By Brandon Wilsey, Associate (McLean, VA)
Contractors who regularly conduct business with the Federal government are likely familiar with the Government Accountability Office’s (GAO) jurisdiction over bid protests. The GAO’s jurisdiction is typically limited to procurements issued by a Federal agency. Contractors may be surprised to learn, however, that the GAO also exercises jurisdiction over certain subcontract procurements between private parties. To avoid surprises and delay in the procurement process, prime contractors and subcontractors alike should understand when the GAO will step in to hear bid protests between private parties. Contractors should also consider measures they can take to either encourage or avoid GAO review of private contracts, depending on the circumstances.
When Does the GAO Assume Jurisdiction Over Subcontract Procurements?
The GAO’s jurisdiction is established by the Competition in Contracting Act (CICA), 31 U.S.C. §§ 3551–3557. Under CICA, the GAO may resolve protests concerning solicitations and contract awards that are issued “by a Federal agency.” 31 U.S.C. § 3551(1)(A). In most cases, the GAO considers an award to be “by a Federal agency” only when the agency itself issues the solicitation. But the GAO may also assume jurisdiction over a subcontract procurement if it “essentially was awarded ‘by’ the government.” The Panther Brands, LLC, B-409073 (Jan. 17, 2014). When a subcontract award is essentially “by” the government, the GAO will consider the procurement to be contracted by the agency itself and, therefore, subject to federal statutes and regulations. St. Mary’s Hosp. & Med. Ctr. of San Francisco, California, 70 Comp. Gen. 579, 585 (June 24, 1991).
The GAO considers a subcontract procurement to be “by” the government if the agency handled “substantially all of the substantive aspects of the procurement and, in effect, took over the procurement, leaving to the prime contractor only the procedural aspects of the procurement – i.e., issuing the subcontract solicitation and receiving proposals.” Thales Las France SAS, B-422805 (Aug. 30, 2024) (citing St. Mary’s Hosp., B-243061, 91-1 CPD ¶ 597 at 5-6).
For example, in Panther Brands, the GAO found that the subcontract was issued “by” the government where the agency used its own evaluation criteria, evaluated summaries of the proposals, assigned adjectival ratings, and identified strengths and weaknesses of the subcontract proposals. Additionally, the solicitation informed offerors that the government would make the solicitation decision. The contractor merely collected and summarized the proposals without even making a recommendation.
Limitations on GAO Jurisdiction: Subcontractors Acting ‘For’ the Government
But, as the GAO demonstrated in an opinion last year, Thales Las France SAS, B-422805 (Aug. 30, 2024), protestors face a high bar to establish that a subcontract is issued “by” the government. A subcontract procurement is not “by” the government if the prime contractor “handled meaningful aspects of the procurement, such as preparing the subcontract solicitation and evaluation criteria, evaluating the offers, negotiating with the offerors, and selecting the awardee.” Id.
Thalesprotested the conduct of a subcontract procurement by BAE Systems Technology Solutions & Services, Inc. (BAE) for radar arrays. Id. Thales contended that that the GAO had jurisdiction to hear its protest because BAE was acting as the United States Space Force’s representative. Id. In essence, Thales argued that BAE was acting “for” the government. The GAO, however, disagreed.
In the past, the GAO had exercised jurisdiction over subcontracts issued “for” the government as opposed to “by” the government – i.e., when a contractor has large-scale management services and acts as a purchasing agent “for” the government. These were typically Management and Operation (M&O) contracts awarded by the Department of Energy (DOE). In 1995, however, the GAO revised its regulations based on the Federal Circuit’s decision in US West Comm. Services, Inc. v. United States, 940 F.2d 622 (Fed. Cir. 1991). In West, the Federal Circuit ruled that GAO’s assertion of authority to review protests of subcontracts issued “for” the government lacked support in CICA. See 60 Fed. Reg. 40737 (modifying 4 C.F.R. § 21.5(h); 4 C.F.R. § 21.13(a)).
The GAO now considers subcontracts to be issued “for” a Federal agency when the agency requests that the GAO do so. Because the agency in Thales did not issue such a request, the GAO found that it lacked jurisdiction to consider the protest, even if BAE was acting “for” the government. Indeed, the government rarely has incentive to agree to GAO jurisdiction when prime contractors act “for” the government; doing so would forfeit many of the efficiencies the government realizes by awarding M&O contracts, one of which is to avoid lengthy subcontractor protests.
The GAO also found that BAE’s solicitation was not issued “by” the government because BAE itself issued the solicitation, received proposals from prospective subcontractors, evaluated them, and made a source selection decision. The GAO therefore dismissed Thales’ protest for lack of jurisdiction.
Practical Takeaways for Contractors
These cases contain valuable lessons for situations where the government or prime contractors wish to avoid unwanted GAO review of subcontract solicitations. Most importantly, the government cannot shield itself from GAO protests simply by using a contractor as a conduit to issue solicitations and collect proposals.
Prime contractors who have purchasing responsibilities for the government should have candid conversations with the Contracting Officer (CO) about whether scenarios exist in which the government may request that GAO review a subcontract procurement. Additionally, if prime contractors wish to avoid GAO protests, they should endeavor to maintain responsibility for substantive aspects of procurement decisions, such as drafting the solicitation and evaluation criteria and selecting the awardee.
On the other hand, limited situations may exist where a prime contractor benefits from GAO review of a subcontract procurement. Prime contractors take on increased risk when they have limited ability to select their subcontractors yet remain liable for a subcontractor’s performance. If the prime contractor is truly acting as a mere conduit for the Federal government, GAO review could shield the prime contractor from entering into agreements with subcontractors who are at risk of underperforming.
Relatedly, other tribunals may have agreements with Federal agencies to mediate or arbitrate subcontract disputes. For example, DOE has signed memorandums of understanding with the Civilian Board of Contract Appeals (CBCA) in which the CBCA provides Alternative Dispute Resolution (ADR) services for subcontract disputes on DOE M&O contracts.
Conclusion
Navigating the complexities of GAO jurisdiction over subcontract procurements is important for all parties involved in federal contracts. Understanding when and why the GAO might step in—whether a subcontract is considered “by” or “for” the government—can help contractors mitigate risks, avoid delays, and make informed decisions.
For prime contractors, retaining control over substantive procurement decisions and fostering clear communication with COs can be pivotal in minimizing unwanted GAO reviews. On the other hand, there may be circumstances where GAO review offers a safeguard, particularly when prime contractors face heightened risks due to limited authority over subcontractor selection.
Ultimately, contractors should proactively engage qualified legal counsel to address these nuanced issues. Early legal guidance not only helps prevent surprises but also ensures that procurement strategies align with the organization’s goals, whether the aim is to encourage or avoid GAO oversight. By taking these steps, contractors can better navigate the intersection of private business and government oversight, reducing uncertainty and maximizing operational efficiency.