Under certain circumstances, the winning bidder on a fixed-price contract may offer $0.00.

In a recent decision, LCPtracker, Inc.; eMars, Inc., B-410752.3 et al (Sept. 3, 2015), the GAO held an offeror submitting a zero-dollar offer (that is, an offer for $0.00) was eligible to receive a fixed-price contract because both the Government and the contractor would receive benefits under the contract.

In LCPtracker, the Department of Housing and Urban Development sent a solicitation for web-based payroll tracking services to three small businesses: eMars, Inc., LCPtracker, Inc. and Elation Systems, Inc. The successful offeror was to provide web-based services for over 6,000 users dispersed throughout the nation. The solicitation did not request technical proposal submissions, only price quotations. HUD planned to pay for the entire service, which meant offerors would not be able to charge fees to third party users.

HUD received three bids in response to its solicitation. Elation submitted a price of $0.00, while eMars and LCPtracker submitted bids of $449,000 and $1,015,950, respectively. Concerned that Elation’s $0.00 bid would negatively impact its ability to perform, HUD awarded the contract to eMars.

Elation and LCPtracker promptly protested, and HUD responded by reevaluating the proposals.

During its reevaluation, HUD asked Elation to confirm that it understood the contract requirements and was still submitting a no-cost bid. Elation responded that it fully understood it would be liable for ensuring contract performance for its proposed price and would not be able to charge third parties for access. After the SBA issued Elation a Certificate of Competency, HUD awarded the contract to Elation at a fixed price of $0.00.

LCPtracker and eMars filed GAO bid protests. Among the protest grounds, LCPtracker and eMars alleged that the contract with Elation should be void for lack of consideration. In other words, the protesters argued, a $0.00 fixed price was legally improper.

Consideration is a longstanding principle of contract law that requires parties to a contract to each receive some meaningful benefit from their bargain. The consideration requirement is usually satisfied with money, but there are other methods. As the GAO explained:

To be enforceable, a contract with the United States government requires an offer, acceptance of the offer, and consideration. A contract is supported by adequate consideration if it involves mutual promises of the contracting parties whereby each party obtains a benefit. Consideration for a contract need not be monetary, and this Office has repeatedly concluded that adequate consideration exists where a contractor promises to perform certain services, the government promises to grant the contractor the right to perform the procured services, and both parties obtain benefits from the arrangement.

Examining Elation’s proposal, the GAO concluded there was adequate consideration because both parties would mutually benefit from contract performance: HUD was to receive payroll tracking software from Elation and, in return, HUD was going to expose Elation’s system to over 6,000 users (and potential customers) nationwide. The GAO noted that “Elation projects that the extensive visibility it will obtain through performance of the HUD contract will substantially increase its share of the national market, and that this increase, along with marketing cost savings, will more than offset Elation’s costs to perform the requisite services without monetary compensation.” The GAO denied this basis of protest.

At first blush, it sounds strange that a contractor would offer to perform services for the government for free. But, as LCPtracker demonstrates, there may be valid reasons for a contractor to propose a fixed-price offer of $0.00. In such a case, the offeror might be legally acceptable, so long as the contractor benefits from the arrangement.