Discretion in Procurement: The GAO Finds for the Government

by Bilzin Sumberg
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The Government Accountability Office (“GAO”) issued a decision that could be used by government agencies to support “all encompassing” RFPs, or RFPs that require one bidder to provide several products and services even if, in so doing, bidders that can provide one aspect of the RFP – but not all aspects of the RFP – are restricted from competing.

In Matter of Palantir USG, Inc., Palantir, a provider of sophisticated commercial technology, argued that an Army procurement “unduly restricted competition” when it only allowed bidders that met all requirements of an extremely specific and detailed RFP to compete. The RFP was for a new computer system specially equipped for the Army. Palantir partially met the RFP’s requirements, but argued that the Army should have used a phased approach for its procurement. The phased approach would first open competition for purchase of the software platform to commercial providers like Palantir, and then a separate procurement would open competition for the service component of the RFP. Without a phased approach like this, Palantir and other commercial technology distributors would not be qualified to compete.

Palantir asserted that the Army must comply with a federal statute that establishes a preference for acquiring common commercial items that are sufficient to meet the needs of a government agency. The federal statute was codified into the FAR, requiring that agencies use solicitation terms that closely resemble the commercial marketplace when procuring commercial items. The FAR further directs agencies to conduct market research before issuing an RFP to determine whether commercial items are available to meet the agency’s requirements. According to Palantir, it should have an opportunity to compete for the Army’s contract as it is a commercial supplier of a product that meets the Army’s specifications.

The GAO disagreed with Palantir. While Palantir’s product met some of the RFP’s specifications, no commercial product exists that could meet all requirements of the RFP. Palantir could not show that the Army’s decision to require one contractor for the entire RFP was unreasonable, which is the necessary threshold to find that the Army’s decision to reject Palantir was incorrect. Additionally, the GAO reiterated that a contracting agency has the discretion to determine its needs and best methods to accommodate them.

The Army’s approach was reasonably related to its goal in procuring a fully integrated computer system made up of a number of specific capabilities, some of which were commercially available and some of which were not. Although the Army did consider a phased approach like that which Palantir suggested, it ultimately found that it would have a greater likelihood of success by requiring a single contractor to handle all components of the RFP.

What does this case mean for procurement in the future? Broadly, the Palantir case stands for the proposition that government agencies are given a lot of leeway in deciding how they want to handle their procurements, so long as the terms of the procurement are reasonable.

More narrowly, this case also stands for the proposition that government agencies have approval to bypass procurement with commercial suppliers for products that may be sufficient to meet an agency need and to, instead, procure with contractors that are able to customize one product or service that satisfies several agency needs at once. Thus, even if an RFP can be satisfied by three separate commercial suppliers that each contribute some aspect to an RFP’s scope of work, an agency is free to issue an RFP that requires one contractor to perform the entire scope of work alone.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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