NHO Prime Gets “Experience” Weakness Despite Experienced Affiliate

An agency was allowed to assign a Native Hawaiian-owned prime contractor a weakness for its experience because the NHO prime lacked relevant experience–even though the prime’s proposal indicated that it would rely in part on the resources of an experienced NHO sister company.

A recent GAO bid decision demonstrates that while a procuring agency is entitled to consider the experience and past performance of a prime contractor’s affiliates under certain circumstances, the agency is not precluded from considering the prime’s own experience (or lack thereof).

The GAO’s decision in Dawson Enterprises, LLC, B-414591.2 (July 24, 2017) involved a Navy solicitation for construction projects on Guam.  The solicitation, which was set aside for small businesses, was issued under the two-step design-build procedures of FAR 36.3.

The phase 1 evaluation called for the consideration of four factors: technical approach, experience, past performance, and safety.  With respect to the experience factor, offerors were to provide between three and five relevant construction projects that were similar in size, scope and complexity, as well as three to five relevant design projects for the lead design firm.  The past performance evaluation was to consider how well the offeror performed on the relevant contracts submitted under the experience factor.

Dawson Enterprises, LLC submitted a proposal.  In its proposal, Dawson Enterprises explained that it was a subsidiary of Hawaiian Native Corporation, an NHO.  Dawson Enterprises’ proposal stated that HNC owned several other subsidiaries, including Dawson Technical LLC and Dawson Federal Inc.

The proposal stated that Dawson Enterprises would be the general contractor and would perform the work using several subcontractors, including Dawson Technical and Dawson Federal.  The proposal included teaming agreements between Dawson Enterprises, on the one hand, and Dawson Technical and Dawson Federal, on the other.

Dawson Enterprises submitted five construction projects.  Of the five projects, all five were performed by subcontractors: Dawson Technical and another (non-NHO) entity.  The Navy assigned Dawson Enterprises a significant weakness for its experience, because of the prime’s lack of experience.  On the past performance factor, the Navy assigned Dawson Enterprises a middle-of-the-road “satisfactory confidence” rating.

After learning that its proposal had been excluded from phase 2, Dawson Enterprises filed a GAO bid protest.  Dawson Enterprises primarily challenged the agency’s evaluation under the experience and past performance factors.

Dawson Enterprises contended that it was unreasonable for the Navy to assign a significant weakness under the experience factor because, “as a wholly owned subsidiary of an NHO, the firm may rely on the experience of its parent or affiliated companies”.  Dawson Enterprises pointed out that, as discussed in prior GAO bid protest decisions, an agency may attribute the past performance of an affiliated company to an offeror where the firm’s proposal demonstrates that the resources of the affiliate will affect performance.  Here, of course, the proposal indicated that Dawson Technical and Dawson Federal would be meaningfully involved as subcontractors.

GAO acknowledged that, in a case like this, an agency may consider the past performance of affiliated companies.  But, “the protester points to no statute, regulations or prior precedent that precludes the agency from considering an [NHO] prime contractor’s lack of experience merely because the prime contractor has proposed to use affiliates with relevant experience.”

In this regard, the GAO, “has recognized that the weight to be assigned to a prime contractor’s experience–or lack thereof–is a matter of contracting agency discretion.”  The GAO denied the protest, writing, “[c]onsequently, we find nothing improper about the agency’s assignment of a significant weakness for Dawson’s lack of experience because the firm proposed to perform the contract using affiliated companies with relevant experience.”

When it comes to past performance and experience, contractors often focus on whether the agency will consider projects performed by a teammate or affiliate.  It’s an important question. But the question of what weight the agency will assign those projects can be just as important.  And, as the Dawson Enterprises case demonstrates, the contracting agency typically has the discretion to downgrade an offeror based on the offeror’s own lack of experience–even if the offeror proposes experienced teammates.