Federal agencies have broad discretion in determining whether to cancel a solicitation and may typically do so, provided they can establish a reasonable basis for their cancellation decision. Thus, the government may properly cancel a solicitation for various reasons anytime during the evaluation phase or even during an ongoing bid protest, as long as there is a reasonable basis for doing so. In reviewing an agency’s cancellation decision for reasonableness during a bid protest, the Government Accountability Office (GAO) verifies if the cancellation is based on a valid reason that is sufficiently documented and within the agency’s discretion. Thus, if a protest alleges that the agency’s stated reason for canceling the solicitation is merely pre-textual, the GAO will thoroughly evaluate the cancellation decision to ensure it was reasonable and well-documented. Notably, procuring agencies are not permitted to cancel a solicitation for an invalid reason, such as to circumvent adequate competition or to avoid resolving a bid protest.

In B-413924, the GAO sustained such a bid protest where the protestor alleged that the agency’s stated rationale for canceling the solicitation was pre-textual and that the agency’s actual motivation was to subvert competition and award the contract to the incumbent on a sole-source basis. The canceled solicitation subject to the protest was issued on a lowest-price-technically-acceptable (LPTA) basis by the Department of Veterans Affairs (VA) for laundry services for its Los Angeles, Loma Linda, and Long Beach hospitals. After the closing date for the submission of quotations had passed, the VA reopened the solicitation and issued an amendment to increase the maximum award amount from $2.5M to $10M. Once the protestor submitted a revised quotation in response to the amended solicitation, it received a notice that the VA had decided to cancel the solicitation because it received “legal guidance” to do so. Upon canceling the solicitation, the VA issued the incumbent contractor a $1.7M extension.

In the protest that followed, the VA failed to satisfactorily explain why it canceled the solicitation despite having multiple opportunities to respond adequately, including via a conference call with the GAO. Consequently, the GAO determined that the VA had failed to respond to its request for additional information as to why it either extended the incumbent contract or issued a new award to the incumbent contractor on a sole-source basis. In sustaining the protest, the GAO decided that the VA lacked a reasonable basis for its decision to cancel the solicitation. Specifically, the VA failed to produce an agency report that provided a coherent rationale for canceling the solicitation. Additionally, the basis for cancellation provided by the VA at different stages included conflicting rationale. Thus, in drawing an adverse inference, the GAO concluded that the record did not establish that the VA had a reasonable basis for canceling the solicitation and sustained the protest. The GAO recommended that the VA reinstate the canceled solicitation, if feasible, and cancel the incumbent’s contract once a new award was made.

Meanwhile, in B-422741, a bid protest decision issued by the GAO on October 16, 2024, the procuring agency’s decision to cancel a request for quotation (RFQ) was found reasonable as the protestor’s quotation was substantially higher priced than the available funding and the independent government cost estimate (IGCE) for the procurement. In this procurement, which was also issued by the VA for a patient elopement wander management system for its Central California Healthcare System, only the protestor’s quotation was in consideration for the award. The only other quotation received by the VA in response to the solicitation was rejected as incomplete. The protestor initially quoted a price of $272,174, but at the VA’s request for a discount, it later reduced its quotation to $248,174. Despite this reduction, the protestor’s quoted price was still much higher than the IGCE and, more importantly, the government’s available funding of $110,000. After the evaluation, the VA decided to cancel the award in the government’s best interest, citing a change in procurement strategy amidst price reasonableness concerns. In addition to the high price, the protestor’s quotation lacked an authorized distributor letter issued within the past year by the original equipment manufacturer, which was a mandatory RFQ requirement.

In challenging the cancellation decision, the protestor alleged that the VA’s cancellation of the RFQ lacked a valid basis. In addition to the price reasonableness concerns, the VA maintained that its cancellation of the RFQ was proper because of several flaws in the acquisition. For instance, the RFQ was intended to be a service-disabled veteran-owned small business (SDVOSB) set-aside, but the solicitation did not include the required set-aside clause. Instead, it inappropriately included the small business set-aside clause at federal acquisition regulation (FAR) 52.219-6. Additionally, the solicitation did not include the VA Acquisition Regulation clause and the mandatory limitations on subcontracting certification clause. Finally, the VA also stated that after the RFQ was canceled, all fiscal year 2024 funds available for the procurement were “swept,” and no other funds were available for this requirement. In denying the protest, the GAO reiterated that an agency’s lack of funding for a procurement provides a reasonable basis for cancellation because agencies may not award contracts that exceed available funding. The GAO also pointed to the various reasons provided by the VA to justify the cancellation and found that it had no basis to sustain the protest under the circumstances.

While it is established that agencies have considerable discretion in canceling solicitations, this discretion is not absolute and may be reviewed by bid protest adjudicative forums for reasonableness and adequate support. In reviewing agency decisions to cancel a solicitation, the GAO will typically consider the overall circumstances surrounding procurement to determine whether the agency’s cancelation decision was reasonable. For the solicitation cancelation decision to be reasonable, the record should present an adequately documented rationale that supports the agency’s cancellation decision with factual details and appropriate context. Notably, in such bid protests, the procuring agency is permitted to provide new or additional rationale to support the cancellation decision during the protest litigation phase, as long as that rationale would have justified cancellation had it been advanced originally. This rule can often present an added hurdle for protestors to overcome when challenging an agency’s decision to cancel a procurement because the agency may present more than one valid reason over the course of the solicitation cancelation decision and the subsequent protest.

This Bid Protests Insight provides a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.