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Agency Failure to Consider Impact of Corporate Transaction Renders Award Decision Infirm

Client Alert | 2 min read | 01.12.22

The acquisition and consolidation of government contractors has become increasingly prevalent in recent years. GAO’s recently released decision in Vertex Aerospace, LLC, B‑420073, B-420073.2, Nov. 23, 2021, serves as an important reminder to contractors that failure to properly update a procuring agency about such transactional activity can have adverse impacts on a pending proposal, even where a transaction is structured/intended to have no impact upon a contractor’s proposed performance. In Vertex, GAO sustained a protest challenging an Air Force task order award due to the agency’s failure to “meaningfully consider” the impact of the awardee’s acquisition by another company during the pendency of the procurement.

In late 2020, DynCorp was awarded an IDIQ contract. Shortly thereafter, Amentum Government Services Holdings, LLC (“Amentum”), acquired all of the outstanding shares of DynCorp’s former parent holding company, resulting in DynCorp becoming Amentum’s wholly owned subsidiary. In December 2020, DynCorp submitted a proposal in response to a task order solicitation under the IDIQ contract. While DynCorp’s proposal was pending and before award, DynCorp submitted documentation to DCMA requesting novation of its IDIQ contract to Amentum. DCMA, in turn, provided a copy of the novation agreement to the Air Force during its evaluation of DynCorp’s proposal. Nonetheless, the Air Force completed that evaluation without considering what impact, if any, the Amentum acquisition would have on DynCorp’s ability to perform. After the Air Force awarded the task order to DynCorp, Vertex protested, alleging, among other things, that the Air Force’s failure to consider that specific question was in error.

GAO sustained the protest. In so doing, GAO noted that DynCorp’s proposal made no mention of its recent acquisition, nor did the agency’s evaluation record or source selection documentation make any reference to the acquisition or its potential effect on DynCorp’s performance. GAO also rejected the Air Force’s post-protest explanation that the acquisition would have no impact on DynCorp’s performance, noting the lack of detail in the contemporaneous record explaining how the integration and consolidation of contract performance activities between the two companies would be accomplished to ensure that the resources and employees needed for the contract would be available. As a result, GAO held the record was insufficient to support a conclusion that the agency meaningfully and reasonably considered the effect of the corporate transaction on the awardee’s ability to perform the task order.

Significantly, GAO stressed that decisions regarding matters of corporate status and restructuring are highly fact-specific, and turn largely on the individual circumstances of the proposed transactions and timing. With that in mind, companies undergoing corporate transactions should work closely with experienced government contracts counsel to determine the best way to minimize the impact such transactions may have on pending proposals, to affirmatively notify agencies of such transactions, and to provide sufficient assurance—prior to an agency’s award decision—that such transactions will not impact the offeror’s proposed performance. 

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Client Alert | 6 min read | 03.26.24

California Office of Health Care Affordability Notice Requirement for Material Change Transactions Closing on or After April 1, 2024

Starting next week, on April 1st, health care entities in California closing “material change transactions” will be required to notify California’s new Office of Health Care Affordability (“OHCA”) and potentially undergo an extensive review process prior to closing. The new review process will impact a broad range of providers, payers, delivery systems, and pharmacy benefit managers with either a current California footprint or a plan to expand into the California market. While health care service plans in California are already subject to an extensive transaction approval process by the Department of Managed Health Care, other health care entities in California have not been required to file notices of transactions historically, and so the notice requirement will have a significant impact on how health care entities need to structure and close deals in California, and the timing on which closing is permitted to occur....