This month’s Bid Protest Roundup include decisions regarding supplementation of the record and whether an agency may convert a sealed bid opportunity into a negotiated procurement due to lack of funds, as well as a case in which the Court of Federal Claims found a GAO precedent failed to provide a rational basis to reject a bid.
Global K9 Protection Group, LLC v. United States, Court of Federal Claims, December 27, 2023
In Global K9 Protection Group, LLC v. United States, the Court of Federal Claims (COFC or the “Court”) found that materials containing information related to an awardee’s past performance, as well as documentation of the Contracting Officer’s review of that information, were relevant materials admissible to supplement the administrative record at the Court.
The subject solicitation, originally issued in September 2020, was for air cargo canine screening services for the United States Postal Service (USPS or the “Agency”), a service previously handled by the Transportation Security Administration (TSA) on USPS’ behalf. Award of the contract was most recently made to K2 Solutions, Inc. (“K2 Solutions”). Following two administrative disputes, a consolidated bid protest at Court (including two remands), re-solicitation, and another consolidated bid protest at the Court in 2022, the Agency awarded a shorter-term contract to K2 Solutions.
This case consolidated the protests of Global K9 Protection Group, LLC (“GK9”) and Michael Stapleton Associates, LTD (MSA). After MJAR briefing had concluded, the Government brought to the Court’s attention issues with awardee K2 Solutions’ performance, which the Agency had indicated could lead to a change in operations whereby K2 Solutions would no longer be performing services for the Agency. The Court authorized supplemental briefing on the matter of K2 Solutions’ deficient performance. As is relevant here, at this stage, GK9 claimed that K2 Solutions had made material misrepresentations about its past performance, which led to the Government’s unreasonable award of the contract to K2 Solutions. GK9 sought to supplement the administrative record with a declaration from GK9 Chief Operating Officer Ronald Beason (the “Beason Declaration”) and accompanying materials, collectively addressing K2 Solutions’ performance shortcomings while K2 Solutions was engaged by GK9 as a subcontractor.
In analyzing whether it could supplement the administrative record, the Court explained that in conducting review of an agency’s procurement decision, the primary focus should be those materials that were reviewed by the agency in making its award decision. As the Court reiterated, under the standard established in Axiom Resource Management v. United States,[i] the administrative record may only be supplemented in cases where “the omission of extra-record evidence precludes effective judicial review.”[ii] The Court determined that the Beason Declaration was not part of the administrative record and was not before the agency in its award decision; however, the Court admitted it nonetheless because the declaration was necessary to rule on K2 Solutions’ alleged material misrepresentation. Following similar reasoning, the Court also admitted to the record the declaration of USPS Contracting Officer Moore, which was necessary to fully review the material misrepresentation allegations and determine whether the Agency had acted in an arbitrary and capricious manner.
The Court ultimately issued a permanent injunction disqualifying K2 Solutions from the solicitation, finding that GK9 had succeeded on the merits of its material misrepresentation claim, that GK9 was at risk of irreparable harm and was favored by the balance of harms, and that the public interest in fair competition and national security weighed in favor of an injunction. The Court noted that, although K2 Solutions was not a party to the case because it chose not to intervene, this did not prevent the issuance of an injunction since K2 Solutions opted not to participate in the proceedings and the Government represented K2 Solutions’ interests in defending the award. Separately, the Court denied MSA’s motion to supplement the administrative record with a statement from one of its employees on the basis that MSA did not have a substantial chance of receiving the award and therefore lacked standing.
The Court’s decision to allow supplementation of the administrative record demonstrates one of many potential consequences of prolonged litigation over awards, during which additional problems may continuously come to light and lead to further issues for parties to the matter.
Takeaways
Supplementation of the record is a rare event at the Court of Federal Claims. The Federal Circuit set a high standard in Axiom that supplementation is permitted only when “necessary in order not ‘to frustrate effective judicial review.’” 564 F.3d at 1381. Supplementation is generally reserved for existing evidence that “was or should have been considered by the agency.”[iii] Here, however, the court deemed it important to review additional evidence to determine whether allegations of material misrepresentation were true. The court has permitted litigants to supplement the record to show evidence of bad faith,[iv] and evidence generally known in an industry but inappropriately ignored by an agency.[v] This case shows that if important information is missing from the record, the bar to supplementation is high, but not insurmountable. Another takeaway is to think carefully before choosing not to intervene in protest challenging your award.
Great Lakes Dredge & Dock Co., B-421676.4, December 19, 2023
In Great Lakes Dredge & Dock Co, the GAO sustained a protest against the U.S. Army Corps of Engineers’ (USACE or the “Agency”) decision to convert a FAR Part 14 sealed bid procurement into a FAR Part 15 negotiated procurement on the basis that the price of the bids received exceeded available funds.
In January 2023, the USACE issued an invitation for bids (IFB) under FAR Part 14 to replenish sand and repair the dune and berm system along a portion of the New Jersey coastline. Great Lakes Dredge & Dock Company (“Great Lakes”) was one of two bidders who responded. Bids were opened in March, and Great Lakes’ bid—the lowest bid received—was $67,609,987. This price exceeded both the Corps’ independent government cost estimate (“IGCE”) of $46,564,970, as well as the total amount of funds available for the project, $60,400,000. The Corps considered other options, including use of additional funding, but Great Lakes’ bid still exceeded available funds. In May, the Corps canceled the IFB, citing unreasonable pricing in the bids it received and stating that cancellation was in the public interest, although it did not articulate precisely why the latter was true. A few days later, the Corps changed the method of procurement from a FAR Part 14 to a FAR Part 15 negotiated procurement and converted the IFB into a Request for Proposals.
Great Lakes protested at the GAO, and the USACE elected to take corrective action to reassess its estimate and the decision to convert to a negotiated procurement methodology. The GAO subsequently dismissed the protest as academic. During corrective action, the Corps increased its IGCE by $6,329,106, but the lowest-priced bid, from Great Lakes, still exceeded the estimate. The Corps again chose to cancel the IFB and convert to a negotiated procurement. The contracting officer cited three reasons for the cancellation: (1) the prices of the bids received were unreasonably high; (2) those prices exceeded the IGCE by over 25%; and (3) the bids received exceeded available funding. The contracting officer determined separately that converting to a negotiated procurement was “in the best interests of the government . . . in accordance with FAR subsections 14.404-1(e) and (f).” Interestingly, the contracting officer acknowledged that agencies may not convert an IFB into a negotiated procurement if the IFB were canceled pursuant to FAR 14.404-1(c)(10). This provision permits cancellation when, “for other reasons, cancellation is clearly in the public’s interest.” The USACE notified Great Lakes of the decision to convert to a negotiated procurement, and Great Lakes again protested at the GAO.
The GAO found that agencies may cancel solicitations when adequate funds are unavailable, regardless of any dispute over the validity of its estimates. Because management of funds depends on agency judgment regarding which projects to pursue, the GAO will not question an agency’s determination that funds are not available. Here, however, the GAO determined that the USACE’s decision to convert the IFB into a negotiated procurement violated procurement policy. The GAO explained that the FAR permits such a conversion when all bids received contained unreasonable prices, the procuring agency cannot determine price reasonableness, bids received were collusive or submitted in bad faith, or no responsible bidder submitted a bid. The FAR does not, however, permit such a conversion due to lack of available funds. In its protest filings, the USACE did not defend its IGCE, but instead defended its decision based on a determination that it lacked adequate funding. By not defending the IGCE, the USACE rendered the GAO unable to determine whether the USACE’s determination that the Agency was unable to award the contract was reasonable. The USACE’s failure to explain why the IGCE was reasonable also caused the GAO to find unreasonable the USACE’s decision to convert the procurement from a FAR Part 14 to a FAR Part 15 procurement. See FAR 14.404-1(e), 14.404-1(f). Because the only basis upon which the agency defended its decision was for lack of funding, FAR 14.404-1(c)(10), cancellation in the public interest was the only reasonable justification. That FAR provision, however, permits an agency only to cancel a procurement, not to convert an IFB into a negotiated procurement.
Takeaways
Agencies have broad discretion to manage their budgets and to cancel procurements, subject to certain constraints. Agencies may, of course, cancel FAR Part 14 procurements if they do not have sufficient funds to pay the lowest-priced bidder for a project, but they may not convert an FAR Part 14 procurement into a negotiated procurement for that reason. A sealed bid procurement may be converted to a negotiated procurement only if all bids received were unreasonable, collusion or bad faith tainted the competition, no responsible offeror submitted a bid, or price reasonableness could not be determined. Had the USACE defended its estimate or demonstrated that one of those situations existed, it may have prevailed. Sharp-eyed counsel should scrutinize regulatory or statutory fetters on agency discretion to determine whether, as here, failing to defend an aspect of its procurement decision removes the very basis for its actions.
Togiak Management Services, LLC v. United States, Court of Federal Claims, December 18, 2023
In Togiak Management Services, LLC v. United States, another FAR Part 14 case involving the USACE, the COFC found the Agency lacked a rational basis for rejecting the protester’s bids.
At issue were two solicitations seeking construction of bulkhead recesses for a dam in Minnesota. The solicitations required that bidders include bid bonds and further specified that “facsimiles of bids or modifications thereto” would not be accepted. After issuing these solicitations, the Department of Defense (DoD), the parent agency for the USACE, issued Class Deviation 1020-00016. The deviation, issued in response to the COVID-19 pandemic, permitted electronic signatures for documents pertaining to losses under contracts in accordance with FAR Part 28, which prescribes requirements for financial protections, including bonds.
Togiak submitted a bid, and its surety applied a wet signature to the bonds and scanned them. Appended to each bond was a signed, sealed, notarized power of attorney. A Togiak representative printed the bonds and signed them with a wet signature, then scanned the bonds and sent them via email to a Togiak division manager, who scanned the bonds and added them to the submission packages (one for each solicitation). Each package contained a Standard Form 1442 (Solicitation, Offer and Award) with a wet signature from Togiak and a copy of the signed bid bond.
The USACE notified Togiak the following month that its bid was rejected because the bid bond was a copy and did not have an original, wet signature. The Agency considered the bid guarantee “nonresponsive” to solicitation requirements and insufficient for contract award. Togiak protested to the COFC on two bases. First, Togiak challenged the decision based on the class deviation, which permitted copies of bonds without wet signatures; second, Togiak alleged that the agency improperly considered the bond a matter of responsiveness rather than responsibility.
The Court found that the FAR did not specifically require an agency to treat the authenticity or enforceability of a bid bond as matters of responsibility; however, the Agency lacked a rational basis for rejecting Togiak’s bid because the GAO opinion it relied upon also lacked a rational basis. The Court rejected Togiak’s argument that the class deviation permitted it to send copies or facsimiles of documents. It found that the class deviation applied only to electronic signatures, which were to be considered original, but did not extend to include photocopies or facsimiles. The Court noted that none of the signatures on the bid bonds were true electronic signatures, but were instead copies of electronically transmitted signatures, which did not constitute “electronic signatures.”
The Court also found that although the FAR 28.103 provides that questions regarding authenticity or enforceability of powers of attorney are treated as matters of responsibility, an agency is not required to conduct a responsibility determination if issues arise concerning a bid bond. The Court reasoned that tying bid bonds to this requirement would improperly expand the scope of FAR 28.103. Notwithstanding that finding, the Court determined that the GAO precedent the USACE relied upon did not provide a basis for rejecting Togiak’s bid. The USACE relied upon TJ’s Marine Construction,[vi] for the proposition that a photocopied bid bond was inherently nonresponsive.
Further, the Court noted that this principle arises from an earlier GAO decision, Imperial Maintenance.[vii] In Imperial Maintenance, concerns regarding a bid guarantee included the fact that it was a photocopy, but the guarantee had additional issues, including the fact that it was addressed to the bidder rather than the government third-party beneficiary. Even so, the GAO held in Imperial Maintenance that “[t]he mere fact [that the letter] was a photocopy, in our opinion, is sufficient to render the instrument defective, since there would be no way (other than by examination of the original) that the agency could be certain that there had not been alterations to which the bank had not consented.” [viii] Additional cases the GAO cited in Imperial Maintenance also did not support the proposition that the fact that a bid guarantee was photocopied, standing alone, renders it defective. In one case, the bid bond was rejected because it had been materially altered,[ix] while in another, the GAO ruled that the protester could not show that its surety consented to alterations in the bid bond.[x] The Court went on to note that, nonetheless, the GAO had established a general principle that any photocopied bid bond was nonresponsive. The GAO’s decision in TJ’s Marine Construction, however, and the precedents underpinning it, do not support this principle. The Court reasoned that this made the GAO’s decision irrational, therefore the Agency’s reliance upon it rendered its decision to reject Togiak’s bid irrational as well.
Takeaways
The GAO and the Court of Federal Claims are, to a substantial extent, “non-overlapping magesteria.” While we expect the GAO to take note of this case, particularly concerning whether copies of bid bonds are prima facie invalid, the GAO is not obligated to do so. Additionally, judges of the Court of Federal Claims are also not required to accept each others’ rulings as precedent. Unless and until the Federal Circuit weighs in on the matter, it is not “guaranteed” that the GAO or the COFC will follow this ruling. However, this case is notable for its deep dive into GAO precedent and uncovers an interesting example of “precedential drift” that sometimes occurs in procurement law. Most importantly, it offers a fulsome and powerful analysis of the questionable origin of the principle that photocopied bid bonds are innately defective.
[i] 564 F.3d 1374, 1380 (Fed. Cir. 2009).
[ii] Id. (quoting Murakami v. United States, 46 Fed. Cl. 731, 735 (2000)).
[iii] East West Inc. v. United States, 100 Fed. Cl. 53, 57 (2011).
[iv] See Palantir USG Inc. v. United States, 129 Fed. Cl. 218, 238 (2016).
[v] See Mori Associations Inc. v. United States, 98 Fed. Cl. 572, 575 (2011).
[vi] B-402227, 2010 CPD ¶ 19 (January 7, 2010).
[vii] B-224257, 87-1 CPD ¶ 34 ((January 8, 1987).
[viii] Id. at 2.
[ix] Ameron, Inc., B- 218262, 85-1 CPD ¶ 485 at 2 (Comp. Gen. Apr. 29, 1985).
[x] Baucom Janitorial Service, Inc., B-206353, 82-1 CPD ¶ 356 at 2 (Comp. Gen. Apr. 19, 1982).
[View source.]
