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Does An Agency Have to Share Risk in ID/IQ Contracts?

  • By GCPC GovCon Legal Team
  • April 24, 2013
  • Blog Articles
  • 0 Comments

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

Date: Wednesday, April 24, 2013, 8:05am EST

State of North Carolina Business Enterprises Program, et. al., v. United States, No. 12-459C, April 17, 2013
A question was recently raised in a case before the Court of Federal Claims that will be of interest to government contractors: Can an agency place all of the risk on the contractor where there is no way to estimate the amount of services the agency will order under an ID/IQ contract? In its decision released last week, the Court answered in the affirmative. There is no law or regulation preventing an agency from placing the entirety of such a risk onto the contractor.

This case involved a solicitation issued by the U.S. Army for full food services at Fort Bragg. Due to the winding down of the wars in Afghanistan and Iraq, the number of military personnel at Fort Bragg is expected to increase, perhaps dramatically so. There is simply no way to predict the amount of food that will be required at Fort Bragg over the next few years. This uncertainty was reflected in the Army’s solicitation, which required offerors to submit an offered “price per meal” without knowing, or even estimating, the actual headcount at Fort Bragg. All offerors’ “price per meal” would be multiplied by a maximum headcount number, to arrive at the offeror’s total price. The solicitation stated that the award would be made to the lowest priced, technically acceptable offer.

In its pre-award protest, the protester challenged the terms of the solicitation, arguing that the Army’s pricing methodology required offerors to assume too much of the risk. The offeror reasoned that because of economies of scale, if offerors assumed a large headcount, it would result in a low “price per meal.” However, if the actual headcount turned out to be a far lower number, the offeror would be stuck with an unrealistically low “price per meal” for that lower headcount, potentially taking a huge loss. On the other hand, offerors could assume a low headcount, and submit a higher “price per meal,” but risk submitting a non-competitive, high price.

The protester argued that the terms of the solicitation prevented offerors from bidding intelligently, and sought injunctive relief directing the agency to amend its solicitation. While the Court agreed with the protester that the inability to compete intelligently is an injury giving an offeror standing to protest, the Court disagreed with the protester’s contention that the agency was unreasonable in issuing the solicitation without a more accurate estimate of the headcount at Fort Bragg. The court reasoned that where, as here, an agency lacks sufficient information to provide offerors with realistic quantity estimates, it is reasonable for the agency to base the solicitation on the best available information. It is on the offerors to utilize their own expertise and business judgment to assume the risks or to avoid the competition.

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