The solicitation allowed offerors to submit as a de facto joint venture—that is, as a joint venture without a formal agreement. The protester submitted as a de facto joint venture, but the agency found it ineligible. GAO said the agency’s rationale was nonsensical. The agency had tied itself in logical knots because it didn’t seem to understand what “de facto” meant.
Pernix Federal, LLC, GAO B-422122.2
- The Security Act – The Omnibus Diplomatic Security and Antiterrorism Act of 1986 sets forth requirements for companies seeking to compete for the construction of US diplomatic facilities. The Security Act states that only United States entities or qualified joint ventures may bid on diplomatic construction contracts.
- De Facto Joint Venture – The Security Act permits a de facto joint venture to qualify as a US entity. A de facto joint venture is a venture where no formal agreement has been reached, but the offering entity relies on the experience of a related US firm that guarantees performance.
- Solicitation – The State Department issued a solicitation for a consulate compound in Turkey. The evaluation was conducted in three phases. In phase 1 offerors submitted a statement of qualifications. In phase 2, they submitted the qualifications of the lead design firm. And in phase 3, the offerors qualified in phases 1 and 2 submitted proposals.
- Initial Award – After conducting a three-phase evaluation, the agency awarded the contract to Pernix Federal. A disappointed bidder protested, arguing Pernix was not a US firm under the Security Act. The agency took corrective action and determined Pernix was not an eligible US firm. Pernix filed a protest challenging its exclusion.
- Eligibility Under Security Act – The agency argued Pernix was not eligible under the Security Act because the entity that had submitted a proposal in phase 3 was not the same entity that had been prequalified in phase 1. GAO rejected the agency’s argument. In phase 1, Pernix had submitted its qualification and had been approved as a de facto joint venture. But GAO reasoned a de facto joint venture is not a formal joint venture. An agency cannot enter a contract with a de facto joint venture; it would have to enter a contract with one of the members of the de facto joint venture. Thus, although Pernix had been qualified as a de facto joint venture, when it reached phase 3, it submitted its proposal from a single member of the de facto joint venture. Because a de facto joint venture does not exist, that single entity was the only entity that could contract with the agency. Thus. GAO found, the entity that submitted Pernix’s proposal in phase 3 was not different from the entity qualified in phase 1.
- Untimely Protest – The agency had also found Pernix ineligible because its de facto joint venture was not registered with the System of Award Management. The solicitation stated that joint ventures, including de facto joint ventures, had to be registered with SAM. Pernix argued it was impossible for a de facto joint venture to register with SAM. The agency argued this was an untimely challenge to the terms of the solicitation. GAO agreed the argument was untimely. But GAO also found the argument raised a significant issue—namely, whether a de facto joint venture could register with SAM—that was likely to arise in future procurements. Thus, GAO decided it would address the merits of the argument
- Impossible for De Facto Joint Venture to Register with SAM – GAO sided with the protester on this issue. Again a de facto joint venture is not a formal entity. If a de facto joint venture is not an actual entity, it cannot register with SAM. The agency argued that Pernix should have formed an actual entity and registered it with SAM. But GAO found this argument nonsensical. If Pernix had formed an actual joint venture for the phase 3 proposal, then that entity would not have been the same de facto joint venture that had been prequalified in phase 1. According to the agency, an entity had to be the same entity in all phases. But the agency’s argument about forming a new entity made this requirement an impossibility. GAO found the solicitation’s requirement for de facto joint ventures to register with SAM was unduly restrictive of competition.
The protester is represented by J. Randolph MacPherson of Halloran & Sage LLP. The agency is represented by Kathleen D. Martin of the Department of State. GAO attorneys Charmaine A. Stevenson and John Sorrenti participated in the decision.
–Case summary by Craig LaChance, Senior Editor
