Hiring Incumbent Employees At Low Labor Rates–What Could Go Wrong?

A company bidding to replace an incumbent service contractor cannot presume incumbent workers will take major pay cuts without setting itself up for a potentially successful protest.

FAR 22.12 generally requires successor service contractors to give a right of first refusal to qualified employees under the previous contract. And even when these nondisplacement rules don’t apply, many offerors’ proposals tout their efforts to retain incumbent employees. But asking incumbent employees to take significant pay cuts–and expecting them to accept–is unreasonable and can torpedo a proposal. Case in point: GAO sustained a protest recently against an awardee who had proposed high retention rate of incumbent workers, but lower pay for those positions.

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GAO: Lower-Paid Incumbents An “Obvious” Price Realism Concern

An offeror’s proposal to hire incumbent personnel–but pay those personnel less than they are earning under the incumbent contract–presents an “obvious” price realism concern that an agency must address when price realism is a component of the evaluation.

In a bid protest decision, the GAO held that an agency’s price realism evaluation was inadequate where the agency failed to address the awardee’s proposal to hire incumbent personnel at discounted rates.

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GAO: Agency Could Disclose Incumbent’s Staffing Numbers

In a solicitation seeking the award of a follow-on services contract, a procuring agency could validly disclose the number of incumbent personnel performing a particular function.

In a recent bid protest decision, the GAO held that this information was not proprietary or confidential to the incumbent, and that the incumbent was not competitively harmed by the release of the information.

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GAO: Agency Unreasonably Failed To Consider Incumbent Employees’ Salaries

A procuring agency unreasonably assigned an awardee an “Outstanding” score for its proposal to retain a large portion of the incumbent workforce, even though the awardee intended to offer the incumbent employees significantly lower salaries than the employees were earning on the incumbent contract.

In a recent bid protest decision, the GAO held that it was unreasonable for the agency to fail to consider whether the differences in compensation would affect the awardee’s ability to recruit and retain the incumbent workforce.

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VA Refuses To Issue Set-Aside Based On Prospective Offerors’ Experience, Resources

In a troubling case, the VA recently refused to issue a small business set-aside because responses to a Request for Information indicated that prospective small business offerors lacked similar experience with the VA, and did not currently have available the personnel, equipment and facilities necessary to perform the contract.

The GAO, ignoring the recommendation of the SBA, affirmed the VA’s decision to forego a small business set-aside.

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Ostensible Subcontractor Rule: Lessons Learned From SBA OHA

Avoiding affiliation under the SBA’s ostensible subcontractor rule can be difficult, especially since the ostensible subcontractor rule itself, 13 C.F.R. § 121.103(h)(4), does not provide many examples of the factors that may cause ostensible subcontractor affiliation.

A recent decision of the SBA Office of Hearings and Appeals, Size Appeal of InGenesis, Inc., SBA No. SIZ-5436 (2013), demonstrates that even when a proposed subcontractor will play a major role in the procurement, ostensible subcontractor affiliation may be avoided if the parties carefully structure their relationship.

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SBA OHA: Northrop Grumman Entity Was An Ostensible Subcontractor

You would think a company as large as Northrop Grumman would know how to avoid ostensible subcontractor affiliation with a small prime, wouldn’t you?

You’d be wrong.  In a recent SBA Office of Hearings and Appeals decision, a Northrop Grumman entity entered into a teaming arrangement with a small prime, in which all three key employees identified in the proposal were employed by the large subcontractor.  The result: ostensible subcontractor affiliation.

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