Expert Analysis
Litigation News and Analysis • Legislation • Regulation • Expert Commentary
GOVERNMENT CON
TRACT
VOLUME 26, ISSUE 6 / JULY 23, 2012
Decision Affirms Right of
Contractors to Challenge Federal
Pre-Procurement Decisions
By Thomas A. Coulter LeClairRyan
The right of contractors to challenge pre-procurement decisions made by the federal government has been affirmed in a U.S. Court of Federal Claims decision, Distributed
Solutions Inc. et al. v. United States, No. 06-CV-466, 2012 WL 1570997 (Fed. Cl. Apr.
13, 2012). The ruling, written by Senior Judge James F. Merow, restricts the ability of government agencies to avoid certain laws and regulations in their pre-procurement decision-making process.
The plaintiffs, Virginia-based software companies STR LLC and Distributed Solutions Inc., responded to a request for information, or RFI, issued by two federal agencies for a software development project. The companies expected the federal agencies to assess contractor proposals and make a direct award of a contract to one or more firms. The agencies, however, decided to forgo the direct procurement process and instead awarded management of the procurement to a technology and consulting company that had an existing contract with them. That company went on to “recommend” other vendors for the software.
The federal agencies followed the recommendations and directed the technology and consulting company to enter into subcontracts with the suggested vendors. When the plaintiffs protested, they were informed that they did not have bid protest rights since a third-party non-governmental entity had handled the procurement process. The Government Accountability Office turned away the losing bidders’ protests, citing jurisdictional issues, as did the U.S. Court of Federal Claims. But an appeal to the U.S. Court of Appeals for the Federal Circuit resulted in a remand. In its review of the merits on remand, the Court of Federal Claims found that the federal agencies had not complied with the Competition in Contracting Act, 41 U.S.C. § 253, and awarded the plaintiffs the right to recover their proposal preparation costs.
This precedent-setting case took root in June 2005, when the government issued an RFI in connection with the software development of a Joint Acquisition and Assistance Management System program for the U.S. Agency for International Development and the Department of State. The original Joint USAID/DoS Action Memorandum
Requesting Approval to Implement JAAMS/PSIP Acquisition Strategy declared that SRA International Inc., a lead systems integrator with an existing contract, would act as an adviser, while the agencies would make the final acquisition decisions.
On Nov. 6, 2003, USAID issued a task order to SRA for integration support services,1
under which that company was to support the agency’s acquisition and assistance function used for contracts and grants world-wide, and to integrate commercial off-the-shelf, or COTS, software packages from a variety of vendors.2 But in a JAAMS
Update dated Aug. 12, 2005, USAID informed the vendors that had responded to RFI No. 1 that “the government has decided to pursue alternative courses of action.”3
The same day, SRA issued RFI No. 2, which sought to collect information on a single assistance system for the Department of State and USAID, an acquisition system for USAID, and an e-catalog system for USAID.4 RFI No. 2 also specified that the
selected vendors could become subcontractors to “the current USAID system integrator,” which was SRA under the contract. In this role the subcontractor would provide software products and services to support the integration effort as requested and funded under the direction and management of SRA.
As the Court of Federal Claims noted in its recent ruling, “SRA ostensibly ‘conducted’ the procurements ‘on behalf of the government,’ as the government would be the ‘eventual owner of the software.’”5 The court also found that “though the vendor
selection is being executed by SRA, USAID and State are jointly selecting the chosen products,”6 As the court noted, it was clear that the agencies made the ultimate
product decision.7
In an Oct. 3, 2005 letter, SRA informed plaintiff STR that its grants management product was not “recommended” for acquisition by USAID. Similarly, on Nov. 8, 2005, plaintiff DSI was notified that its acquisition assistance product would not be recommended by SRA for acquisition by USAID, and that Compusearch’s PRISM system was chosen.8
Subsequent to those recommendations, STR and DSI filed separate protests with the GAO,9 seeking to overturn the selection of other vendors.
In their protest filings, STR and DSI stated that they were bona fide suppliers of software products contemplated for direct procurement, were prepared to respond to a request for proposals, and were deprived of the opportunity to compete in a direct federal procurement by the agencies’ decision to “bundle” the two software products and include them in a task order to SRA.
Citing United States v. Johnson Controls Inc.,10 the GAO dismissed STR’s protest
Dec. 22, 2005, concluding that the procurement was not “by” the government. Specifically, the GAO determined the procurement at issue was not subject to its jurisdiction since it was “not conducted by a federal agency or a contractor acting as a procurement agent for a federal agency.”11 DSI’s protest was dismissed on the same
grounds Jan. 25, 2006.12
On June 20, 2006, the plaintiffs filed an action with the U.S. Court of Federal Claims, which found that the protests were directed at SRA’s subcontract awards. Since the Claims Court has no jurisdiction over subcontract awards, it granted the government’s motion to dismiss for lack of jurisdiction.13
STR LLC and Distributed Solutions Inc. expected the federal agencies to assess contractor proposals and make a direct award of a contract to one or more firms.
The Federal Circuit subsequently reversed. The court concluded that the federal agencies “initiated ‘the process for determining a need for property or services,’”14
because RFI No. 1 was a market survey to gather data to determine an acquisition strategy, and was, therefore, the beginning of a procurement process within the protest jurisdiction granted to the Claims Court by the Tucker Act.
According to the Claims Court opinion:
Plaintiffs, as potential competitors under a direct procurement with USAID and DoS, were objecting to “alleged violation[s] of statute[s] or regulation[s]
in connection with a procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1) (emphasis added). The Federal Circuit instructed that “‘in connection with a procurement or a proposed procurement’” is “‘very sweeping in scope.’“
Id. at 1345 (quoting RAMCOR Servs. Group Inc. v. United States, 185 F.3d 1286, 1289 (Fed.Cir.1999)). Accordingly, a “procurement includes all stages of the process of acquiring property or services, beginning with the process of determining a need for property or services and ending with contract completion and closeout,” the Federal Circuit concluding plaintiffs’ grievances fell in that continuum. Id. (emphasis in original) (internal quotation marks omitted) (interpreting definition previously codified at 41 U.S.C. § 403(2), now at 41 U.S.C. § 111).
On remand, the Court of Federal Claims was guided by the standard set forth in Section 10(e) of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A), which asks whether “(1) the procurement official’s decision lacked a rational basis; or (2) the procurement procedure involved a violation of regulation or procedure.”15
The Claims Court first focused on whether the plaintiffs had suffered prejudice — a non-trivial competitive injury — sufficient to sustain the protest grounds. In addition to noting that the elimination of an opportunity to compete in a direct procurement is a sufficient injury, the court cited Weeks Marine Inc. v. United States16 for the proposition
that a reduced right to compete is sufficient injury.
Accordingly, the Court of Federal Claims found that “even if the existence of competition in SRA’s subcontracting is given credence, the absence of protest remedies available in government procurements results in diminished competitive opportunities sufficient to constitute non-trivial competitive injury as in Weeks Marine.”17
With regard to the merits, although the government focused on the agencies’ articulation that vendors surveyed through RFI No. 1 lacked sufficient integration experience and argued that SRA would provide those services, the Court of Federal Claims found that the argument bypassed the heart of plaintiffs’ protest. In effect the court said the argument was not over the decision to have SRA integrate software products, but rather it depended upon the lack of rationale for removing the procurement of software products from a direct procurement.
“Just because a prime integrator was needed does not automatically mean that the government can’t directly and separately, procure the software products,” according to the court.18 “The selection by USAID and DoS of the software products following
RFI No. 2 with the assistance of SRA, which SRA then acquired, illustrates that there was no impediment to a direct procurement, or at least defendant does not point to any agency rationale therefore.”19
In their protest filings, the plaintiffs stated that they were deprived of the opportunity to compete in a direct federal procurement.
Thus, the court concluded that the agencies had engaged in arbitrary and capricious conduct: “Plaintiffs have established that the agencies, having commenced a proposed procurement in assessing their needs, failed to adequately support the deviation from the proposed direct procurement, which resulted in non-trivial competitive injury to plaintiffs.”20
The court then examined whether the federal agencies had violated a procurement law or regulation and analyzed the Competition in Contracting Act.21 The court
concluded that the agencies had, indeed, violated the CICA:
[W]hile assigning the integration work to SRA was justified, it is concluded that the agencies’ failure to consider competitive ramifications resulted in unsupported decisions to task SRA with the additional function of acquiring both software products to be integrated and thus failed to comply with CICA, resulting in a non-trivial competitive injury to plaintiffs who were clearly interested parties in the direct procurement originally contemplated. 22
Ultimately, the court found in favor of DSI and STR on the following basis: After commencing a proposed procurement and without rationale, USAID and DoS chose to forego [sic] direct procurement of acquisition assistance and grants management software pro-ducts, and in connection therewith, failed to consider competition. Plaintiffs suffered non-trivial competitive injuries as a result.23
CONCLUSION
In the final analysis, the April 13 decision by the U.S. Court of Federal Claims in this case broke new ground in two areas. The ruling marks the first time that the right of contractors to challenge the federal government’s pre-procurement decisions has been acknowledged in a situation where the government never issued a recognized procurement vehicle.
Equally important, the decision places a check on the government’s ability to use a private party for procurement decisions, which if allowed would have eliminated the protection of procurement laws and protest rights. Not only does this decision make it more difficult for the government to avoid procurement laws and regulations in its contracting practices, but it also allows contractors to check the government for compliance with those laws and regulations in the pre-procurement decision making process. Indicative of this case’s impact, since the Federal Circuit’s ruling more than 20 other contractors have filed similar pre-procurement decision appeals.
NOTES
1 2012 WL 1570997 ( Fed. Cl. Apr. 13, 2012), *1 and n. 5. 2 Id.; see 48 C.F.R. § 2.101. 3 2012 WL 1570997 at *3 4 Id. 5 Id. at *4. 6 Id. 7 Id. 8 Id. 9 Id.
The Claims Court focused on whether the plaintiffs had suf-fered prejudice — a non-trivial competitive injury — sufficient to sustain the protest grounds.
10 713 F.2d 1541 (Fed. Cir. 1983). (AR 238-42.) 11 2012 WL 1570997 at *4.
12 Id. 13 Id. at *5.
14 Distributed Solutions Inc. et al. v. United States, 539 F.3d 1340, 1346 (Fed. Cir. 2008). 15 Axiom Res. Mgmt. Inc. v. United States, 564 F.3d 1374, 1381 (Fed. Cir. 2009) (quoting Impresa
Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1332–33 (Fed. Cir. 2001)
and other cases cited)
16 2012 WL 1570997 at *11 (citing 575 F.3d 1352,1362 (Fed. Cir. 2009)).
17 Id. at 12 (citing Rex Serv. Corp. v. United States, 448 F.3d 1305, 1308 n.1 (Fed. Cir. 2006)) (stating
that a protestor may have standing if “improper agency action” prevented the submission of a bid or a protest of the solicitation); ICP Nw. v. United States, 98 Fed. Cl. 29 (2011) (concluding that the Forest Service’s deviation from blanket purchase agreements to agency cooperators diminished competitive options, satisfying prejudice requirement); Google Inc. v. United States, 95 Fed. Cl. 661, 674 (2011) (“‘[D]eprivation of an opportunity to compete is sufficient economic harm to demonstrate prejudice for purposes of standing.’” (citing Magnum Opus Techs. Inc. v.
United States, 94 Fed. Cl. 512, 533 (2010)).
18 2012 WL 1570997 at *14. 19 Id.
20 Id. at *15.
21 Id. (citing 41 U.S.C. § 253(a)(1) (now codified at 41 U.S.C. § 3301(a); see also FAR § 6.101)). 22 2012 WL 1570997 at *20.
23 Id. at *29.
Thomas A. Coulter is a shareholder in national law
firm LeClairRyan, where he heads the government contracts practice team. Coulter, who works out of the firm’s offices in Richmond and Alexandria, Va., represented the plaintiff companies in Distributed
Solutions v. United States. He can be reached at
©2012 Thomson Reuters. This publication was created to provide you with accurate and authoritative information concern-ing the subject matter covered, however it may not necessarily have been prepared by persons licensed to practice law in a particular jurisdiction. The publisher is not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional. For subscription information, please visit www.West.Thomson.com.
