The Court of Appeals for the Federal Circuit (CAFC) continues to redefine the Court of Federal Claims’ (COFC) ability to hear cases affecting all stages of the federal procurement process.
Last year alone witnessed decisions in which the CAFC established the Tucker Act’s “interested party” analysis as a matter of statutory standing only, recharacterized its long-standing waiver rule for solicitation defects as a non-jurisdictional claims-processing rule and rejected the notion that the Contract Disputes Act’s “sum certain” requirement could be used as a jurisdictional defense. In other words, contractors are finding success in their appeals to the CAFC to save their cases from summary dismissal, with the CAFC issuing decisions diluting what once were viewed as insurmountable procedural hurdles to the merits of contractors’ cases ever being heard.
Now, contractor-appellants can add another notch to their belt with the CAFC’s decision earlier this month in Percipient.ai, Inc. v. United States. The Court held Percipient.ai Inc. (Percipient) can continue pursuing its bid protest challenging the government’s post-award commerciality assessment of its artificial intelligence (AI) solution, even though Percipient never competed for – and, in fact, admittedly could not have competed for – the underlying task order that is at the heart of this matter. The majority panel arrived at this result by narrowing the scope of the Federal Acquisition Streamlining Act’s (FASA) task order protest bar at 10 U.S.C. § 3406(f), while expanding what it means to be an “interested party” under the third prong of the Tucker Act, 28 U.S.C. § 1491(b)(1).
This, in turn, prompted a relatively pointed dissent taking issue with nearly every aspect of the majority’s decision and warning against the “flood” of commercial preference protests it could now invite. Given the broad implications this case could have for bid protests going forward, government contractors should educate themselves now on the ins-and-outs of Percipient.ai and track it closely in the event the full Court revisits the holding in an en banc review.
Case Background
Percipient’s bid protest originates not with a solicitation or contract for which it competed, but one in which CACI, Inc.–Federal (CACI) competed and was selected for award. In January 2021, the National Geospatial-Intelligence Agency (NGA) awarded the SOM AAA Framework for Integrated Reporting and Exploitation (SAFFIRE) indefinite-delivery, indefinite-quantity (IDIQ) contract to CACI. The SAFFIRE contract broadly requires CACI to provide (1) an enterprise repository backbone for storing, managing, and disseminating data; and (2) a user-facing computer vision (CV) system, a form of AI.
Percipient was unable to meet the repository requirement but offered a commercial CV platform, “Mirage,” that it alleges could meet the NGA’s CV system requirement. And so, while Percipient did not bid on the SAFFIRE contract, it nonetheless expected to have an opportunity to offer its Mirage system to NGA and CACI during contract performance given the statutory commercial preference, codified at 10 U.S.C. § 3453 of the FASA, for commercial products and services.
Percipient contacted NGA and CACI about its commercial Mirage system in hopes of securing a spot on the development of the CV system required by the SAFFIRE contract, which NGA directed CACI to begin through the issuance of a task order (Task Order 1) against that contract. After giving Percipient a chance to demonstrate its system, CACI passed and decided instead to build its own CV system to satisfy NGA’s requirement. Percipient also demonstrated its Mirage system to NGA representatives, who ultimately found it did not satisfy the agency’s requirement for an analytical tool. After NGA refused to provide it another opportunity to demonstrate the feasibility of its AI solution, Percipient filed a bid protest action in the COFC, seeking to enjoin NGA’s alleged violations of FASA’s statutory preference for commercial products and services.
Both the government and CACI (which had intervened as a matter of right) filed motions to dismiss Percipient’s complaint on the basis that it was barred by the FASA task order protest bar and otherwise represented an untimely challenge of the SAFFIRE solicitation, and on the basis that Percipient was not an “interested party” under the Tucker Act. The COFC originally declined to grant the motions to dismiss but subsequently decided to dismiss for lack of jurisdiction under the FASA task order protest bar, which divests the COFC of jurisdiction over protests “in connection with the issuance or proposed issuance of a task or delivery order” issued against an IDIQ contract. Percipient appealed the dismissal to the CAFC.
The Majority’s Decision
FASA Task Order Protest Bar
On appeal, the CAFC reversed and remanded the COFC’s opinion dismissing Percipient’s protest under the FASA task order protest bar. The CAFC reviewed each of Percipient’s four protest counts and found that none of them were “in connection with the issuance or proposed issuance of a task or delivery order” to fall under the protest bar. Most of Percipient’s allegations, according to the CAFC, did not “even mention task orders,” and when they did, their focus was on NGA’s and CACI’s actions after the issuance of Task Order 1. Moreover, Percipient’s requested relief – namely, enjoinment of NGA’s alleged violations of 10 U.S.C. § 3453 – “would not alter NGA’s issuance of Task Order 1 to CACI,” which the CAFC found provided further support that Percipient’s protest was not “in connection with the issuance or proposed issuance” of that task order.
The Court’s ruling is noteworthy for rejecting, as “far too broad,” the government’s position that the task order bar should apply to “all protests that relate to work performed under a task order,” such that “whatever results from, i.e., follows or comes after, a task order falls under the task order bar.” The government, in turn, relied upon the CAFC’s 2014 decision in SRA International, Inc. v. United States, in which the Court had held that the task order protest bar applies to procurement actions that are “directly and causally connected” to the issuance of a task order.
The majority in Percipient.ai, however, held that this language from SRA was meant “to refer to government action in the direct causal chain sustaining the issuance of a task order, not to all actions taken under or after issuance of a proper task order.” And so, because unlike the protester in SRA that challenged the government’s action of waiving an organizational conflict of interest, the “wrongfulness” of which “would [have] cause[d] the task order’s issuance to be improper,” Percipient’s counts did not challenge the propriety of or seek to upend the award of Task Order 1 to CACI, the CAFC held that Percipient’s bid protest was not “directly and causally” connected to the task order to fall under the FASA task order protest bar.
“Interested Party” Standing Under Prong Three Of The Tucker Act
While the majority’s holding on the FASA task order protest bar would have alone made the Percipient.ai decision headline news to the government contracts bar, it is the majority’s holding on who qualifies as an “interested party” under the Tucker Act that truly makes this decision a significant one. Specifically, in an apparent issue of first impression, the CAFC held that a protester may challenge the government’s failure to adhere to the statutory preference for commercial products and services on a contract under prong three of the Tucker Act, even though the protester was never an actual or prospective offeror for the underlying contract.
The three prongs of the Tucker Act provide the COFC with subject matter jurisdiction over “an action by an interested party objecting to [1] a solicitation by a Federal agency for bids or proposals for a proposed contract or to [2] a proposed award or award of a contract or [3] any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” As the emphasized language highlights, and as held by the majority, this third prong is “very sweeping in scope” in that it covers “all stages of the process of acquiring property or services,” not just the solicitation (prong one) or award (prong two) phases. Instead, prong three provides “interested parties” the right to challenge any alleged violation of law that may occur in a procurement from beginning to end, including up to and including “contract completion and closeout.” And so, because Percipient alleged violations of 10 U.S.C. § 3453 and related regulations in connection with the SAFFIRE procurement, the CAFC held that Percipient’s bid protest fell within the contours of prong three of the Tucker Act.
That did not end the inquiry, however, because to have standing to bring a protest under prong three of the Tucker Act, Percipient still had to show it was an “interested party” as that term is used by the statute. In American Federation of Government Employees, AFL-CIO v. United States (AFGE), the CAFC previously used the Competition in Contracting Act’s (CICA) definition of “interested party” for protests before the Government Accountability Office (GAO), which ties standing to whether the protester was “an actual or prospective bidder” on a contract, to interpret what an “interested party” is under the Tucker Act. Relying upon that Circuit precedent, both NGA and CACI argued Percipient lacked standing as it was never a prospective or actual bidder on the SAFFIRE contract.
However, the majority in Percipient.ai disagreed with the government and CACI that the mere fact Percipient did not and, admittedly, could not have bid on the contract deprived it of standing. Instead, the majority found Percipient’s protest involved only a challenge under prong three – a situation AFGE did not address, and one which the majority described as “a crucial distinction” as to why that case is not controlling. And so, the majority declined to apply CICA’s definition of “interested party” to Percipient’s protest.
Instead, the majority held that, in the context of alleged violations of 10 U.S.C. § 3453 unaccompanied by challenges to the underlying contract, an “interested party” for purposes of prong three of the Tucker Act “includes an offeror of commercial or nondevelopmental services or items whose direct economic interest would be affected by the alleged violation of the statute.” Because Percipient has a direct economic interest in NGA’s failure to properly evaluate its AI product Mirage for integration into the SAFFIRE procurement, the CAFC held Percipient satisfied this standard and thus could proceed with maintaining its protest.
The Dissent
Judge Raymond C. Clevenger III authored a 28-page dissent setting forth the “many reasons” he had for disagreeing with the majority. With regards to the FASA task order bid protest bar, Judge Clevenger faulted the majority from sidestepping away from Circuit precedent “to create and apply a significantly different interpretation of the task order bar in this case.” In particular, Judge Clevenger viewed Percipient’s case “as close to SRA as the law school ‘on all fours case’ can get.”
As to the majority’s holding that Percipient had “interested party” standing to maintain its protest, Judge Clevenger once again faulted the majority for deviating from Circuit precedent in AFGE and emphasized that Percipient at most could only show an interest in potentially receiving a subcontract from CACI to provide its Mirage software on the SAFFIRE procurement. But this potential to be a subcontractor did not confer standing upon Percipient, he added, particularly when Congress previously rejected subcontractor standing under the now repealed Brooks Act, which had allowed bid protests to Automated Data Processing Equipment procurements by an “interested party.”
Judge Clevenger also faulted the majority for what he characterized as its “real reason” for departing from AFGE (and, likely, SRA as well) to find limited subcontractor standing under prong three of the Tucker Act – namely, that “[u]nless potential subcontractors are allowed to bring § 3453 protests under prong three,...the goals of § 3453 will be ‘illusory,’ and the statute will have ‘minimal bite.’” Judge Clevenger disagreed, noting there was “no evidence, anecdotal or empirical, that the statute is widely disregarded by agencies or contractors,” and expressing skepticism of the little faith the majority seemed to have in agencies and their prime contractors to enforce the statutory commercial preference themselves.
Judge Clevenger concluded his dissent by noting the potential disruption to the procurement process the majority’s decision could invite: “[I]t is fair to expect potential subcontractors will soon flood” the COFC with prong three bid protests challenging alleged violations of § 3453, particularly given “all the products and services that go into government contracts for a battleship, or airplane, or new headquarters for an agency, and the vast number of potential subcontractors who can so easily allege possession of a suitable off-the-shelf product or service and inadequate agency attention to § 3453’s requirements.” He also warned that the majority’s “driving rationale, i.e., that some laws are so important (here, § 3453) that they require relaxed standing tests to promote compliance, will in time likely apply to alleged violations of other important laws, requiring specially tailored standing requirements” for them as well.
Takeaways
To better understand the implications of Percipient.ai on future bid protests, it is important to first understand what this decision does not change, at least for now. The majority’s decision is likely to have little impact on GAO protests; GAO, unlike the COFC, can hear task order bid protests, provided they fall under $10 million for civilian task orders or $25 million for defense task orders. And GAO’s jurisdiction, unlike the COFC’s, is governed by CICA, which includes a narrower definition of “interested party” than the one adopted by the majority in Percipient.ai for prong three of the Tucker Act. Consequently, unless an enterprising protester can find a way to stretch the Percipient.ai decision to apply to GAO protests, it’s unlikely to lead to a plethora of commercial item preference protests before that forum.
The COFC, on the other hand, is a different matter. There, the Percipient.ai decision could prompt new protests involving task order procurements that, while not directly seeking to overturn the issuance of a task order award per se, could nonetheless throw a wrench in the performance of a task order if a protester can point to some violation of law after issuance. As the dissent suggests, the potential for a “flood” of protests challenging agency violations of FASA’s preference for commercial products and services is very real given the large amounts of products and services modern procurements entail, each of which theoretically requires market research be performed to determine whether a commercial item will suffice.
This bodes well for would-be subcontractors and suppliers who feel they’ve gotten the short end of the stick when it comes to their involvement in large procurements for which they may be ineligible to compete but nonetheless have numerous requirements that can be satisfied by their commercial offerings. After all, from a public policy perspective, agencies shouldn’t be allowed to skirt their responsibility to determine what is and is not commercially feasible on a particular procurement by relying upon self-interested primes to tell them what products and services can satisfy the government’s needs. Percipienti.ai, then, could be viewed as a welcome relief to commercial suppliers who have been told all too often that only some highly customizable, developmental item can satiate the government’s “special” needs.
Then again, the costs of permitting subcontractors to bring these kinds of challenges before the COFC could soon outweigh its perceived benefits. As Judge Clevenger notes in his dissent, the statutory commercial item preference is very broad, requiring agencies to consider, “to the maximum practicable,” whether commercial products or services can satisfy its requirements at every stage of a procurement, including throughout performance up until contract completion. And if these kinds of protests of traditional contract administration decisions are not already making procurement officials’ and awardees’ heads spin, think of the consequences should the reasoning in Percipient.ai be expanded to other statutes that, in Judge Clevenger’s words, are arguably “so important” that they will require “relaxed standing tests to promote compliance” as well.
Granted, the majority was careful to limit its holding to the facts at hand. But contractors and their counsel are certainly creative enough to think of ways to expand Percipient.ai to apply to a host of procurement statutes and regulations that otherwise would have “minimal bite” unless potential subcontractors were allowed to enforce compliance through COFC protests. Indeed, the directive to act “to the maximum extent practicable” to enforce some kind of policy preference in the acquisition of goods and services does not just apply to commercial items, but rather appears in hundreds of procurement statutes and regulations. These laws govern procurement actions as varied as facilitating small business participation at both the contractor and subcontractor levels when formulating a procurement strategy (15 U.S.C. § 644(e)); obtaining commercial computer software and commercial computer software documentation on a fixed-price, competitive basis (DFARS 227.7202-1(a)); and seeking, retaining, and promoting subcontractor participation in multiyear contracting requirements (FAR 17.106-3).
Do each of these preferences require subcontractor standing to enforce? Are they important enough not to trust agencies and large primes to self-regulate their compliance with them? Or does it all depend on the specific economic interests that would be harmed if suppliers were not allowed to protest alleged violations?
The answers to these and what are sure to be many more questions to come remain unclear. One course of action would be for the Court to reconsider the majority’s decision in Percipient.ai through en banc review to clarify (or even withdraw) the panel’s holding – something alluded to in the dissent. It’s likely both the government and CACI are preparing their petitions for en banc review right now, so stay tuned for further developments.
Until then, contractors with questions about what the Percipient.ai decision means for them should seek legal advice from experienced government contracts counsel.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
[View source.]
