GAO Sustains Challenge to Solicitation, Finds Agency Failed to Consider Effects of COVID-19 Pandemic; Chronos Solutions, LLC, Inside Realty, LLC; BLB Resources, Inc., GAO B-417870.2, B-417870.3, B-417870.4

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Protests challenging the terms of a solicitation are sustained. The solicitation sought contractors to manage and sell foreclosed properties for HUD. Prior to award, the COVID-19 pandemic hit, and Congress enacted the CARES Act, which mandated a foreclosure moratorium. The protesters argued that in light of the pandemic and the CARES Act, estimates in the solicitation concerning the number of foreclosed properties no longer reflected the agency’s needs. HUD, however, believed that the pandemic would have no effect on the procurement. GAO agreed with the protesters, reasoning that as a result of the pandemic and changes in federal law, the volume of foreclosed properties would almost certainly change. Consequently, HUD was obligated to re-examine its needs and revise estimates in the solicitation.

The Department of Housing and Urban Development (HUD), through the Federal Housing Administration, administers a mortgage insurance program through which it insures approved lenders against the risk of default. In the event of a default, the lender may acquire title to the property through foreclosure and convey the property to HUD, which will then sell the property. HUD relies on asset management contractors to market and sell these foreclosed properties.

HUD published and RFP seeking asset management contracts for 11 geographic areas. The RFP contemplated the award of IDIQ contracts for each of the geographic areas. Three of those areas were set aside for small businesses. Award would be made on a best value basis with a tradeoff between performance and price. The RFP provided estimates of monthly asset inventory based on historical data through 2019.

Before the proposal deadline, Chronos Solutions, LLC filed a protest challenging the agency’s decision to set aside some of the geographical areas for small business. In response to the protest, HUD took corrective action to determine the availability and capability of small businesses. GAO dismissed the protest.

While HUD was conducting market research on small businesses, the world was engulfed by the COVID-19 pandemic. In March 2020, Congress enacted the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among other things, the CARES Act mandated a foreclosure moratorium on federally-backed single-family mortgages. The CARES Act prohibited foreclosure for 60 days and permitted additional extensions of foreclosure forbearance for borrowers that experience financial hardship due to the pandemic. In additio to the CARES Act, HUD announced its own mortgage-payment relief options for homeowners experience pandemic-related financial hardship.

A month after passage of the CARES Act, HUD issued an amendment to the RFP, changing the procurement to a total small business set aside. Importantly, the RFP did not in any away acknowledge the COVID-19 pandemic, the CARES Act’s foreclosure moratorium, or HUD’s own mortgage relief programs.

Following issuance of the amendment, Chronos, Inside Realty, LLC, and BLB Resources, Inc. filed protests with GAO, challenging the terms of the RFP. The protesters argued that the RFP did not accurately reflect HUD’s needs in light of the pandemic. The protesters contended that HUD had failed to consider the impact of the CARES Act, which would reduce the number of foreclosures and the amount of property in inventory. Thus, the RFP’s estimates on with price and performance were to be evaluated were inaccurate.

HUD contended that it was not required to consider the impact of the pandemic because the RFP contemplated the award of IDIQ contracts. Estimated quantities for purposes on an IDIQ contract, HUD contended, are not contract requirements. Thus, even if HUD’s estimates had changed, a solicitation amendment was not required.

GAO rejected HUD’s argument. When an agency’s’ estimates for the amount of work to be ordered under an IDIQ contract changes significantly prior to award, the agency must amend the solicitation to allow offerors an opportunity to submit revised proposals. Moreover, when estimates are used for an IDIQ contract, they must be based on the best available information.

Here, in light of the pandemic, the CARES Act, and its own announcements, HUD’s needs changed prior to award. Indeed, HUD even acknowledged in its protest filings that the foreclosures on federally backed mortgages would likely decline. Given the change in circumstances resulting from the pandemic, HUD should have given offerors an opportunity to revise their proposals even though the RFP contemplated the award of IDIQ contracts.

Still, HUD argued that despite the pandemic and the CARES Act, the protests amounted to mere speculation about the future of the of housing market. GAO agreed that there were inherent uncertainties around the effect of the pandemic, but it thought the protester’s concerns were still based on concreate changes mandated by the CARES Act and HUD itself, which amounted to more than mere speculation.

HUD attempted to argue that it did not need to re-examine the procurement because the agency itself had not made any affirmative determination as to the future fluctuation of foreclosures. GAO found this argument untenable. The changing circumstances resulting from the pandemic, as evidenced by the CARES Act and HUD’s own policies, represented a material change from the assumptions set forth in the RFP. These circumstances should have prompted HUD to make a reasonable effort to reconsider its needs and estimates.

HUD further contended that the burden for assessing the effects of the pandemic should be borne by offerors. In fact, HUD pointed out, the RFP already cautioned offerors about potential fluctuations in the market. GAO found that this argument conflated the agency’s discretion to determine its needs with the its obligation to provide a meaningful basis to evaluated proposals. Risk is inherent in government contracting. But an agency cannot used that general risk to supersede its obligation to conduct a proper competition and reasoned assess its needs.

Finally, two protesters, Chronos and BLB, challenged the total small business set-aside decision, arguing that the decision was unreasonable in light of the flawed estimates. GAO agreed, opining that it would be prudent for HUD to revisit the set-aside decision given that its conclusions about the availability and capability of small businesses was based on faulty estimates.

Chronos is represented by Justin Chiarodo, Stephanie M. Harden, and Michael J. Montalbano of Blank Rome LLP. Inside Realty is represented by David S. Cohen, John J. O’Brien and Daniel J. Strouse of Cordatis LLP. BLB Resources is represented by Matthew T Schoonover and John M. Mattox II of Schoonover & Moriarty LLC. The agency is represented by Jonathan E. English, William J. Selinger, and Julie K Cannatti of the Department of Housing and Urban Development. GAO attorneys April Y. Shields and Christina Sklarew participated in the preparation of the decision.

GAO - Chronos Solutions, LLC; Inside Realty, LLC