Recently, the Government Accountability Office’s (GAO) General Counsel sustained a protest brought by a competitor in a government contract offer made by the United States Navy. Leupold Stevens Inc. (LSI), a manufacturer of scopes, successfully argued that the modifications of the contract awarded to Sig Sauer were so “substantial” that it warranted a new solicitation. The GAO agreed and recommended the Navy examine its options, including issuing a new solicitation.
The GAO digest of the October 30, 2019 decision distills the decision thusly: Protest that contract modification seeks services beyond the scope of the underlying contract is sustained, where the modification includes changes prohibited by the contract and the modification causes a material increase in the contract’s value.
Here’s What Happened
In November 2017, the Navy issued a Request for Proposals (RFP) for second focal plane squad variable powered scopes (S-VPS). According to the GAO decision, the RFP was for an anticipated award of a “fixed-price indefinite-delivery, indefinite-quantity (IDIQ) contract with a 5-year base period and five 1-year option periods to the offeror proposing the best value to the agency, considering the following factors in descending order of importance: technical, past performance, and price.”
After issuing the solicitation for the S-VPS and reviewing the seven applicants, the Navy’s Division for Special Operations Weapons and Accessories Procurement, the Navy Surface Warfare Center Crane (NSWC Crane), entered into an agreement with Sig Sauer to have them provide a S-VPS with a wire reticle. The contract was substantial totaling over $12.1 million. According to a story in the Military Times, “the new Sig scopes, officially dubbed the SU-293/PVS, would be used on SOCOM-operated M4 carbines at effective ranges of up to 600 meters.”
However, the Navy decided it wanted to change the firearm scope from having a wire reticle to an etched and illuminated reticle that had been invented after the RFP was issued and the contract inked. (A reticle is the pattern of lines built into the eyepiece of the scope to assist with targeting.) In fact, the etched reticle that it wanted -- the Horus T-8 reticle -- was not invented until late 2018. A footnote in the GAO decision is very illuminating: “According to the Navy, “[t]he [Horus] T-8 is a patented reticle from Horus Vision Reticle Technologies, Inc. (HRVT) [which] provides unique capabilities that can only be accomplished through a glass etched reticle.” The agency noted that none of the original proposals could have included the reticle because it wasn’t invented until December 2018. However, almost all the other applicants had included a higher cost glass etched reticle in their proposals at a much higher cost than Sig Sauer’s proposal.
As it turns out, changing the reticle would also require changing the scope’s body as well. The modifications totaled an additional $9.4 million. The Navy amended the contract with Sig Sauer for the changed scope and allocated funds to pay for it. The Navy's actions would have been swept under the proverbial rug, if LSI hadn’t caught the contract modification published in Defense Daily Digest Bulletin on July 17, 2019. Nine days later, LSI filed its protest, via a letter to GAO’s General Counsel, claiming the modification was improper, and an entirely new solicitation was required. Further, LSI claimed that the Navy, by not issuing a new solicitation, was violating the rules governing the solicitation and procurement of hardware by the government under the Competition in Contracting Act (CICA).
Agency’s Action Arbitrary and Capricious?
In a June 26, 2019 letter, LSI’s attorney told the GAO that: “…the Agency improperly modified its contract with Sig Sauer. The changes made to the Contract were so substantial that the contract should be terminated, and a new competition conducted for the modified requirements. Further, the Agency’s justifications for not competing the contract were incorrect and therefore arbitrary and capricious.”
According to the October 30, 2019 GAO decision: “Leupold argues that the modification to add the Horus T-8 glass-etched reticle is outside of the scope of Sig Sauer’s awarded contract. Among its arguments, the protester contends that changing from a wire reticle to a glass-etched reticle requires a change to the illumination mechanism in the S-VPS, which Leupold contends is prohibited by section 3.17.2 of the contract. In this vein, the protester asserts that “[t]he [s]olicitation specifically required that the S-VPS . . . be designed so that, when changing the reticle, no other design changes were necessary to the S-VPS.” Leupold contends that the modification for “the inclusion of a glass-etched reticle in the S-VPS” should have been separately competed. The protester also contends that the size of the modification places it outside the scope of the contract.”
Contract Modifications Beyond The Scope
GAO noted it typically does not consider bid protests regarding contract modifications. But GAO's General Counsel noted that in this case: “However, we will consider protests where, as here, it is alleged that a contract modification improperly exceeds the scope of the contract and therefore should have been the subject of a new procurement. See Western Pilot Serv. et al., B-415732 et al., Mar. 6, 2018, 2018 CPD ¶ 104 at 6. We do so because the protester is alleging that the agency has subverted competition by awarding--without competition--work that would otherwise be subject to the statutory requirement for full and open competition under the Competition in Contracting Act of 1984 (CICA). See 10 U.S.C. § 2304(a); Makro Janitorial Servs., Inc., B-282690, Aug. 18, 1999, 99-2 CPD ¶ 39 at 3 (sustaining protest where contract modification and task order were beyond the scope of the underlying IDIQ contract).”
Material Changes to the Contract
In determining whether the changes are material, which is LSI's claim, the GAO looked to see what the changes consisted of. The standard they applied in their analysis was reviewing the circumstances attending the procurement that was conducted; examining changes in the type of work, the performance period, and costs between the contract as awarded and as modified; and considering whether the original contract solicitation adequately advised offerors of the potential for this type of modification and thus whether the modification could have changed the field of competition.
Plain Meaning Of The Contract Language
The GAO also considered the plain meaning of the contract. “The plain meaning of the “Future Reticles” provisions shows that the illumination modifications – which according to the Navy and the intervenor say must accompany the change to glass etched reticle – are outside of the scope of the contract.”
The language in Sec. 3.17.1 of the contract allowed for changes to the reticle. But the very next section, Sec. 3.17.2 stated that any reticle changes should not modify the scope itself. “Reading the clauses together, it is clear that offerors’ proposed scopes shall allow for “future reticle designs” but, when changing to a new reticle, “[there shall be no changes to the S-VPS scope design” “other than the reticle itself.” Sec. 3.17.2 allows for design changes that are internal to the S-VPS consistent with the plain meaning of the provision that explicitly prohibits concurrent changes to the design of the S-VPS. The GAO found that the illumination modifications required for the new reticles are outside the scope of the contract, even if those changes are internal to the scope.
GAO held that if LSI knew it could bid at a lower price and later change to a higher price, LSI could have submitted a more competitive proposal. “The record also reflects that at least Sig Sauer understood a change in illumination to be a scope design change. The agency considered Sig Sauer’s substantially lower cost when making award. Had Leupold known that despite the language of section 3.17.2 the Navy would nevertheless allow for a later change in the reticle illumination, it too could have proposed a lower-priced wire reticle and substantially improved its competitive position. On this record, we conclude that the protester was prejudiced because the agency’s approach changed the field of competition.”
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