Government Contracts Monitor

Is That Contract Modification Allowable or Not?

November 16, 2015

By: Eric Whytsell

Depending on your perspective, a contract modification that adds work to the existing contract may be either absolutely and “obviously” appropriate (if you’re the contractor) or an improper method of avoiding the fair and open competition required by the Competition in Contracting Act (CICA) (if you’d like an opportunity to compete for the new work). Choosing between these two extremes can be difficult. However, the recent decision of the Government Accountability Office (GAO) in Onix Networking Corporation, B-411841 (November 9, 2015) provides a reminder of the factors that GAO will consider.

The case involved a protest that the Peace Corps’s sole-source modification adding e-mail as a service [EaaS] to an existing Federal Supply Schedule (FSS) delivery order for server-based e-mail software constituted an improper, out-of-scope, modification. The awardee, En Pointe Gov, Inc. (En Pointe), is an authorized reseller of Microsoft products and services. Protester Onix Networking Corporation (Onix) is an authorized reseller of Google products and services.

The Peace Corps’ current e-mail functionality relies on a collection of computing hardware, wide-area network and local area network capabilities, and Microsoft software products licensed, installed and maintained in that computing environment. En Pointe supports this functionality under a 2013 FSS delivery order renewing the agency’s enterprise licensing agreement (EA) to provide software licenses, software maintenance services, and technical support services for the agency’s existing suite of Microsoft products for a base year and four 1-year option periods.

In July 2014, the agency began to conduct market research to determine what EaaS products were available that could meet its requirements. It first conducted pilot programs to evaluate the Microsoft and Google EaaS products. Responses of end users to both sets of products were positive. The Peace Corps also issued a request for information to prospective FSS vendors that previously had been issued a cloud EaaS blanket purchase agreement by the General Services Administration. After evaluating responses from Onix and Microsoft (rather than En Pointe), the agency concluded that only the Microsoft Office 365 product would meet its EaaS needs and decided to issue a modification to the existing En Pointe delivery order to add its requirements for the Microsoft product.

When it learned of the Peace Corps’ actions, Onix filed this protest, arguing that the agency’s modification of the En Pointe delivery order amounts to an impermissible, out-of-scope, sole-source modification because the EaaS product it seeks is fundamentally different than the e-mail product acquired by the agency under the existing delivery order. The agency disagreed, claiming that the modification is within scope because the delivery order contemplated the acquisition of cloud based services and asserting that EaaS products represent the “next logical step” in updating the agency’s existing computing environment.

While the GAO usually does not review contract modifications, an exception to that general rule applies where the modification is alleged to be outside the scope of the original contract. In such event, the GAO considers whether there is a material difference between the modification and the contract by (i) reviewing the circumstances attending the procurement that originally was conducted; (ii) examining any changes in the type of work, performance period, or costs between the contract as awarded and as modified; and (iii) considering whether the original solicitation adequately advised offerors of the potential for the type of work contemplated by the modification. The GAO described the overall inquiry as “whether the modification is of a nature that potential offerors reasonably would have anticipated competing for the goods or services being acquired through issuance of the modification.”

Based on these factors in this case, the GAO agreed with Onix and found the modification of the En Pointe delivery order to be an improper, out-of-scope, sole-source modification.

The GAO noted that, while the original competition for the En Pointe delivery order was limited to authorized Microsoft resellers because the agency concluded that only Microsoft products would meet its requirements, the Peace Corps’ subsequent actions in connection with acquiring an EaaS product – specifically its pilot program that tested the Google EaaS product as well as that of Microsoft and its issuance of an RFI to sources other than Microsoft authorized resellers -- explicitly recognized that the agency’s requirement could be met by firms other than Microsoft authorized resellers. Given this, firms like Onix could not reasonably have anticipated that the agency would use the existing delivery order to acquire an EaaS product. This alone placed the modification outside the scope of the original delivery order and supported upholding the protest.

In addition, neither the terms of the original delivery order competition nor the delivery order as issued ever contemplated the acquisition of a cloud-based EaaS product or service. Instead, they made clear that the agency was renewing its software EA for a discrete list of Microsoft software products already owned by the Peace Corps, along with related software and maintenance services. Nothing in the statement of work contemplates the provision of an entirely new product or service, such as an EaaS product. And while the delivery order does include a table entitled “future pricing,” a majority of the items identified as Microsoft “Office 365” [EaaS] products are not priced in that table and the modification includes an Office 365 part number that is not included on the future pricing table, or anywhere else in the original delivery order.

In the end, the GAO found that the En Pointe delivery order was a firm-fixed-price instrument to acquire a discrete, enumerated, quantity of services and that the modification to the En Pointe delivery order is an improper, out-of-scope, sole-source modification, for which the agency never conducted a competition, and for which the agency has not prepared the necessary justification and approval. It therefore sustained Onix’s protest and directed the agency to either fulfill its EaaS requirement through full and open competition or to execute the necessary justification and approval to acquire the Microsoft EaaS product through other than full and open competitive procedures.

Obviously, when it comes to determining whether a given modification is proper or not, the devil’s in the details. Contractors who believe they may be on the wrong side of a questionable contract modification should review the underlying procurement in detail and compare it to the modification in question. If you can show that the past procurement provided no reasonable basis to believe that the new acquisition would be accomplished through the resulting contract, you have good grounds for a protest.

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