In a recent decision, a bid protestor was vindicated after the Missouri Department of Veteran Affairs considered a full package of bid options and awarded a contract to a different bidder—even though the department knew with reasonable certainty that it lacked sufficient funds to purchase all the evaluated options and could only purchase those options that would have made the protestor’s offer superior.

An invitation for bids was released in July 2014 for a service-disabled veteran-owned small business set-aside in anticipation of the construction of a primary care building in the State of Washington. Bidders were required to submit a baseline bid for construction of the clinic as well as nine additional construction options. The solicitation made it clear that “any one of the… options items may be awarded depending on the available funding” and bidders should price each option accordingly. The invitation for bids incorporated Federal Acquisition Regulation (FAR) 52.214-19, which provides for an award to the lowest-priced responsible bidder. Also incorporated into the invitation for bids were FAR 52.217-5, requiring the agency to add the total price of all options to the base price but not requiring the agency to exercise any options, and FAR 17.206(b), which permits the agency to evaluate no options if evaluation would not be in the best interests of the government. Importantly, FAR 17.206(b) provides that “[a]n example of a circumstance that may support a determination not to evaluate offers for option quantities is when there is a reasonable certainty that funds will be unavailable to permit exercise of the option.” During the question and answer rounds, the agency underscored this provision by stating that “[t]he entire solicitation is contingent on Funding.”

A total of six firms submitted timely bids to the Department of Veteran Affairs (VA), including Glen Mar Construction, Inc., of Oregon and Hanke Constructors of Missouri. Both firms bid on the base construction price and each of the available options. When the base price plus all options were considered, Hanke’s total bid was the lowest. However, when the base price plus only option #1 was considered, Glen Mar’s bid was the lowest. So, when the agency announced that it would award the contract to Hanke although evidence revealed that the VA actually did not have enough in its budget for base construction as well as additional options, Glen Mar insisted that the agency’s price evaluation process was unreasonable. Because the agency faced a shortfall, as Glen Mar argued, the VA should not have evaluated all nine options when it knew with reasonable certainty that it could not exercise them all.

In reviewing Glen Mar’s protest, the Government Accountability Office (GAO) agreed with Glen Mar’s conclusions. The GAO determined that, to the extent the agency knew at the time of evaluation that it had a budget shortfall and would not be able to exercise base construction with all nine options, “the VA should have prioritized the remaining options, up to the [budgeted] amount, and included the prices for those options in its price evaluation” to be consistent with the incorporated FAR clause requirements. By evaluating base construction plus all options, the VA “relied upon an evaluation scheme which made it impossible for the agency to determine which bid offered the lowest price to the government.” Thus, the GAO sustained Glen Mar’s protest and recommended that the VA conduct a new price evaluation given its realistic funding constraints. During the new price evaluation, the VA was directed by the GAO to make an award to the bidder that submitted the lowest price for the base construction and only those options the department reasonably believes it has funding to exercise.

U.S. Gov’t Accountability Office, Glen Mar Construction, Inc., B-410603 (January 14, 2015).