GAO Upholds Contract Award to Company Owned By Government Employee

The GAO has upheld an agency’s award of a contract to a firm owned by a current Government employee.

In a recent bid protest decision, the GAO ruled that the Contracting Officer did not “knowingly” make the award in violation of the FAR because he was not aware of the owner’s employment status.  The GAO’s decision begs the question: with contractors required to submit so many representations and certifications, why is it permissible for a contractor to withhold the fact that it is owned or controlled by a current government employee?

The GAO’s decision in Metro Offices, Inc., B-408477; B-408477.2 (Sept. 27, 2013) involved a VA solicitation for office hoteling services.  After evaluating competitive proposals, the VA made award to Cross Acquisitions, LLC.

An unsuccessful competitor, Metro Offices, Inc., filed a GAO bid protest. Metro alleged, in part, that the award was improper because Cross’s owner was a current government employee.  Metro cited FAR 3.601, which states that except in certain cases, “a contracting officer shall not knowingly award a contract to a Government employee or to a business concern or other organization owned or substantially owned or controlled by one or more Government employees.”  The purpose behind the rule is to avoid conflicts of interest and “avoid the appearance of favoritism or preferential treatment by the Government toward its employees.”

The GAO acknowledged that Cross’s owner appeared to be an active employee of the Office of the Under Secretary of Defense.  However, based on the representations of the contracting officer, the GAO found that “prior to award, the contracting officer was not aware of the building owner’s employment with the Office of the Under Secretary of Defense.”  Thus, the GAO held, “the contracting officer cannot be said to have ‘knowingly’ awarded a contract to a firm owned by a government employee in violation of FAR 3.601.”  The GAO denied Metro’s protest.

The Metro Offices case demonstrates the limitations of the prohibition against awarding to a company owned or controlled by an employee of the government.  So long as the contracting officer does not act “knowingly,” an agency is likely to be able to defend any such protest simply by submitting an affidavit of the contracting officer asserting a lack of prior knowledge.

In my view, the “knowingly” standard may not always be sufficient  to guard against the appearance of favoritism or preferential treatment.  Consider, for example, a hypothetical proposal evaluation conducted by a 10-person panel.  Theoretically, even if every member of the panel knew that the company recommended for award was owned by a government employee, the award could be proper, so long as the contracting officer was kept in the dark.

This begs the question of why FAR 3.601 is not included in contractors’ representations and certifications.  After all, with all the “reps and certs” contractors are asked to submit, it would not be particularly burdensome to require that an offeror assert whether or not it is owned or controlled by a government employee.  If the company answers “yes,” the contracting officer would not be able to make the award (unless the FAR exceptions apply), because he or she would “know” of the issue.  Conversely, if the contractor falsely self-certified “no,” penalties for the false certification would accrue.

So, FAR Council, what do you think?

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