September 27, 2001

Federal Circuit Round-Up

Holland & Knight Newsletter
David S. Black

Federal Employees, Union Have No Standing to Challenge Cost-Comparison Study Results In Court

The Federal Circuit recently held that neither federal employees nor their union may sue in federal court to challenge the results of A-76 cost comparison studies. In addition, the Federal Circuit provided long-anticipated guidance about who would be an "interested party" allowed to file a bid protest under the Tucker Act.

The Defense Logistics Agency (DLA) conducted a cost-comparison study pursuant to OMB Circular No. A-76 for the performance of defense material distribution services at the Defense Distribution Depot in Barstow, California. At the conclusion of the study, the DLA concluded that the private-sector source could provide the depot services for about $2.5 million less than the cost of the government continuing the services in-house.

OMB Circular No. A-76 includes a provision that allows affected federal employees and their representatives to seek an administrative-level review of cost-comparison decisions. Invoking this provision, two federal employees and their union, the American Federation of Government Employees (AFGE), pursued an administrative appeal of the DLA’s decision. When the DLA Appeal Authority upheld original contract decision, the AFGE and the two affected federal employees filed suit in the United States Court of Federal Claims (COFC) pursuant to the protest provision of the Tucker Act, 28 U.S.C. § 1491(b)(1), which allows an "interested party" to challenge a proposed contract award or any alleged violation of statute or regulation in connection with a procurement. On the government’s motion, the COFC dismissed the action, holding that the federal employees and AFGE did not qualify as "interested parties" under the Tucker Act.

On appeal, the Federal Circuit agreed with the COFC and held that federal employees and their union representatives have no standing to challenge an executive agency cost- comparison decision in federal court. In reaching its conclusion, the Federal Circuit clarified the meaning of the term "interested party" in the protest provision of the Tucker Act. The court concluded that Congress intended the same standing requirements that apply to protests to the General Accounting Office brought under the Competition in Contracting Act (where the term "interested party" is defined) to apply to COFC protests brought under the Tucker Act. Significantly, the court expressly rejected the position held by some COFC judges that the term "interested party" conferred standing on anyone who might have standing under the Administrative Procedure Act.

American Federation of Government Employees et al. v. United States, No. 00-5090.

Standard of Review for Sole-Source Award Decisions Clarified

This high-profile case involved the sole-source award of a seven-year contract valued at $6.36 billion by the United States Postal Service (USPS) to Federal Express Corporation (FedEx). The USPS decided to replace its existing dedicated air transportation network with a single transportation provider that used a "shared" system. Emery Worldwide Airlines, Inc. (Emery) filed a protest in the Court of Federal Claims (COFC), alleging that the USPS’s sole source decision was irrational and that the USPS had violated its own procurement procedures regarding public notice of its award. The COFC, after determining that it had jurisdiction over this case, granted summary judgment for the government and dismissed the complaint. Emery appealed the decision to the Federal Circuit, and the appellate court affirmed.

In its decision, the Federal Circuit clarified the standard of review for sole-source award decisions under the Tucker Act. First, the sole-source award may be set aside if the agency does not have a rational basis at three stages of the sole-source award process: (1) the agency’s decision to utilize a sole-source procedure rather than competition, (2) the agency’s determination of the scope of its sole-source requirements, and (3) the selection of the sole-source awardee. The sole-source procurement decision also may be set aside if it involved a violation of a statute, regulation, or procedure. The disappointed offeror also must prove actual prejudice, i.e., the complaining party would have had a substantial chance of receiving the award.

In most federal procurements, the Competition in Contracting Act (CICA) would mandate competition unless certain very narrowly drawn exceptions applied. In this case, however, those CICA provisions did not apply to the USPS. The court determined that Emery had failed to show that it was prejudiced by the USPS decision or that the sole-source decision lacked a rational basis.

Emery Worldwide Airlines, Inc. v. United States and Federal Express Corporation, No. 01-5075.

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