Is it a Change or a New Contract?

The Government Accountability Office (GAO) doesn’t usually like to stick its nose under the tent of an existing contract. Generally, it limits its role to the assessment of the procurement process up to the time a contract is awarded. An exception to that occurred recently when the GAO found that a contract modification so severely altered the scope of a contract that it should have been put out for full and open competition as a new procurement. See Leupold Stevens, Inc., B-417796, 2019 WL 6464239 (Oct. 30, 2019).

The Contract in Leupold was awarded by the US Department of the Navy’s Naval Surface Warfare Center. It called for the purchase of a “second focal plane squad variable powered scope,” which is “a low profile, wide field of view, passive scope for near-range engagements out to and beyond” the range of “small arms employed by Special Operations Forces (SOF).” Id. at 1 & n.1. Rightly or wrongly, the Navy awarded the contract to a company that offered a price that was roughly half of the next lowest price proposed by one of the six other companies competing for the award.

Roughly three months later, the Navy began exploring the possibility of modifying the scope by incorporating a “glass reticle” rather than the “wire reticle” that had been called for in the original contract. If my layperson’s understanding is correct, the reticle is that part of a scope that has the lines that are used to sight on a target. While the contract anticipated that different reticles might be incorporated into the scope as technologies evolved, the change from wire to glass required further modifications to the scope than just merely putting in a different reticle. According to the Navy, “the primary change [was] the method of illumination.” Id. at 5, n.8. Upon awarding the modification, the Navy published notice of the change and described it “as ‘an in-scope change to the internal reticle [of the scope] to add a glass etched reticle.’” Id. at 4-5.

Well, that change was a doozy—the cost of a scope increased by 77%. Leupold Stevens saw the notice and filed a protest a GAO arguing that the modification was “outside the scope” (haha, no pun intended) of the contract as awarded. Id. at 5. Ultimately, the case came down to whether the clause that envisioned that different reticles might permit the inclusion of different type of reticle, the use of which required internal design changes to the scope—notably here, the method of illumination. GAO concluded that it did not and, further concluded that the change was well out of what would be permissible given that the cost increased as much as it did here.

The reason I find this case notable is because the GAO “will generally not review protests of allegedly improper contract modifications because such matters relate to contract administration and are beyond the scope of [GAO’s] bid protest function” even if the modification is “significant.” Id. However, it will consider a protest that alleges “that a contract modification exceeds the scope of the contract and therefore should have been the subject of a new procurement.” Id. In such circumstances, “the agency [may have] subverted competition by awarding—without competition—work that would otherwise be subject to the statutory requirement for full and open competition.” Id.

So, what lessons can be drawn here. Some years back, a client of mine was awarded a contract to perform outsourced services at several government facilities. Shortly after award, it became apparent that a much broader array of services were needed and that there was no time to go back to the drawing board. As this all went down, I remembered crossing my fingers in the hope that the agency had papered its file with a justification that the changes were emergent such that a modification was a proper course of action. As it turned out, no one protested and the work went forward; however, to my mind the modification was vulnerable to attack.

If you’re about to enter into such a major modification, you should consider whether the change is plausibly within the scope of the contract that was competed. If not, I would proceed cautiously and be prepared for problems. On the other hand, if your company lost a hard fought battle to win an important contract, you may want to consider whether that modification you just heard about is so far afield that a protest might be viable.

However, know this: Cases like this are rare.