Government Contracts Monitor

Is Your Relationship Really Monogamous? Exclusivity Can Be Deceiving

June 15, 2015

By: Eric Whytsell

On its face, the fact that protester has the "exclusive" right to sell the product the Government wants to buy seems like a pretty good ground for a protest challenging a contract award to a competitor. But looks can be deceiving, especially if you don’t read the fine print – both in your reseller agreement and the solicitation. The recent Government Accountability Office (GAO) decision in Victory Procurement Services LLC,B-411089 (May 12, 2015) underscores the importance of vetting your protest ammunition before launching your attack.

The case involved the Navy’s procurement of "one new or renovated Digital P18MH2 mobile surveillance radar system." The request for proposals (RFP) required offerors to submit the name and the country of purchase of the proposed supply, which had to be approved by the Navy before a corresponding technical proposal could be submitted. The RFP provided for the award to be made to the lowest-priced, technically acceptable offeror.

The Navy received two offers in response to the RFP, one from the awardee, Culmen International, LLC (Culmen), and the other from protester, Victory Procurement Services (VPS). Both offerors identified the same supplier: HM Arzenal Elecktromechanikal ZRt (Arzenal) from Hungary. When the Navy approved the supplier, Culmen submitted its technical proposal, which confirmed that its proposed supplier remained valid and accurate. After discussions with both offerors, the Source Selection Evaluation Board (SSEB) determined both proposals to be technically acceptable and recommended award to Culmen, which had the lower price. The source selection authority concurred with the SSEB’s recommendation and made the award to Culmen.

VPS protested, arguing among other things that the Navy erred in finding Culmen’s proposal technically acceptable because VPS has the exclusive right to sell the specified radar system in the United States. According to VPS, since its own proposal made clear its exclusive right to sell the system in the U.S., the Navy was required to consider this extrinsic evidence in evaluating Culmen’s proposal. The Navy countered by explaining that it relied on the contents of Culmen’s proposal that made clear the system it offered met all RFP requirements, as well as Culmen’s answers to discussion questions, none of which suggested the company could not perform the contract.

GAO agreed with the Navy and found its determination to be reasonable and based on Culmen’s proposal and discussion responses. GAO found that the record showed Culmen not only identified the supplier and country of purchase as required, but also explained that its supplier had the requisite base systems in its possession and would be upgrading them to a P18MH2 system meeting all the RFP requirements. Since the RFP made clear that the Navy sought a "new or renovated" system, it was reasonable for the Navy to find Culmen’s proposal technically acceptable.

But what about VPS’ exclusive right to sell Arzenal’s P18MH2 radar systems in the U.S.? VPS was forced to admit that its "exclusive" right to sell the systems "does not apply to any previously manufactured, renovated system offered for sale by a third party." In other words, its purported exclusive right was no bar to Culmen’s offering the P18MH2 system to the Navy.

While even a truly exclusive right to sell the systems may not have changed the outcome for VPS, this protest appears to have been doomed from the start because of VPS’ misconception of its rights as a reseller. A careful review of its reseller agreement could have saved VPS the time and trouble (and cost) of this ill-fated protest. Or it might have spurred VPS to focus on developing different, more effective protest grounds. Either way, not confirming the factual and legal basis for protest grounds before filing was a costly mistake.

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