An agency may modify a contract without running afoul of the Competition in Contracting Act, so long as the the modification is deemed “in scope.” An “out of scope” modification, on the other hand, is improper–and may be protested at GAO.

In a recent bid protest decision, GAO denied a protest challenging an agency’s modification of a contract where the modification was within scope and of a nature that competitors could have reasonably anticipated at the time of award. In its decision, GAO explained the difference between an in scope and out of scope modification, including the factors GAO will use to determine whether the modification is permissible.

The GAO’s decision in Zodiac of North America, Inc., B-414260 (Mar. 28, 2017), involved a U.S. Army Contracting Command solicitation for a contractor to produce a seven-person inflatable combat raiding craft (I-CRC) and a 15-person inflatable combat assault craft (I-CAC). The Army initially issued the solicitation in February 2013.

The solicitation included purchase descriptions, which set forth the product requirements for the boats and motors. Specifically, the submersible outboard motors for the I-CRC and I-CAC required “they propel a fully-loaded craft (2,120 pounds and 4,000 pounds, respectively) at 16 knots during sea state 1 (calm water) within two minutes.” As part of the solicitation, offerors were also informed that they were required to provide two units of each the I-CRC and I-CAC for article testing in accordance with FAR 52.209-4. If the government disapproved the first article, upon the government’s request, the contractor was required to make any necessary changes, modifications, or repairs to the first article or select another first article for testing.

The Army evaluated proposals and awarded the contract. Zodiac, an unsuccessful offeror, protested the award to GAO arguing that the Army should have found the awardee’s proposal technically unacceptable because the awardee’s proposed boats were insufficient to meet the speed requirements detailed by the solicitation. GAO denied the protest in Zodiac of North America, B-409084 et al. (Jan. 17, 2014) finding that Zodiac had proposed the same motors as the awardee, and the Army had reasonably relied on the awardee’s test reports demonstrating the product’s compliance with the solicitation’s speed requirements.

Likely unsatisfied with GAO’s decision, Zodiac subsequently filed a Freedom of Information Act request in October 2016. Through this request, Zodiac learned the Army had modified the contract requirements after the awardee twice failed product testing. The modification revised both the purchase description for the boats and the motors. It resulted in a 10 percent reduction in the propeller weight of the motors, a three-inch dimensional increase in the hard deck floor and storage bag, and removal of the airborne transportability requirement. Believing these revisions of the contract terms amounted to an improper sole source award contract, Zodiac protested again.

GAO explained that the Competition in Contracting Act ordinarily requires “the use of competitive procedures” to award government work. However, “[o]nce a contract is awarded…[it] will generally not review modifications to the contract because such matters are related to contract administration and are beyond the scope of [its] bid protest function.”

While a modification that changes the contract’s scope of work is an exception to this rule, such a modification is only objectionable where there is a “material difference” between the modified contract and the original contract. A material difference exists when “a contract is so substantially changed by the modification that the original and modified contracts are essentially and materially different.” A material difference typically arises when an agency enlarges a contract’s scope of work, the relaxation of contract requirements post-award (as alleged by Zodiac) can also be a material difference.

In assessing whether there is a material difference, GAO will look to:

“[T]he extent of any changes in the type of work, performance period, and costs between the modification and the original contract, as well as whether the original solicitation adequately advised offerors of the potential for the change or whether the change was the type that reasonably could have been anticipated, and whether the modification materially changed the field of competition for the requirement.”

In this case, considering these factors, GAO found that the modification did not substantially change the scope of the original contract, competitors for the initial solicitation could have reasonably anticipated the changes to the contract, and the changes to the contract would not have had a substantial impact on the field of competition for the original contract award. Importantly, the deliverables still functioned as seven-person I-CRCs and 15-person I-CACs, and the awardee remained subject to the same performance period. GAO held that there was not a material difference, and denied Zodiac’s protest.

Zodiac of North America is a useful primer on when a modification crosses the line into an improper sole source award. As demonstrated in Zodiac, the key is whether there is a material difference between the modified contract and the awarded contract.