GAO: Protester Must Show Awardee’s “Specific Exception” to Subcontracting Limitation

A protester challenging an awardee’s compliance with the FAR’s limitation on subcontracting faces an uphill battle.

As explained in a recent GAO bid protest decision, an offeror’s compliance with the limitation on subcontracting is presumed; a protester, therefore, must present specific evidence demonstrating that the awardee will not comply with the limitation. In many cases–especially when the solicitation does not require offerors to provide a breakdown of costs of the work performed by the prime and its subcontractors–such evidence may be next to impossible to obtain.

GAO’s decision in Express Medical Transporters, Inc., B-412692 (Apr. 20, 2016) involved a Department of Veterans Affairs procurement seeking non-emergency special mode transportation services for beneficiaries at its James A. Haley Veterans Hospital in Tampa. The contractor was to provide all supervision, personnel, vehicles, equipment, materials, supplies, and other items necessary to fulfill the solicitation’s objectives.

The solicitation was set-aside for small businesses. As required for small business set-asides, the solicitation incorporated the FAR’s limitation on subcontracting; because this was a non-construction services contract, the limitation provided that the offeror/contractor agreed that “[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.” FAR 52.219-14(c)(1).

The limitation on subcontracting serves a vital purpose: by requiring the small business concern to incur at least half of the personnel costs associated with contract performance for its own employees (for a services contract like this one), the limitation prevents a small business from subcontracting the majority of the labor costs to a large business. Were a large business able to perform the majority of the work, the arrangement would appear more like a pass-through, and defeat the goals underlying the small business set-aside program, which include growing the capabilities and experience of small prime contractors.

Following the VA’s determination that Wheelchair Transport Services (“WTS”) submitted the lowest-price technically-acceptable offer, Express Medical Transporters (“EMT”) submitted an agency-level protest challenging the award. EMT alleged that WTS failed to comply with the limitation on subcontracting. The VA dismissed EMT’s agency-level protest.

Three days later, EMT protested the award to GAO. Among EMT’s allegations was its belief that “WTS’s proposal, on its face, should have led the VA to conclude that the awardee had specifically taken exception to the subcontracting limitation in FAR clause 52.219-14(c)(1).” According to EMT, almost all of WTS’s drivers were independent contractors, not WTS’s own employees. Given this status, EMT alleged that WTS’s drivers could not satisfy the limitation on subcontracting.

EMT supported this argument with pieces of WTS’s proposal (which EMT apparently obtained during the course of the protest). In internal training manuals and safety plans that were attached to its proposal, WTS repeatedly referred to its “independent contractor driver[s].” EMT also cited sworn testimony by WTS’s president at a public hearing, during which he admitted that “90 percent of WTS’s drivers are independent contractors.”

The VA responded by arguing that these references did not demonstrate that WTS intends to rely almost exclusively on independent contractors to perform the contract or that WTS took exception to the limitation on subcontracting. Because the use of subcontractors was not prohibited by the solicitation, the VA said that some use of independent contractors was not enough to show a violation of the limitation.

GAO agreed with the VA. Though it noted that compliance with the limitation on subcontractint ordinarily is a non-protestable matter of contract administration, an agency’s acceptance of a proposal that indicates the offer will not comply with the limitation is protestable. But a proposal need not affirmatively demonstrate compliance with the limitation. Instead, GAO noted that compliance with the limitation on subcontracting is presumed “unless specifically negated by other language in the proposal.” This presumption is supported by the limitation’s own language, which says that “[b]y submission of an offer . . . the Offeror/Contractor agrees” to abide by the applicable subcontracting limits. See FAR 52.219-14(c)(1).

Because compliance with the limitation on subcontracting is presumed by virtue of an offeror’s submission of a proposal, it is the protester’s burden to affirmatively demonstrate that the awardee’s proposal takes exception to the limitation. In Express Medical Transporters, GAO acknowledged that this is a challenging burden:

This burden is met where the protester demonstrates that the awardee has specifically taken exception to the subcontracting limitation. . . . That is, the protester must identify information in the offeror’s proposal that shows the offeror has not agreed to comply with the subcontracting limitation. Mere assumptions, inferences, and speculation are generally insufficient to demonstrate noncompliance.

GAO explained that this burden can be especially difficult to overcome if the agency does not require detailed cost data with proposals:

Overcoming the presumption of compliance is even more challenging where, as is the case here, the RFP does not require offerors to submit cost data in their price proposals . . . because the protester does not have the benefit of information indicating the anticipated cost of contract performance incurred for personnel.

GAO held that EMT did not meet its burden to show that WTS took exception to the limitation on subcontracting. An offeror’s use of subcontractors was not prohibited under the Solicitation, so WTS’s use of some independent contractor drivers was permissible. There was no evidence in WTS’s training manuals or safety plan that it would rely almost exclusively on independent contractors. WTS’s public testimony in this regard was also insufficient, because the testimony related to a different procurement and occurred “months prior to the issuance of the RFP.”

Absent any definitive evidence showing that WTS would violate the limitation on subcontracting, EMT failed to meet its heavy burden. GAO therefore denied its protest.

In SmallGovCon, we have previously noted that protests alleging limitation on subcontracting violations can be difficult to win. Express Medical Transporters sheds further light on just how difficult: because an offeror’s compliance with the limitation is presumed, a protester must submit specific evidence demonstrating an awardee’s exception to the limitation for its challenge to have merit.