August 29, 2012

Federal Circuit Decision Makes it Easier for Contract Awardees to Protest Unwarranted Agency Corrective Action

Holland & Knight Government Contracts Blog
David S. Black

Until recently, one of the "conventional wisdoms" about GAO bid protest practice was that agencies had almost unfettered (and unreviewable) discretion to take corrective action.  Contract awardees faced a dispiriting scenario whereby agencies elected to take corrective action in response to a weak or even frivolous protest, forcing the awardee to compete again for the same contract it had just won.  To make matters worse, the awardee in this scenario was often forced to compete with its price disclosed to its competitors through the debriefing process.

A new Federal Circuit decision has strengthened the protest options available to awardees when they face rash corrective action by agencies.  In Systems Application & Technologies, Inc.("SA-TECH") v. United States, Case No. 2012-5004 (Fed. Cir. Aug. 24, 2012), the Federal Circuit confirmed that the U.S. Court of Federal Claims (COFC) has jurisdiction under the Tucker Act to hear protests of allegedly arbitrary corrective action.  The Federal Circuit also held that an awardee whose prices have been disclosed to its competitors as part of the debriefing process satisfies the "Article III standing," "interested party," and "ripeness" requirements for COFC to hear such cases.

The facts of SA-TECH will sound familiar to awardees which have experienced the loss of a contract award through corrective action following a protest.  SA-TECH was awarded an Army contract to provide aerial target flight operations and maintenance services at numerous Army installations.  After an unsuccessful offeror protested at GAO and the GAO attorney made an outcome prediction that he would sustain the protest, the Army decided to take corrective action that included amending the solicitation and evaluating revised proposals.  SA-TECH believed that the protest had no legal merit and filed a protest with COFC asserting that the Army's decision to take corrective action was, itself, arbitrary and capricious.  After concluding it had jurisdiction to hear SA-TECH's protest, COFC agreed and issued an injunction prohibiting the Army from proceeding with its intended corrective action.

The Army appealed COFC's decision that it had jurisdiction to hear SA-TECH's protest.  On appeal, the Federal Circuit rejected all of the Army's arguments and affirmed COFC's decision.

Regarding the extent of COFC's Tucker Act jurisdiction, the Federal Circuit confirmed once again "the statute's broad grant of jurisdiction over objections to the procurement process."  Once a party objects to a procurement, the Tucker Act "provides a broad grant of jurisdiction because "[p]rocurement includes all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout."  Because SA-TECH objected to the Army's decision to amend the solicitation and alleged violations of statutes and regulations governing the procurement process, its protest fell within the COFC's Tucker Act jurisdiction.

The Federal Circuit's reasoning regarding why an awardee has standing to challenge an agency's proposed corrective action is the more interesting and probably the most significant aspect of the Court's decision.  The Federal Circuit recognized for the first time that it is burdensome and constitutes a "non-trivial competitive injury" for purposes of establishing legal standing.  The Federal Circuit reasoned:

[T]he Army's decision to engage in corrective action will require SA-TECH to re-compete for a contract after its price had been made public.  Unquestionably an offeror's participation in the procurement process involves some acceptance of risk.  The risk of recompleting for a contract after revelation of one's price calculations to competitors, however, does not extend to a contract fairly competed and won on the first solicitation.

In this case, with price a pivotal term of the process, SA-TECH would unduly bear the burden of re-competing with its prices alone on the table.  Price was a crucial factor in making the original contract award.  Once the contracting officer eliminated meaningful distinctions between the non-cost portions of the various proposals, SA-TECH's lowest offer tipped the scales in its favor. . . . [T]he Army without adequate justification – indeed with arbitrariness – forces SA-TECH to re-compete for the contract.  In that posture, SA-TECH will no longer have the pivotal competitive advantage from the initial solicitation.  The publication of its price alone places SA-TECH in the unenviable position of competing with itself.

This reasoning is noteworthy because agencies frequently disclose the awardee's price to competitors through the debriefing process and then force the awardee to compete against itself when corrective action follows a protest.  Although agencies have discretion to mitigate the awardee's disadvantage by disclosing all offerors' prices from the preceding round of competition or by limiting corrective action to revisions of non-price volumes of proposals, they frequently decline to implement such measures.  GAO has confirmed that agencies have such discretion in its decisions.  It will be interesting to see whether this reasoning by the Federal Circuit changes current practices by agencies and GAO when an agency decides to take corrective action after the awardee's price has been disclosed to other offerors.

Overall, the Federal Circuit's decision in SA-TECH provides certainty to awardees seeking to protest an agency's decision to take corrective action and helps to reduce their litigation costs.  With the SA-TECH decision on the books, awardees can be confident that COFC has jurisdiction to hear and decide such protests.  Moreover, the Department of Justice (which represents executive branch agencies in cases before COFC) will be less able to raise the array of procedural objections to the protest, including lack of statutory jurisdiction, standing and ripeness.  The reduction or elimination of such arguments, which seem to be part of DoJ's "protest playbook," will reduce the legal expense an awardee must incur to establish its right to be heard when a justly won contract award is threatened by arbitrary agency corrective action.

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