A recent bid protest decision examines the effect of a novation on a pending procurement. After a complicated procedural history, GAO said that an agency must take into account a corporate transaction and novation, even if the agency wasn’t aware of the novation at time of proposal submission.
In DecisionPoint Corporation- f/k/a Emesec Inc., B-422245.5 (2024), the Air Force sought cyber protection and engineering support under the GSA VETS II contract. The solicitation required proof of a level III Capability Maturity Model Integration (CMMI) certification for the “prime contractor providing the CPT support services.”
DecisionPoint Corporation, known at the time of proposal submission as EmeSec Inc. (EmeSec), submitted a proposal on May 1, 2023 under the name EmeSec. EmeSec submitted its proposal saying that it was a subsidiary of DecisionPoint. Because EmeSec did not have its own CMMI certification, it included “DecisionPoint’s level III CMMI certificate, along with a meaningful relationship commitment letter (MRCL).”
Before proposal submission, EmeSec merged into DecisionPoint. Then, after the proposal submission date, but before award, on June 26, 2023, “DecisionPoint entered into a novation agreement with GSA that recognized DecisionPoint as EmeSec’s successor in interest.” In December 2023, EmeSec received award, and only then did it reveal the novation agreement to the Air Force.
As part of an earlier protest, GAO explained that “that the MRCL did not clearly describe how the resources of the parent would be available for performance.” As a result, the Air Force took corrective action and contacted the “entity that issues the CMMI certificates–i.e., the Information Systems Audit and Control Association (ISACA)–for information regarding how ISACA issues its certificates.” After reviewing this information and seeking clarity from DecisionPoint, the Air Force found DecisionPoint ineligible “because it failed to submit proof of any level III CMMI certification for the prime contractor providing the CPT support services as required by the solicitation.” DecisionPoint protested.
DecisionPoint argued that “that the Air Force’s decision that DecisionPoint was ineligible for award because it failed to include proof of any level III CMMI certification for the prime contractor providing the CPT support services was unreasonable because the Air Force ignored EmeSec’s merger into DecisionPoint and the novation of the VETS II contract from EmeSec to DecisionPoint” prior to the proposal submission date. The agency responded that, at proposal submission, EmeSec was the prime contractor and it did not have the required CMMI certification–only the parent DecisionPoint had the certification.
GAO held that “that the agency’s determination that DecisionPoint’s proposal was ineligible for award because it failed to include proof of any level III CMMI certification for the prime contractor providing the CPT support services is not consistent with the terms of the solicitation or supported by the record.” Furthermore, “as a result of the merger between DecisionPoint and EmeSec, which was effective January 1, 2023, the prime contractor is now DecisionPoint.” “While the agency did not know that DecisionPoint was the prime contractor at the time of its initial evaluation, the agency was aware of this fact when it conducted its post-corrective action evaluation.”
GAO said that the agency did not properly account for the effect of the merger. This means that “the record shows that at the time the agency conducted its post-corrective action evaluation, the prime contractor (DecisionPoint) included proof of its level III CMMI certificate in its proposal as required by the solicitation”
This decision is interesting for a couple reasons. First, it may encourage protesters to take another shot at protesting. While the initial decision found in favor of one protester, the later protest basically found in favor of the opposite protester.
Second, on the substance, while it is always better to have a thorough explanation to provide an agency when it comes to things like mergers and corporate structure, the protest process may allow a chance to have an independent reviewer take a look at the agency’s decision and question it. And that may be enough for the protester to get another shot at the award. The decision seems to recognize that a novation is retroactive back in time to the point of the corporate transaction, even if it’s approved later. And agencies also must recognize the substance of the corporate transaction that precipitates a novation.
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