Allowability of Bid Protest-Related Costs Subject to Mitigation
What happens when the existence of a bid protest impacts contract administration? The Armed Services Board of Contract Appeals (ASBCA or the Board) recently addressed such a scenario in Advanced Global Resources, LLC, ASBCA No. 62070,1 holding that a contractor cannot recoup the costs of idle labor during the period of a bid protest.
Advanced Global Resources, LLC (AGR) received a contract for information technology support services on December 14, 2017, and Task Order 1 under that contract on December 19, 2017. The day after contract award, AGR entered into an employment contract with Mr. Michael McKissick. By December 22, 2017 the disappointed incumbent protested the award, and the contracting officer notified AGR to stop work. At the time of receipt of the stop work order, AGR had performed only unbillable transition work.
During the pendency of the protest, the incumbent contractor (and protester) continued to provide the contracted support services under a bridge contract. AGR instructed Mr. McKissick to stop work pursuant to the stop work order. The only work that Mr. McKissick did was to "prepare himself" to perform. AGR did not furlough Mr. McKissick or place him on unpaid leave during this time period, instead continuing to pay his salary.
After GAO denied the protest,2 the government rescinded the stop work order on March 26, 2018. A few weeks later, AGR submitted a request for equitable adjustment for Mr. McKissick's direct labor costs and unabsorbed overhead during the period of the stop work order.
The Board's Decision
The Board denied AGR's claim. Neither the base contract nor Task Order 1 contained FAR 52.233-3, "Protest After Award," which provides for an equitable adjustment should a stop work order due to a bid protest result in an increase in the time or cost required to perform. Prior Board precedent confirms that "an order stopping work on a contract would be [a] breach of the Government's duty not to interfere with the contractor's performance, in the absence of a contract provision giving the government the right to stop performance." To resolve this dilemma, the Board held that "FAR 52.233-3 is incorporated pursuant to the Christian doctrine, G.L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963)."3
Regarding Mr. McKissick's direct labor cost, the Board held that, although FAR 52.233-3 provides for an equitable adjustment if a bid-protest-related stop work order causes an increase in time or cost of performance, that did not occur here. AGR was able to begin performance—at its originally planned rates—as soon as the protest was resolved. Furthermore, Mr. McKissick did not perform any work under the contract during the period of time the stop work order was in place. The Board found that the decision to go ahead and retain Mr. McKissick, despite the pendency of a bid protest, could have been reasonable, but that AGR failed to take reasonable steps to minimize its costs and "instead paid Mr. McKissick to do nothing."4
AGR also asserted entitlement to $123,782.40 in unabsorbed overhead due to the delay caused by the bid protest. This novel theory was based on the Federal Circuit's holding in Nicon, Inc. v. United States that a contractor can recover such costs by establishing a "government-caused delay of uncertain duration" that "extended the original time for performance or that, even though the contract was finished within the required time period, the contractor incurred additional costs because he had planned to finish earlier." 331 F.3d 878, 883 (Fed. Cir. 2003). The Board found none of these circumstances to exist here: the stop work order did not extend the original time for performance, and AGR could not have finished this contract for technology support "early."5 In sum, while "a shortening of the performance period may impact a contractor's ability to recover its anticipated amount of overhead costs, such a change is not compensable pursuant to the Eichleay formula" (for home office expenses).
The Board also noted that AGR could not demonstrate it was entitled to the unabsorbed overhead, because it was on standby during the protest period. AGR was not on standby, because the incumbent continued performance during the pendency of the protest.6
Though this decision has no precedential value (as a product of the Board's Small Claims procedures), it serves as an important reminder to mitigate the cost effects of a bid protest on contract performance. A contractor may not simply hire up the day after contract award and pay those new hires full salaries to do nothing during a GAO bid protest.
© Arnold & Porter Kaye Scholer LLP 2019 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.
Advanced Global Resources, LLC, ASBCA No. 62070, 2019 WL 4729433.
As the Board explained: "Pursuant to the Christian doctrine, the Board may insert a mandatory clause into a government contract if the clause expresses 'a significant or deeply ingrained strand of public procurement policy.' General Engineering & Mach. Works v. O'Keefe, 991 F.2d 775, 779 (Fed. Cir. 1993)."
Compare this to, for example, Phoenix Data Solutions LLC, in which the Board permitted labor costs incurred during a bid protest related stop work order when "AGHP attempted to reassign its employees within parent Aetna and eventually placed all but six AGHP employees." ASBCA No. 60207, 18-1 BCA ¶ 37164.
The Board noted that AGR could not meet any of the requirements to demonstrate this capability: to do so, a contractor must demonstrate it "(1) intended to complete the contract early; (2) had the capability to do so; and (3) actually would have completed early, but for the government's actions." Interstate General Government Contractors, Inc. v. West, 12 F.3d 1053, 1059 (Fed. Cir. 1993).
More specifically, to establish entitlement for costs incurred while on standby, a contractor must establish (1) that "the government-caused delay was not only substantial but was of an indefinite duration;" (2) that "during the delay it was required to be ready to resume work on the contract, at full speed as well as immediately;" and (3) "effective suspension of much, if not all of the work on the contract." P.J. Dick, Inc. v. Prinipi, 324 F.3d 1364, 1371 (Fed. Cir. 2003). The Board held that AGR failed the first and second elements of this test: a GAO bid protest is not a delay "of an indefinite duration," and there was no expectation that AGR would be able to resume work "at full speed and immediately"—in fact, AGR could not do so, as it lacked the requisite security clearances.