Incumbents Beware: Agencies May Reduce Your Competitive Advantage to Promote Competition
August 27, 2014
By: Eric Whytsell
Sometimes incumbent contractors become so ensconced in their role as the provider of particular goods or services that there seems to be no practical way that any competitor will ever unseat them. The recent decision in New Mexico State University, B-409566 (June 16, 2014), reminds us that incumbents in such situations may not be as safe as they think. Whether their competitive advantage comes from exclusive contracts with suppliers or simply arises organically from their performance of successive contracts for decades, agencies can take it away in order to promote competition.
The case involves a request for proposals (RFP) issued by the National Aeronautics and Space Administration (NASA) for the operation and maintenance of scientific balloon launch facilities around the world. Significantly, the RFP identified ten categories of “non-proposed” costs for core contract requirements – balloons, helium isopaks, expendable gases, freight, equipment, range expenses, flight hardware/flight electronics, ground support equipment, materials and services – and provided “plug” numbers for each category. Because this approach significantly reduced the incumbent contractor’s competitive advantage, the incumbent protested the RFP terms.
That incumbent, New Mexico State University (NMSU), had been NASA’s balloon launching contractor for more than 25 years. During its tenure, NMSU had naturally developed a great deal of experience with NASA’s requirements and the historical costs of meeting them – and it had argued vociferously to NASA that those costs (especially its unburdened labor rates) were proprietary and could not be released to its competitors. NMSU had also developed an exclusive teaming arrangement with Raven/Aerostar, the sole manufacturer of the scientific balloons required for the contract – a relationship that guaranteed NMSU a price advantage over any competitors.
NASA had received correspondence from two potential competitors outlining how the NMSU-Raven/Aerostar teaming agreement essentially rendered them unable to effectively compete against NMSU to meet the agency’s requirements. The problem was not new: NMSU had been the only offeror that submitted a proposal in response to the prior solicitation. Under the circumstances, NASA believed its use of plug numbers for certain costs was necessary.
The Government Accountability Office (GAO) agreed, noting that while, as a general rule, “agencies are not required to structure acquisitions in order to neutralize the competitive advantage of an incumbent, agencies may nonetheless use an evaluation method that attempts to foster competition by increasing the feasibility of a proposal being submitted by non-incumbent offerors.” The GAO found that the use of a plug number for the cost of balloons allowed other offerors to compete with NMSU, a least with respect to the balloon costs. And the use of plug numbers for other costs properly avoided disclosing NMSU’s proprietary cost information without forcing competitors to prepare proposals using what would essentially amount to inadequate information. At the end of the day, the GAO found that, while NASA’s leveling of the playing field had the effect of reducing or eliminating NMSU’s competitive advantage, that effect was unobjectionable in light of NASA’s broader objective of promoting full and open competition.
The lesson for incumbents? You may not always be able to count on your competitive advantage, particularly if it essentially eliminates competition. On the other hand, the decision makes clear that non-incumbents who feel they have been frozen out of competing for contracts should speak up. Raising the issue to the agency involved may result in a more level playing field.
Eric Whytsell is responsible for the contents of this article.