January 2020 Bid Protest Roundup
In this post, we briefly summarize bid protest decisions from the U.S. Government Accountability Office (GAO) published in December 2019. This round-up presents two cases wherein GAO sustained the protest due to the failure of the agency to take into consideration elements of an awardee's proposals that rendered the proposals unacceptable. The first addresses technical unacceptability and the second evaluates an offeror's eligibility as a sole-source contractor under a Small Business Innovation Research (SBIR) Phase III award.
T31 Solutions, LLC, B-418034, B-418034.2, Dec. 13, 2019
T3I Solutions (Protester) challenged the Air Force's award decision claiming the agency failed to recognize that the awardee's (Darton Innovative Technologies) proposal was technically unacceptable. Here, the awardee proposed a named individual, for a required position, that it had no reasonable basis to expect would perform on the awarded contract. GAO sustained this protest finding that 1) the proposal was indeed technically unacceptable and 2) the protester's misrepresentation had a material impact on the agency's evaluation.
The Air Force issued a total small business set-aside for crew resource management training for its operators and security forces responsible for handling intercontinental ballistic missiles (ICBMs). It received two offers, from T3I and Darton. Darton proposed using the incumbent contractor's instructor – naming this individual and detailing his qualifications – for a required "Operations Instructor" position. The Air Force determined that Darton's proposal represented the best value to the government. The Air Force's determination noted that it relied on Darton's representations regarding the availability of this instructor to determine it was technically acceptable.
T3I challenged the Air Force's decision claiming that Darton made material misrepresentations regarding its proposed use of this named individual. T3I produced a declaration from the named individual who stated "he had never been contacted by Darton or had any discussion with the awardee regarding potential employment opportunities prior to the time for submission of proposals." Neither the agency nor intervenor disputed the statements made in the declaration, nor did they produce any contradictory evidence even when given additional time to produce the documentation. Instead, Darton and the Air Force claimed that the proposal contained no misrepresentations. Both reasoned that, because the solicitation contained no requirement to produce letters of commitment or other signed statements to commit the specific individuals, simply naming this individual in the technical proposal did not amount to a representation that he would be able to perform. Therefore, the statements in the technical proposal did not commit Darton to ensuring this individual would be able to perform.
GAO sustained the protest, finding the awardee materially misrepresented the availability of an incumbent employee. Even without a requirement for a signed letter of commitment or similar statement of availability, GAO found the agency's and intervenor's arguments were without merit for three reasons.
First, GAO found that Darton's proposal contained misrepresentations because its inclusion of detailed descriptions of its intended use of the individual and citations to how this individual's credentials, qualifications and incumbent status would augment its own performance amounted to misrepresentations. Darton could not guarantee that the individual would perform; thus, citing his credentials was misleading.
Second, because Darton had not contacted this individual, it had no reasonable basis to represent that he would be available for performance nor use his qualifications to support its proposal.
Third, GAO determined these misrepresentations were material because the agency relied on Darton's assurances that it could provide an operations instructor – which was required under the solicitation – in making its determination that Darton was technically acceptable. Even without a letter of commitment, the agency in fact relied on the misrepresentation in the proposal in evaluating the offerors. Given that it had no basis to represent that the individual would be available, Darton's proposal was technically unacceptable and should have not been considered during the evaluation process.
An offeror must ensure that there is a reasonable factual basis to include a named individual in its proposal. Regardless of whether the solicitation requires a letter of commitment or any separate representation of proposed individuals' ability to perform, a contractor must assume that all statements in a proposal will be considered to be material representations that the agency will rely on in determining whether a proposal is technically acceptable. Contractors should therefore take care to track and maintain documentation confirming the availability of proposed individuals.
ASRC Federal Data Network Technologies, LLC, B-418028, Dec. 26. 2019
ASRC Federal Data Network Technologies (AFDNT) protested the Defense Health Agency's (DHA) decision to award a sole-source SBIR Phase III contract to American Systems Corp. AFDNT argued American Systems was ineligible for the award under a SBIR Phase III contract because its acquisition of a company that held and performed on previous SBIR phases rendered American Systems ineligible for a Phase III award. GAO agreed and sustained the protest over objections by both the DHA and the U.S. Small Business Administration (SBA).
Pursuant to the Small Business Innovation Development Act of 1982, certain federal agencies are required to set-aside a portion of their research and development (R&D) effort for small business concerns. This program works in three phases.
- Phase I: Firms compete to apply for an award to test the scientific, technical and commercial merit as well as feasibility of a certain concept.
- Phase II: Firms successful under Phase I are invited to further develop the concept.
- Phase III: an award to produce work that derives from, extends, or completes effort under the prior funding agreements in the SBIR program (i.e. the prior phases).
To receive a Phase III contract, the awardee must have either received a prior Phase I or Phase II award, or been novated a Phase I or Phase II award.
DHA required a contractor to modernize its Theater Medical Information Program-Joint (TMIP-J) system, which comprises multiple systems and products that collect various data of healthcare for service members. DHA elected to procure these services through an SBIR Phase III contract to build on efforts created through its two prior SBIR Phases. The award noted specifically that the work effort performed must derive from Phase I and II of SBIR Topic NOO-123.
American Security did not perform under or develop the underlying research for SBIR Topic NOO-123. Rather, it acquired DDL Omni Engineering, which held and performed SBIR Phase I and II awards on the topic. DHA awarded an SBIR Phase III contract on a sole-source basis to American Security to revise the current TMIP-J platform using the work conducted by DDL Omni under its previous SBIR contract awards.
AFDNT protested, argued that American Systems did not qualify for the Phase III award because 1) it did not personally perform on the prior two phases, and 2) its acquisition did not involve a novation of either a Phase I or Phase II contract under the respective topic. Thus, it was not eligible for an award of the sole-source contract. DHA rejected this argument claiming that the acquisition by American Systems rendered it a successor-in-interest to DDL Omni and therefore eligible. During the protest briefing, GAO sought responses from SBA regarding the SBIR requirements. SBA agreed with the agency, finding that the American Systems' acquisition of DDL Omni automatically granted them successor interests under the SBIR contract.
GAO rejected both the agency's and SBA's interpretation of the SBIR regulations and the SBA's policies. First, GAO looked to the plain language of the statute finding that it clearly provides "a company has to have either performed, been novated or been identified as a successor-in-interest to a Phase I or Phase II contract to be eligible for the award of a Phase III contract." Second, it found that the agency Policy Directive presents an exhaustive list of circumstances in which a company could receive a Phase II award. None of these circumstances directly provides or contemplates a situation where the contract was not novated to a new company.
This case presents a sharp reminder to companies undergoing acquisitions and those continuing to perform on contracts. It is not enough to simply acquire a company. Transactions involving government contractors are often structured as stock or equity purchases in order to avoid the potential burdensome and protracted novation process. However, in the case of a buyer that wishes to pursue SBIR awards under a program where the seller has performed a Phase I or Phase II award, it may be preferable to structure the transaction as an asset purchase (at least with respect to the assets used to perform the seller's SBIR awards). Otherwise, the buyer under this decision will be ineligible to receive a subsequent SBIR award in its name.