Amazon HQ2 – How does it compare to a Government RFP?

October 27, 2017

Amazon’s competition for its second headquarters, known as HQ2, has garnered great interest and attention. The request for proposals (RFP) solicited responses from metropolitan statistical areas (MSAs), which can be a “state/province, county, city and the relevant localities therein,” and generated 238 proposals. Clearly, there is great interest in HQ2 and we have not seen anything like this before.

Now the fun begins. The short, seven-page RFP is carefully worded and explains that the final site selection will be announced in 2018. As a result, there is ample time for speculation. The contenders are like sports teams with loyal fans highlighting the many reasons why their team – and only their team – should win the championship. For those familiar with government contracts and its source selection process, this is a great competition to watch and to compare to the government’s source selection process.

The RFP

This RFP may be short but it shares certain key similarities with an RFP issued under the Federal Acquisition Regulation (FAR). FAR 15.203, Requests for Proposals, states that RFPs for competitive acquisitions shall, at a minimum, describe the –

  1.  Requirement
  2. Anticipated terms and conditions that will apply to the contract and may authorize offerors to propose alternative terms and conditions
  3. Information required to be in the offeror’s proposal
  4. Factors and significant subfactors that will be used to evaluate the proposal and their relative importance

The HQ2 RFP states that its purpose “is to describe the Project and provide a framework for soliciting specific information that will allow Amazon to determine the ideal location for our Project.” The RFP does that in a succinct manner and states Amazon’s requirements, information required to be in the MSA’s proposal, and lists the key factors that will be used in the evaluation of the proposals. Unlike a government RFP, it lacks the terms of the definitive contract, however.

Their overview states that Amazon has a preference for:

  • Metropolitan areas with more than one million people
  • A stable and business-friendly environment
  • Urban or suburban locations with the potential to attract and retain strong technical talent
  • Communities that think big and creatively when considering locations and real estate options

HQ2 could be, but does not have to be:

  • An urban or downtown campus
  • A similar layout to Amazon’s Seattle campus
  • A development-prepped site; they want to encourage states/provinces and communities to think creatively for viable real estate options, while not negatively affecting their preferred timeline

Their overview is a great way to present the goal of this RFP. The HQ2 RFP project facts section provides a summary of the project’s ideal site and building requirements, which are similar to the listing of requirements found in a government contract. Unlike a government contract, there are no terms and the RFP contemplates negotiation of a definitive agreement following the evaluation of proposals. Under a government contract, the terms generally are a key part of determining interest in the first place. Here the opportunity appears to outweigh the risk of eventual terms, which likely will be focused on incentives.

In some ways, the RFP resembles a re-compete of an existing contract because the RFP provides information about Amazon’s current Seattle headquarters. But prudent incumbents know the risk of relying too much on the “as is.” There might not be much safety in trying to copy the “as is” because that could open the door for a hungry and innovative competitor to capture the award. Government contractors have seen that scenario before.

The HQ2 RFP also resembles a no cost contract in which a contractor is not paid by the government but reaps significant rewards from commercial sales, as for example a government contract for certain services or for a concession. In this case, the competing MSAs are vying to offer benefits to Amazon in the hope of reaping an economic benefit.

The HQ2 RFP contains a section called Key Preferences and Decision Drivers. The preferences are not in a ranking order and MSAs are encouraged “to think big and be creative.” The preference that stands out involves incentives. Three of the nine “Information Requested” requirements deal with incentives and the MSA is required to identify “total incentives offered for the project by the state/province and local community” and also whether any of the incentives are “uncertain or not guaranteed.”

The RFP also identifies other factors important to Amazon including the presence and support of a diverse population, excellent institutions of higher education, a highly educated labor pool, travel and logistics infrastructure, and a local government structure and elected officials eager and willing to work with the company. In addition, “[a] stable and business-friendly environment and tax structure will be high-priority considerations for the project.” MSAs were told to demonstrate characteristics of these factors in their responses.

Similar to a government contract, this RFP also contains a past performance review aspect. MSAs were encouraged to provide testimonials from other large companies, similar to favorable past performance reports.

This competition may remind a government contractor of a “best value” procurement. FAR 15.302, Source Selection Objective, notes the objective of a competitive negotiated procurement is to select the proposal that represents the best value. However, when all is said and done, often money is the incentive that determines best value and separates the competitors.

The RFP requests that MSAs view their proposals as an opportunity to present any additional items and intangible considerations that Amazon should evaluate. This factor allows creativity. The seeking of creative additional ideas is not unheard of in FAR Part 15 procurements, however, it may make the evaluation process more complicated and subject to challenge.  In a government contract competition, this could also raise the issue of an unstated evaluation criterion. FAR 15.304, Evaluation Factors and Significant Subfactors, requires: all factors and significant subfactors that will affect contract award and their relative importance be stated clearly in the solicitation. Amazon is not bound by such a requirement.

Finally, the RFP appears to indicate that this competitive process recognizes the value of substantive communications between Amazon and the offerors. This can be a contentious issue in government contract competitions due to concerns over the permissibility or appearance of impropriety of such discussions. In contrast, the HQ2 RFP notes that “Amazon welcomes the opportunity to engage with you in the creation of an incentive package, real estate opportunities, and cost structure to encourage the company’s location of the project in your state/province. “ With so many proposals, communication may be an important tool to move forward. However, the extent of engagement with a specific MSA or MSAs could raise questions about fairness.

What Happens Next?

Amazon notes that while the existence of this project is not confidential, certain aspects of the project and details regarding the company are confidential and Amazon will deliver a Confidentiality and Non-Disclosure Agreement for execution at the appropriate time. This approach appears to support a down select to a smaller number of viable competitors, a situation not unlike what may be seen in government contracting. In fact, Amazon notes it may select one or more proposals and negotiate with the parties submitting such proposals before making an award decision, or it may select no proposals and enter into no agreement.

FAR 15.306, Exchanges With Offerors After Receipt of Proposals, covers the establishment of a competitive range. The FAR states if discussions are to be conducted, the agency must establish the competitive range of the most highly rated proposals, unless the range is further reduced for purposes of efficiency. The FAR provides an opportunity for offerors excluded or otherwise eliminated from the competitive range to request a debriefing. There is no discussion of pre award debriefings for MSAs in the RFP.

Further, under the FAR, discussions are to be tailored to each offeror’s proposal, and must be conducted with each offeror within the competitive range to maximize the ability to obtain best value.  This FAR rule also places certain limits on exchanges with offerors that are not found outside of government contracts.  For example, government personnel involved in the acquisition are not to engage in conduct that favors one offeror over another or reveals an offeror’s or any information that would compromise an offeror’s intellectual property to another offeror.  The Amazon RPF is not subject to requirements for and limitations on negotiations like those in the FAR, although the Amazon RFP does require the MSAs to provide hard copies of their proposals marked “confidential” and this appears to be a precaution against unauthorized disclosure of an offeror’s proposal information.

There will be many disappointed MSAs, raising the question of what a disappointed MSA can do if it believes its proposal should have been considered further or that the RFP’s description of the evaluation was not followed. There is no mention of a protest process or post award debriefings for the losing MSAs. However, the size of this opportunity and the investment in the proposal process may cause MSAs to seek to obtain an understanding of the reasons for not being selected. Government contracts utilize a developed debriefing and protest process. Commercial companies sometimes provide informal debriefings to losing offerors in order to maintain goodwill. Although not mentioned in the HQ2 RFP, that may be a prudent consideration because of the visibility of the project.

Conclusion

The HQ2 project has captured the nation’s attention for good reason. The RFP states that Amazon will hire as many as 50,000 new full-time employees with an average annual total compensation exceeding $100,000 over the next ten to fifteen years, following commencement of HQ2’s operations. In addition, the project is expected to have over $5 billion in capital expenditures. These factors offer significant motivation to compete for HQ2.

There may be enormous economic benefit flowing to the winner and this RFP and its source selection process could provide lessons for other competitions, including government contracts.

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For more information regarding this advisory, please contact Michael Mutek at +1 202 429 1376, Tom Barletta at +1 202 429 8058 or Fred Geldon at +1 202 429 8198 in our Washington office.