Loose Lips Sink Ships: Award Revoked for Relying on Inside Information from Former Navy Officials

We want to make something clear: simply having a former government official as an employee does not mean your company can’t bid on federal contracts or needs to let that person go. The government, while it puts certain restrictions in place, doesn’t forbid government contractors from hiring former government employees, and it can be very beneficial to have employees with such experience and still perfectly ethical. What it does forbid is when the company is or even just appears to be getting some sort of unfair advantage in acquiring contracts as a result of having former government workers as employees. For example, what if the contractor hires someone who was with the procuring agency and had access to information on competitors for an upcoming solicitation? This is the sort of thing that will result in awards being lost, as one company learned.

In Serco, Inc., B-419617.2; B-419617.3; Serco was the incumbent on a task order for surface ship support for four separate Naval offices. During this time, Serco had to submit regular reports on its performance and attend meetings with the program managers of the four offices. The program managers also had access to Serco’s past performance information. The Navy planned to recompete the task order once it was completed. Learning of this, Booz Allen Hamilton (BAH) began preparing to compete for the work. BAH specifically hired two former program managers from the four offices to maximize its chances of successful award. Both program managers were program managers during Serco’s contract, meaning they had access to Serco’s reports, weekly meetings, and past performance information.

BAH representatives met with one of the program managers, a Mr. Jones, to describe the type of work that the recompete would involve. During this meeting, Mr. Jones told BAH personnel that Serco was not providing consistent delivery, was understaffed, and “doesn’t do cyber well.” The other manager BAH hired, a Mr. Smith, provided input on what sort of manpower the upcoming solicitation would need. Mr. Jones, for his part, assisted in recruiting efforts to fill key personnel slots for BAH’s planned bid.

In evaluating BAH and Serco’s bids on the recompee, the Navy found BAH’s proposal superior based on strengths for “data analytics” and “manpower, personnel, and training,” as well as having a lower price than Serco’s, so it awarded the task order to BAH. Serco protested that the agency did not consider that BAH had access to and used non-public, competitive useful information. The agency replied that it would investigate. After doing such, the agency informed Serco that it found no actual or apparent conflict of interest, later arguing that the information Jones and Smith had access to, such as employee labor rates and hours worked, was not competitively useful, and that the two managers had delegated much of their program manager responsibilities regarding the old task order and stated they did not provide cost or price information to BAH during the proposal preparation.

GAO observed that “where an offeror chooses to hire a former government official who has had recent access to competitively useful information, and uses that official to help prepare the offeror’s proposal, the proposal may be properly disqualified based on the appearance of an unfair competitive advantage.” Where an agency determines there is or is not an unfair competitive advantage present, GAO will review the reasonableness of such a determination.

As you might imagine, GAO found the agency’s determination that no unfair competitive advantage was present for BAH unreasonable. Smith and Jones, as program managers in the Navy, “had virtually unlimited access to Serco’s detailed information regarding prior costs (including burdened and unburdened labor rates), staffing, technical approach, and past performance” along with the agency’s independent government cost estimate (IGCE). This information, particularly the information on labor rates and the IGCE, was non-public, competitively useful information. Smith and Jones were hired nearly immediately after leaving the Navy and were directly involved in preparing BAH’s proposal for the solicitation. Nothing suggests that BAH placed limitations on the information either former manager provided. In fact, they even admitted they gave information on the Navy’s thoughts on Serco’s performance, specifically regarding personnel, and this is something that was found to be a strength of BAH’s proposal over Serco’s.

GAO concluded “As noted above, where an offeror chooses to hire former government officials who have had recent access to competitively useful information, and uses those officials to assist in proposal preparation efforts, our Office will assume that the offeror benefited from the information; further, under such circumstances, disqualification is appropriate based on the appearance of an unfair competitive advantage alone…the record  before our Office shows that BAH had access to information that was not public and was competitively useful.” GAO sustained the protest, recommending that the agency disqualify BAH’s proposal or seek revised proposals, and recommended that costs be awarded to Serco.

As we noted above, within the various restrictions you can hire former government employees and officials to work for you and still bid on and obtain federal government contracts. That in itself is not an issue. The problem is when you have someone on your team who has inside information as a government employee that could give your company a leg up on the competition. In fact, as this case notes, if one of the people that worked on your company’s proposal merely had access to inside information (even if they never actually took advantage of such access) that can result in the disqualification of your proposal.

However, notice that GAO also clarified that the former government employees must also have assisted in proposal preparation efforts for there to be an assumption an offeror benefited from that employee’s access to inside information. The problem isn’t simply that BAH had two employees who had access to information on Serco, it’s also that BAH directly had them work on preparing its proposal. Had BAH made significant efforts to exclude them from such work and been able to show such efforts, GAO might have found that there was no basis to assume unfair competitive advantage.

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