Richard Arnholt | Bass, Berry & Sims
On April 29, the Government Accountability Office (GAO) denied Davenergy-VCI JV, LLC’s protest of a solicitation’s cancellation, holding that the lack of available funding is sufficient grounds to cancel. In denying the protest, GAO determined that delays, even those occurring after the evaluation, do not invalidate a cancellation if a rational basis exists, such as changed requirements or insufficient funds.
The protest comes at a time when the Trump administration is considering an overhaul of its procurement rules and a number of agencies are revising their procurement strategy. As agencies, such as the Department of Defense (DoD), pivot to fielding new technologies, cutting legacy systems, and modernizing its fighting force, we will undoubtedly see additional solicitations be canceled. The GAO decision underscores the breadth of authority the government has to cancel solicitations and the difficulty contractors face when challenging such actions.
Background
On March 1, 2024, the U.S. Army Corps of Engineers (USACE) issued a synopsis seeking an architect-engineer firm to provide construction management services to build medical facilities for veterans in Oregon and Washington, as required by the Department of Veteran Affairs (VA), the funding agency. On September 27, 2024, USACE informed Davenergy that it was the most qualified firm and that it would send a formal solicitation in the coming weeks. However, on February 13, 2025, the agency informed Davenergy that the solicitation in its entirety was canceled. USACE explained that the most immediate requirements were canceled by the Portland District VA with associated funding returned to the VA, and the next scheduled project listed in the solicitation would not occur for well over a year. In other words, USACE no longer needed one of the requirements described in the synopsis and did not have the funding available to proceed with the procurement.
Protest Arguments
Davenergy challenged the cancellation, arguing the Contracting Officer’s (CO) decision was unreasonable and unjustified. Specifically, the protester argued that even though the first requirements were canceled, there were additional requirements identified by the synopsis. Davenergy further argued that it was imperative for the contract to be in place prior to the start of those remaining projects. In addition, the protester noted that it is “not unusual for [IDIQ] contracts to be awarded and not used for a period of time due to fluctuating requirements.” Lastly, the protester contended that the timing of cancellation—four months after its selection—hinted at the presence of some “pretextual reason” for the cancellation.
USACE responded that cancellation was reasonable because 1) some of the anticipated requirements had been canceled or delayed and 2) USACE did not have the funding to support the requirement.
GAO agreed with the agency, concluding that in a negotiated procurement, the CO has broad discretion to cancel solicitations. Generally, GAO will uphold a CO’s decision to cancel a procurement unless it is found to lack a reasonable basis. GAO identified that a lack of funding for a procurement “provide[d] a reasonable basis for cancellation.” Indeed, agencies are prohibited from awarding contracts that would exceed available funds. VA projects are typically funded under interagency agreements that authorize USACE to spend VA funds; however, here, the agreement was modified to return funding to the VA leaving USACE with insufficient funding to continue the procurement. Similarly, GAO noted that cancellation is also reasonable where the agency no longer has a need for the solicitation item.
In addition, GAO rejected the protester’s timing argument concluding that “an agency may properly cancel a solicitation regardless of when the information precipitating the cancellation first surfaces or should have been known, even if the solicitation is not canceled until after proposals have been submitted and evaluated, or even after a contract has been awarded.”
In sum, GAO found no basis to conclude the CO’s decision was unreasonable where “the initial project included in the synopsis was no longer required, the next project is not planned to commence for over a year, and the agency represents that it currently lacks funding for any of the remaining project requirements.”
Contractor Considerations
Protests Challenging Solicitation Cancellations Can Be Challenging
The Davenergy protest highlights the challenges associated with protests of a solicitation cancellation. Generally speaking, if the cancellation is in the government’s best interest, the agency’s needs change or funding becomes unavailable, the authority to terminate is extremely broad. Any reasonable basis offered by the CO is generally enough for GAO to determine whether a protest should be denied.
That said, in a handful of protests GAO has found cancellations to be unreasonable. For example, in Walker Development & Trading Group, Inc., GAO sustained a protest challenging the cancellation of a solicitation on the grounds that the CO failed to produce a report that provided a rationale for the cancellation. In other words, the agency could not articulate any reasonable basis. In another case, GAO sustained a protest due to an unfair advantage from the agency’s disclosure of source selection information. See Superlative Technologies, Inc. Related challenges have been filed in the Court of Federal Claims with the court applying a similar standard. In Seventh Dimension, LLC, the court sustained a protest premised on conclusory assertions by the agency.
In the Davenergy protest, the protester attempted to argue the agency’s actions were pretextual and therefore the CO’s action was undertaken in bad faith; however, government officials are presumed to act in good faith absent clear evidence to the contrary. Therefore, while a successful protest premised on the cancellation of a solicitation can be rare, GAO has found such cancellations unreasonable where clear protest grounds exist.
Funding Shortfalls Can Be Basis for Cancelling Solicitations
Whenever an agency determines it lacks sufficient funding for a procurement, it is well established that the shortfall of funds becomes a reasonable basis for cancellation. Indeed, agencies cannot award contracts that exceed their available funds and GAO will not second guess that judgment. The decision to reappropriate funds lies within the agency’s discretion, and cancellation is authorized even if the funding shortfall surfaces late in the procurement process.
The Reasonable Basis Standard
In a negotiated procurement, an agency has broad discretion to cancel a solicitation and must only establish a reasonable basis for doing so. A reasonable basis for cancellation exists when an agency determines that a solicitation does not reflect its needs. This can include insufficient funding, changed requirements, or delayed performance.
Conclusion
Davenergy reaffirms GAO’s deferential “reasonable basis” standard that when funding needs shift, a CO has broad authority to cancel solicitations. Contractors weighing a protest should carefully assess whether to proceed as GAO will rarely second guess a CO’s judgment absent clear evidence of bad faith or undocumented rationale.
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