“We Don’t Do Option Year Challenges,” Says GAO

Most federal contracts are structured with a base period with a number of option periods that can be exercised at the agency’s discretion. But what happens if an option year goes unexercised? Recently, a disappointed contractor attempted to challenge the agency’s decision not to exercise an option before GAO. Unfortunately, GAO was not receptive.

Arch Systems, LLC, B-417567 et al. (July 2, 2019), involved a task order procurement conducted by the Department of Health and Human Services (“HHS”) for continuous testing services of its major software systems. The base performance period of the task order was from July 2, 2018, through July 1. 2019. The task order also included 4 one-year option periods.

Arch was named the awardee of the task order and undertook performance. Unfortunately, Arch encountered performance difficulties. As a result, HHS elected not to exercise any of the option periods under Arch’s task order. Arch later learned HHS anticipated awarding a short-term contract to an 8(a) contractor while it prepared a competitive procurement to resolicit the services.

Arch subsequently protested both HHS’s decision not to exercise the options under its contract and the award of the short-term contract to the 8(a) participant. 

In response, HHS requested the protest be dismissed because it involved a matter of contract administration. HHS’s position for requesting dismissal was a strong one. GAO’s bid protest regulations allow it to consider challenges of “an award or proposed award of . . . a contract[.]” 4 C.F.R. § 21.1(a). Its bid protest regulations further clarify that “[t]he administration of an existing contract is within the discretion of the agency[]” and not subject to review by GAO. 4 C.F.R. § 21.5(a)

Given this regulatory backdrop, GAO has consistently understood its authority to be limited to issues surrounding award, not matters of contract administration after performance has begun. As GAO explained, “we generally do not review matters of contract administration, which are within the discretion of the contracting agency and for review by a cognizant board of contract appeals or court.”

Despite the strong basis for dismissal presented by the agency, Arch attempted to argue that its protest should nevertheless be heard. To build its argument, Arch cited to an earlier GAO decision, Mine Safety Appliances Co. B-238597 et al. (July 5, 1990). That case involved a procurement for prototype production. Two contractors were awarded contracts for prototype production, and both contracts included option quantities for initial production. After evaluating the prototypes, the agency exercised only one contractor’s option period. The other contractor protested and GAO took jurisdiction over the issue because—according to GAO—the procuring agency was actually conducting a limited procurement for production between the two prototype producers. 

Arch argued the present situation was analogous to Mine Safety Appliances, and GAO had jurisdiction to hear its challenge. GAO was not convinced. As GAO explained, “the agency is not conducting a limited competition; instead the agency is acting within its broad discretion to administer its existing contract with Arch.” Consequently, GAO concluded that “[Arch’s] circumstances are not factually or legally similar to those addressed in Mine Safety Appliances, and related decisions.” Arch’s protest regarding its option period was thus denied.

Given all of the indications that a GAO protest would not be heard, why did Arch pursue a challenge before GAO? It may be because challenging the decision not to exercise an option at the Boards of Contract Appeals is an exceedingly difficult proposition. A contractor must either show an abuse of discretion or bad faith on behalf of the agency. Proving either of these is exceedingly difficult to do. As such, pursuing a claim appeal before one of the boards of contract appeals may have been an even worse option.

Regardless, GAO’s decision in Arch makes it clear that no matter how adverse the law may be at the boards of contract appeals, GAO is still not going to consider protests of options because they are matters of contract administration outside of its jurisdiction.