Department of Energy Rescinds $5 Billion Award Due to Contractor Sale After Bid Submission

Protests and LitigationA string of recent decisions have found the U.S. Government Accountability Office (GAO) struggling with the impact of corporate transactions on pending proposals.  See FCi Federal, Inc., B-408558.7, B-408558.8, Aug. 5, 2015, 2015 CPD ¶ 245 (overturning award where “as a result of the sale . . . the original proposal, upon which the award decision was based, no longer reflects the intended approach to performance”); see also Wyle Labs., Inc., B-408112.2, Dec. 27, 2013, 2014 CPD ¶ 16 (overturning award where the awardee had recently engaged in a corporate reorganization); IBM U.S. Federal, B-409806 et al., Aug. 15, 2014, 2014 CPD ¶ 241 (noting that a corporate reorganization did not appear “to have any significant cost or technical impact on performance of the requirements”).  These decisions have led to significant uncertainty as to what best practices should be adopted by contractors in significant transactions.

Continuing this confusion is yet another case where an apparently successful offeror has lost its contract because of a transaction.  Earlier this week, the National Nuclear Security Administration (“NNSA”) rescinded the award of a nearly $5 billion contract to a Lockheed Martin company—Nevada Site Science Support and Technologies Corporation (“NVS3T”)—after learning that the company had been sold to Leidos Innovations Corporation after submission of the bid.

The NNSA stated that the solicitation required offerors to notify it of any changes in ownership, which NVS3T failed to do.  In a public statement, NNSA explained that the award had been premised on the bid as submitted, which identified NVS3T as a wholly owned subsidiary of Lockheed Martin, not Leidos.  According to the NNSA, the “change in ownership raises substantial questions about the information in the NVS3T proposal, which could significantly impact the evaluation of the proposal and award decision.”  The NNSA stated that a new award decision would be made based on reconsideration of all other offers received in response to the original RFP.

This case raises yet another warning sign for firms that engage in significant transactions while proposals are pending; in addition to navigating the GAO’s case law, they may also have RFP-specific issues to address.