9101006675_6dfba6afa4_kSea Sheppard Conservation Society (“Sea Sheppard”) recently found itself in the unfortunate situation of being in an auction bidding war against a single ineligible bidder in a General Services Administration (“GSA”) auction, resulting in Sea Sheppard having to pay a substantially higher sum for two vessels than if only eligible buyers had been allowed to participate in the auction.  Sea Sheppard submitted a claim contending that it should have been permitted to buy the vessels at lower prices than those it actually paid, because it was required to raise its own bid solely to beat out bids submitted by an ineligible bidder.  In denying Sea Sheppard’s claim on appeal, the U.S. Civilian Board of Contract Appeal (“CBCA”) may have created a real dilemma for future contractors bidding in government auctions.

In December 2014, the GSA listed for sale two Coast Guard vessels via an online auction.  As a condition to participate in the auction, all bidders were required to recognize that the sale was subject to specific Terms and Conditions (Standard Form 114C, April 2001).  Under the “Eligibility of Bidders” provision, the Terms and Conditions generally required bidders to: (a) be over 18 years of age; (b) not be a government employee of certain agencies or relative of same, and (c) not be debarred.  The Terms and Conditions also stated that bidding was not limited to U.S. Citizens, but some items would only be sold to U.S. Citizens.  Also, the Terms and Conditions put bidders on notice that all property was subject to all applicable export laws and regulations, including International Trafficking in Arms Regulations (“ITAR”) 22 CFR Part 120, et seq.

Sea Sheppard participated in the auction, ultimately against one other bidder (“Bidder 2”).  On the first vessel, the Pea Island, Sea Sheppard started with a bid of $100,000, and after submitting multiple bids, ultimately outbid Bidder 2 at $275,800.  On the second vessel, the Block Island, Sea Sheppard also started with a bid of $100,000, with its last bid being $155,100, before being outbid by Bidder 2.

Subsequently, the GSA determined that Bidder 2 was ineligible because it was not a U.S. Citizen.   Thus, GSA offered the Block Island to Sea Sheppard as the next highest bidder, at $155,100.  Sea Sheppard requested a price of $100,000, but that was rejected by the GSA contracting officer.  Sea Sheppard accepted the Block Island at $155,100.

Sea Sheppard then submitted a claim to GSA in the amount of $175,800, the price difference between its opening bid and the ultimate bid price for the Pea Island.  Sea Sheppard similarly made a claim for $55,100 in relation to its purchase of the Block Island.  Sea Sheppard’s argument was that Bidder 2 should not have been allowed to participate in the auction.  Therefore, all of Bidder 2’s bids, which Sea Sheppard was forced to counter, should be invalidated and the price should be Sea Sheppard’s opening bids of $100,000 each.  

Sea Sheppard argued that GSA may only dispose of government property to a responsible bidder submitting a responsive bid.  Further, a responsive bid must comply with the Terms and Conditions of sale.  Sea Sheppard claimed a bid by an ineligible bidder cannot be a responsive bid because the ineligible bidder cannot meet the terms and conditions for sale due to the ITAR restrictions.  Finally, Sea Sheppard argued that 41 CFR 102-38.75(a) required the sale of property on terms that promote “fairness” and “openness.”

After the contracting officer rejected Sea Sheppard’s claim, Sea Sheppard appealed to the CBCA, which denied the appeal and refused to reform the contract.  The CBCA reasoned that the requirements for bidding in the auction did not require U.S. Citizenship, only the ultimate sale required citizenship:

GSA faithfully followed all of these provisions by allowing a non-citizen to participate in the bidding and then, once it learned of the bidder’s citizenship, preventing that bidder from purchasing the vessels. The predicament in which [Sea Sheppard] found itself – having to pay more for the vessels than it would have if the other bidder had not participated – is unfortunate for the organization, but sanctioned by the rules of the auction in which it chose to join.

A government contract may be reformed to correct errors caused by an agency’s violation of regulations issued for the benefit of contractors. … Nevertheless, such “contracts are [not] readily subject to change after performance. The law and precedent of contract and procurement require some grave error or mutual mistake or changed circumstance, such as would render it unconscionable for the government to require performance of the original terms.” … Compliance with auction terms and conditions, even if detrimental to the interests of one of the bidders, is hardly the sort of “grave error or mutual mistake or changed circumstance” which might merit reformation.

The practical impact of this decision should be somewhat scary to contractors bidding in government auctions.  This decision appears to support an argument that if the government, in good faith, allows an ineligible bidder to participate in an auction, and that ineligible bidder causes other eligible bidders to inflate their bids and ultimate pay more to the government as a result, the government can retain the spoils because it was acting in good faith.  This seems to unfairly place the burden on the contractor to determine whether its competition is eligible for award, or to later prove that the government knew or should have known that the other bidder was ineligible for award.  The CBCA’s narrow application of the unconscionability doctrine appears to have ignored the practical impact of its decision.

Image adapted from flickr (licensed) by Olivier Duquesne