Agency to Offerors: Show Us Your Subcontracts

Small government contractors sometimes rely on subcontractors to help satisfy experience, certification, past performance, and other solicitation requirements.  But if one recent GAO bid protest decision is an indication of things to come, procuring agencies may begin requiring more information up front about major subcontractors–including a copy of the final subcontract agreement itself.

The GAO’s decision in GAO Protest of Oak Hill Technology, Inc., B-406993 (Oct. 10, 2012), involved a Health and Human Services solicitation for contact center operations in support of the Center for Medicare and Medicaid Services.  The solicitation included a number of “pass/fail” criteria, including a Corporate Experience requirement that the offeror have operated a contact center within the last five years that handled at least 20 million inbound customer service calls.

The solicitation stated that the Corporate Experience requirement could be met by the prime contractor itself or a single subcontractor proposed to perform at least 25% of the labor hours.  However, the solicitation stated that for offerors relying upon subcontractors to meet the requirement, final subcontract agreements must be in place by proposal submission, and must be provided to HHS.

Oak Hill Technology, Inc. submitted a proposal, relying upon a major subcontractor to satisfy the Corporate Experience requirement.  Although Oak Hill submitted a signed teaming agreement to HHS, the subcontract agreement it provided with its proposal was unsigned and labeled “Draft.”  HHS determined that the draft agreement did not meet the solicitation’s requirements, and assigned Oak Hill a failing score.

Oak Hill filed a GAO bid protest, complaining that HHS had erred by failing to accept the draft subcontract.  The GAO found that the solicitation did, in fact, require a final subcontract to be submitted with the proposal for any offeror–like Oak Hill–relying on the subcontractor to meet the Corporate Experience requirement.  The GAO held that the draft subcontract did not meet the requirement, nor did the teaming agreement qualify as a subcontract.  The GAO denied Oak Hill’s protest.

To me, the most interesting part of the Oak Hill Technology case is not the GAO’s decision, but the fact that HHS required a final subcontract to be submitted at the time of proposal.  HHS is not the first agency to impose such a requirement, but in my experience it is still much more typical for the agency to require little if any documentation about prospective subcontractors, much less a finalized subcontract agreement.

If HHS adopts a similar requirement in other procurements, or if other agencies follow HHS’s lead in Oak Hill Technologies, it could have a significant impact on small businesses, which often wait until after award to negotiate the terms and conditions of a subcontract.  I, for one, will be curious to see whether HHS’s “show us your subcontracts” mandate in Oak Hill Technologies marks the beginning of a trend, or remains something of an aberration.

One thought on “Agency to Offerors: Show Us Your Subcontracts

  1. It is usually the prime’s decision to wait until after contract award to finalize the subcontract. However,
    I think if this practice gets adopted holistically across federal government solicitations, it could have a major impact on rectifying situations where subcontractors (e.g. small businesses), get used as pawns to check RFP boxes and meet requirements for a certain skill, certification, etc.

    A finalized subcontract will have the terms of the engagement spelled out, such as work share and requirements to be completed by the subcontractor.

    Combined with the subcontract plan required by FAR 19.7 as applicable, it could be another tool to hold primes accountable to fulfill pre-RFP promises of work and revenue sharing.

    Granted enforcement is still need by ten federal procurement community, but every tool has the potential to rectify this continuing problem.

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