Bundling Didn’t Allow Agency to Purchase FSS Open Market Items, GAO Says

An agency cannot buy “Open Market” items from a Federal Supply Schedule vendor when the same items are readily available under another vendor’s FSS contract–even if the vendor selling Open Market items offers them as a discounted bundle and the FSS vendor does not.

In a recent decision, GAO held that it was improper for an agency to buy bundled software packages as Open Market items when another vendor sold the same licenses on its FSS contract as four separate items. 

Scope Infotech, Inc., B-414782.4 et al. (Comp. Gen. Mar. 22, 2018), involved a procurement for information technology operations and support for the Department of Health and Human Services, Centers for Medicare and Medicaid Services. The procurement was set-aside for small businesses holding GSA Schedule 70 contracts.

The procurement has a drawn out history, including two prior protests that resulted in corrective actions. As relevant to this protest, offerors were to propose a suite for software licenses to support various DHHS networks and the Healthcare.gov exchanges. One of the required licenses was for JBoss software.

Scope timely submitted a bid in response to the solicitation. As relevant here, Scope initially proposed to provide the JBoss software license as an Open Market item. “Open Market” items is a term of art to describe items that are not available on the FSS but are added to individual FSS task order deliveries. Authorization for Open Market purchases can be found in FAR 8.402(f). A predicate for including Open Market items in an FSS procurement, however, is complying with applicable Competition In Contracting Act requirements, including full and open competition.

The agency received six offers in response to its Solicitation, including Scope. Following its preliminary evaluation, the agency reached out to offerors requesting additional information about the software suites the offerors proposed. With respect to Scope, the agency inquired as to whether the JBoss software licenses could be obtained from Scope or one of its team members on the FSS. Scope replied that it could provide JBoss licenses on the FSS, but it would not be able to provide the same discounts.

Following these initial communications, the agency narrowed the competitive field to only Scope and Sparksoft Corp. During discussions, the agency observed that both Scope and Sparksoft had proposed a significant number of software licenses as Open Market items. The agency requested that “[i]f at all possible, please provide a quote with no open market [software licenses].” Both offerors subsequently revised their pricing proposals; however, Sparksoft continued to include the JBoss licenses as an Open Market item.

On May 31, 2017, Sparksoft was awarded the task order. In its third protest, Scope challenged the evaluation of Sparksoft’s proposal because Sparksoft proposed providing the JBoss licenses as an Open Market item. Less than two weeks after Scope protested, the agency executed a justification and approval authorizing other than full and open competition to procure JBoss as an open market item. The agency based its justification and approval on 41 U.S.C. § 253(c)(1), which authorizes the use of non-competitive acquisition procedures when “the property or services needed by the executive agency are available from only one responsible source and no other type of property or services will satisfy the needs of the executive agency[.]”

The thrust of Scope’s argument was that since a member of its team could provide the JBoss licenses on its GSA Schedule contract, it was improper to award the task order to Sparksoft because it listed JBoss licenses as Open Market items.

The agency’s response was somewhat convoluted. The Agency defended that it was reasonable to procure JBoss licenses as Open Market items because Scope’s team broke out the various JBoss licenses as four separate line items and noted that these licenses were bundled into two separate packages under the predecessor contract. According to the agency, the mention of the incumbent contract bundling indicated Scope could not obtain the required JBoss software licenses on the FSS.

GAO did not agree. As GAO explained, “Scope’s quotation provided all the necessary information for the agency to confirm that Scope was offering the four separate JBoss software licenses on a GSA schedule[.]” A proper review of this information by the Agency would have revealed that Scope was offering unbundled JBoss licenses from the FSS. Consequently, “the agency’s conclusion that Scope failed to provide the JBoss software licenses on a GSA schedule was unreasonable.”

Next, the agency argued that because the bundled JBoss contracts could not be obtained on the FSS, it was reasonable to obtain them as Open Market items. GAO was unconvinced. While the agency vigorously argued the different product numbers for the bundled software packages meant they were different items not available on the FSS, GAO noted “the exact software licenses quoted in Sparksoft’s proposal as open market items were quoted by Scope on [its team member’s] GSA schedule.” GAO continued:

[W]hile the agency makes much of the fact that [Scope’s teammate] provides different numbers for those software licenses, whether bundled or unbundled, and provides a price discount for the bundled items, the agency’s claim that the price discount prevents Sparksoft from quoting these items on a GSA schedule is unreasonable and circumvents the very purpose of the FSS. That is, to award contracts to vendors quoting scheduled items.

As such, “the agency could not reasonably rely on a bundle-item price discount as a basis to find that the JBoss software licenses were not available on a GSA schedule.” Because the agency could procure the JBoss licenses it required on the FSS, GAO concluded it was unreasonable for the agency to instead procure the same licenses as Open Market items. GAO therefore sustained this basis of protest.

Scope Infotech is a good barometer for GAO’s approach to purchasing bundled items as Open Market on the FSS: it is the form and function of the item(s) being procured that matters. Here, for example, while the bundling of the software packages may have resulted in a cost savings, there was no functional difference between the bundled and non-bundled software packages. Since the non-bundled package could be obtained on the FSS, it was unreasonable for the agency to procure a bundle of identical software as an Open Market item.