In 2018, three particularly important decisions were issued that will have a significant impact on bid protest law for years to come: Dell Federal Systems LP v. United States,[1] PDS Consultants Inc. v. United States,[2] and Oracle America Inc.[3] This article provides a brief overview of these three cases and provides insights on how they will shape the bid protest landscape going forward.
Dell Federal Systems v. United States
The Facts
In Dell Federal, 21 unsuccessful offerors filed bid protests with the Government Accountability Office, challenging nine awards made by the U.S. Army in a $5 billion procurement for “commercial-off-the-shelf” computer hardware. In response to the GAO protests, the Army decided to take voluntary corrective action consisting of: “(1) opening discussions with all of the remaining offerors, including those who filed protests, (2) requesting final revised proposals and (3) issuing a new award decision.”
Two of the original awardees then filed suit at the U.S. Court of Federal Claims seeking to enjoin the Army’s corrective action as overly broad, and five of the original awardee’s intervened in the suit. The COFC found in favor of the protesters, holding that “[e]ven where an agency has rationally identified defects in its procurement, its corrective action must narrowly target the defects it is intended to remedy.” The COFC also found that “there is a more narrowly targeted post-award solution that the Army entirely failed to consider[,] clarifications and reevaluation … of proposals as a more natural expedient for the minor clerical errors it had identified.”
The government and certain of the original protesters then appealed the COFC’s decision to the U.S. Court of Appeals for the Federal Circuit, alleging that the COFC applied the wrong legal standard when reviewing the Army’s corrective action. The Federal Circuit held that the COFC did, in fact, apply the wrong standard:
The Court of Federal Claims summarized the question before it as 'whether holding post-award discussions is a rational remedy for failing to hold pre-award discussions.' ... It held that 'the Army’s corrective action is not rationally related to any procurement defects.' [] However, in so holding, the Court of Federal Claims applied a heightened standard, requiring that a reasonable 'corrective action must narrowly target the defects it is intended to remedy.' … The Court of Federal Claims based its decision on an error of law because corrective action only requires a rational basis for its implementation. … The rational basis test asks 'whether the contracting agency provided a coherent and reasonable explanation of its exercise of discretion.' … Asking whether a selected remedy is as narrowly targeted as possible to an identified error in the bidding process requires more than a finding of rationality or reasonableness; therefore the Court of Federal Claims improperly applied an overly stringent test for corrective action.
The Federal Circuit went on to “hold the Army’s original notice of corrective action was reasonable,” and should thus be “reinstate[d].”
The Takeaway
In short, the Federal Circuit’s decision in Dell Federal will make it more difficult for COFC protesters to successfully challenge an agency’s corrective action. Previously, certain COFC cases applied a more “stringent” test, requiring that an agency’s corrective action “must narrowly target the defects it is intended to remedy.”[4] The Federal Circuit, in Dell Federal, rejected this “heightened” — or more “stringent” — test, and instead applied the more deferential Administrative Procedures Act test, which “only requires a rational basis” for the corrective action.
The Federal Circuit’s decision in Dell Federal, however, should not be read to give agencies unfettered discretion in the corrective action context. Indeed, the Federal Circuit’s decision makes clear that, under the APA, an agency still must both “[1] provide a reasonable corrective action and [2] adequately explain its reasoning for doing so.” Thus, even under the Dell Federal standard, an agency’s corrective action may be set aside if it is unreasonable and/or inadequately “explain[ed]” in the contemporaneous record.
PDS Consultants v. United States
The Facts
Identified as a Government Contracts case to watch in 2018, the Federal Circuit’s decision in PDS Consultants effectively delivered the final word on how to construe the congressional mandate in the Veterans Benefits, Health Care, and Information Technology Act of 2006, or VBA,[5] that the Department of Veterans Affairs procure from veteran-owned businesses first, if possible.
With certain exceptions, the VBA, codified in relevant part at 38 U.S.C. Section 8127(d), states the following:
[A] contracting officer of the Department shall award contracts on the basis of competition restricted to small business concerns owned and controlled by veterans if the contracting officer has a reasonable expectation that two or more small business concerns owned and controlled by veterans will submit offers and that the award can be made at a fair and reasonable price that offers best value to the United States.[6]
In 2016, the U.S. Supreme Court held in a rare bid protest decision, Kingdomware Technologies Inc. v. U.S., that Congress’s use of the word “shall” in the language quoted made “rule of two” review mandatory when determining whether the VA could procure from the GSA’s federal supply schedule once it met its veteran-owned small-business contracting goals.[7]
In particular, the Supreme Court stated, “We hold that § 8127(d) unambiguously requires the Department to use the Rule of Two before contracting under the competitive procedures.”[8] Kingdomware Technologies, however, did not deal with how the VBA interacted with other mandatory source-selection schemes.
PDS Consultants addressed that latter issue by examining the VBA’s conflict with the Javits-Wagner-O’Day Act, or JWOD.[9] The JWOD requires federal agencies to procure certain products or services from qualified nonprofit agencies for the blind or severely disabled when the product or service appears on the JWOD “procurement list.”[10] The Federal Circuit affirmed the COFC holding that the agency-specific rule of two requirement of the VBA with regard to procuring from veteran-owned small-business concerns take precedence over the government-wide mandate to buy certain products or services from qualified nonprofit agencies for the blind or severely disabled.[11]
The court noted that Congress amended the VBA to remove a JWOD exception that had been included in a 2003 version of the statute.[12] In addition, the court reasoned that the VBA’s rule of two was mandatory, despite the JWOD’s requirements, because the VBA was more specific — applying only to one agency — and enacted later than the JWOD.[13] Under the rules of statutory construction, “‘a specific statute takes precedence over a more general one,’” and, “‘when two statutes conflict, the later-enacted statute controls.’”[14]
The Takeaway
Simply put, when dealing with VA procurements, veterans almost always come first when there is a reasonable expectation that at least two veteran-owned small businesses will submit reasonable offers. As the Federal Circuit opinion states, “[W]here a product or service is on the [JWOD Procurement] List and ordinarily would result in the contract being awarded to a nonprofit qualified under the JWOD, the VBA unambiguously demands that priority be given to veteran-owned small businesses.”[15] The same principle would likely be found to apply on other mandatory statutory or regulatory procurement procedures beyond the JWOD.
Oracle America
The Facts
In Oracle, the protester successfully challenged before the GAO an agency’s award of a follow-on production other transaction agreement, or OTA, under 10 U.S.C. Section 2371b(f). The OTA statutory scheme allows the Department of Defense to engage industry to develop prototypes or specific advanced research and development projects through OTAs.
An OTA is a flexible, legally binding instrument that is not considered a federal procurement contract, and thus not subject to standard procurement regulations. Generally speaking, the GAO does not review protests of awards issued in connection with transactions “other than procurement contracts.” However, in Oracle, the GAO did just that, emphasizing that its regulations contemplate that the GAO may “review protests alleging that an agency is improperly using a non-procurement instrument to procure goods or services.”[16]
Relevant to the Oracle decision, a prototype OTA may provide for the award of a follow-on production agreement, or P-OTA.[17] The follow-on P-OTA may be awarded without competition if the follow-on P-OTA was “provided for in the transaction,” or prototype OTA, and (1) “competitive procedures were used for the selection of parties for participation in the transaction” and (2) “the participants in the transaction successfully completed the prototype project provided for in the transaction.”[18]
In Oracle, the GAO found that agency failed to meet these statutory prerequisites and thus lacked authority to award a follow-on P-OTA without competition. Specifically, a P-OTA was not “provided for” in the prototype OTA,[19] and the prototype project had not been successfully completed prior to issuance of the P-OTA. Absent meeting these statutory requirements, the GAO determined that the agency lacked authority to issue the P-OTA without competition under 10 U.S.C. Section 2371b(f), and recommended that the agency terminate the award.
Notably, the GAO found that the protester in Oracle was an interested party despite the fact that the protester had not submitted a solution brief in response to the DOD’s Defense Innovation Unit (Experimental) consolidated announcement, or AOI, for the prototype project at issue. The protester, however, argued that it would have submitted a solution brief had public announcements accurately described the prototype competition or fact that the agency contemplated awarding a follow-on P-OTA. The GAO found that, in a protest alleging that an award was made without proper authority, the protester’s economic interest in a competed solicitation should the protest be sustained was sufficient to establish interested party status, despite the fact that the protester had not competed under the allegedly defective solicitation.
The Takeaway
Oracle answers in the affirmative the question of whether the GAO will review an agency’s use of OTAs. That said, the GAO made clear that its exercise of jurisdiction over OTA awards is limited to the question of authority — whether the agency’s use of its discretionary authority was proper under the authorizing statute(s), or “knowing and authorized.” On the other hand, the Oracle decision is notable in that the GAO’s “interested party” analysis opens the door to a broad range of potential “interested parties” in regard to follow-on P-OTAs awarded without competition, including those that may not have participated in the initial prototype OTA competition.
Conclusion
The decisions discussed in this article are the three most important bid protest decisions of 2018. These cases undoubtedly will have a significant impact for years to come on corrective action protests, set-aside priority protests and protests involving OTAs.
Republished with permission. The original article, "The 3 Most Important Bid Protest Decisions of 2018," first appeared on law360.com on December 18,2018.
[1] Dell Federal Systems LP v. United States, 906 F.3d 982 (Fed. Cir. 2018)
[2] PDS Consultants Inc. v. United States, 907 F.3d 1345 (Fed. Cir. 2018)
[3] Oracle America Inc., B-416061, 2018 CPD ¶ 180 (Comp. Gen. May 31, 2018).
[4] See Amazon Web Servs. Inc. v. United States, 113 Fed. Cl. 102, 115 (2013) (citing Sheridan Corp. v. United States, 95 Fed. Cl. 141, 153 (2010)).
[5] Pub. L. No. 109-461, 120 Stat. 3403 (2006).
[6] Pub. L. No. 109-461, § 502(a), 120 Stat. at 3432.
[7] Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969, 1973, 1976-77 (2016).
[8] Id. at 1976.
[9] 41 U.S.C. § 8504.
[10] § 8504(a); PDS Consultants, Inc., 907 F.3d at 1349.
[11] PDS Consultants, Inc., 907 F.3d at 1358.
[12] Id. at 1358-59.
[13] Id.
[14] Id. (quoting Arzio v. Shinseki, 602 F.3d 1343, 1347 (Fed. Cir. 2010); also quoting Miccosukee Tribe of Indians of Fla. v. U.S. Army Corps of Eng’rs, 619 F.3d 1289, 1299 (11th Cir. 2010)).
[15] Id. at 1360.
[16] See 4 C.F.R. § 21.5(m).
[17] 10 U.S.C. § 2371b(f)(1).
[18] 10 U.S.C. § 2371b(f).
[19] Specifically, the GAO found the fact that the associated commercial solutions opening, or CSO, mentioned “possible” follow-on production was inadequate, where 10 U.S.C. Section 2371b(f) specifically requires that follow-on production be provided for in the “transaction entered into” — i.e., the legal instrument itself and not the solicitation or CSO documents.
