Late's About the Same as Never: GAO Rejects Prime Contractor's Protest that Government Shouldn't Have Rejected its Proposal Because of Subcontractor's Tardy Data

“We must, indeed, all hang together or, most assuredly, we shall all hang separately” - Benjamin Franklin

Prime contractor and subcontractor teams regularly compete for and win federal contracts, particularly those that require supplies and services for which there is no one-stop shop. Needless to say, ideal prime/sub teams function like a well-oiled machine in which the moving parts perform as desired when required. Of course, things can happen.

This brings us to a recent bid protest decision issued by the Government Accountability Office (“GAO”) that relates a painful story of how seemingly minor glitches can take a team out of the game. See Kratos Defense & Rocket Support Services, Inc., GAO B-418172.2, which can be found on the GAO website here. In this case, the Department of the Navy rejected a proposal submitted by Kratos Defense & Rocket Support Services (“Kratos”) for the sole reason that one of Kratos’s subcontractors failed to provide its cost and pricing data directly to the Government by the proposal deadline.

The solicitation in question sought quotations for a cost-plus fixed fee task order to provide training, education, engineering, technical and management support services for the Royal Saudi Naval Forces. Holders of a contract issued under the Navy’s Seaport-e contract vehicle were eligible to compete for the order. Kratos submitted a quote in which a small part of the contract would be performed by Cape Henry Associates (“CHA”). The Government alerted offerors that it would require the submission of cost and pricing data from all contractors and their subcontractors. Primes and subs were required to submit the same types of data, in the same format.

The Navy allowed subcontractors to submit their cost data directly to the Government if the subcontractors preferred not to disclose proprietary information to their teammates. Regardless—the same deadline applied. Kratos submitted its quotation and supporting data by the deadline. But, CHA didn’t—its cost data arrived three days after the deadline. The Navy reviewed the quotation and rejected it stating that the lack of subcontractor data rendered the quotation incomplete and hindered the agency’s ability to conduct a cost realism analysis. Kratos filed an agency protest with the Navy arguing that the late submission was a minor informality that the agency should have waived, and that they were the only contractor who could perform the requirements of the contract on account of the travel restrictions affecting Saudi Arabia. The Navy rejected the protest, so Kratos filed a second protest with the GAO.

In the GAO decision, the GAO considered three arguments from Kratos. First, Kratos argued that the submission was complete despite the subcontractor’s late submission. Second, it stated that the agency should have sought the information through clarifications. Third, Kratos contended that the late submission was a minor informality. GAO found these arguments wanting and concluded that the agency had a reasonable basis to find the proposal was incomplete.

Regarding Kratos’ first argument, GAO noted that the solicitation specifically asked for the cost and pricing data and stated the agency’s reasoning for obtaining it. Kratos was on notice that the cost and pricing data was necessary to evaluate the quotation and therefore the quotation was incomplete. The GAO also rejected Kratos’s second argument that the agency should have sought clarifications. The GAO wrote that clarifications are limited exchanges between an agency and the offeror for minor irregularities. See FAR 15.306(a). In GAO’s view, engaging with Kratos to obtain the late information would be akin to discussions, which would require the agency to also engage with other offerors and provide them with the opportunity to revise or modify their proposal. See FAR 15.306(d). Finally, the GAO dealt with Kratos’ third argument that the deadline was a minor informality that the agency should have waived. Ultimately, the GAO found that even, if the agency wanted to, the Navy could not waive the filing deadline. Indeed, the vast body of case law on the subject states that late delivery generally requires rejection of the quotation. Although Kratos argued that GAO had held that a subcontractor’s late submission could be waived, the GAO was quick to point out that, in the case cited by Kratos, the agency already had the information contained in the late submission and therefore it was timely. Here, the Navy did not have the detailed cost information and so Kratos’s submission remained untimely. Accordingly, Kratos’s bid protested was denied.

The outcome and rationale in this bid protest case are not exactly novel, but the case highlights how a subcontractor’s seemingly minor misstep can derail a proposal. While it is not certain that the Kratos team would have been awarded the contract, it’s clear that CHA’s tardiness scotched the deal.

The circumstances of this case remind us of the importance of early planning and self-evaluation. The case doesn’t tell us why the cost data was late, and we don’t presume to know whether the parties did the best they could but fell prey to unforeseeable events. But, we know this has to have been a stinging outcome for the parties.

Our firm has considerable experience in the realm of prime/sub relationships. In fact, one of our partners, Howard Wolf-Rodda is a current co-chair of the Subcontracts, Teaming and Strategic Alliances Committee of the ABA’s Section of Public Contract Law. This experience tells us that one of the best predictors of success at the end of a contract is whether the teammates formed a sound relationship before the contract. While they’re not always enforceable (a complicated subject for another day), the process of negotiating a well-crafted teaming agreement requires the parties to evaluate and account for the risks that the teammates face when they decide to join forces. For example, the parties can agree to perform some due diligence to ensure that their capabilities and track record can be counted on. They also could negotiate potential remedies (and limits thereto) if something goes wrong. Further, a teaming agreement can tee up the negotiation of a full subcontract if the team wins the award of the contract. This could state when and how each party would perform in the different stages of the agreement.

If you would like to read the decision yourself, you can find it at the following URL https://www.gao.gov/products/b-418172.2.

Protest decisions can be found here.