Lockheed loses fight to keep contract it won twice

Lockheed Martin twice won a contract for development and maintenance of the software platform to monitor cargo entering the United States. And twice, it had the contract take away.

Now it looks like the company will have to compete a third-time if it wants to wrestle the contract away from the incumbent, IBM Corp. The Government Accountability Office denied Lockheed’s bid protest of the Homeland Security Department’s decision to cancel the contract and start over.

Lockheed had been a subcontractor on the original $5 billion Automated Customs Environment contract held by IBM since 2001. That massive contract has been broken apart over the years as individual portions of the contract were recompeted.

For this task order, Lockheed was going up against IBM and Avaya, with IBM being the incumbent. DHS was competing it under Schedule 70 for IT services.

Lockheed first won the contract with a $67.8 million bid in July 2013. IBM and Avaya filed protests with the Government Accountability Office, and DHS backed off the award to take a corrective action.

DHS amended the solicitation and accepted revised bids. Lockheed won again with a $78 million bid in July 2014. And again, IBM and Avaya filed protests.

But this time, IBM argued that the agency’s needs had changed significantly since the solicitation was issued and that the contract no longer reflected what the agency needed.

The contracting officer told GAO that it was through IBM’s protest that he learned that another contracting officer had issued a modification to IBM’s contract. When he learned about the modification, he contacted the program office for more information about the additional services and IBM’s protest allegations.

The program office then requested that the procurement office cancel the contact because the solicitation no longer reflected the support DHS was looking for. That was on Aug. 25, 2014.

When DHS canceled the contract and basically went back to square one, it also issued a sole-source contract extension to IBM on Sept. 8, so it could continue to support the Automated Customs Environment. The six-month extension would give DHS time to develop a new contract.

Lockheed protested both the cancelation and the extension of IBM’s contract. GAO denied both parts of the protest.

So, what happened that so drastically changed what DHS was doing that it felt it couldn’t move forward with an amendment to the original solicitation?

Well, according to the GAO decision, the original solicitation anticipated that 70 percent to 85 percent of the work would be operations and maintenance work on the Automated Customs Environment platform and 15 percent to 30 percent would be enhancement work to transition from the old platform, known as the Automated Commercial System.

But what the amendment made the contracting officer and the program management office realize is that the opposite was true – 70 percent of the effort would be to support the transition from the old platform to the new. Only 30 percent would be for the operations and maintenance work on the Automated Commercial System.

The contracting officer told GAO that these were “foundational changes” to the agency’s requirements.

Lockheed argued that the original solicitation included the mix – though at different proportions – of O&M work and development work, so the changes were feasible under the original solicitation. But GAO sided with the agency, saying the "cancellation was unobjectionable."

On the issue of the extension of IBM’s contract, Lockheed argued that it had personnel on site that could do the required work. But GAO again sided with the agency that there would still transition time and there was too much risk of DHS going without support.

I can’t really criticize GAO’s decision, but what DHS has done is problematic and emblematic of the issues we are facing in the market.

It’s a little befuddling to me that there was such a disconnect at DHS. In 2012, when it released the solicitation, it expected one mix of work, and four years later, that mix changed. That’s OK. Things over time often don’t develop as you expect.

But the fact they didn’t know how much the requirements had changed until a bid protest pointed out it out to them makes me wonder who’s paying attention over there.