In Re: Chronos Sols.-The GAO Indicates That COVID Related Contract Changes Can be Material Changes
In Chronos Sols., LLC, the GAO determined its first COVID-19 case in September of 2020 where it sustained a protest because the U.S. Department of Housing and Urban Development (“HUD”) did not consider, nor acknowledge, the significant changes occurring around the globe from the impact of COVID-19 that could materially affect the contract.
HUD functions through the Federal Housing Administration, and is responsible for administering insurance programs for single-family mortgages. They are widely known for their community planning and development, as they assist making housing affordable for the homeless. They also strictly enforce and help combat against housing discrimination of many kinds. Because of their vast outreach, HUD is the largest single seller of real estate in the United States.
This case is especially important due to the nature of COVID-19. This is the first instance where the GAO had to intervene and ensure that government contracts are remaining fair and considering the out-of-control changes that COVID-19 has inflicted. The GAO states that, under the Federal Acquisition Regulation (“FAR”), an agency must consider materially significant changes to a solicitation and allow the offerors to respond to such changes before an award is made. This includes indefinite-delivery, indefinite quantity (“IDIQ”) contracts, which is the type of contract that the HUD was using here.
HUD requested offerors to bid on a contract containing 11 different IDIQ contracts. Each had a guaranteed minimum and maximum amount based on the estimated work. However, HUD had a duty to modify the minimum and maximum amounts prior to the award considering COVID-19 materially and significantly changed the nature of the contract. The GAO concluded:
The changing circumstances resulting from the COVID-19 pandemic, as evidence in part by the enactment of the CARES Act and HUD’s own policies on the single-family mortgage insurance program, represent a material departure from the assumptions set forth in the solicitation. These circumstances have prompted the agency to make a reasonable effort to reconsider its needs and estimates.
Chronos Sols., LLC, B- 417870.2 et al., 2020 CPD ¶ 306 at *14 (Comp. Gen. Oct. 1, 2020). HUD did not contract for these changes, nor did it allow the offerors to respond to clarify what was possible to complete at the time and under these new circumstances. It is known that IDIQ contracts must be estimated in good faith and based upon the best available information. Thus, contracts and solicitations must take reality into consideration, such as any material changes that would affect the implementation of a contract or the negotiation process itself. When HUD failed to do this, it violated the FAR.
The COVID-19 pandemic is certainly a material and significant change that has affected the housing market. It was necessary for HUD to not only acknowledge COVID-19 in the contract, but to make changes as necessary to ensure compliance with the FAR. HUD did not comply with the FAR requirement, which is why the GAO sustained the protest and implemented a ruling on the importance of complying with these regulations during the COVID-19 pandemic.
Chelsea A. Padgett, Esq. is an associate attorney with Ward & Berry, PLLC. Ms. Padgett attended law school at the University of Florida Levin College of Law and is licensed to practice law in the Commonwealth of Virginia and Florida.