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Counting Independent Contractors As Employees Can Lead to Rejection of a Proposal

  • By GCPC GovCon Legal Team
  • May 16, 2014
  • Blog Articles
  • 2 Comments

Bid Protest Weekly Newsletter by Bryan R. King, Attorney, General Counsel PC

Date: Wednesday, May 16, 2014, 11:22am EST

MindPoint Group, LLC, B-409562, May 8, 2014
A common issue that faces many employers is the question of whether an individual working for them should be classified as an employee or an independent contractor. This issue typically arises in the context of taxes, and the IRS provides guidelines to assist companies with making the correct determination. However, outside of the realm of taxes, this issue can be quite important in government contracting, as well.

A recent bid protest case before GAO, MindPoint Group, LLC, provides a good illustration. In MindPoint Group, the protester challenged an award of a contract under a solicitation issued by the Department of Justice for IT infrastructure support. The solicitation was issued as a set aside for economically-disadvantaged, women-owned small businesses. The solicitation contained a limitation on subcontracting requirement—requiring the awardee to incur at least 50% of the cost of the work with its own employees.

The protester’s final proposal showed that it would perform 53.5% of the work with its own employees. However, there was a question of whether one of the employees offered by the protester, a Systems Administrator, was actually an employee, or rather an independent contractor. While the Systems Administrator was listed among the employees, he was referred to as an independent contractor elsewhere in the proposal. In addition, the letter of commitment from the Systems Administrator stated that he would be an independent consultant and not an employee.

Based on the information in the proposal, the agency determined that the Systems Administrator was an independent contractor, and should not have been counted as an employee of the protester. Without counting the System Administrator as an employee, the protester would only be incurring 45% of the costs of the work with its own employees, falling short of the 50% requirement imposed by the limitation on subcontracting clause. As a result, the protester’s proposal was determined to be unacceptable. Because its protest was unacceptable, GAO determined that the protester was not an interested party and denied the protest.

During the protest, the protester provided information supporting its position that the Systems Administrator was actually an employee. However, because this information was not contained in the protester’s proposal, GAO did not give it any weight. As we’ve previously discussed, it is an offeror’s responsibility to include all necessary information in its proposal establishing the merits of its proposed approach. Failing to do so puts an offeror at risk that its proposal will be rejected.

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2 Responses

  1. Bob Might
    • May 19, 2014 - 10:23 am
    • Log in to Reply

    Is there any circumstances where a person working on a 1099 can be considered an employee of the company bidding on a proposal that has a limitation of subcontracting clause? It is unclear if the ruling was limited to the fact that the protester failed to show in the original proposal that the System Administrator was actually an employee (i.e. a claim that the statements that he was an independent consultant were errors and he was going to join the company as a W2 employee), or whether the GAO found that a 1099 consultant can never be considered an employee for the purposes of meeting the limitation of subcontracting clause.

    • Bryan R. King
      • May 22, 2014 - 2:35 pm
      • Log in to Reply

      Bob, I think it’s probably closer to the former. GAO probably isn’t going to make a determination of whether an individual should properly be classified as an employee or an IC. So the issue here was really that the protester itself referred to Systems Administrator as an IC. The LOS clause requires at least 50% of the cost of the work to be performed by the prime’s own employees. And by definition, an IC isn’t an employee.

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