GAO rejects Leidos again in fight over $564M Army Corps of Engineers contract

Leidos has lost a second chance at an Army Corps of Engineers contract because the corps said the company’s takeover of Lockheed Martin’s IT business made picking them too risky.

Science Applications International Corp. won the $564.3 million contract. Lockheed had pursued the contract while it was divesting the information systems and global solutions segment being acquired by Leidos.

The Army Corps of Engineers cited the transaction and standard risk disclosures that were part of the transaction for finding the Lockheed IS&GS-Leidos combination as too risky. They cited the press release section titled" Cautionary Statement Regarding Forward Looking Statements" that was released by Leidos.

The section talks about uncertainties involving the merger of Leidos and IS&GS. They described uncertainties such as business disruption, operational problems, financial loss and legal liability.

The warnings are commonplace in Securities & Exchange Commission filings and are meant primarily for investors. But the Army Corps of Engineers read those and were very concerned. The Army even added $7.275 million to the price Leidos (then known as Lockheed) had bid.

GAO backed up the Army’s position in its decision last October, which I wrote about at the time.

Leidos subsequently asked GAO for a reconsideration, which GAO has now denied.

Leidos argued that GAO’s decision wasn’t consistent with other earlier decisions that involved bid protests and merger-and-acquisition activity. But the earlier decisions that Leidos cites were decisions where GAO said the agencies had not considered the impact of an acquisition.

In this case, GAO said the opposite was true and the Army did consider the acquisition. Uncertainties over the acquisition also evidently factored into Leidos not winning the contract to manage the Nevada National Security Site as we covered here in July.

Leidos also raised other issues from its original protest against the Army's decision such price realism but GAO said the company was just re-litigating points it had already lost on and wasn’t demonstrating any errors of fact or law.

So GAO is done with this but Leidos still has the option to go to the Court of Federal Claims.

I reached out to Leidos but they declined to comment on next steps because this is potential legal matter.

So maybe they go to court. It would be interesting to see how they rule about the Army Corps of Engineers applied the information it found in the forward-looking statement required by the SEC.

If the decision stands, I would imagine that any company bidding on a contract while also going through an acquisition will need to address those risk factors in their proposal.

Or somehow communicate that with the customer.