Limitations On Subcontracting: “Affirmative Demonstration” Of Compliance Not Required

An offeror submitting a proposal for a set-aside solicitation ordinarily need not affirmatively demonstrate its intent to comply with the applicable limitation on subcontracting.

In a recent bid protest decision, the GAO confirmed that an offeror’s compliance with the limitations on subcontracting is presumed, unless the offeror’s proposal includes provisions that negate that presumption.

The GAO’s decision in NEIE Medical Waste Services, LLC, B-412793.2 (Aug. 5, 2016) involved a VA RFQ for the pick-up and disposal of medical waste.  The RFQ was issued as a SDVOSB set-aside.  Award was to to be made to the lowest-priced, technically-acceptable offeror.

The RFQ included FAR 52.219-14 (Limitations on Subcontracting), which requires the contractor to agree that, in the performance of a contract for services (except construction), at least 50 percent of the cost of the contract performance incurred for personnel shall be expended on the employees of the prime contractor.  (Note: because the RFQ was a VA SDVOSB set-aside, the limitations on subcontracting probably should have been governed by VAAR 852.219-10 (VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside), which permits a SDVOSB prime contractor to satisfy its own performance obligations by subcontracting to other SDVOSBs.  For purposes of this protest, however, the differences between FAR 52.219-14 and VAAR 852.219-10 aren’t important).

The VA received three quotations.  After evaluating quotations, the VA announced that award would be made to REG Products, LLC.  An unsuccessful competitor, NEIE Medical Waste Services, LLC, subsequently filed a GAO bid protest.  NEIE contended, in part, that REG could not comply with the limitation on subcontracting because the VA’s Vendor Information Pages database indicated that REG had only one employee, and lacked sufficient experience or expertise to perform the requirement without relying on subcontractors.

The GAO wrote that “[a]n agency’s  judgment as to whether a small business offeror can comply with a limitation on subcontracting provision is generally a matter of responsibility and the contractor’s actual compliance with the provision is a matter of contract administration.”  Although the GAO ordinarily will not review such issues, “where a quotation, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitations, the matter is one of the quotation’s acceptability,” and is subject to review by the GAO.

However, the GAO explained, “[a]n offeror need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal.”  Rather, “such compliance is presumed unless specifically negated by other language in the proposal.”  The protester “bears the burden of demonstrating that the awardee’s proposal should have led the agency to conclude that the awardee did not comply with the limitations.”

In this case, the GAO held, “NEIE has not met its burden.”  In that regard, NEIE “has identified nothing on the face of the awardee’s quotation that indicates that REG Products does not intend to comply with the subcontracting limitation.”  Instead, NEIE “expressly states that the RFQ’s terms and conditions were acceptable, without modification, deletion, or addition.”  In the absence of any language in the proposal negating the intent to comply with the limitation on subcontracting, “we find no basis to sustain this protest ground.”  The GAO denied NEIE’s protest.

The limitations on subcontracting are an essential component of the government’s set-aside programs, and violations can lead to severe consequences.  But as the NEIE Medical Waste Services case demonstrates, protesting an awardee’s intent to comply with the limitations on subcontracting requires more than speculation–it requires demonstrating that the awardee’s proposal, on its face, takes exception to the subcontracting limitations.