Nothing has been offered.
Under these circumstances we need go no further into the
technical
question of whether Duvergee was a responsible bidder when
the
Territorial Court ordered appellant to award it the contracts in
1986.
It clearly was not responsible in May of 1986, and in the absence of
any
proof to the contrary, it continued to be not responsible until
the
Territorial Court ordered the 1987 contracts given to someone else.
In addition, the deplorable sanitary conditions were clearly a breach
of
the contract provisions. See Invitation for Bids, Agency Exhibit
R-1,
p. 13, 14. Appellant knew of the May 1986 report. If
appellant did not
know otherwise, it certainly learned of it when the New
York Regional
Office requested a copy from FDA and sent appellant's
Commissioner a
copy of the letter on June 4, 1986. Agency Exhibit
R-2. It was
therefore appellant's duty to take steps to terminate the
contract and
stop making payments to Duvergee under it.
In our Order to Develop the Record we asked appellant why it did not
take
any action to terminate the contract for cause, if it knew of the
unsanitary
conditions. In its reply appellant offered the weak excuse
that it
sought instead to take the contract away from Duvergee by
appealing the
Territorial Court order which originally awarded the
contract to
Duvergee. The sanitary conditions, however, constituted an
immediate
crisis. Appellant should have at once notified Duvergee of
its
intention to terminate the contract for a substantial breach, and
immediately
have stopped payments on the contract.
We alluded in our Order to the possibility of the injunction of
the
Territorial Court barring such action, and asked why appellant did
not
take any steps to modify or vacate the injunction to permit appellant
to
terminate the contract. Appellant did not give a satisfactory
reply.
It appears that the Court probably would have permitted
such
termination, since when the poor sanitary conditions were brought to
its
attention it did give the next year's contract to someone else. In
any
case, it was appellant's duty to take any required steps and it did
not.
Therefore, whether it was because Duvergee was not a responsible party
to
the contract from September 1986 to March 1987 (in the absence of
any
evidence furnished by appellant to the contrary), or whether the
May
1986 report constituted clear grounds for termination of the
contract,
respondent should not have to share in any payments made to
Duvergee for
the St. Thomas contract after May 1986.
IV. The St. Croix Contract
Appellant argued that even if there is cause to disallow payments
under
the Duvergee contract on the island of St. Thomas, there is no reason
to
disallow payments for meals furnished on the separate island of
St.
Croix. The Board referred to this issue in the Order to Develop
the
Record, when we pointed out that the May 1986 FDA findings did not
cover
St. Croix, and the facilities and personnel there presumably
were
different from those found deficient on St. Thomas.
Neither party's answer was of much assistance to the Board.
Respondent
replied as follows:
In addition, there is no evidence in the record that
Duvergee
maintained any other kitchen facility during the contract
term.
It therefore follows that there can be no presumption that
the
underlying relevant facts on St. Croix were any different
from
those on St. Thomas.
Thus, in the absence of any contradictory evidence, it must
be
concluded that the portion of the disallowance allocable to
St.
Croix is not severable, as the cited deficiencies refer to
the
Duvergee kitchen and not to a particular delivery site. . . .
p. 7.
Appellant's reply to the Order to Develop the Record said that the
May
1986 FDA report did not refer to Duvergee's operation on St. Croix,
and
no other evidence had been submitted to indicate that
respondent
possessed any data at all pertaining to Duvergee's contract on
St.
Croix. Appellant then referred us to its original brief in this
appeal.
In this brief appellant left us with a factual question, by stating
not
only that the contracts were separate, but that "the facilities
were
separate." p. 21. If in fact Duvergee had a separate kitchen
facility
on St. Croix where food was prepared on that island, then the issue
on
St. Croix is truly different from that on St. Thomas. If there was
but
one kitchen facility, then the May 1986 report would obviously
apply
also to conditions pertaining to the St. Croix contract. On the
other
hand, as we implied in our Order to Develop the Record, if Duvergee
ran
the two contracts completely separately, with separate
kitchen
facilities and equipment on each island, then there was no basis
to
refuse any FFP for payments on the St. Croix contract.
Whatever may be appellant's burden of proving its entitlement to FFP,
it
does not automatically have the burden of proving in advance every
fact
that may possibly raise an issue. Appellant did in its opening
brief
raise the issue of separate facilities on St. Croix. The Agency
did not
initially challenge appellant's allegation but simply contradicted it
in
response to our order. Neither party saw fit to offer any evidence
on
this issue. We have determined that, under the circumstances,
appellant
should not be foreclosed from now being allowed a last opportunity
to
prove that the meals were prepared in separate kitchen facilities.
We
will therefore sustain the disallowance on St. Croix, as well as on
St.
Thomas, but with the opportunity for appellant to submit to the
Agency,
within 30 days of receipt of this decision, evidence showing that
the
Duvergee kitchen facilities on St. Croix were entirely distinct
from
those on St. Thomas. If they were, then appellant should not
be
penalized by a disallowance of all FFP. If there has been no
evidence
to show that on St. Croix Duvergee was not a responsible bidder, or
not
a responsible party in performing the contract, even though it was
not
the lowest bidder, then appellant should be held to account for only
the
difference between the Duvergee bid for St. Croix and the amount of
the
lowest bid.
While the procurement regulations require award to the lowest
responsible
bidder, they are silent on what the amount of the
disallowance should be for
a grantee who does not comply. Ordinarily,
and in the absence of
evidence of pernicious intent to violate the
principle of award to the lowest
bidder, it is only common sense--as
well as fair--that if the contractor who
was not the lowest bidder
complied with all the contract requirements and
furnished suitable meals
to the elderly on St. Croix, the Virgin Islands
should not be deprived
of all FFP in the contract payments. Appellant
should not have to
suffer any greater loss than the Agency did, namely,
paying more than
the low bid price. This is in line with the cost
principles in Office
of Management and Budget Circular A-87, which require in
Attachment A at
par. C.1.a. that to be allowable under a grant program, costs
must be
necessary and reasonable for proper and efficient administration of
the
grant programs. The price which would have been paid to the low
bidder
was necessary and reasonable for furnishing meals on St. Croix.
The
amount over this, the difference between this amount and the
amount
actually paid Duvergee, was not necessary or reasonable. The
Agency
should not have to share in it.
In South Carolina Department of Social Services, DGAB No. 256
(1982),
cited in Decision No. 890, an agency of the Department of Health
and
Human Services recognized this principle when it approved a
contract
awarded to a higher bidder without the required prior agency
approval,
but allowed the contract costs only in the amount of the lower
offer.
Conclusion
For the reasons stated above, we conclude as follows:
(1) We uphold in full the part of the disallowance attributable to
the
St. Thomas contract.
(2) Concerning the part of the disallowance attributable to the
St.
Croix contract, we --
(a) uphold the part of the disallowance for
the difference between
the amount paid Duvergee and
the amount of the low bid; and
(b) uphold provisionally the remainder of the
disallowance,
subject to an opportunity for
appellant to submit evidence that the
kitchen
facilities on St. Croix were entirely separate from
those
on St. Thomas and that the meals on St. Croix
were not prepared in
the St. Thomas kitchen.
Appellant should submit any such evidence
to the
Agency within 30 days after receiving this decision
(or
such longer time as the Agency allows). If
appellant submits no
evidence within the specified
time, the disallowance is upheld in
full without
further action by the Board. If appellant
submits
such evidence, the Agency should review it
and respond in writing.
The Agency should also
advise the appellant in writing of any
revision in
the amount of the disallowance and how it was
calculated.
(3) If the appellant disputes the Agency's response to
evidence
submitted on the St. Croix contract, or disputes any recalculation
of
the disallowance amount, the appellant may appeal those
determinations
(only) to the Board within 30 days after receipt of the
Agency's
submission.
________________________________ Judith A. Ballard
________________________________ Norval D. (John) Settle
________________________________ Alexander G. Teitz
Presiding
Board