Many government contractors incorrectly think that when you lose a protest at the Government Accountability Office that you can appeal the decision to the Court of Federal Claims.
That’s not so. However, you can protest an agency’s decision whether or not to follow GAO’s recommendations. That’s what happened in VS2, LLC v. United States and the Court did not pull punches when unpacking the GAO decision.
The contract at issue was a cost plus fixed-fee task order to provide workers to help the Army with maintenance, supply, and transportation support services. The Army determined to give the contract to the lowest price technically acceptable offeror.
VS2, the protester, bid, as did a company called Vectrus. Vectrus was the lowest bidder but the Solicitation called for a cost realism analysis (basically a determination as to whether the offeror’s price is so low that it is unrealistic). After conducting the price realism analysis, the Army adjusted Vectrus’ price upward making it no longer the lowest price offeror. The Army awarded the contract to VS2.
That, naturally, didn’t sit right with Vectrus so it filed a protest at GAO. Turns out, Vectrus had agreed to a cap of its total costs. GAO concluded that for that reason, it was improper for the agency to upwardly adjust Vectrus’ cost. It sustained the protest and, crucially, recommended that the Army cancel the award to VS2 and give the contract to Vectrus.
The Army followed the recommendation, spurring VS2 to protest that action at the COFC. Because of the nature of the allegation, the court had to determine whether GAO’s decision was reasonable.
Spoiler alert: it was not.
The court said that GAO’s analysis on the upward adjustment of Vectrus’ price was spot on but that was only half of the job. As the court explained, there are two parts to a price or cost realism analysis. The first is to determine what the government is likely to actually pay. Here, where the contractor has agreed to a cap, the first part of the analysis can be relatively easy.
But the second part is determining whether the contractor’s price is so low as to indicate that the contractor will do a poor job. The court noted that the existence of a cap might do away with the first concern, but if anything it makes the second concern more acute. In no uncertain terms, the court found GAO’s decision to ignore the second concern was unreasonable and “clearly erroneous as a matter of law[.]”
The court pointed out that the cost cap serves as a perverse incentive to cut corners. It said, “the FAR’s concern is that the selected contractor ultimately will attempt to achieve profitability via substandard performance[.]” More bluntly: “Where an offeror agrees to cap costs during performance and suggests the possibility of having to absorb a significant loss, an agency cannot ignore potential performance risks; if anything, an agency’s concerns should be exacerbated.”
The court was particularly dismayed with GAO’s reliance on one of its previous decisions to conclude that after a cost cap any performance concern becomes a matter of contractor responsibility rather than cost realism. It said: “The Court is at a total loss as to how GAO in Vectrus extracted such a per se rule.”
The court therefore concluded that GAO should not have recommended that the Army give the contract to Vectrus and that doing so was “essentially directing the Agency to ignore the performance risk the Agency reasonably already had assessed against Vectrus due to its proposed cost caps.”