Is It Time To Rethink The GAO’s Prejudice Requirement?

Under the GAO’s bid protest regulations, only an “interested party” may file a bid protest.  Over the years, GAO case law has established that a protester is not an “interested party” if the protester would not have had a reasonable chance of receiving award, but for the agency’s actions.

Under most circumstances, the “no harm no foul” prejudice rule makes sense.  After all, if a protester scored lower than the awardee on, say, all five technical factors, and had a higher price, should the agency really have to start from scratch if it made a minor error?  The rule generally helps weed out frivolous protests and keep the competitive procurement system functioning smoothly.  But occasionally the rule can lead to seemingly unfair and anticompetitive results, as happened in Gas Turbine Engines, Inc., B-401868.2 (Dec. 14, 2009).

In Gas Turbine Engines, an Army contract was to be awarded to the lowest-priced, technically acceptable offeror.  Eleven vendors submitted offers, ranging from $8.25 million to a whopping $55.8 million.  All 11 were included in the competitive range.  The contracting officer then conducted written discussions by sending each of the offerors an identical letter stating that the firm should re-evaluate its proposed pricing to ensure that the price adequately covered the solicitation requirements.

After receiving the letter, one offeror, Prototype Engineering & Manufacturing, lowered its price from $9.36 million to $7.89 million.  The protester, Gas Turbine Engines, Inc., or GTE, did not lower its price of $31.75 million.  After award to Prototype, GTE protested, arguing that the agency failed to conduct meaningful discussions because it did not inform GTE that it considered its proposed price to be unreasonably high.

The GAO agreed that the Army’s discussions were flawed.  By not identifying GTE’s price as unreasonably high, the Army failed in its obligation to inform GTE of significant weaknesses or deficiencies in its proposal.  Moreover, because the Army sent the same letter all offerors, the discussions were not individually tailored to each offeror , as required by FAR 15.306.  In other words, the Army’s discussions were flawed not just as to GTE, but for all 11 offerors in the competitive range.

Despite these findings, the GAO denied GTE’s protest for lack of prejudice.  The GAO found that GTE’s price was so much higher than the awardee’s that GTE had no reasonable chance of winning the contract.  (GTE didn’t help its case by apparently failing to contend that it would have drastically cut its price had it been provided with meaningful discussions).

Under existing GAO case law, the GAO likely reached the correct result.  However, that result allowed the Army to proceed with contract award despite the fact that it failed to conduct meaningful discussions with any of the offerors—not just GTE.  Perhaps GTE wouldn’t have slashed its price in response to meaningful discussions, but one of the other offerors may well have done just that, providing the government with a better value than it ultimately received from Prototype.

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