Page 14 - GovCon M&A Blog Articles

Government Contracts & Investigations Blog
Thus far in this ten-part series, we have discussed whether and how existing contracts with the Government can be transferred to the buyer or surviving entity when an acquisition, merger, or consolidation occurs. Today, we leave the world of existing contracts and turn to bids and proposals that are pending when the deal closes. What happens to those as-yet-unaccepted offers? Is there anything you can do to enhance the likelihood that the Government will be willing to accept such offers notwithstanding the organizational change? And, if you are in second place when the award is made to a “reorganized” offeror, are there possible protest grounds lurking in the deal that you could assert to obtain the award?
As a threshold matter, the anti-assignment acts that we discussed in our prior postings apply to contracts only. Nothing in the language of the statutes suggests their applicability to bids or proposals. The Government Accountability Office, however, has long applied the principles applicable to the transfer of contracts under those statutes to bids and proposals. E.g., Numax Electronics, Inc., 54 Comp. Gen. 580 (1975), 75-1 CPD ¶ 21. As stated in Ionics Inc., B-211180, 84-1 CPD ¶ 290:
The transfer or assignment of rights and obligations arising out of proposals is permissible only where the transfer is to a legal entity which is the complete successor in interest to the offeror by virtue of merger, corporate reorganization, the sale of an entire business, or the sale of an entire portion of a business embraced by the proposal.
This rule is applied with equal force by the Court of Federal Claims, L-3 Communications Integrated Systems, L.P. v. United States, 84 Fed. Cl. 768 (2008), and finds expression as well in the Federal Acquisition Regulations, FAR 14.404-2(l).
It seems like such a simple rule. What could go wrong? Several things. For example, the Government can reject the bid or proposal, even if it was acquired in connection with a transfer of all of the assets of the transferor, if the transferor’s assets were not substantial. In such a case, the transaction will likely be viewed as a sale of the bid or proposal, and nothing more, and trafficking in Government contracts is, after all, one of the evils at which the anti- assignment acts are directed. Mil-Tech Sys., Inc. v. United States, 6 Ct. Cl. 26, 34 (1984); see also Premier Security, B-275908, July 14, 1997, 97-2 CPD ¶ 15 (sustaining a protest where the other assets of company were of negligible value).
Mil-Tech is a particularly interesting case because it involved a stock sale. Technically, the identity of the offeror had never changed; there was no transfer of the offer from one company to another, only a transfer of stock from one shareholder to another. But, the facts reveal the basis for the decision – the Small Business Administration had denied Mil-Tech a Certificate of Competency because its sole shareholder was on probation for a misdemeanor tax violation. The shareholder sold his stock to his brother for a nominal sum, which plainly suggested that the “meat” of the transfer was the pending Mil-Tech offer. Reviewing the record, the contracting officer rejected the offer. Reviewing that same record, the GAO found that there had been no “transfer” of the bid because Mil-Tech had been, and remained, the bidding entity, and sustained Mil-Tech’s protest. On reconsideration, the GAO reversed its initial decision. When Mil-Tech took the matter to the Court of Federal Claims, the COFC sided with the agency. The facts and procedural history of Mil-Tech give life to the proposition that “decisions regarding matters of corporate status and restructuring are highly fact-specific, and turn largely on the individual circumstances of the proposal transactions and timing.” IBM U.S. Federal, B-409806 et al., Aug. 15, 2014, 2014 CPD ¶ 241.
Leaving aside idiosyncratic fact patterns like the one reflected in Mil-Tech, the key requirement for the recognition of a transferred bid or proposal is that the original offeror (or the transferred unit of the offeror) remains intact with access to the same resources and with an intention to honor the performance commitments made in the proposal.
What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers | 11 Volume III — What Happens to Pending Proposals?