Government Contracts Monitor

When an Offeror and the Government Both Overlook a Material Requirement, There’s Still Hope for an Unsuccessful Offeror

September 19, 2016

Task orders issued off ID/IQ contracts, like all government contract awards, must materially comply with the terms of the task order solicitation. The “material” terms of a solicitation are those terms affecting the “price, quantity, quality, or delivery of the goods or services.” Additionally, sometimes the terms of the underlying contract can be relied upon by a protestor to make its case that a task order was improperly awarded. As GAO held in Kratos Defense and Rocket Support Services, Inc., (Kratos) B-413143 (August 23, 2016), where something in the task order explicitly details the ways in which a task order award will comport with a term contemplated by the ID/IQ contract, contractors must take note and propose accordingly.

The protest concerned a task order issued under the Navy’s multiple award ID/IQ SeaPort-e contract. The contract serves as the Navy’s vehicle to acquire professional support services. The task order at issue here solicited proposals for a cost-plus-fixed-fee level of effort award for support services at the Naval Surface Warfare Center in Dahlgren, Virginia. Award was to be made on a best value determination, based on technical capabilities, workforce, management, past performance, and cost. The solicitation set a limitation on teleworking, allowing the contractor’s personnel to perform up to 10% of the work hours at an alternate worksite, defined as an employee’s residence or telecommuting center.

Before the solicitation closed, the agency responded to questions from potential offers. One offeror asked for details regarding the on-site locations that the government would provide for contractor workspace. The Navy responded that no on-site workspace would be provided, and amended the solicitation to remove the sole reference to on-site workspace. The underlying SeaPort-e contract stated that the Contractor was responsible for providing qualified personnel, materials, facilities, equipment, and other components that would support the Navy and Marine Corps in mission execution. It further stated that to the extent the government would provide any equipment in connection with performance, that equipment would be identified in specific task orders.

The Navy received 3 responsive and timely proposals to the solicitation, including offers from Kratos, the incumbent and protestor, and URS Federal Services, Inc. (URS), the awardee. Kratos’ proposed price was $62.1 million, compared to URS’ proposal of $51.6 million. Kratos was rated lower technically than URS, but received higher ratings for its workforce, management, and past performance. In accordance with the terms of the solicitation, the agency performed a cost realism analysis on URS’ offer, as it deemed URS the most likely to receive award; that analysis resulted in an upward adjustment of URS’ proposed cost, to $54.7 million.

URS proposed three labor rates: for work done at a URS site, work performed at a “Government/Client” site, and work performed at an alternate location. Significantly, it stated that “URS assumes that the Government/Client will provide working space, computers and telephones for the proposed staff at no cost to URS in order to use Government/Client site rates.” Kratos argued that this supposition, and URS’ proposal of work at a government site, took exception to the solicitation’s terms, and GAO agreed.

Despite the Navy’s unambiguous statement that it would not provide work space for contractor employees, and URS’ stated assumption that on-site facilities and equipment would be provided at no charge to the contractor, the Navy nonetheless accepted URS’ proposal. The agency argued that it was reasonable to construe that labor at a “Government/Client” site could also be performed at an alternate site. However, the GAO noted that the combination of URS personnel proposed to work at the government site and the alternate site equaled more than 20 percent of the proposed workforce—which was contradictory to the solicitation’s requirement that no more than 10% of the work be performed at an alternate site. So, if URS could assert that an employee could perform work using the lower “Government/Client” site labor rates at home or at a telework center, it would then violate another material term of the solicitation—the limitation on telework.

URS relied on presumably lower labor rates for the alternate workspace and the non-existent government/contractor workspace, which undoubtedly impacted its proposed price. The GAO held that URS’ impermissible assumptions likely impacted its proposed price, which made award to the firm improper, and also potentially created prejudice for Kratos.

URS’ error is particularly important given that the task order at issue is Cost Plus Fixed Fee, so the government bears the risk of cost overruns. By contrast, on a firm fixed price award, the contractor itself is responsible for performance costs that exceed the proposed price. Had the agency held discussions or asked URS for clarification of its assumptions, the award might have been deemed proper, but because of the material significance of the oversight by both the Navy and the offeror, the award was improper.

The decision illustrates that both an offeror and an evaluating agency must pay close attention to the terms of a solicitation; most critically, an offer must comply with the material terms of a solicitation, which are those terms affecting the “price, quantity, quality, or delivery of the goods or services.” It would be quite difficult for URS to argue that labor rates proposed for its own facility would be substantially similar to those proposed for a government facility provided without charge to the contractor, or rates for employees working from home. Whether a specific solicitation term is material or not is a fact question determined by the GAO, but for a task order of this magnitude, such a change could create a substantial difference in the price of performance.

GAO suggested a wide range of actions the agency could take to remedy the error, including a revision of the terms of the solicitation and subsequent reprocurement. If the agency determined that the terms did not need to be revised, GAO suggested that it could terminate the award to URS and make award to an offeror that complied with the solicitation’s terms, or that it could open discussions with all offerors and obtain revised proposals. In any case, URS’ erroneous assumption, and the Navy’s acceptance of a proposal with a material flaw meant that the procurement was inappropriate. Kratos’ careful attention to the agency’s stated requirements and scrutiny of URS’ proposal revealed the mistake on the part of both the offeror and the agency, and allowed it another chance to compete in the procurement. Though Kratos’ arguments were successful, however, the GAO’s broad range of potential remedies—as opposed to a recommendation that the Agency eliminate URS from the competition—means that it may have won the battle, but lost the war, if offerors are permitted to submit revised proposals.