Prospective Army contractor snagged by hidden GAO rule

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There’s a hidden trap in the Government Accountability Office’s rules for contract award protests. The trap closed on the foot of one contractor trying to do business with the Army. Procurement attorney Joseph Petrillo of Smith Pachter McWhorter joined Federal Drive with Tom Temin  for the details.

Interview transcript:

Tom Temin: Joe, tell us about this. It seems like an ordinary protest, but it really turned up something that contractors need to be aware of that could trap them. So tell us about it.

Joe Petrillo: Absolutely. To set the stage., this was a procurement by the Army for logistics support services at Fort Benning, Georgia. The solicitation, it was a task order procurement. But there was a solicitation that had an evaluation criteria spelled out, and they were basically lowest cost technically acceptable. The technical factors, small business participation and past performance were all pass-fail criteria. Fast performance required a minimum score of substantial confidence. The cost price factor was evaluated for both realism and reasonableness. And that’s because in a cost type contract, the government can make cost realism adjustments to prevent someone from under bidding the costs, and the government would later have to be faced with either funding the overrun or stopping performance, which wouldn’t be feasible for this type of contract. In any event, the evaluation took place. The government added a cost realism adjustment to one of the offerors, Vectrus. That caused it to be not the lowest cost proposer, so they made award to VS2. Vectrus protested, and they protested successfully. They said, look, we had a situation where we might have underbid, but we committed ourselves to bear that cost and not charge the government for the cost, and we were legally bound to do that. GAO agreed that the government would not bear the possibility of a cost overrun. And because of that, it said that the cost realism adjustment was improper. So they granted the protest, and the Army went ahead on the basis of that decision, and awarded the task order to Vectrus. At this point VS2 protests and claims that Vectrus submitted a proposal that was unacceptable, and several reasons why it was unacceptable. And of course, that would cause the proposal being eliminated from consideration

Tom Temin: Unacceptable, other than for low prices.

Joe Petrillo: Exactly. And VS2 would then have been in position for award. Now, in terms of the issues that were raised, some of them had already been raised in the Vectrus protest. The issues were raised by VS2, which had intervened to defend the protest. And VS2 claimed that Vectrus, again, the proposal was unacceptable. And because it was unacceptable, Vectrus was not a proper protester. In order to be a proper protester, you have to have submitted a proposal that could be the basis for award if the protest is successful. So on those issues, GAO said, look, we already looked at those, we rejected them, there’s a mechanism for reconsideration, that deadline’s passed, we’re not going to revisit those issues. But then VS2 also raised new reasons why the Vectrus proposal was unacceptable, reasons that were not raised in the original Vectrus protest. GAO said, nope, we’re not going to go there, either. Those were issues that should have been raised, could have been raised and therefore should have been raised in the prior protest because they would have led to the unacceptability of their proposal, that would have meant that Vectrus was not a proper protester, and it would have influenced the decision there. So the protest was denied on all grants.

Tom Temin: So a quick review went to VS2, Vectrus protested, and they won and got the award. Then VS2 tried to keep bringing up various reasons. But basically, it was too late. They had their chances is basically what the GAO said.

Joe Petrillo: That’s exactly right. This is basically a rule that’s going to prevent GAO from deciding a protest and prevent the protester from having GAO hear the protest, but it’s not spelled out in the bid protest regulations. So this is one of, I think, many instances where there are hidden traps in government contracting where the rules really should spell out in more detail things that are only set out in decided cases, and there are a lot of these and sometimes they can trip up even very experienced counsel.

Tom Temin: And to go back to the original solicitation, both companies submitted bids, could VS2 have known about flaws in Vectus’ proposal before the award went to Vectrus in the first place. In other words during the back and forth of the protest, VS2 could have raised all those issues before GAO decided in favor of Vectrus.

Joe Petrillo: That’s right. Probably the proposals were in the protest record on to the protective order and VS2’s counsel would have had access to them and been able to raise issues based on that. This is a situation, I think, where you’ve got a hidden rule and it tripped up the protester. But in this particular instance, it doesn’t necessarily mean those issues won’t get decided. What has happened since is VS2 has gone to the court of federal claims, and filed a bid protest. And so presumably, it’s going to get its day in court at the court of federal claims, because they don’t have the same timeliness rules that GAO has. And they haven’t considered any of these issues yet.

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Tom Temin: So in other words, the big lesson here is don’t raise objections to the other guy’s proposal until after GAO has changed it and they’ve gotten the award, that is to say, during the protest hearings, that’s when you’ve got to raise everything.

Joe Petrillo: Yeah, the general rule at GAO is they want you to raise everything as soon as possible. Sometimes that leads to people that have an abundance of caution raising issues too soon and having them rejected at that point. But it’s better to be in that position than to do it too late.

Tom Temin: Got it. And there’s caution here for the government also because it applied a cost reasonableness adjustment, which turned out to be not valid for it to do, not because the prices were unreasonable, but because the contractor had agreed to eat whatever losses might occur because of the price they submitted.

Joe Petrillo: That’s right, cost realism adjustments are frequent protest ground in this type of contract.

Tom Temin: Yeah, it seems like the government sort of putting its thumb on the scale in a way to do a price reasonableness adjustment.

Joe Petrillo: Well the basic reason for that is not to put the government in position where someone is deliberately underbid the contract, and then says, well, we’ve run out of money so either you give me more or I stop performance. And if the government can’t stop performance at that point, it’s kind of stuck with funding the overrun

Tom Temin: Yes. For example, if the labor rates that are part of the bid are 49 cents an hour, then probably they have underbid on pricing and they need a little adjustment.

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Joe Petrillo: That’s right. It’s one of the things that makes evaluating cost type contracts, a real difficult art and something that requires lots of data and judgment.

Tom Temin: Joseph Petrillo is a procurement attorney with Smith Pachter McWhorter. As always, thanks so much.

Joe Petrillo: Thank you, Tom.

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