Law360 - January 10 2022
[author: Roke Iko]
This month’s Law360 Bid Protest Roundup focuses on two Government Accountability Office (GAO) decisions and one recent Federal Circuit decision. These decisions involve (1) the risks of using former government employees in the proposal process, (2) the requirements for an agency’s brand-name justification, and (3) whether there is a presumption of prejudice if a protester shows a procuring agency has acted irrationally.
Serco Inc.[1]
Contractors can acquire valuable institutional knowledge by hiring former federal government officials. However, they should proceed cautiously when using these officials in obtaining contracts. The GAO has held that when a former government official assists an offeror in a competition for a government contract, the former official is presumed to use any useful, non‑public information to which she had access as a government employee.[2] In Serco, the GAO affirmed this principle and sustained a protest for a $372 million Navy professional support services task order on the basis that the awardee obtained an unfair competitive advantage in its proposal by using non-public information provided by former Navy officials.
The procurement at issue in Serco was a follow-on to a task order first issued in 2014 by the Navy. Under the original task order, the incumbent Serco provided support services to four Navy program offices and interfaced with the offices’ program managers by attending weekly meetings and submitting monthly progress reports. These reports included information on Serco’s labor rates, employees’ names and hours, significant achievements, and problem areas encountered and anticipated.
During this time, Booz Allen Hamilton (BAH), which had competed for—and lost—the original 2014 task order, began preparing for the anticipated follow-on contract. In 2018, BAH recruited and hired two former Navy program managers through its subcontractor agreements. These program managers assisted BAH in its proposal preparation for the follow-on contract and revealed some of Serco’s performance issues on the 2014 task order, including that the company was “not providing consistent delivery” and “doesn’t do cyber well.”[3]
In July 2019, the Navy issued a solicitation for a follow-on to the 2014 task order. Serco and BAH were the only offerors. On February 5, 2021, the Navy awarded the task order to BAH because of its proposal’s strengths, including “manpower, personnel, and training” and “data analytics.”[4]
On February 23, 2021, Serco filed a protest, asserting that the Navy failed to consider BAH’s unfair competitive advantage through its access to non-public, competitively useful information from the Navy officials. The Navy stated it would take corrective action, and GAO dismissed the protest. However, the Navy ultimately “found no evidence that current or former government employees provided BAH with unequal access to non-public competitively useful information that would have provided it with an unfair competitive advantage.”[5] Serco filed another protest, asserting that BAH gained an unfair advantage in the procurement by hiring the Navy officials who had unfettered access to non-public information regarding Serco’s staffing, costs, technical approach, and past performance. Serco listed several supporting factors including:
- Former Navy employees’ access to Serco’s proprietary information such as labor rates and employee names, positions, and hours as the Navy office program managers
- Former Navy employees’ access to Serco’s past performance ratings as the Navy office program managers
- Evidence that the Navy employees were expressly recruited before or immediately following retirement
- Evidence that BAH did not impose any limitations on the Naval program managers’ input on the bid proposal for the task order
The GAO sustained the protest and rejected the Navy’s assertion that there was no evidence of an unfair competitive advantage in BAH’s proposal. The GAO first reiterated its standard for evaluating whether a firm has an unfair competitive advantage from hiring a former government employee: if an offeror chooses to hire a former government official who had recent access to competitively useful information and uses that official to prepare a proposal, even the appearance of an unfair competitive advantage merits disqualification of the proposal. Further, the offeror is presumed to have benefitted and accessed any non-public, competitively useful information that the former government official presumably acquired. The GAO then found that BAH pursued Navy officials who had unbounded access to Serco’s proprietary information. The GAO also found that BAH recruited the officials prior to their retirement to assist with its proposal, and both officials were very involved in the proposal process. Finally, the GAO found that the Navy scored BAH higher based on this non-public information and did not properly consider all the evidence that BAH had obtained access to non-public, competitively useful information. Thus, the Navy’s conclusion that there was no unfair competitive advantage was unreasonable.
Takeaways
GAO’s standard for evaluating whether a firm has an unfair competitive advantage from hiring a former government employee (FAR subpart 3.1) is “virtually indistinguishable” from the unfair competitive advantage arising from unequal access to information as result of an organizational conflict of interest (FAR subpart 9.5)—if a former government official has access to competitive information, a proposal is properly disqualified based on even the appearance of an unfair competitive advantage. However, contractors should not be afraid to employ former government employees; Serco was sustained because there was clear evidence that the awardee did not put any limitations in place to prevent the unfair advantage. An offeror generally can prevent disqualification by implementing and documenting a firewall between the proposal team and the former federal employees with potentially useful non-public information. To be effective, the offeror should establish the firewall before the proposal team has an opportunity to interact with the former government employees in question.
Westwind Computer Products, Inc.[6]
Except in limited circumstances, agencies are required to procure goods and services through full and open competition. When an agency wants to limit competition to only brand-name items, its reasoning must be adequately justified. GAO recently affirmed this principle in Westwind, where it sustained a protest against the terms of a solicitation because the agency failed to adequately justify the solicitation’s restriction to one brand-name source for software.
The United States Department of Agriculture (USDA) issued a request for quotations (RFQ) for a task order under a government-wide acquisition contract, seeking quotations to support the agency’s enterprise business requirements. The RFQ specifically required that any software must support the existing email system and IT infrastructure and that “USDA has standardized on Microsoft Office, email, and cloud and has been using these tools for over 20 years.”[7]
As required by FAR 16.505(a)(4), USDA also issued a brand-name justification. A brand-name justification must meet two conditions: it must show that the brand name is essential to the agency’s requirements and include market research that other companies’ similar products do not meet, or cannot be modified to meet, the agency’s needs. Thus, an agency must show both why the brand name is necessary and why no other product will suffice.
The USDA justification listed several factors to support its contention that “Microsoft products are essential to the government’s need to provide software and security support necessary to meet operational, mission, Executive, and legislative requirements,”[8] including that over 96% of the agency’s systems run Microsoft Windows operating systems and over 120,000 users in 7,500 field offices already use the software. Additionally, the current USDA Microsoft structure already supported nationwide public interest programs such as wildfire management and school lunch programs, and was needed to support the agency’s cybersecurity needs.
Regarding market research, the justification stated that standard industry practices indicated that all other products would need at least a three-year timeline for transition and implementation and would take at least four years for complete data migration. Finally, the justification noted that due to the pandemic, a new product would delay USDA’s operations and cause significant operational difficulties and “at this time no other company’s product can meet the agency’s need to meet USDA’s performance and risk requirements.”[9]
Westwind filed a pre-award bid protest at the GAO, challenging the RFQ’s limitation to Microsoft software as unduly restrictive. GAO agreed and found that USDA failed to meet the second prong of the brand-name justification test—market research that indicates other companies’ similar products, or products lacking a necessary feature fall short or cannot be modified to meet the agency’s needs. Thus, while the justification did meet the first condition that the brand-name be essential to the agency’s requirements, the market research prong failed because the justification indicated only that a transition to a new software platform would be inconvenient to USDA. It failed to show that no other software could meet or be modified to meet the agency’s needs and did not address the FAR requirement that a justification specify the “particular feature” that distinguishes the brand name product from similar products. Thus, because USDA’s justification did not state that the product or services that USDA requires are offered only by Microsoft or that other companies’ software cannot be modified to meet the agency’s needs, the agency did not meet the brand-name restriction requirements.
Takeaway
The brand-name justification requirement makes it clear that agencies are required to obtain competition to the maximum extent practicable; Westwind illustrates that an agency cannot justify its brand-name requirement by simply stating it would be inconvenient to switch products. Prospective offerors should closely scrutinize brand-name requirements in solicitations and not get discouraged if the requested product differs from their own product. If offerors believe their own preferred supply or service would meet the agency’s needs, they should consider filing a protest to challenge the restrictive terms before the date set for submissions of proposals.
System Studies & Simulation, Inc.[10]
In its final opinion of 2021, System Studies & Simulation, Inc., the U.S. Court of Appeals for the Federal Circuit held that there is no presumption of prejudice in a bid protest, even where a protestor successfully shows that an agency action was “irrational.”
In 2018, the Army issued a solicitation to provide the agency with advanced helicopter flight training services. S3 filed a bid protest action at the Court of Federal Claims, and the court found that the agency failed to perform a proper tradeoff analysis. The court set aside the award, and the Army reevaluated the bids. In May 2020, the agency awarded the contract to CAE. S3 filed another bid protest, arguing that the agency’s decision to award the contract to CAE was arbitrary and capricious. Although the court rejected the majority of S3’s arguments, it agreed that the agency’s assignment of a certain “strength” to CAE was arbitrary and capricious. Nonetheless, the court upheld the Army’s decision to award the contract to CAE because S3 had not been prejudiced by the error; even without the error, S3 did not have a substantial likelihood of award.
S3 appealed to the Federal Circuit, arguing that when the COFC determines that an agency acted arbitrarily or irrationally, there is a presumption of prejudice to the protestor. In its argument, S3 relied on Impresa Construzioni Geom. Domenico Garufi v. United States, (Garufi), where the Federal Circuit held that a bid award may be set aside if either (1) the agency official’s decision lacked a rational basis or (2) the procurement procedure involved a violation of regulation. The Garufi court continued that, “[w]hen a challenge is brought on the second ground, the disappointed bidder must show ‘a clear and prejudicial violation of applicable statutes or regulations.’”[11] S3 reasoned that the specific discussion of a prejudice showing for a regulatory violation implies there is an automatic presumption of prejudice for irrational decisions, such as the arbitrary and capricious assignment of a strength here. S3 noted that a handful of COFC judges have applied exactly such a presumption of prejudice in a few cases.
The Federal Circuit rejected this argument. The court first noted that in accordance with its jurisdictional statute, 28 U.S.C. § 1491, the Administrative Procedure Act (APA) standard governs its review of bid protests. The APA mandates that when courts review agency action, “due account shall be taken of the rule of prejudicial error”; the prejudicial-error rule applies the harmless error principle in review of agency action.[12] The court next stated Garufi only expressly acknowledges the prejudice-showing requirement where a “‘violation of a regulation or procedure’ is at issue while omitting reference to prejudice where the absence of ‘a rational basis’ is at issue.’” However, just because Garufi states a prejudice showing is necessary for regulatory violations, that does not imply that a prejudice showing is not also necessary for arbitrary and capricious or abuse of discretion actions.
The court held that Garufi does not establish a presumption of prejudice, even when the agency acts irrationally. Rather, a protestor bears the burden of showing that an error (whatever its nature) was actually prejudicial. This is a two-step process where there must first be a showing that the agency’s actions were “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law” and next that the error was prejudicial. Because harmless errors are not actionable, an award cannot be set aside unless both requirements are met. Thus, to demonstrate prejudice in a post-award protest, a protestor must show it would have had a substantial chance of award but for the error.
Takeaway
In System Studies & Simulation, Inc., the Federal Circuit clears up any confusion on whether a presumption of prejudice exists for irrational agency actions—“[t]o the extent that there has been uncertainty on this point in [COFC], we now reject the interpretation on Garufi on which the uncertainty rests.”[13] Ultimately, prejudice is the core factual question of whether an agency’s procurement errors actually harmed the protestor. Even if a protestor can prove there was an error in the procurement process, it must also show the error plausibly might have kept it from being awarded the contract if the protestor wants to win its protest.
[1] Serco Inc., B-4196172.2 et seq., Dec. 6, 2021.
[2] See, e.g., Health Net Fed. Servs., LLC, B-401652.3 et seq., Nov. 4, 2009.
[3] Serco at *4.
[4] Id. at *7.
[5] Id.
[6] Westwind Computer Products, Inc., B-420119, Dec. 8, 2021.
[7] Id. at *2.
[8] Id.
[9] Id. at *4.
[10] Sys. Stud. & Simulation, Inc. v. United States, No. 21-01469 (Fed. Cir. 2021).
[11] Id. at 5 (citing Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324 (Fed. Cir. 2001)).
[12] See id. at 4.
[13] Id. at 7.
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