In its March 2015 decision in CGI Federal Inc. v. United States, the U.S. Federal Court of Appeals ruled that delayed payment provisions contained in the federal government’s Medicare and Medicaid overpayment recovery contracts violated government regulations that mandate commercially reasonable contract terms with suppliers.
The case dealt with a federal government Request for Quotations issued in 2014 for overpayment recovery services relating to the federal Medicare and Medicaid programs. The contract terms contained in the new RFQs amended prior payment provisions that typically entitled government contractors to commission payments for the collection of Medicare and Medicaid overpayments 41 days after the issuance of a demand letter. The contract terms in the new 2014 RFQs required government contractors to wait until the overpayment demand process passed the second level of a five-level appeal process, which, as the court noted, “typically occurs somewhere between 120 and 420 days after the demand letter.” Rather than bidding on the new terms, CGI filed a bid protest. The U.S. Court of Federal Claims rejected the protest after ruling that the payment terms did not violate statutory or regulatory provisions.
CGI appealed. The U.S. Federal Court of Appeals reversed the trial decision, ruling in favour of CGI after finding that the revised payment terms in the new federal government RFQs were in contravention of Part 12 of the Federal Acquisition Regulations, which prohibit the federal government from including terms in its solicitations or contracts that are inconsistent with customary commercial practice.
As this case illustrates, government bodies subject themselves to successful bid challenges when they contravene the statutory provisions that regulate their procurement processes.
