The general rule (FAR 14.404-1(a)) is that – once a solicitation is put out for bid – the agency must award the contract to the responsible bidder with the lowest responsive bid. 

However, as is usually the case, there are exceptions. 

The agency can cancel a solicitation under a number of limited circumstances, including based on defects in the solicitation or specifications, unreasonable bid pricing, or lack of funding.  The full list of potential justifications is available at FAR 14.404-1(c).

The GAO discussed some of the justifications for canceling a solicitation – including the limits on the agency’s discretion – in a recent decision.

The case at issue concerned an invitation for bid (IFB) for the periodic re-nourishment and placement of sand for a dune and berm system along the New Jersey coast.  The bids received exceeded the government’s estimate and the agency therefore elected to cancel the IFB and convert the requirement into a negotiated procurement.

The agency cited three reasons for the decision to cancel and convert the IFB: (1) unreasonably high bids, (2) bids exceeding the government estimate by 25 percent, and (3) bids in excess of available funding.

One of the bidders challenged the agency’s cancellation decision and – in response – the agency withdrew two defenses and proceeded only on “insufficient funding” grounds. 

On review, GAO found the agency’s decision to cancel the solicitation based on a lack of funding reasonable.  The defense is among those listed at FAR 14.404-1 and it is logical that an agency cannot award contracts that exceed available funding.

However, GAO rejected the agency’s plan to convert the sealed IFB to a negotiated procurement. 

This defense is only available where the agency can show that the bids received were unreasonably high.  Here, the agency withdrew that defense and the FAR does not allow an agency to convert a sealed IFB to a negotiated procurement based on a lack of funding.

Key Takeaways

For federal contractors, this decision offers a nice summary of how to determine next steps after the agency cancels a solicitation.

While the agency has discretion in the decision-making process – the decision itself must be based on compelling facts and in line with the regulation.  Decisions that lack a rational basis or are contrary to law are subject to protest.

Nick Solosky is a Partner in Fox Rothschild’s Government Contracts Practice Group.  You can reach Nick directly at or 202-696-1460.