Contract award protests charging conflicts of interest on the rise

Agencies are relying more on outside contractors to evaluate bids for contract awards, and with that comes a growing number of protests from losing bidders who claim the contractors have conflicts of interest and are steering awards away from competitors, according to the Government Accountability Office.

The latest example occurred this week when GAO released its findings (from May 2007) on a protest filed by Apptis, an IT systems integrator based in Chantilly, Va. Apptis officials alleged that a contractor hired by the Defense Information Systems Agency to help evaluate proposals for an enterprise storage services contract had a conflict of interest that influenced the final award decision.

Apptis said Shim Enterprises, which employed the bid evaluator, had a negative encounter with the primary subcontractor on Apptis' bid (storage vendor EMC Corp.) while the evaluator worked as a contractor, employed by Shim, for DISA. While providing systems management for DISA, the evaluator observed a service outage, and, according to Apptis' protest, "Shim had a motivation to deflect blame to EMC and avoid any responsibility it may have had for the service outage problem that occurred."

GAO ruled as untimely Apptis' protest because DISA gave notice to Apptis of its plan to use Shim to help evaluate bids before the storage contract evaluations had started and had been awarded. Under bid protest regulations, protests based on alleged improprieties in a solicitation must be filed prior to opening the bids or the time set for receiving proposals.

GAO sustained a separate issue raised in the protest, which argued that aspects of the agency's evaluation of Apptis' proposal were improper. Officials with DISA and Apptis did not reply to requests for interviews for this article.

Apptis' protest is one example of an increasing number of protests involving agencies' use of outsourced procurement services, most notably in the evaluation of bidders. This month, a federal judge upheld a protest filed by bidders of the General Services Administration's Alliant contract, charging that a polling firm hired to check references and research past performance of bidders lacked the skills needed to perform the functions adequately.

"If someone is timely about a protest of an evaluator that has a [potential conflict], we will look at the merits," said Michael Golden, associate general counsel at GAO.

Such cases are not unusual, he said, noting a November 2006 decision to sustain a protest filed by Celadon Laboratories, which said contractors used by the Health and Human Services Department to evaluate proposals for technology for cancer research were employed by firms that offered products that directly competed with those included in Celadon's proposal.

"Conflicts of interest have been the subject of a number of protests in recent years, and attempts to wall off the potential for such conflicts do present challenges for the parties, as well as legal issues," Golden said.

At 15 Defense Department offices, contractors comprise up to 88 percent of the workforce and perform key contract tasks, including developing contract requirements and advising on award fees for other contractors, according to a GAO report (GAO-08-169) released this month. While several laws and regulations address personal conflicts of interest in government, the report noted that only one -- the prohibition on bribery and kickbacks -- applies to both federal and contractor employees. Laws that relate to financial or employment conflicts of interest generally apply to federal employees only.

The 19 Defense offices GAO reviewed put safeguards in place to protect against contractor employee indiscretions in source selection, but in certain tasks, only three of the 23 defense contractors GAO reviewed had safeguards requiring employees to identify potential conflicts of interest so they could be mitigated.

Agencies hire contractors to evaluate contracts, particularly for IT programs, because agencies lack the resources and the acquisition skills required to assess complex technical proposals often are found only in the private sector.

"Part of the challenge is that the federal government has been cutting back on the acquisition workforce for decades now, while the size of the government and the number of government contracts has grown dramatically," said Warren Suss, president of IT firm Suss Consulting. "Literally, the government cannot perform its function without the help of contractors."

Some organizations provide only contract support services to government and do not bid on federal contracts, eliminating the conflict that could arise when an evaluator has competed against a bidder for IT work in the past. But those companies sometimes lack the intimate knowledge of a particular area of technology.

"There's no question that when agencies use outside support, there's a higher degree of sensitivity than routine contracts, [because contractors] are doing work closely associated with inherently governmental tasks," said Stan Soloway, president of the Professional Services Council. "Government has to exercise special care and oversight to ensure it's done properly."

Neither Suss nor Soloway believes legislation can reduce conflicts of interest, adding that legislation would only increase the likelihood of more protests, which would burden agencies' procurement shops even more.

"To some degree it's the nature of the beast," Suss said. "As long as you have an acquisition process with lots of money at stake and winners and losers, you'll have the losers looking to find any basis they can for the protest."