So you’ve teamed with an ineligible incumbent contractor to bid on some government work and, to try and maintain continuity, the incumbent would like to retain project management functions. “No big deal,” you think, “I’ll just create a management position to oversee the project manager.”
Actually, it could be a big deal if you’re trying to avoid ostensible subcontractor affiliation. Among the four key factors for determining ostensible subcontractor affiliation is whether the management previously served with the subcontractor under the incumbent contract. And according to a recent SBA Office of Hearings and Appeals decision, creating a figurehead management position to oversee the project manager won’t negate this indicia of ostensible subcontractor affiliation.
An incumbent contractor won a protest at GAO recently where it argued that the awardee’s labor rates were too low, because they were lower than the rates the incumbent itself was paying the same people.
GAO faulted the agency for concluding that the awardee’s price was realistic without checking the proposed rates against the incumbent rates. In other words, GAO told the agency to start at the obvious place—the compensation of the current employees.
Under the SBA’s ostensible subcontractor affiliation rule, hiring incumbent employees can be evidence of affiliation, but the importance of that staffing plan in an affiliation analysis depends on what role the incumbent contractor will play in the awardee’s performance of the contract.
In a recent size appeal decision, the awardee proposed to hire 85% of its personnel from the incumbent contractor, but the incumbent wasn’t proposed as a subcontractor–in fact, the incumbent was the company protesting the awardee’s small business size. Under these circumstances, the SBA Office of Hearings and Appeals held, the awardee’s hiring of incumbent employees did not establish ostensible subcontractor affiliation.
In its evaluation of proposals, a procuring agency gave a challenger a strength for proposing to recruit incumbent employees, but didn’t give the incumbent contractor a strength–even though the incumbent contractor proposed to retain the very same people.
Unsurprisingly, the GAO found that the evaluation was unequal, and sustained the incumbent’s protest.
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.
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.
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.