ETHICS CORNER DEFENSE CONTRACTING
The Pitfalls of Changing a Pending Proposal
In a series of decisions, the Government Accountability Office has held that contractors must inform the procuring agency of any “material change” to a proposal that occurs after submission but before award: “Where an offeror’s proposal represents that it will perform the contract in a manner materially different from the offeror’s actual intent, an award based on such proposal cannot stand, since both the offeror’s representations and the agency’s reliance on such have an adverse impact on the integrity of the procurement process.” FCi Fed., Inc., B-408558.7, Aug. 5, 2015, 2015 CPD ¶ 245.
A contract bidder who fails to advise a procuring agency of a material change to a proposal, and then wins the contract, thus risks a protest and loss of the award. It could also endanger a valuable customer relationship and, depending on the facts, might even trigger a termination, False Claims Act allegations or both.
An obligation to advise the procuring agency of a material change can arise when, for example, a key person named in the proposal becomes unavailable, or it undergoes a corporate transaction after proposal submission but before award.
GAO has found that the departure of named key personnel may constitute a material change requiring disclosure to the agency. Whether such a change is “material” depends on a number of factors, including whether the solicitation required the identification of the key personnel; whether the solicitation addressed the substitution of key personnel; how heavily it relied on the key personnel in its proposal; and whether it has a replacement with equal or better qualifications.
If a contractor fails to inform the agency of its substitution of key personnel with someone less qualified, that is prime protest fodder. See Paradigm Techs., Inc., B-409221.2, Aug. 1, 2014, 2014 CPD ¶ 257; Greenleaf Constr. Co., B-293105.18, Jan. 17, 2006, 2006 CPD ¶ 19. GAO has also closely scrutinized awardees where a merger, spin-off or other corporate transaction occurs during the pendency of a proposal. See FCi Fed., Inc., 2015 CPD ¶ 245; Wyle Labs., Inc., B-408112.2, Dec. 27, 2013, 2014 CPD ¶ 16, recons. denied sub nom. NASA—Recons., B-408112.3, May 14, 2014, 2014 CPD ¶ 155.
In FCi, the awardee’s proposal relied on the resources, corporate experience, past performance and financial resources of its former parent and affiliates, which were no longer available after the company was sold while its proposal was pending. Similarly, in Wyle, the proposal relied on resources that became unavailable and costs that became outdated after the division of “old SAIC” into Leidos and “new SAIC.”
As these cases show, a change is material if it has a significant effect on a technical solution, resources for performance, corporate experience, past performance or cost structure. In each of these cases, GAO concluded that the failure to disclose the changes undermined the integrity of the procurement process and invalidated the award.
Potential contractors should weigh a number of considerations in deciding whether, when and how to disclose a change to the procuring agency.
First, although organizations have an obligation to advise agencies of material changes, they may then find themselves stranded with no way to explain how they will adjust to the change. If the change occurs prior to the submission of final proposal revisions, such a submission offers a straightforward opportunity to update proposals.
But if proposal revisions are not invited or have already been submitted, there is no automatic opportunity for the bidder to describe its revised approach. If it nonetheless provides information about its revised approach, that interaction may constitute improper discussions with only one of the competitors. Indeed, GAO flagged that pitfall in Paradigm Technologies, noting that the agency would have to reopen discussions with all contract bidders.
Second, if the bidder decides to inform the agency of a potentially material change in its proposal, it must be prepared for the possibility that the agency may decline to open discussions and may instead simply reject its proposal as technically unacceptable.
In Paradigm Technologies, for example, the awardee’s proposed program manager left the company prior to reevaluation of proposals. According to GAO, the agency either had to reject the awardee’s proposal as technically unacceptable or reopen discussions with — and invite proposal revisions from — all competitors.
Agencies are likely more willing to open discussions early in the procurement process than when they are close to award, so disclosing a change sooner rather than later may be a benefit.
Third, if the bidder opts not to inform the agency of a potential material change and then wins the contract, the award is particularly vulnerable to protest. The organization should therefore be prepared to explain why it deemed the change to be immaterial. GAO has been willing to get into the weeds on this topic, including — for example, in Greenleaf Construction — taking testimony and evaluating witnesses’ demeanor in assessing when an awardee first learned that a material change occurred.
Last, if the offeror concludes that a change is not material, and so opts not to inform the agency prior to award, it would be well-served to notify the procuring agency promptly upon receiving notice of award. Doing so will reduce the risk of customer relations problems, termination or False Claims Act allegations.
Jay Carey is a partner and Kayleigh Scalzo an associate with Covington & Burling LLP. They specialize in bringing and defending bid protests and helping clients navigate the procurement process. The views expressed here are solely those of the authors.