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By Nick Wakeman

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Nick Wakeman

How M&A issues can derail how proposals are evaluated

Serco Inc. is embroiled in a protest battle involving the impact mergers and acquisitions can have on the competition for contracts, or at least how contracts are evaluated.

A potential $400 million Navy contract is at the center of a battle that involves an incumbent and former division of Alion Science & Technology that Serco's North American subsidiary acquired.

Several details are still unknown and the companies aren’t talking but this is what I’ve been able to gather.

In May 2019, Serco Inc. announced it would acquire a portion of Alion’s Navy business. In June, that part of Alion bid on a contract to provide the Navy with program management, acquisition, engineering and other support for a group of amphibious transport ships.

In August, Serco Inc. closed the deal for the Alion business. In October, the Navy awarded the contract to the Alion business now owned by Serco Inc..

Then in November, incumbent ICI Services Corp. filed a protest. They had held the contract since 2014 and that was worth $440 million, according to Deltek.

In January, the protest was dismissed.

Now Serco-Alion has filed a protest after it was eliminated from the competition because of that very M&A transaction.

We’ve seen a few contracts go off the rails for companies when the evaluation of the proposals overlaps with a transaction.

That lightning struck twice for Leidos. They lost a $564.3 million contract with the Army Corps of Engineers in 2016. The contract had been held by the Lockheed Martin business that Leidos acquired. Lockheed was pursuing the recompete while the Leidos transaction was underway. The Corps ruled that it was too risky to award to them again.

While that took place, a Leidos subsidiary won but eventually lost a $5 billion contract to help the Energy Department manage the Nevada National Security Site. DOE first made an award to Leidos, then pulled it back after claiming Leidos did not detail in its proposal anything about the transaction with Lockheed. The agency let all bidders submit revised proposals and the award went to a Honeywell-led joint venture.

In 2014, Wyle won a protest when it said that the split of the old Science Applications International Corp. into Leidos and New SAIC substantially changed the “entity” that was bidding on a $1 billion NASA contract.

That decision seems to be the one that is guiding the Navy in this Serco-Alion protest.

Think about the timeline of the Alion bid. It submitted the bid and while that was being evaluated by the Navy, the business was sold to Serco Inc. Then the Navy awarded the work to the Alion business that was now owned by Serco.

ICI and the Navy seem to be arguing that the entity which bid on the work no longer exists. It is now part of some new entity, which is not the entity that submitted the bid.

In essence, it seems the Navy is saying that Serco-Alion can't be considered because they didn’t exist when the proposal was submitted.

I’ll admit to filling in some gaps. A source told me that the exclusion of Alion's had to do with the transaction with Serco.

So I started looking at the timing of the proposals and when the deal closed. Then I looked back at the previous Leidos situations, which led me to Wyle.

The Navy hasn’t responded to the Serco-Alion protest yet. Alion declined to comment and Serco hasn’t responded to a request for comment.

The protest was filed April 9 and a decision is expected July 20.

I’ll file an update when we learn more.

Posted by Nick Wakeman on Apr 13, 2020 at 9:41 AM

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