On November 13, the Government Accountability Office (GAO) sustained a protest by DecisionPoint Corporation concluding that when the Air Force determined EmeSec, a wholly owned subsidiary of DecisionPoint, was ineligible for award for not having the correct certification, it improperly ignored the effect of a novation. The GAO reasoned that the merger between EmeSec and DecisionPoint made DecisionPoint the new prime and therefore, DecisionPoint’s proposal, which included the required certification, should have been considered. The decision underscores the need for contractors, as well as agencies, to carefully consider the impact of mergers and acquisitions on eligibility for pending awards, an issue we have previously written about.

Background

The Air Force issued a Fair Opportunity Proposal Request (FOPR), under the General Services Administration’s Veterans Technology Services 2, a governmentwide acquisition contract (VETS II contract), for cyber protection (CPT) services set aside for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs). Notably, the solicitation required offerors to submit proof of a Level III CMMI certification during the performance of the task order for the prime contractor providing the CPT support services. The CMMI certification is essential for evaluating a company’s process maturity in delivering high-quality services.

Before submitting the proposal, EmeSec merged into DecisionPoint, and EmeSec’s VETS II IDIQ was subsequently assigned pursuant to a novation agreement in accordance with FAR 42.1204, which recognized DecisionPoint as EmeSec’s successor in interest under that contract. Despite this change, the proposal submitted to the Air Force still reflected EmeSec as the prime contractor, even though DecisionPoint was formally the VETS II contractor that would perform the services. Although EmeSec was identified as the prime contractor in the proposal, it did not possess the required CMMI certification. For that reason, the proposal included DecisionPoint’s Level III CMMI certification and a meaningful relationship commitment letter (MRCL) explaining the connection between DecisionPoint and EmeSec.

Centuria, another bidder for the CPT services task order, filed a protest alleging that EmeSec was ineligible for the contract award because it did not hold a Level III CMMI certification. Centuria argued that the use of DecisionPoint’s CMMI certification was improper because the solicitation clearly required the prime contractor, EmeSec, to have this certification.

In response to Centuria’s protest, the GAO facilitated an Alternative Dispute Resolution (ADR) session. The Air Force ultimately decided to take corrective action reevaluating the proposals and concluded that DecisionPoint was ineligible for the contract due to its failure to submit the required proof of CMMI certification for the prime contractor, as specified in the solicitation. After reevaluating the proposals, the Air Force awarded Centuria the task order in the amount of $83,184,746.

The Protest

DecisionPoint subsequently challenged the Air Force’s determination it was ineligible arguing, in part, that due to the merger and novation of the VETS II contract, DecisionPoint had assumed all rights and obligations of EmeSec, including its CMMI certification. Therefore, DecisionPoint contended that it should be considered the prime contractor and that its Level III CMMI certification should fulfill the solicitation’s requirements.

However, the Air Force maintained that the CMMI certification held by DecisionPoint was inapplicable to EmeSec because EmeSec’s “assets to perform the CPT support services” were not “analyzed by ISACA” so it is “therefore unreasonable to suggest that the novation changed what EmeSec proposed, substituting the analyzed portion of DecisionPoint.”

GAO Opinion

The GAO concluded that the Air Force’s decision to disqualify DecisionPoint was unreasonable, noting that while the solicitation required proof of a Level III CMMI certification for the prime contractor, the merger of EmeSec into DecisionPoint meant that DecisionPoint was the new prime contractor. Therefore, the GAO found that DecisionPoint’s proposal, which included proof of its Level III CMMI certification, should have been considered compliant with the solicitation requirements.

The GAO stressed that the agency failed to properly assess the impact of the corporate restructuring, which resulted in DecisionPoint becoming the prime contractor. For that reason, the protest was sustained because the Air Force’s actions did not align with the solicitation’s terms or the facts on record.

Key Lessons and Takeaways for Contractors

Mergers, acquisitions, spin-offs, and restructuring transactions can have a substantial impact on a contractor’s eligibility for award of pending proposals. The DecisionPoint decision serves as a reminder to contractors that agencies must thoroughly evaluate the impact of mergers and novations, particularly when certifications are involved. Further, where a government award decision fails to properly consider the impact of a merger, contractors should consider submitting a protest.

If you have any questions about the effects of an acquisition on bid eligibility or other bid protest issues, please contact the authors.