Novation issue nixes bid for Army logistics work

They usually don’t make big headlines but it isn’t unheard of for one company to sell a contract to another company.

Technically these are asset sales, where one company purchases the business unit of the other company that is doing the work under the contract.

Pretty straight forward or so one would think.

STS International signed an agreement in June to buy Engility Corp.’s unrestricted spot on the Army’s Joint Enterprise-Contracted Logistics and Services Support contract. STS already had a small business contract on that IDIQ vehicle.

The last step was for the Army to novate the contract and change the name from Engility to STS.

Meanwhile, the Army issued a solicitation for a task order for logistics support for the Army Materiel Command. STS has been doing that work for years, Vice President of Operations David Morgan told me.

STS and Engility decided to submit a joint bid with Engility as the prime, but STS would do the actual work. The idea behind it was that once the Army novated the contract, STS would have the award all to itself.

STS told the Army contracting officer of its plan but there is a dispute over happened next, according to a Government Accountability Office decision on Engility’s protest.

Both companies say the contracting officer gave his seal of approval for the strategy. The Army says that while they were informed, they weren’t asked to approve it and they didn’t.

And that is where things fell apart, because the Army declined to novate the contract.

Because of that, the Army says it didn’t know who the real prime was because the proposal came under Engility’s name but STS was going to do all of the work. In the Army’s mind, this created some ambiguity: who is the real prime?

The Army rejected the Engility-STS proposal, and they filed a protest.

“Uncertainty as to the identity of an offering entity renders an offer technically unacceptable, since ambiguity as to the offeror’s or vendor’s identity could result in there being no party that is found to perform the obligations of the contract,” GAO wrote in its decision denying the protest.

GAO also rejected the argument that even with the denied novation, Engility was still a prime on the contract so the proposal should go forward. Again, GAO backed up the Army’s position that the proposal was ambiguous.

The Army also argued that the proposal made it clear that STS was going to be the prime but because STS only held a small business spot on the contract it wasn’t qualified to bid on an unrestricted task order.

But STS would have had an unrestricted spot if the Army had novated the contract. It’s almost a Catch-22.

It is still a mystery on why the Army didn’t novate the contract. The best Morgan has gotten out of them, he says, is that the novation would violate the terms and conditions of the contract.

Novations of contracts do not fall under GAO’s purview so they didn’t review why the Army decided not to novate the contract.

Engility also is in the midst of being acquired by Science Applications International Corp., which Morgan said he didn’t think would have much impact. Engility declined to comment.

The deal with Engility is still in place and Morgan said he is still pushing to get the contract novated. That’s a top priority.

“We’ve spent a lot trying to get this done,” he said.