Can vendors protest subcontracting decisions?

A company representative asked the following question: When a contracting decision is made by a federal agency, a disappointed offeror may file a bid protest with the General Accounting Office if it thinks that the procurement was conducted improperly. Are subcontracting decisions subject to the same procedures?

A company representative asked the following question: When a contracting decision is made by a federal agency, a disappointed offeror may file a bid protest with the General Accounting Office if it thinks that the procurement was conducted improperly. Are subcontracting decisions subject to the same procedures?

As part of the Competition in Contracting Act of 1984 (CICA), Congress gave GAO the authority to consider bid protests with respect to solicitations and contract awards "by a federal agency." [See 31 U.S.C. 3551(1).] Because a prime contractor is not a federal agency, it seems that their subcontracting decisions should not be subject to GAO protest procedures. However, in several cases, GAO has interpreted CICA as authorizing it to review subcontractor protests if the subcontract was awarded "by or for the government." [See, for example, Kerr-McGee Chemical Corp., B-252979, May 3, 1993, 93-1 CPD 358.]

More recently, GAO has modified its position somewhat. Originally, GAO would find that a subcontract was awarded for the government if the prime contractor was acting in behalf of the government, as its agent. For example, GAO would review subcontractor protests under Energy Department maintenance and operations contracts involving government-owned, contractor-operated facilities, because GAO believed that the contractor in such case was acting as DOE's agent. [See Compugen Ltd., B-261769, Sept. 5, 1995, 95-2 CPD 103, which cited Ocean Enterprises Ltd., 65 Comp. Gen. 585, 95-2 CPD 479 (1986).]

But GAO changed its view after the Court of Appeals for the Federal Circuit interpreted a related provision of CICA - since repealed - to preclude the General Services Board of Contract Appeals from asserting jurisdiction over subcontractor protests. [See U.S. West Communications Services, Inc. v. United States, 940 F.2d 622 (Fed. Cir. 1991).] Now, GAO will dismiss any protest involving a subcontract allegedly for the government unless the federal agency involved has asked GAO, in writing, to conduct such reviews.

According to GAO, it will consider a subcontract as having been awarded by the government if an agency has taken over complete responsibility for the subcontractor's selection, effectively acting as though it were making a new prime contract award. Under this interpretation of the statute, GAO might review a bid protest by a company rejected as a subcontractor if the "government's involvement in the award process is so pervasive that the prime contractor is a mere conduit for the government." [See ToxCo Inc., 68 Comp. Gen. 635, 89-2 CPD 170 (1989).]

However, such cases are very rare. For example, in St. Mary's Hospital&Medical Center [70 Comp. Gen. 579, 91-1 CPD 597 (1991)], the government's role in the selection of the subcontractor was so extensive that the government took over the whole process, drafting the evaluation criteria, conducting all proposal evaluations, and selecting the company for award. [See also University of Michigan, 66 Comp. Gen. 538, 87-1 CPD 643 (1987) (similar facts).]

But GAO has made it clear that an agency may have a substantial role in the award of a subcontract without it becoming a procurement by the government. For example, in the ToxCo case, the government drafted the technical documents used in the subcontract solicitation; identified the potential subcontractors to be solicited; reviewed the proposals and discussed their merits and administrative aspects with the prime contractor's personnel; actively participated in discussions with the prospective subcontractors; and recommended the award of the subcontract.

Even so, GAO ruled that it could not review the subcontractor's selection. According to GAO, "While the [agency] was actively involved in the procurement process and may even have effectively controlled the selection, we do not regard [the prime contractor's] involvement as that of a 'mere conduit' for an acquisition by the government."

Even a statement from the prime contractor emphasizing the government's involvement may not help a disappointed subcontractor. According to GAO, such statements are mere "boilerplate" and must be construed in light of all the facts. [See M& M Filipino Cuisine, B-253576, July 2, 1993, 93-2 CPD 5. A statement that "the Government" would consider prices in determining the proposal most advantageous to "the Government" had little value in assessing a subcontract award controversy.]

In some cases, a disappointed subcontractor may have other potential remedies if it believes it was treated unfairly. However, except in the most unusual cases, a subcontractor may not pursue a bid protest in GAO.

--Peckinpaugh is a member of the government contracts section of the law firm Winston&Strawn, Washington, D.C. This column addresses legal topics that arise in government acquisition and management of ADP resources. Readers are encouraged to submit topics by e-mail to carl@carl.com. This column discusses legal topics of general interest only and is not intended to provide legal advice.

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