How Uncle Sam Travels: Limited Competition in Foreign Lands

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I’m a bad traveler. When visiting a new place, I struggle to let the culture and customs wash over me and go with the flow. I’m much more analogous to a stick in the mud. Incidentally, that’s what most of my traveling companions tell me I am.

Uncle Sam doesn’t travel in the traditional sense, but his dollars sure do. This is particularly true when Uncle Sam is a party to international mutual defense alliances that are threatened by the possibility of a land war in Europe. Surprisingly enough, Uncle Sam’s contracting laws also make him a better traveler than I.

Full and Open Competition

Among the bedrock pieces of legislation for federal contracting is the Competition in Contracting Act (“CICA”). Enacted in the 1980s, it forms the legal basis for federal procurement systems in use today.

A fundamental element of CICA is its preference for full and open competition. Unless an exception applies, “an executive agency in conducting a procurement for property or services shall . . . obtain full and open competition through the use of competitive procedures in accordance with the requirements of this division and the Federal Acquisition Regulation[.]”

While CICA establishes a clear preference for competitive procedures, it also acknowledges that full and open competition may not always be feasible or advantageous. Nevertheless, any limitations placed on full and open competition must be tailored to achieve the government’s legitimate needs while preserving as much competition as possible.

Treaty Exception

The United States’ preference for full and open competition, however, is not always shared with its international partners. Negotiated treaties may require the United States to give preference to foreign firms in exchange for other benefits.

Fortunately, the CICA fully anticipates this issue and provides an exception.

An executive agency may use procedures other than competitive procedures only when . . . the terms of an international agreement or treaty between the United States Government and a foreign government or international organization, or the written directions of a foreign government reimbursing the executive agency for the cost of the procurement of the property or services for such government, have the effect of requiring the use of procedures other than competitive procedures[.]

Thus, the federal government is not required to achieve full and open competition when international agreements require use of more restrictive procedures. In short, the federal government may negotiate for less than full and open competition in international treaties.

The Exception in Practice

CICA’s treaty exception results in some unique contract restrictions. GAO’s recent decision in Vectrus Servs. A-S, highlights the latitude in federal contracts when international NATO partners and installations are involved.

GAO’s decision involved an Air Force contract for base operations and maintenance services at Thule Air Force Base in Greenland. The base was created by the “Defense of Greenland Agreement” executed between the United States and the Kingdom of Denmark in 1951.

Contracting eligibility for the base has long been an item of negotiation between the United States and Denmark. In a 1991 memorandum of understanding, contracting preference was to be given to entities registered in Denmark, but the United States could ultimately use United States sources when Danish procurement was not feasible.

Denmark has raised concerns about the implementation of the Danish preference for past contracts at Thule. For example, the incumbent base operations and maintenance contract was awarded in 2014 to Vectrus Services. At the time, Vectrus was registered as a Danish company, but it was legally a wholly owned subsidiary of a United States company.

In response to these concerns, the United States and Denmark negotiated more precise the eligibility criteria. These changes were largely accomplished using diplomatic notes. Under the new criteria, competitors were required to be registered in Denmark and have 50 percent or more of their ownership held by Danish individuals or entities.

Vectrus protested the Danish ownership requirements. Vectrus argued the revised definitions for Danish ownership negotiated after 2014 were all done through diplomatic notes, which did not trigger the international agreement exception under CICA. In essence, Vectrus argued the exception to full and open competition was narrow and required an executed treaty or agreement.

GAO disagreed. While the Defense of Greenland Agreement did not include a precise definition of Danish or Greenlandic sources, a definition was subsequently negotiated between the parties through diplomatic notes. As GAO explained, “Vectrus has not argued or demonstrated that the Department of State is precluded from negotiating with the Governments of Denmark and Greenland to redefine the eligibility criteria for Danish or Greenlandic sources for purposes of complying with the 1991 memorandum of understanding.” Accordingly, the negotiated definition triggered the CICA full and open competition exception, despite being negotiated through diplomatic notes.

Uncle Sam Is Ready to Travel

The revitalization of NATO in response to the Russian invasion of Ukraine will likely see greater American presence in its European allies. For Uncle Sam, that means his dollars will likely be traveling abroad. Fortunately, the CICA will afford him the flexibility to travel.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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