The big surprise inside GSA's STARS II modification

No one blinked when GSA said it was expanding the ceiling of the 8(a) STARS II contract vehicle but they caught many companies by surprise when they snuck in a clause cut the length of the contract by two years.

Few will dispute that the GSA’s latest Streamlined Technology Acquisition Resource for Services contract, better known as STARS II, has been a big success for the Section 8(a) community, and one of the GovCon community’s most coveted GWACs. STARS II is still active through August 2021 and the STARS III solicitation was recently released but with an unspecified award date only projected by GSA to be sometime late next year and with no orders issued for at least a year, according to GSA.

Recently, in cooperation with SBA, GSA decided for the third time to increase the STARS II ceiling. Both GSA and SBA telegraphed increasing the STARS II pot this May. There was at that time no public mention about any other changes to the STARS II contract other than an increase in the ceiling amount, and none of the STARS II awardees (at least the ones I know and represent) anticipated that there would be any other changes. By most accounts the move by GSA was intended only to provide more runway to STARS II until STARS III is awarded.

On June 24, GSA announced that it was going to modify STARS II to add an additional $7 billion to the ceiling amount, raising the total ceiling amount to $22 billion. Great news, especially with the upcoming busy government buying season. Again, nothing else was said, at least publicly.

But then on June 26, GSA surprisingly issued a bilateral modification (yeah, the one where both parties must voluntarily sign) that indeed definitized the ceiling increase. But to many, GSA pulled a fast one by also modifying the STARS II contract language itself to reduce the remaining period that task orders can be completed from four years to two years starting July 1, 2020. Under the existing contract, a task order awardee could continue to perform task orders after STARS II ends on August 21, 2021 – and as late as August 30, 2024.

So, what GSA did was to convert a four-year task order completion deadline to a two-year deadline in a way that is completely inconsistent with the original STARS II contract terms. Actually, it’s less than two years since the clock already started on July 1 so not even two-year task orders are possible going forward.

I’m told by a number of STARS II holders that many of the task orders awarded have a performance period of well over two years, with many of them having at least a three to five-year period. In effect, the modification restricts awardees from enjoying the fruits of many STARS II task orders contrary to the contract’s stated terms. 

GSA knew there would be a potential competitive impact on its decision to shorten the task order completion date, especially given that ordering agencies would likely revert to using other contracting vehicles to the detriment of the STARS II holders. That’s why GSA felt it was required to issue a formal and legalese-laden document called a Justification and Approval, also known as a J&A, to justify the potentially anti-competitive impact resulting from this change. And they are correct as this type of contracting action would require such a J&A under the federal Competition in Contracting Act and FAR Subpart 6.3. On July 9, GSA did indeed publish a J&A on, 19 days after it issued the modification and without any advance public statement.

But here’s the problem – GSA forgot to do something essential to the J&A process. It forgot to follow the law, let alone common sense. And I know more than a few STARS II holders who are furious about this, not to mention several members of Congress who recently asked GSA to explain its decision.

Under the FAR, a J&A must rely on one of seven enumerated reasons to restrict full and open competition. In this case, GSA selected the justification based on the government’s need to maintain suppliers and the flow of supplies and services during a national emergency – here, the COVID-19 pandemic. Fair and lofty enough as disrupting critical IT services during the pandemic would hurt the public. But was shortening the task order completion deadline because of COVID a rational decision? That’s what the J&A was required to address, only it didn’t.

The FAR requires that a J&A must contain “sufficient facts and rationale” to properly support this kind of contract action – in this case, how reducing the completion date furthered the need to maintain IT services in the wake of COVID. The scant excuse offered by GSA in the J&A was that the ceiling increase “without adding to the completion date. . . provides all vendors on the [STARS II] Contract with the opportunity to receive new task orders through the end of the contract term.” That tells us nothing.

Of course, one shouldn’t need a J&A to raise a government contract’s dollar ceiling, and who would complain other than the fiscally obsessed? But GSA went well beyond just raising the ceiling; it materially altered the Contract’s terms resulting in a loss of competitive bidding opportunities for a big part of the 8(a) community, which has nothing to do with keeping services flowing in the wake of COVID. In fact, it stands to reason that the modification would actually reduce the number of available vendors under STARS II during this critical national emergency because an ordering agency cannot issue a task order after July 1 that would exceed a two-year performance period, forcing the agency to scramble for other similar contracting vehicles. 

So, while the J&A provides ample (albeit an unnecessary) rationale for raising the ceiling due to increased demand for services in response to the pandemic, it provides no rationale as to how the pandemic justified a reduction of the completion date or how such reduction would maintain available STARS II suppliers of these services during the pandemic.

The J&A is further flawed by the wholly inconsistent reasons for the reduced completion date provided by GSA and SBA during a Virtual Industry Event held on July 13 via Zoom. There, GSA and SBA suggested its true reasons for reducing the completion date which were unrelated to the need to maintain suppliers during a national emergency but rather a desire to filter out graduated 8(a) contract holders for the remainder of the STARS II performance period while preserving opportunities for current 8(a) firms under STARS III.

For example, in noting that raising the ceiling may take away opportunities for remaining ungraduated 8(a) firms, GSA stated during this event that it and SBA needed to: (a) “ensure a rapid response to [COVID-19] pandemic needs”; (b) “keep the [STARS II] contract going”; but (c) “do that in a way that would not take opportunities from the new 8(a) firms.”

What’s strange here is that according to GSA itself, about 78 percent of the 787 STARS II awardees are graduated 8(a) firms. Many of these companies were awarded a STARS II contract well within their nine-year term as a certified 8(a) contractor. In addition, it took about two years for STARS II to be awarded. Thus, given that the STARS II contract had a 10-year total period of performance, it’s no surprise that a vast majority of the awardees have already graduated. And GSA and SBA were undoubtedly aware at the time STARS II was awarded that this would be the case.

It seems quite evident, therefore, that it’s in the government’s interest – and awardees fully and reasonably expected – that the STARS II completion deadline would not change especially during an 8(a) firm’s so-called transitional stage - which SBA considers critically important during the last four years of the 8(a) term.

The bottom line is that GSA’s required justification for shortening the STARS II completion date is completely lacking, and GSA provides conflicting reasons between its J&A and statements made at the Virtual Industry Event that completely call into question the validity of its action. 

And here’s the topping: the GSA’s email to contract holders accompanying the June 26 STARS II modification stated: “Sign the attached contract modification and return it to no later than June 30, 2020. Once the signed modification is returned, and on or after July 1, 2020, you can accept new task order awards.”

In other words, GSA curtly instructed awardees to sign the modification or else!

With the June 26 email sent in the late afternoon on a Friday, that gave holders just two business days to respond. That is not the definition of a bilateral modification and not a fair example of how that process is supposed to work. Rather, it’s more like economic duress. And I know plenty of lawyers (including me) who would love to litigate this issue.

Stay safe.