Under the FAR’s limitations on subcontracting clause, the work to be performed by a 1099 independent contractor did not count toward the prime contractor’s performance.
In a recent bid protest decision, the GAO held that a procuring agency properly rejected an offeror’s proposal because the offeror was relying, in part, on an independent contractor to meet its obligations under the limitations on subcontracting clause.
The GAO’s decision in MindPoint Group, LLC, B-409562 (May 8, 2014) involved a Department of Justice solicitation for information technology infrastructure support. The proposal was issued as a set-aside for EDWOSBs, and incorporated FAR 52.219-14, the standard limitation on subcontracting clause. For a services contract, FAR 52.219-14 requires the EDWOSB to perform at least 50 percent of the cost of contract performance incurred for personnel with its own employees.
MindPoint Group, LLC submitted a proposal. MindPoint’s proposal stated that MindPoint would self-perform 53.3 percent of the contract effort using seven individuals, including an individual designated as the “Systems Administrator MS.” However, MindPoint’s proposal included a letter of commitment stating that the Systems Administrator MS would be an “independent consultant,” and MindPoint’s price proposal referred to the individual as a “1099 Consultant.”
Because the Systems Administrator MS did not appear to be a MindPoint employee, the agency excluded that individual’s contributions when calculating MindPoint’s self-performance under the limitations on subcontractor clause. Without the Systems Administrator MS, MindPoint only committed to self-perform 45 percent of the personnel costs. The agency excluded MindPoint’s proposal because, on its face, the proposal took exception to FAR 52.219-14. The agency then made award to a competitor.
MindPoint filed a GAO bid protest challenging the award. The agency asked the GAO to dismiss the protest, arguing that MindPoint was not an interested party to pursue the protest because its proposal was unacceptable. In response, MindPoint contended that the Systems Administrator MS “would function more akin to an employee that a subcontractor,” and should have been treated as an employee for purposes of the proposal.
The GAO wrote that “to avoid violating the limitations on subcontracting provision of the solicitation, MindPoint must include the contribution of Systems Administrator MS in its calculation of the percentage of labor cost to be performed by MindPoint employees.” However, MindPoint’s proposal “indicated that Systems Administrator MS would, in fact, be a MindPoint independent contractor.”
Although MindPoint claimed that the Systems Administrator MS would function like an employee, nothing in the proposal indicated that this was the case. The GAO concluded, “since the protester’s own proposal repeatedly treated the systems administrator as an independent contractor or consultant rather than as an employee, there is no basis to question the agency’s conclusion that the individual is not an employee of MindPoint.” The GAO dismissed MindPoint’s protest for lack of standing.
The MindPoint Group GAO bid protest decision should serve as a warning to small businesses that work performed by independent consultants may not qualify as the prime contractor’s work under the FAR’s limitations on subcontracting clause.