HUD (Housing and Urban Development) needed a commercial off-the-shelf (COTS) web-based payroll tracking service to monitor compliance with Davis-Bacon wage rates. Essentially, about 6,000 users would be entering data into an on-line database for HUD to use in monitoring compliance with Davis-Bacon. Three offers were submitted ranging from zero dollars to just over a million dollars. The Government awarded the contract to the offeror with the zero dollar bid. The two unsuccessful offerors appealed the award on the basis that the no-cost contract should be considered void for lack of consideration.
The GAO (General Accountability Office) determined that the successful contractor did receive consideration. To be enforceable, a contract with the Government requires an offer, acceptance of the offer and consideration. A contract is supported by adequate consideration if it involves mutual promises of the contracting parties whereby each party obtains a benefit. Consideration for a contract need not be monetary. The GAO has repeatedly concluded that adequate consideration exists where a contractor promises to perform certain services, the Government promises to grant the contractor the right to perform the procured services, and both parties obtain benefits from the arrangement.
In this case, the benefit accruing to the successful bidder is exposure of its product to more than 6,000 users nationwide. The winning bidder expected to benefit from this exposure through an "elevated competitive position in the national marketplace, and further expects to reduce the marketing costs that it would otherwise incur". In other words, the contractor projected that the extensive visibility it will obtain through performance of the HUD contract will substantially increase its share of the national market, and that this market share increase, along with marketing cost savings, will more than offset its costs to perform the requisite services without monetary compensation.
Accordingly, GAO denied the appeal. You can read the entire decision here.