Recent decisions highlight additional diligence required when acquiring a government contractor – Government, public sector

United States: Recent decisions highlight additional diligence required when acquiring a government contractor

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Two recent decisions from the Government Accountability Office (GAO), one of the forums that hears protests from disappointed bidders for federal government contracts, highlight some of the additional steps buyers of companies performing government contracts may need to take before making a deal.

A basic principle of public procurement is that the government must evaluate the bids it receives to determine whether and to what extent the potential contractor will meet government requirements. (The exact way in which this assessment will be carried out is described in the specific evaluation criteria for each solicitation.) This process aims to ensure that the government gets what it needs at the price it wants to pay, and also to ensure that the government gets what it needs at the price it wants to pay. There is significant competition between the bidders. If an offeror could come up with one thing and do another, the competition would not have been fair and the needs of the government might not be met.

In a recent case, a disappointed bidder protested that the winning proposal and the government’s assessment of it did not reasonably reflect how the contract would be performed and the legal entity that would perform the work, given of the sale of the company during the waiting period. evaluations of the proposals of the business unit that would perform the contract. In short, the protester argued that the company that drafted and submitted the proposal and the company that would perform the contract were different; therefore, the government could not be sure what it was buying.

The GAO rejected the protest because it found that the seller took the current transaction into account when preparing the proposal and informed the government of the proposed sale, and the government reasonably considered this information. The seller had explained in his proposal that he had structured the offer in such a way that the change in ownership of the business unit would not affect how it would perform the resulting contract. The seller stated that the transaction would not affect the technical approach, staffing or pricing proposed, and that all of the business unit’s assets, including those required to execute the proposal, would be transferred as part of the transaction. If selected, the business unit, although owned by the buyer, will provide the same staff and use the same methods to perform the resulting contract as reflected in the proposal. In addition, the business unit would operate on the same schedule and under the same pricing terms and level of effort as proposed, and all association agreements with partners would remain intact so as not to impact performance. or the price.

In light of these disclosures and promises, GAO found that the government had reasonably assessed the potential impact of the pending transaction and reasonably awarded the contract to the business unit despite its new owner. Without this information and assurances, however, the outcome could have been different, meaning that the Buyer may not have received the value he expected from its acquisition.

The sale of government contractors or business units or assets thereof is not unusual (unlike the sale of a specific government contract, which is generally not permitted). GAO’s protest decisions regarding corporate status and restructuring issues are very fact-specific, but generally focus on whether it was reasonable for the government to draw the conclusions it made. regarding the impact of a business transaction. When a business acquisition or restructuring does not appear likely to have a significant financial or technical impact on the performance of the contract, the business transaction does not make the government’s assessment and award decision. inappropriate. Conversely, where an offeror’s proposal indicates that it will perform the contract in a manner materially different from the offeror’s actual intention, an award based on such a proposal cannot stand, since the declarations of the offeror and the trust the government places in them have an adverse impact on the integrity of the procurement process. The key to GAO’s analysis in these decisions was whether the government contracting agency was aware of the particular corporate transaction and the imminence and certainty of the transaction.

Contrary to the above ruling, GAO recently backed a protest and canceled the award of a contract when one of the key staff proposed by the winner became unavailable. (Although this particular case does not arise from a business transaction, it is a situation that could easily arise when a new business unit is integrated into a buyer’s organization.) GAO’s long standing is that offerors are required to notify agencies of material changes in staff proposals, even after proposal submission, because a company may not properly receive a contract award on the basis of knowingly misrepresentation in its offer. Thus, an offeror is generally required to notify the government when it is aware that one or more key employees have become unavailable. This obligation does not exist if the offeror has no real knowledge of the employee’s unavailability.

There are other considerations buyers should take into account when purchasing a business that solicits or executes contracts with the government. A non-exclusive list includes:

  • Whether the contracts held by the target business unit will create organizational conflicts of interest for the buyer, or vice versa, for example, if an entity has a government contract under which it evaluates the work performed by the other party to the transaction or under which he can obtain an unfair competitive advantage in a future market as a result of the transaction;
  • If the buyer has foreign property interests that would jeopardize the security clearances the target needs to perform its contracts with the government, thereby lowering its value;
  • Whether the transaction will result in the loss of the target, the buyer or both of their privileged status as small businesses or businesses owned by minorities, women or veterans;
  • If any of the entities have been excluded from federal government procurement, have a criminal record, or have been the subject of negative findings regarding their business integrity or compliance with the law or their contracts that could adversely affect the business. ‘eligibility of a new affiliate to obtain contracts;
  • Whether one of the entities has a history of poor performance or default terminations that could adversely affect the other entity in future evaluations of the proposals;
  • If the target correctly complies with the many labor laws and regulations specific to public procurement, the violation of which could expose the company to heavy penalties;
  • If the target has waived intellectual property rights due to clauses in government contracts; and
  • If any of the target’s contracts have express restrictions on ownership changes, which is more likely to be in a subcontract than in a prime government contract.

None of these problems should be an automatic killer. However, they must be taken into account during due diligence and can have an impact on how the transaction is structured. Buyers, beware!

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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