The limits of the incumbency advantage
Happy 2025, everyone![1]
A prevailing belief in federal contracting is that it's tough to unseat an incumbent. As some colleagues put it:
An established incumbent brings institutional knowledge, existing federal stakeholder relationships, experienced on-site personnel, and leadership buy-in – all presumably resulting in a lower risk transition to the federal customer.
Because past performance data is not publicly available and because incumbents have the inside track, a challenger needs to put together strong "win themes" to get the contract.
For example, you might think that a winning strategy is to underbid the incumbent on price. You might reason that the government loves a good cost-savings story, so if you can deliver the same work for less money than the incumbent currently makes, you can swoop in and win.
Conversely, you might think that the winning strategy is to go in the opposite direction and give the customer a significantly higher level of service for a higher price. You might reason that the government's been driving a no-frills Mazda 5 for the past two decades, so maybe the government's willing to shell out a bit more taxpayer dough to enjoy a heated steering wheel in a luxury SUV.[2]
The point is that you need to have a coherent strategy to win.
Which brings me to a recent GAO decision in Guidehouse Inc.
The setup here is pretty straightforward. For a number of years, Guidehouse has been providing "advisory services" to the support the Chief Financial Officer of the the Office of the Director of National Intelligence. We don't know a whole lot about the contract—because it's classified—but we do know this:
On November 10, 2021, the agency, using the procedures of Federal Acquisition Regulation (FAR) part 15, issued the solicitation to support the IC CFO with an acquisition referred to as “Treasure Trove.”[3]
And we know that Guidehouse and four other companies bid on it. We also know that KPMG LLP managed to unseat Guidehouse, leading to the protest.
How did KPMG bid? Did they undercut Guidehouse? No, they did not. Recognizing that the government would weight non-cost factors over price, KPMG went big. Where Guidehouse came in at $29.4 million, KPMG came in at $53 million, nearly doubling the incumbent's bid.
How did KPMG win? By beating Guidehouse on every non-cost factor: technical approach (exceptional vs. very good); management approach (very good vs. acceptable); and past performance (significant vs. marginal).
So much for an incumbency advantage? Normally, an incumbent has the edge because of the institutional knowledge about the customer's situation. But Guidehouse took it a bit further and sought a formal incumbency advantage in the evaluation of its proposal. Here's how GAO described it:
According to the protester, the agency was obligated to recognize Guidehouse’s advisory support approach as a significant strength because Guidehouse has successfully performed the incumbent contract and can leverage the relationships and expertise gained as the incumbent to continue to benefit the agency. Our Office, however, has repeatedly found that there is no requirement that an incumbent be given extra credit for its status as an incumbent, or that an agency assign or reserve the highest rating for the incumbent offeror. Nor does the offer of incumbent personnel entitle a proposal to special consideration or necessitate a higher rating than other offerors.
Legally speaking, there's no incumbency bonus! In a recompete, you still have to compete on an even playing field. Again, GAO here:
[A]lthough the protester disclaims that it is demanding credit for its incumbent experience, we find that these arguments, at their core, amount to a request that our Office should substitute the protester’s judgment for the agency’s because Guidehouse’s experience with performing the incumbent contract puts the firm in the best position to determine how well its proposal meets the RFP’s requirements. We decline to do so.
Ouch.
That's where we'll leave it today: to unseat an incumbent, you need a coherent strategy to win. And one winning strategy might be to beat the incumbent by giving the government more than what it's getting, even at a significant price premium.
But, as it turns out, that's not the end of the story, because Guidehouse won the protest! Next week, we'll talk about how it won, and we'll cover another important lesson about labor category mapping.
To be continued...
[1] Fiscal year 2025, that is. Also, for my Jewish readers, happy 5785!
[2] I mean, as a Wisconsin resident in the final quarter of the calendar year, this feels a bit too real.
[3] Really? Treasure Trove?! I mean, come on. Was "boondoggle" taken? What about "panopticon" or "total information awareness"? If ever there was a procurement title more likely to trigger both POGO and ACLU, please email me.