Rob Sneckenberg

Everyone can agree that professional employees should be compensated fairly and properly—both for the benefit of the employees and to ensure successful contract performance. However, a recent GAO decision could provide a loophole for agencies to forego the very evaluation designed to ensure that fair and proper compensation.

Contractors competing for work involving meaningful numbers of professional employees—and, in particular, incumbents seeking to prevent newcomers from undercutting their established professional compensation—should take note.

FAR 52.222-46 and the Requirement to Evaluate Professional Compensation

The FAR recognizes the importance of professional compensation. Thus, FAR 22.1103 requires agencies to include clause FAR 52.222-46 (“Evaluation of Compensation for Professional Employees”) in solicitations for negotiated contracts that are expected to exceed $700,000 and require a meaningful number of professional employees.

FAR 52.222-46, in turn, requires offerors to submit a total compensation plan setting forth proposed salaries and fringe benefits. The Government, then, must evaluate whether each offeror’s plan reflects a sound management approach and an understanding of the contract requirements. Notably, there are two parts to this required evaluation.

  • First, the Government must assess the offeror’s ability to provide uninterrupted high-quality work, considering the impact the proposed compensation will have on “recruiting and retention, . . . realism, and . . . consistency with a total plan for compensation. Supporting information will include data, such as recognized national and regional compensation surveys and studies of professional, public and private organizations, used in establishing the total compensation structure.” FAR 52.222-46(a).
  • Second, the Government must evaluate whether the proposed compensation structure is sufficient to “obtain and keep suitably qualified personnel to meet mission objectives.” And, for “proposals envisioning compensation levels lower than those of predecessor contractors for the same work,” the Government must specifically evaluate whether the lower compensation will be sufficient to “maintain[] program continuity, uninterrupted high-quality work, and availability of required competent professional service employees.” FAR 52.222-46(b) (emphasis added).

Both aspects of this required evaluation ensure that professional employees will be fairly and properly compensated. And the second prong, in particular, ensures that non-incumbent offerors can’t dramatically reduce professional compensation without attracting scrutiny.

The Arch Systems Loophole

Notwithstanding the mandatory language of FAR 22.1103 and FAR 52.222-46, GAO recently identified a scenario where agencies may skip a professional compensation evaluation.

Arch Systems, LLC; KEN Consulting, Inc., B-415262, B-415262.2, Dec. 12, 2017, 2017 CPD ¶ 379, involved a procurement for a contractor to evaluate workers’ compensation proposals in connection with the Medicare program. The solicitation called for the award of a single fixed-price contract, and included FAR 52.222-46.

After the agency awarded to a lower-evaluated contractor at roughly half Arch Systems’ price ($112 million vs. $61 million), Arch Systems protested, alleging in part that the agency’s FAR 52.222-46 professional compensation evaluation was unreasonable.

The agency apparently conceded that it did not conduct any FAR 52.222-46 analysis. However, it argued that none was required because the solicitation did not require offerors to submit compensation plans and none of the offerors submitted such plans. The agency also argued that the solicitation only required offerors to submit fixed unit prices, which, standing alone, would not have allowed the agency to evaluate professional compensation.

GAO agreed with the agency. Specifically, GAO held that “[b]ecause the RFP did not require offerors to submit information concerning professional compensation, we conclude that the protester cannot demonstrate that the agency unreasonably failed to evaluate professional compensation as required by FAR provision 52.222-46.” In a footnote, GAO also commented that any challenge to the solicitation’s failure to request the proposal information necessary for a FAR 52.222-46 analysis would now be untimely.

Thus, despite the agency’s conceded failure to conduct an ostensibly required analysis, the protester was out of luck.

Takeaways

While it’s certainly true that an agency can’t evaluate proposal information that is not submitted by offerors, there’s an undeniable tension when the solicitation should have required such information. After all, FAR 52.222-46 exists for a reason—to protect both professional employees and the Government agencies relying on their services.

Yet, Arch Systems demonstrates that GAO will side with an agency where a solicitation fails to request the necessary information and offerors fail to challenge that omission pre-award. Thus, the onus is on offerors—and particularly incumbent offerors—to review the entire solicitation before proposal submission and ensure that it contains (and requires) all necessary information.

Incumbent contractors, in particular, should (1) review their service contract solicitations for FAR 52.222-46 and (2) confirm that the solicitations request adequate proposal information to conduct that analysis. If, as in Arch Systems, a solicitation is lacking, then this can easily be remedied in pre-proposal Q&As or even a pre-award protest, if necessary. However, an incumbent cannot simply sit back and let other offerors come in with lower compensation, expecting that the Government will evaluate professional compensation. If the right proposal information isn’t required, the FAR 52.222-46 analysis may not be conducted.