COFC Grants Judgment for Protester Because a "Cost" Comparison Is Not a Proper "Price" Analysis and the Agency Did Not Justify Its Decision to Forego Discussions

On January 10, 2023, the Court of Federal Claims (COFC) issued the public decision of SLS Federal Services LLC v. United States, granting judgment for the disappointed bidder and enjoining the agency from proceeding with the contract awards because the agency (i) did not evaluate price reasonableness as the law and solicitation required and (ii) violated DFARS 215.306 by proceeding to award without adequately justifying the decision to forego discussions.¹ The decision provides guidance on several bid protest legal developments.

For context, the high-value DoD acquisition involved a solicitation seeking to award multiple indefinite-delivery, indefinite-quantity contracts for global contingency construction. The agency ultimately awarded contracts to six out of nine bidders based on initial proposals. One of the unsuccessful offerors filed a protest at the Government Accountability Office (GAO) challenging the award decisions on the grounds that the agency did not properly evaluate price reasonableness and the agency should have conducted discussions under DFARS 215.306(c). GAO dismissed the protest because the agency agreed to take corrective action after noting "'potential merit in [protester's] 'price reasonableness' argument."² Nearly one year later, the agency announced that its awards would remain the same and the protester ultimately refiled its action with the COFC, alleging again the challenges to the price reasonableness evaluation and the lack of discussions.

The court made several notable findings. First, the court opined that an agency's agreement to take corrective action on an issue that the agency could have previously sought to dismiss on timeliness grounds may preclude the agency (or intervenor) from raising a waiver defense. The court acknowledged that protester's price reasonableness challenge effectively argued a solicitation defect—that the agency did not solicit "enough information for the agency to perform its promised price analysis."³ Nevertheless, the court rejected intervenor's argument, which claimed that protester had an obligation to challenge the solicitation before proposal submission, and thus, any post-award challenge was untimely under Blue & Gold Fleet v. United States, 492 F.3d 1308, 1313 (Fed. Cir. 2007). The court observed that, in a typical bid protest, intervenor's "defense would likely prevail."⁴ Here, however, the agency did not raise the waiver defense at GAO; instead, it committed to take corrective action. Based on that choice, the court held that the protester may "challenge the agency's execution of that corrective action," stating: "The agency cannot later (and for the first time) hide behind Blue & Gold when its corrective steps fail to solve the problem."⁵

Second, the court made clear that a price analysis requires price information, which the agency did not solicit, and thus "the agency's corrective action was unreasonable and failed to address the original 'impropriety,'" i.e., the flawed price evaluation.⁶ Specifically, the court noted that FAR 15.404-1 requires a price analysis, which may involve a comparison of prices offered when adequate competition exists. In this procurement, however, the agency solicited only cost information, which is not a sufficient substitute for a "price" analysis:

The agency does not perform a price analysis when it evaluates the separate cost elements and ignores price. Instead, and as subsection(c)(1) explains, that is called “cost analysis.” 15.404-1(c)(1).6. Price—though it encompasses cost—is broader and includes a contractor’s anticipated profit. See 15.404. The agency must compare prices to satisfy 15.404-1(b), which it failed to do here.⁷

Finally, the court reaffirmed that an agency violates DFARS 215.306 when it awards a high value DoD contract without adequately justifying its decision not to conduct discussions. To reach this result, the court discussed, among other authorities, Dell Federal Systems, L.P. v. United States,⁸ Oak Grove Technologies, Inc. v. United States,⁹ and IAP Worldwide Services, Inc. v. United States,¹⁰ concluding that (i) "there is near universal agreement that DFARS 215.306 creates a presumption that defense agencies will engage in discussions when an acquisition is valued at $100 million or more"¹¹ and (ii) "[w]hile DFARS 215.306 does not mandate discussions, the agency must, at the very least, justify not using them."¹² The record at issue, however, failed to offer an adequate justification, and it was not even clear "whether the agency seriously considered whether discussions should be used."¹³

In ruling for the protester, the court followed many of the rationales expressed in IAP Worldwide Services and rejected the government's attempt to substitute the best value decision for a decision not to conduct discussions under DFARS 215.306, as well as the government's argument that Blue & Gold precluded protester's challenge because protester did not object to the solicitation. In denying the first defense, the court reasoned: "If the government's self-interested determination that certain offers present the best value could circumvent DFARS 215.306, it is unclear when, if ever, the regulation would apply."¹⁴ And, as to the second, the court stated: "Simply announcing an intent to proceed without discussions does not put contractors on notice that the government intends to violate DFARS 215.306, something the government aptly explained in Dell Federal."¹⁵

Finally, the Court also found unpersuasive the argument raised by the agency and intervenor that discussions were not necessary because no deficiencies or significant weaknesses were assigned to protester's proposal. The court characterized discussions about deficiencies and significant weaknesses as "a floor, not a ceiling," and observed that the "government adopted DFARS 215.306 in part because awards with discussions often led to 'flaws in the government's evaluation of offerors' proposals.'"¹⁶ Absent from the record was any evidence that discussions would not have benefitted the government. Accordingly, the court held that "an agency cannot avoid DFARS 215.306 simply because it does not assign any deficiencies or significant weaknesses."¹⁷

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.