September 9, 2021 - Protests & Litigation

Waivers of Minor Informalities, Meaningful Discussions, and a “Dreary Wreck” of a Procurement (August 2021 Bid Protest Roundup)

In this month’s Law360 Bid Protest Roundup, we consider three decisions released in August 2021. In the first case, the Government Accountability Office (GAO) considered and rejected a protester’s argument that an agency was required to waive or allow the offeror to correct a minor informality that the agency determined made its proposal ineligible for award. In the second case, the GAO addressed an agency’s duty to reopen discussions with an offeror when a post-discussion re-evaluation resulted in an offeror receiving a significant weakness for an aspect of its proposal that the evaluators previously determined had no weaknesses. The Court of Federal Claims provides our final decision of the month. In that case, the Court enjoined the Government from transferring billions of dollars’ worth of one agency’s requirements to existing contracts of another agency, without competition and without a documented rationale that could survive judicial scrutiny.

Waiver of Minor Informalities

In Continuity Global Solutions-Secure Me WLL Security, JV, B-419875, Aug. 12, 2021, the GAO considered the extent to which a procuring agency must waive or allow offerors to correct minor informalities in a proposal. For negotiated procurements under Federal Acquisition Regulation (FAR) Part 15, the answer is that procuring agencies ordinarily have no such duties.

Background

The Department of State issued a solicitation under FAR Part 15, seeking security guard services. Unsurprisingly, the solicitation contained the FAR 52.204-7, which requires offerors to register in the System for Award Management (SAM) as a condition of award. Somewhat surprisingly, though, the solicitation incorporated by reference the October 2013 version of the provision and incorporated by full text the October 2016 version of the same clause. Both versions of the provision require offerors to be registered in SAM by the date of contract award. Neither of these provisions, however, was the correct one; the agency should have incorporated the October 2018 version of FAR 52.204-7, which was in effect as of the date the solicitation was issued, and requires SAM registration by the date of proposal submission.

The lowest-priced offeror had not registered in SAM as of the date of its proposal submission. The agency subsequently requested that the offeror verify that it would be registered in SAM prior to award. The offeror responded that it had initiated the registration process and anticipated the registration would be active within two weeks. Six weeks later, the contracting officer checked SAM and found the offeror still was not registered. The agency therefore rejected the proposal and made award to the next-in-line offeror instead. The protest followed.

Analysis

The protester conceded it was not registered in SAM as of the date of contract award. It argued, however, that this was a “minor informality,” and under FAR 14.405, the Government was required to “give the bidder an opportunity to cure any deficiency resulting from a minor informality or irregularity in a bid or waive the deficiency, whichever is to the advantage of the Government.” The protester also cited GAO case law in which the GAO held that agencies were required to allow otherwise successful bidders the opportunity to cure the defect of failing to be registered in SAM.

The GAO rejected the protester’s argument.

First, the GAO observed that this competition was a negotiated acquisition subject to the procedures of FAR Part 15. Thus, the protester’s reliance on FAR 14.405 (which governs FAR Part 14 sealed-bid procurements) was misplaced. FAR Part 15 lacks any analogous requirement for agencies to waive or allow offerors to correct minor informalities in their proposals.

Second, the GAO noted the decisions upon which the protester relied were themselves FAR Part 14 acquisitions. And even there, the GAO sustained the protests because, under FAR Part 14, a bidder should have the opportunity to cure the lack of a SAM registration, and the agencies there failed to provide that opportunity. Here, by contrast, even if this had been a sealed-bid procurement under FAR Part 14, the agency did provide the offeror the opportunity to cure the defect, and the offeror failed to do so. Thus, the protester here would have lost its protest even if this had been a FAR Part 14 procurement. The GAO found the protester’s argument that the agency was required to waive or ignore the solicitation’s SAM registration requirements failed to state a cognizable basis of protest. Therefore, the GAO dismissed the protest.

Takeaways: Solicitations often contain nitpicky requirements that a mere mortal may consider trivial. Offerors sometimes think they are entitled to correct minor failures to comply with these apparent trivialities, particularly if the substance of their proposals is strong. But, as Justice Oliver Wendell Holmes remarked, “Men must turn square corners when they deal with the Government.”  Rock Island, Arkansas & Louisiana R.R. Co. v. United States, 254 U.S. 141, 143 (1920). Although the low bidder in a FAR Part 14 sealed bid procurement may be entitled to cure minor informalities, offerors in most federal acquisitions are not. An offeror should double-check its proposal before submission to ensure it has turned all the square corners a solicitation requires. An agency may not afford the offeror the luxury of fixing minor but fatal errors later. It is also a good idea for unregistered prospective offerors to complete their SAM registrations well in advance of proposal submission deadlines.

Meaningful Discussions

In Sunglim Engineering & Construction Co., B-419067.3, Aug. 6, 2021, the GAO considered the meaningfulness of discussions in the context of post-protest corrective action.

Background

The U.S. Army Corp of Engineers solicited construction services at airfields in South Korea. The agency received multiple offers, including proposals from Sunglim and Yibon.  The agency evaluated proposals and awarded the contract to Sunglim, which had multiple strengths and no weaknesses. The agency informed Yibon, on the other hand, that its proposal was ineligible for award because the offeror allegedly failed to comply with the solicitation’s rules on page limits and proposal content.

Yibon protested the rejection of its proposal. The agency conceded that the solicitation’s instructions “might be confusing” and took voluntary corrective action. The voluntary corrective action included amending the solicitation to clarify instructions, providing discussions to inform offerors of weaknesses in their existing proposals, and requesting revised proposals from all offerors.

Because the initial evaluation had not identified any weaknesses in Sunglim’s proposal, the agency’s discussion letter to Sunglim identified no areas of the proposal that Sunglim might strengthen. Sunglim submitted its final proposal revision, which was materially the same as its initial proposal.

The agency evaluated the offerors’ revised proposals. As in the first evaluation, the agency found multiple strengths in Sunglim’s proposal. But, unlike the first evaluation, the re-evaluation identified a weakness in Sunglim’s proposal and assigned a rating of Good, instead of the original rating of Outstanding. Yibon, on the other hand, garnered a rating of Outstanding in the re-evaluation and submitted a lower price than Sunglim. The agency then awarded the contract to Yibon as the best value offeror. In response to the changed evaluation, Sunglim filed a protest of its own.

Analysis

Sunglim argued that the discussions conducted as part of the corrective action were not meaningful because they failed to apprise Sunglim of the weakness in its proposal. The protester showed that its final proposal revision was materially the same as its initial proposal.  Although the agency’s discussions identified weaknesses in other offerors’ initial proposals, the discussions with Sunglim did not identify the weakness assigned to it.

The agency attempted to defend its procurement in two ways.

First, the agency argued it had no duty to disclose the weakness in Sunglim’s initial proposal because, at the time it held discussions, the evaluators had not yet discovered the weakness. Rather, the evaluators uncovered the weakness only during the evaluation of revised proposals, after discussions had closed. The GAO rejected this argument based on a longstanding but seldom used line of case law:

When an agency seeks revised proposals, its reevaluation may identify flaws in a materially-unchanged proposal that the agency would have been required to discuss with the offeror had the flaws been identified when the proposal was initially evaluated. In that situation, the agency must reopen discussions in order to disclose its concerns, thereby giving all offerors similar opportunities to revise their proposals.

The GAO distinguished this rule from the far more usual scenario where an offeror introduces a new error in a proposal revision after discussions have closed. In that situation, the agency indeed has no duty to reopen discussions to identify the new error and allow the offeror to correct it. Here, by contrast, the alleged weakness had been in Sunglim’s proposal all along.

Second, the agency appears to have argued that Sunglim’s weakness was not a “significant weakness.” Because neither the FAR nor the solicitation required discussion of mere weaknesses, the agency contended it was not required to address this issue with Sunglim. The GAO found that, regardless of the label applied, the weakness fell under the most important evaluation factor and appears to have had a material effect on the source selection analysis. That being so, this weakness was more akin to a “significant weakness,” and FAR 15.306(d)(3) requires discussions to address all significant weaknesses. The GAO also observed that the agency conducted discussions with at least one other offeror with respect to a mere weakness. On these facts, the agency was required to discuss this weakness with Sunglim.

The GAO recommended the agency reopen discussions with all offerors in the competitive range, request revised proposals, and make a new source selection decision.

Takeaways: In subsequent rounds of evaluations, agencies are not required to keep the same strengths, weaknesses, and ratings they applied in earlier evaluation rounds, as long as the revised evaluation is reasonable. That is true whether the re-evaluation occurs in the normal course of a procurement or as part of corrective action. In a procurement with discussions, however, when the agency assigns the equivalent of a new deficiency or significant weakness based on a proposal feature that existed at the time of discussions but was not discussed with the offeror, the agency must reopen discussions to identify the defect and allow the offeror the opportunity to address it. There is no similar obligation to reopen discussions to address new errors the offeror first introduces after discussions have closed.

A Dreary Wreck of a Procurement

In Medline Industries, Inc. and Concordance Healthcare Solutions, LLC v. United States, Case Nos. 21-1174 and 21-1098, the Court of Federal Claims sustained consolidated protests. The protests challenged the Department of Veterans Affairs’ (VA) attempt to transfer its own procurement of medical and surgical supplies away from new VA contracts that were under protest to two existing Defense Logistics Agency (DLA) contracts. The VA’s attempted move would have massively increased the size of the DLA contractors’ already-awarded contracts, with the VA offerors and awardees “left holding the bag,” in the Court’s words. Waxing poetic, the Court observed:

If there can be a literary analogy to this government procurement, it would be Longfellow’s The Wreck of the Hesperus which chronicles a prideful sea captain’s avoidable downfall on the rocks of Norman’s Woe. Like the experienced crew of the Hesperus, agency personnel warned of the perils of a plotted course and when ignored, “[d]own came the storm and smote amain, the vessel in her strength” leaving behind only a “dreary wreck” awash upon the shoals.

Background

The procedural posture of the protests is complicated.  In 2016, DLA awarded two large medical and surgical supply contracts for Defense Department use, with a combined value of more than $13 billion. The VA has large medical and surgical supply contracts of its own. For the past several years, these have been sole-source bridge contracts. In September 2019, the VA issued a solicitation for a follow-on competition for its requirements. The combined value of the VA contracts is more than $10 billion.

Unbeknownst to the VA’s offerors at the time, in parallel with the release of the VA solicitation, the VA was engaging DLA in a potential plan to transfer all of VA’s medical and surgical supply requirements to DLA’s existing contractors. The Court’s decision notes that numerous employees of both the VA and DLA expressed skepticism and “grave concerns” about the legality and ethical correctness of advertising one set of requirements to VA offerors while simultaneously planning to transfer all of those requirements with no competition at all to existing DLA contractors. They also expressed concerns about whether the VA’s timeline for fast, simultaneous transitions of multiple geographical areas was realistic.

In the meantime, in October 2020, the VA awarded medical and surgical supply contracts to Cardinal Health (which also happened to hold one of the two DLA contracts) and Medline (which did not). Two disappointed offerors (including Concordance) challenged the awards in agency-level and GAO protests. In February 2021, Concordance’s GAO protest resulted in corrective action that included reopening discussions for seven of the regions the VA had awarded to Medline. Another disappointed offeror then protested the proposed corrective action.

By March 2021, and before the VA could implement the GAO corrective action, the VA formally notified the offerors of its plan to transfer the work to the DLA contracts on an accelerated pace and ultimately phase out the recently awarded VA contracts. As a result, Medline and Concordance both filed suit at the Court of Federal Claims to protest the VA’s transfer decision and (in the case of Concordance) the scope of the VA solicitation. Their protests challenged the legality of the VA’s plan to double the DLA contractors’ work with no competition; the VA solicitation’s failure to reflect the scope, period, and value of the VA’s actual requirements; and the alleged breach of the VA’s implied duty to consider proposals fairly.

Analysis

The Court ruled in favor of the protesters.

First, on the question of whether the administrative record supported the rationality of the transfer plan, the Government “offered no defense on the merits of these challenges as to whether the transfer violates [the Competition in Contracting Act] and the [Federal Acquisition Regulation], and has conceded that the Administrative Record lacks support for the transfer.” Based on the Government’s admission, the Court held that the transfer plan was unsupported by the record and therefore was unlawful. The Court stressed it was not ruling on whether the transfer plan also violated statutory and regulatory competition requirements. Nor did the Court hold that a different, better-documented transfer decision would necessarily be unlawful.

Second, the Court considered whether the VA solicitation properly reflected the VA’s current requirements. The parties took different positions on that question and what the correct solution was if the solicitation reflected outdated requirements. The Government, for its part, did not defend its solicitation except to argue that the protesters were not prejudiced by any inaccuracies. The Court found that, although it was unclear what the VA’s exact requirements really were, the solicitation plainly was materially inaccurate in light of the transfer plan and the fact that the VA planned to descope both contracts years before their natural expiration dates. Although the protesters had constructive notice from a 2020 GAO report referencing a plan to move the VA requirements to DLA contracts, the Court found the VA’s acceleration of that plan made the complaint timely. With respect to whether Concordance, which was not an awardee, had standing to protest the scoping problem, the Court found the error sufficiently prejudiced it because Concordance was still an offeror in competition for a potential award and had sufficiently demonstrated prejudice by explaining how it would have improved its proposal if it had known of the change in scope. Although the Court could not say whether Concordance “did or did not have a substantial chance at an award,” it made a sufficient showing of injury to confer standing.

Having found that the protesters succeeded on the merits of their complaints, the Court determined the irreparable harm to the protesters, the balance of harms, and the public interest all favored a permanent injunction. The Court accordingly prohibited the VA from transferring the requirements “on the current record” and from attempting to correct its errors simply by awarding contracts under the current solicitation, which did not reflect the VA’s current requirements. The Court also enjoined DLA from procuring any services within the scope of the VA solicitation, except for a narrow carve-out for a pre-existing pilot program. It also declared the VA’s solicitation to be unlawful in its entirety, and enjoined the VA from making awards under it in its current form or from allowing any already-awarded contract to proceed.

In a move that is relatively unusual where the Court grants permanent injunctive relief, the Court also ordered the Government to pay the bid and proposal preparation costs of one of the protesters. The Court found that the VA’s arbitrary and capricious decision to proceed with an infirm solicitation over the ethical and legal concerns of agency personnel breached the Government’s implied-in-fact contractual duty to evaluate Concordance’s proposal fairly, honestly, and in good faith.

Takeaways: The Medline decision is unusual for a number of reasons, and, as a result, the lessons for offerors are relatively few. For procuring agencies, though, the decision is a stark warning to pay attention to questions about the legality or ethics of a proposed procurement action. It also is a needed reminder for agencies to ensure their internal documentation gives meaningful consideration to all areas of a problem and articulates a rational and lawful basis for major procurement decisions.