When are Bid and Proposal Costs Recoverable?

Bid and proposal costs can be expensive.  Many contractors wonder whether they can recover bid and proposal cost incurred while preparing to submit their bid.  The answer is sometimes.

 Many companies fail because they do not fully understand the legal requirements. It often depends on whether or not there was a government error that caused the contractor to incur unnecessary costs.  

Bid pricing and proposal costs incurred as a result of federal proposal writing “can be awarded by courts as an appropriate way to try to compensate, at least in part, a victim of unjust government action during the procurement process.”  Centerscope Technologies v. United States, 115 Fed. Cl. 734 (2014).

When are Bid and Proposal Costs Recoverable Under 28 USC 1491 ?

Three conditions must be satisfied in order for recovery of bid and proposal costs under 28 USC 1491:

  1. The agency has committed a prejudicial error in conducting procurement,
  2. That error caused the protestor to incur unnecessary bid and proposal costs, and
  3. The costs to be recovered are both reasonable and allocable (incurred specifically for the contract in question)

If the above conditions are satisfied, and either contract performance has begun or proposal reevaluation is not practical, then proposal and proposal cost should be recoverable.  See Beta Analytics Int’l v. United States, 75 Fed. Cl. 155 (2007).

Recovery for bid and proposal cost incurred during federal proposal writing is a proper remedy when a contractor’s proposal evaluation is flawed and this resulted in prejudice to the contractor.

Recent cases show that contractors have been able to recover over $50,000 (Klinge Corp. v. United States) and even over $100,000 (Beta Analytics). 

Further, if a contractor is successful in a bid protest case, the court may award any relief that it considers proper, but monetary relief must be limited to bid and proposal cost recovered.  28 USC 1491 (b)(2).

Statutory Language 28 USC 1494(b) – are bid and proposal costs allowable?

(1) Both the United States Court of Federal Claims and the district courts of the United States shall have jurisdiction to render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement. Both the United States Court of Federal Claims and the district courts of the United States shall have jurisdiction to entertain such an action without regard to whether suit is instituted before or after the contract is awarded.
(2) To afford relief in such an action, the courts may award any relief that the court considers proper, including declaratory and injunctive relief except that any monetary relief shall be limited to bid preparation and proposal costs. 
(3)In exercising jurisdiction under this subsection, the courts shall give due regard to the interests of national defense and national security and the need for expeditious resolution of the action.

When Aren’t Costs Allowable?

If the bid and proposal costs wasted on the initial procurement become necessary in the second procurement.  i.e., you can reuse the materials already prepared for the second procurement.  The contractor may be able overcome this by showing that they were unable to participate in the second procurement. 

This may be shown, for example, if you are unable to certify that you are a small business under the NAICS code for the second procurement.  Centerscope Technologies.

When submitted proposals are reevaluated.  If a contractor was the victim of arbitrary and capricious government action, upon reevaluation, and long as it would be given substantial chance to receive the award, then recovery of proposal preparation costs are not recoverable.  Klinge Corp. v. United States, 86 Fed. Cl. 713 (2009).

The bid costs must have been incurred specifically for the contract in question.  If invoices are submitted that make no mention of the proposal, were not incurred in anticipation of a request for proposal/solicitation, and if they predate the procurement announcement, these costs will almost certainly be denied.  It comes down to whether the cost is reasonableBeta Analytics. See information about unsolicited proposals.

If the contractor did not submit or prepare a bid proposal.  The proposal can be either solicited or unsolicited, but the costs must be “incurred in preparing, submitting, [or] supporting bids and proposals (whether or not solicited) on potential Government or non-Government contracts.”  48 CFR 31.205-18(a).

To Avoid Costly Mistakes, Get a FREE Bid Protest Checklist

If you are looking to file a bid protest for a decision on whether bid and proposal costs are recoverable under 28 USC 1491, call our experienced Government Contracts Attorneys at 1-866-601-5518 for a free initial consultation.

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