GAO recently addressed a relatively rare protest issue: a protest of the government’s conversion of a sealed bid solicitation into a negotiated procurement solicitation based on unreasonable bid prices. 

When the Army wanted to build an access control point at Fort Meade, MD, it decided to use the sealed bid process and issued an invitation for bids (IFB) for the work. At the public opening of the bids, the three bids the government received were each in the $26M range. Because the independent government estimate (IGE) of the work was much lower, $21M, the contracting officer concluded that the three bids were unreasonably high as compared to the IGE, cancelled the sealed bidding process as allowed by FAR 14.404-1, and converted it to a negotiated procurement under FAR Part 15. The low bidder, Perimeter Security Partners, protested to GAO, challenged the cancellation, and argued that the Army improperly converted the solicitation to a negotiated procurement.

In defending the conversion to a negotiated procurement, the government has to have more than just a good reason to cancel, which is the standard when cancelling a negotiated procurement. When cancelling a sealed bid, the government must have a compelling reason to do so. The standard for cancelling a sealed bid is higher, because everybody knows the other bidders’ prices as a result of the public opening of the bids. In contrast, competitors’ prices are not exposed in a negotiated procurement.     

The government met this higher standard here. Cancelling an IFB on the basis that all prices were too high in comparison to the IGE was justified, according to GAO. “We have found that an agency may reject a bid as unreasonably priced when the bid exceeds the government estimate by as little as 7.2 percent.” In addition, there was no evidence that the IGE was unreasonable or that the agency acted in bad faith. GAO denied the protest. Perimeter Security Partners, LLC, B-417591, August 19, 2019.

Case law shows that it is hard for a protestor to win a protest challenging this type of conversion after the prices turned out to be so much higher than the IGE. Although the words “compelling reason” seem to set a high bar for the government to prove, the high bar is illusory  in practice. 

Berenzweig Leonard is teaming up with Red Team Consulting for a monthly newsletter featuring reports on recent contract decisions,  recent upcoming contracts, key protest decisions, events, Words of Wisdom, and more. This post was published in the September 2019 newsletter. To sign up for our govcon newsletters, please click here. 

Terry O’Connor is a Partner at Berenzweig Leonard. Terry and Stephanie Wilson  lead the firm’s Government Contracts practice. Terry can be reached at [email protected].