Protest of GSA Contract Award

A firm protested the award of a General Services Administration (GSA) contract, alleging that it was the lowest bidder. GSA determined that no contract could be awarded on the basis of regulations which provide that contracts shall not knowingly be entered into between the Government and Government employees or business concerns substantially owned or controlled by Government employees. At the time of the protested solicitation two Government employees owned 23.5 percent of the protesting firm's stock. Previously, the protester submitted a bid on a solicitation when it had three directors and stockholders owning 38.99 percent of the company stock who were employeed by the Government. In a letter subsequent to that solicitation, GSA stated that the point at which a company is not substantially owned by Government employees would be somewhat less than 25 percent. Consequently, the two employees placed their stock in trusts which would revert to them 30 days after they retired from the Government, and the protester elected new officers, so that two of the three Government employee stockholders no longer held offices in the company. The third Government employee stockholder retired from the Government. GAO held that regulations prohibit the Government from contracting with corporations substantially owned or controlled by its employees. In this case the Government employee shareholders of the protester may have relinquished their stock in trust, but have retained equitable ownership, so that GSA was justified in analyzing the amount of their stockholdings to determine if they constituted substantial ownership under regulations. GAO found that control and ownership were two separate issues, and questioned the propriety of the agency's determination of substantial ownership by comparing the percent of stock owned by Government employees with the percent of stock owned by other individuals in the protesting firm. GAO believed that determination of substantial ownership for the purposes of the regulations should be made on the basis of the relationship of the amount of Government employee stock to the total amount of stock in the protesting firm. Accordingly, the protest was sustained.