Although the Agency Denied It, Did the Pandemic Change the Agency’s Requirements?

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The agency defined its needs in 2016 and then issued a solicitation based on those needs in 2018. Multiple protests and the COVID-19 pandemic delayed award until 2021. The protester argued that intervening events—including an intra-agency dispute, the pandemic, inflation, labor shortages, and supply chain issues—had necessarily changed the agency’s requirements, so the agency should have amended the solicitation. The court rejected the protester’s reasoning. The agency had not indicated that its requirements had changed. Moreover, intervening events during the course of a procurement do not give a rise to a presumption of changed conditions.

Second Street Holdings LLC v. United States, COFC No. 22-cv-00253

Background

In  2018, GSA issued a request for lease proposals, seeking office space for the Securities Exchange Commission’s (SEC) new headquarters. Award would be made to the lowest-priced, technically acceptable offer. 

Prospective offerors filed multiple pre-award protests with GSA, GAO, and the Court of Federal Claims. Those protests were denied. Around this same time, GSA and the SEC got into an intra-agency dispute over the soliciation’s methodology for evaluating the government’s future purchase option, which further delayed the procurement. GSA and the SEC resolved their dispute in July 2021.

In September 2021, GSA awarded the lease to Cayre Jemal’s Nick LLC (CJN). An unsuccessful offeror, Second Street Holdings, filed a protest with GAO challenging the award. GAO denied the protest. Second Street then filed a protest with the Court of Federal Claims.

Analysis 

Commitment of Funds

The solicitation provided the offerors had to provide evidence of a conditional commitment of funds in an amount necessary to make required tenant improvements. Second Street alleged that CJN’s evidence was insufficient; it was a nonbinding general terms sheet from three banks. Second Street reasoned that GSA should have found CJN’s proposal unacceptable or have stricken the commitment of funds requirement from the solicitation.

But the court found that CJN had provided sufficient evidence of a commitment of funds. The solicitation only required a conditional—not a binding—commitment of funds. CJN submitted documents showing a bank’s approval of a loan for the project subject to various conditions, including the parties’ final agreement. This was sufficient to show a conditional commitment. Second Street was effectively arguing that the  financing requirement was a definitive responsibility criteria. The court, however, disagreed, noting the solicitation did not include special standards for the financial commitment and did not advise offerors of adverse consequences of failing to provide the information. Rather, the determination of financial responsibility was committed to the discretion of the contracting officer.

Waiver of Occupancy Date

Second Street contended the solicitation required an occupancy date in the second or third quarter of 2023, but that GSA had waived this requirement for CJN. The court didn’t think so. The alleged occupancy date appeared on the cover letter of the solicitation and was expressly identified as an estimate. It was not an actual requirement, so GSA had not somehow waived it for CJN.

CJN’s Authority

Second Street asserted that CJN’s proposal didn’t comply with the solicitation because it had not provided evidence that CJN had authority to bind all owners of the property it offered. Second Street also claimed that CJN had not provided a required SAM registration for an affiliated entity that owned the property with CJN.

The court found that CJN had in fact provided information that demonstrated CJN’s authority to bind other owners. The materials showed that affiliated entities had designated CJN as their authorized agent. As to the argument concerning SAM registration, the court found that only the offeror, not all of the offeror’s affiliates, had to have a SAM registration at the time of proposal submission. Here, the actual offeror, CJN, had a SAM registration. CJN had complied with the solicitation.

Price Realism

Second Street asserted that GSA regulations required the agency to ensure that the proposed rent was realistic and that it reflected the offeror’s understanding of the work to be performed. Second Street argued that GSA had not made this realism assessment. 

The court found that while GSA had not expressly conducted a realism analysis, such an analysis could be discerned from the record. GSA had found that CJN’s proposed rents were consistent with the market rates and that there was no reason to conclude the project was not achievable at CJN’s rates.

Price Evaluation

Second Street objected to various aspects of the price evaluation, including that GSA had relied on stale information, and that CJN had proposed unrealistically low real estate taxes and operating expenses. 

None of these arguments found purchase. The court found the stale information argument was untimely. This procurement had gone on for years. If Second Street had concerns about stale estimates, it should have raised the issue before award. The court further found that the argument on unrealistic tax rates and expenses was based on speculation.

Changed Requirements

GSA had defined its requirements for the lease in 2016. Second Street argued that due to subsequent events—i.e., the intraagency dispute with the SEC, the pandemic, inflation, labor shortages, supply chain problems—the solicitation no longer accurately reflected GSA’s needs.

But the court opined that Second Street had not shown that GSA’s requirements had actually changed. The SEC dispute did not carry Second Street’s burden. In its dispute with GSA, the SEC had noted that intervening circumstances could impact its space needs. But the SEC never stated that its own requirements had changed. GSA itself had not determined that its needs had changed. Intervening conditions during the procurement, like the pandemic or market changes, are not enough to presume a change in requirements. The court found Second Street’s argument was essentially self-serving speculation.

–Case summary by Craig Lachance, Senior Editor

COFC - Second Street Holdings LLC