IBM on losing end of bid protest

EDITOR's NOTE: This post has been updated with comments from Booz Allen Hamilton after they objected to certain points. The new information is in bold.

The Government Accountability Office has smacked down IBM’s bid protest over an organizational conflict of interest ruling that knocked the company out of the competition to modernize a Defense Department retirement system.

The Defense Retiree and Annuitant Service 2 contract ultimately went to SRA International. The contract is worth $32.9 million and will be used to modernize the system that manages accounts for 2.6 million military retirees, former spouses and survivor beneficiaries.

The system was first built in 1980 and uses “antiquated mainframe technology,” according to GAO, including 2.3 million lines of custom code, 40 internal interfaces for data file transfers and 220 external interfaces.

After IBM submitted its bid but before SRA won the contract, the contracting officer at the Defense Logistics Agency ruled that IBM had an organizational conflict of interest (OCI) and eliminated IBM from the competition.

DLA said that the conflict existed because IBM’s subcontractor, Booz Allen Hamilton had an employee who helped develop and manage the solicitation for the contract. The employee was an independent contractor working for Booz Allen.

IBM, obviously, disagreed and complained to GAO that the DLA ruling was unreasonable. GAO sided with DLA but the decision is a great illustration of the twists and turns conflicts of interest can take.

In its proposal, IBM identified two Booz Allen employees as key personnel, but IBM didn’t include an OCI mitigation plan in its proposal. DLA questioned that because one of the Booz Allen employees, who are unnamed in the decision, worked on the development of the DRAS solicitation when Booz Allen was a subcontractor to Horizon Industries Ltd.

DLA had hired Horizon to provide acquisition support services for the development and management of DRAS 2.

IBM’s response was that no OCI existed because Booz Allen told them that it didn’t have access to the deliverables their employee provided to Horizon. He also had signed a non-disclosure agreement and that Booz Allen’s relationship with him was limited to processing his invoices and time accounting, not reviewing his work products. According to Booz Allen, because he was an independent contractor and had signed a non-disclosure agreement, he didn't interact with IBM on the proposal development and was not located at a Booz Allen facility.

This didn’t satisfy DLA and they again told IBM that its mitigation plan or lack of one was unacceptable. That was on Sept. 26 and they gave IBM until the end of the day to respond.

IBM told them that day that Booz Allen had agreed to fire their employee, effective Sept. 30.

Yes, they fired him or at least were willing too. Booz Allen terminated their subcontract with this person and he then created a direct subcontract with Horizon.

Booz Allen also certified that no actual or potential OCI existed because the employee had been firewalled from the Booz Allen proposal team and did not participate in the proposal or provide any procurement-sensitive information.

DLA rejected IBM’s plan, particularly the firing of the Booz Allen employee, because his presence on the team up to that point meant that the damage had already been done.

DLA declared that IBM had a “biased ground rules” OCI, because Booz Allen’s role in developing the DRAS contract meant that it was helping to set the ground rules for the competition. “The primary concern is that the firm could skew the competition, whether intentionally or not, in favor of itself,” GAO wrote.

With its rejection from the competition, IBM filed its protest and said the decision by DLA was unreasonable.

GAO’s decision walks through the efforts DLA took to determine if an OCI existed, including getting copies of subcontracting agreements between Booz Allen and Horizon that showed that the employee helped prepare the acquisition strategy, performance work statement, analysis of alternatives, work breakdown schedules, business case analysis and financial management documentation, among other duties.

He was described by the program management office as “intimately involved” in the development of DRAS 2.

DLA’s contracting officer wrote a 15-page, single-spaced document explaining its conclusion that biased ground rules OCI existed.

In reviewing the documentation, GAO concluded that IBM, through its subcontractor Booz Allen, helped to develop that RFP, the performance work statement, solicitation amendments and responses to questions submitted by interested firms.

GAO’s review of the record also found that at one point Booz Allen was considering bidding on the contract as a prime, but ultimately decided to compete as a subcontractor to IBM.

GAO also said that a firewall doesn’t mitigate a biased ground rules OCI.

All of this adds up to GAO’s conclusion that DLA’s contracting officer acted reasonably in eliminating IBM from the competition.

But then there is one final twist.

During the GAO bid protest process, IBM argued that there was no conflict because the Booz Allen employee had no idea that Booz Allen intended to compete for the contract. So he had no motivation to influence the ground rules in Booz Allen’s favor.

The problem is that IBM and Booz Allen never told the DLA contracting officer this when he was investigating whether a conflict of interest existed.

“Since the protester had the opportunity to furnish this information to the agency prior to its final OCI determination, but failed to do so, this claim provides no basis for concluding that the contracting officer’s determination was unreasonable,” GAO wrote.

IBM and Booz Allen had plenty of opportunities to tell DLA that the employee was ignorant of the plan to compete for the contract, GAO said.

Telling them after the determination has been made, just doesn’t cut it, and when you read how extensively he was involved in the development of the contract and solicitation, his being in the dark may not have made a difference anyway.

Booz Allen said that they wrote a letter to DLA making a formal request for an OCI determination regarding this person but DLA never acknowledged or addressed the request.