United States: August 2017 Protest Roundup

Last Updated: September 15 2017
Article by Cynthia O. Akatugba

There is no question that procurement regulations give agencies significant discretion at every step of the procurement process, and protesters often have a hard row to hoe to overcome the agency's exercise of that discretion.  However, agencies often make that task easier by failing to provide full and logical explanations of their decisions that show they have considered all the relevant facts in light of the competing goals of the procurement system, not just the agency's objective.  The following cases from August illustrate this point.

In Veterans Technology, the Court of Federal Claims took the view that the SBA's failure to engage in a fact-specific inquiry into the particular financial and competitive circumstances of the parties resulted in an arbitrary and capricious decision that the protester, Veterans Technology ("Vet Tech"), was not a small business.

On April 1, 2015, the Missile Defense Agency awarded a small business set-aside contract to Veteran Technology, LLC, a joint venture between MDW and DAI, each holding respective ownership interests of 49% and 51%.  In a size protest following the contract award, the SBA Area office concluded that Vet Tech was not a small business because all of its members were not small business.  MDW was affiliated with ECS because at the time Vet Tech submitted its bid, it was economically dependent through contractual or other relationships on ECS, a large business with substantial prime contracts with the Missile Defense Agency.  Seventy percent of MDW's revenue came from subcontracting with ECS, because MDW and ECS together exceeded the size standard s.  On appeal, the Office of Hearing and Appeals ("SBA OHA"), agreed with the area office stating that "as a matter of law, a firm that derives 70% or more of its revenue from another firm is economically dependent on that firm."  Furthermore, Vet Tech did not fit within recognized exceptions to the economic dependency for startup businesses or businesses with very few contracts.  According to SBA OHA, MDW was not a startup business at the time Vet Tech submitted its bid and the contract between MDW and ECS was substantial.

The court expressed concern that the SBA's decision did not take into account whether Vet Tech and MDW were "dominant" in their field of operations, which was the ultimate objective of the SBA's affiliation rules.  Such a determination, according to the court, depends on defining the "relevant geographic and product market" of the businesses and specific factual inquiries.  Generalized statements about the field of work or the nature of the work performed by the enterprises under consideration is insufficient—rather, a "more robust economic analysis is required."  The Court identified several deficiencies in the SBA area office's decision and reasoning and concluded the SBA OHA's decision affirming the area office decision was arbitrary and capricious.  According to the Court, "the SBA Area Office, in the first instance, has discretion to determine whether affiliation exists so that 'firms . . . may be treated as one party.'"  MDW did not have control of Vet Tech by virtue of its stock ownership, and the area office did not discuss other factors that may lead to a conclusion that MDW had control of Vet Tech.  Moreover, the conclusion that MDW was economically dependent on ECS was deficient because among other things, SBA failed to consider the circumstances upon which MDW obtained several of the subcontracts with ECS.  The Missile Defense Agency had directed ECS to award at least one subcontract to MDW.  Judge Braden took the view that if the Missile Defense Agency required MDW to enter a contractual relationship with the ECS, Vet Tech should not be punished for the existence of such relationships.  The Court vacated and remanded OHA's earlier decision and required the SBA to conduct a new size determination in light of the decision.

In another sustained protest, in David Jones, the GAO upheld the protester's contention that an agency's price reasonableness determination based on a single line item was unreasonable.

In response to the solicitation for quotations for a Blanket Purchase Agreement for equal employment opportunity claims investigations for the Department of Veterans Affairs, the protester submitted unit and extended prices for several line items.  The VA concluded that it would not consider the protester for award because its offered price for a single line item was not fair and reasonable, even though the offered prices for the other line items were lower than the agency's benchmarks.

The GAO concluded that the VA had failed to analyze the risks to the government of the high price of a single line item.  According to the GAO, "the VA engaged in no analysis whatsoever to assess whether there was a risk that the protester's high price on the single line item in question would result in the government paying an unreasonably high price for performance of a typical order under the BPA."  Accordingly, the VA's decision to exclude the protester was found to be not reasonable.

In AT&T, the Court of Federal Claims held that the Department of Commerce, Census Bureau's decision to override an automatic stay resulting from a GAO protest was arbitrary and capricious.  Under the Competition in Contracting Act ("CICA"), when a party files a bid protest action at the GAO, the procurement is automatically stayed until the protest action is resolved.  However, an agency may override the stay by notifying the GAO in writing that either "performance of the contract is in the best interests of the United States," or "urgent and compelling circumstances that significantly affect interests of the United States will not permit waiting for the decision of the Comptroller General concerning the protest."  31 U.S.C. § 3553(d)(3)(C).  In AT&T, faced with a self-imposed deadline to conduct an End-to-End Census test in 2018, the Census Bureau authorized the override of the stay because any delay in continuing with the contract could "introduce adverse risk, unacceptable delays, and costs increases, and jeopardize the missions and quality of the 2020 Census Program."

The court concluded that the override decision did not adequately demonstrate that there were urgent and compelling circumstances compelling override of the CICA stay.  First, the Census Bureau failed to show that any of the issues it anticipated would occur if the stay continued would create an immediate threat to health, welfare, or safety.  According to the court, these are the types of circumstances that typically qualify as "urgent and compelling." Although the census was of Constitutional and Congressional importance, "the risks associated with testing delays are not risks to public safety."  In addition, the court found that the adverse consequences the agency identified were speculative in nature.  Moreover, the agency's procurement schedule itself could not be considered a reasonable basis of assessing the effect of the CICA stay.

The court was equally unconvinced that the agency had no reasonable alternatives during the pendency of the stay.  The Census Bureau's determination and findings did not contain evidence that it had engaged in a meaningful review of other reasonable alternatives.  Nor did the agency include a cost benefit analysis of the potential costs of complying with the stay compared to the decision to proceed with contract performance. The court concluded that allowing the override to stand would weaken GAO as a protest forum and undermine the integrity of the procurement system.  As a result, the court granted protester's request for declaratory relief, finding that the decision to override the CICA stay was arbitrary and capricious.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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Cynthia O. Akatugba
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