Bid Protest Weekly Newsletter by Bryan R. King, Attorney, General Counsel PC
Date: Wednesday August 7, 2013, 11:18am EST
JRS Staffing Services, B-408202, July 16, 2013
A few months ago, we addressed the question of whether an agency is required to share risk with its contractors when issuing an indefinite-delivery, indefinite-quantity (IDIQ) contract. The issue in that case was the risk faced by contractors in setting their offered prices over the life of a contract where there was a great deal of uncertain in the quantity of goods or services that would ultimately be ordered by the agency. The Court of Federal claims found that there is no law or regulation from preventing an agency from placing all the risk of such uncertain order quantities on the contractor.
Recently, in the JRS Staffing Services protest, GAO addressed a similar issue with respect to a requirements contract. Generally, in a requirements contract the government agency agrees to fulfill all of its needs for specified goods or services only from the awardee. These types of contracts are typically used when the agency believes it will have a recurring need for goods or services, but cannot determine in advance the actual quantity that will be needed. Agencies will sometimes insert a guarantee of a minimum order, but such guarantee is not required by federal regulations.
The absence of a guaranteed minimum is what led to the JRS Staffing Services protest. In this case, the Department of Justice, Bureau of Prisons, was seeking to award a requirements contract for educational services. The solicitation required the awardee to ensure that all of its instructors obtained a security clearance prior to the issuance of the first task order under the requirements contract.
The protester challenged the terms of the solicitation, arguing that this security clearance requirement placed an undue burden on the awardee, as it would need to recruit and hire appropriate personnel, and submit the required certifications before any task orders were ever issued. Because of the nature of a requirements contract, there is no guarantee that any task order will ever be issued. Thus, the ultimate awardee bears the risk of incurring significant start-up costs that will never be recouped under the contract.
GAO denied the protest, finding that the absence of a minimum guarantee on a requirements contract was no basis to challenge the solicitation. GAO recognized that there is a risk to vendors in that they may incur costs and not receive a task order. However, this risk does not render a solicitation inappropriate or improper. GAO found that in such cases, it is incumbent upon the individual offerors to utilize their expertise and business experience to anticipate the costs related to the contract.
The award of a requirements contract carries with it several risks, including the fact that the ultimate order total can vary significantly from the amounts estimated in the solicitation, and there may be no guarantee that any orders will be placed at all. Contractors must weigh these risks against the rewards inherent with an award of such a contract, and make a business decision as to whether to compete for the opportunity.