United States: Federal Circuit Emphasizes the Need to File a Pre-Award Protest When Faced with Patently Defective Solicitation Language

The Federal Circuit recently issued a decision in Copenhagen Arctic A/S v. United States that underscores the importance of promptly pursuing bid protests regarding patent defects in a solicitation's language—including questions and answers incorporated into the solicitation.

The procurement involved operation and maintenance of an Air Force base in Greenland; Denmark controls Greenland's foreign policy and defense. In 2013, the U.S. and Danish Governments entered negotiations to consider criteria for classifying an entity as "Danish/Greenlandic" for purposes of the base work. The Air Force erroneously concluded that a Danish business register, "CVR," provided a means for determining whether a company was a subsidiary of a foreign company. The Air Force issued a draft solicitation requiring bidders to provide a certificate that they are registered as a business in Denmark; that provision referenced the CVR and added that the registered office of the prospective bidder shall not be registered as a subsidiary of a foreign company. The final RFP contained the same requirement set forth in the draft RFP.

In response to the draft RFP, the agency received questions, including what the RFP meant by "not be registered." In its response, which was made part of the RFP, agency stated: "In the searchable part of the CVR there is an information point called 'type of company/virksomhedsform' that has 'subsidary of foreign company' as a possibility, so there is a way to see if the company is fully registered as Danish or acting as a foreign subsidiary in Denmark."

Four bidders submitted bids in response to the final solicitation. Exelis, a wholly-owned Danish subsidiary of a U.S. company was awarded the contract. The three unsuccessful bidders filed protests at GAO based on Exelis' status as a subsidiary of a U.S. company.

GAO denied the protests, concluding that the solicitation was clear on its face as to the issue of registration and did not provide for consideration of ownership or control. GAO noted that the Air Force's answers made clear that the agency believed there was within the CVR a place for a firm to indicate that it was a subsidiary of a foreign firm. GAO further stated that even if the solicitation was ambiguous, it should have been challenged prior to solicitation of bids.

The unsuccessful bidders then filed complaints at the Court of Federal Claims, which granted their motions for judgment on the administrative record. The court found the eligibility criteria in the solicitation defective, concluding that "[s]ome recasting of the [solicitation] language" was "necessary" to avoid an interpretation that would allow a foreign company to qualify by creating a Danish subsidiary—an outcome that would render the registration provision "illusory" and therefore unreasonable. To the extent the provision was ambiguous, the court noted that the doctrine of contra proferentum placed the risk of drafting such errors on the drafter, i.e., the agency.

On appeal, Exelis and the Government argued that the solicitation was unambiguous. The Federal Circuit found that the eligibility provision was ambiguous, explaining that the phrase "shall not be registered as a subsidiary of a foreign company" could reasonably be interpreted in two ways: (1) bidders are ineligible if the registration in CVR facially indicated that the business is a subsidiary of a foreign company; and (2) a company could be "registered as a subsidiary of a foreign company" if it was registered in CVR and also a subsidiary of a foreign company, whether or not the subsidiary status was affirmatively indicated at the time of registration and whether or not that status was apparent from inspecting the CVR after registration. The circuit court explained that the presence of ambiguity was demonstrated by inquiries during the solicitation process, which showed that potential bidders were uncertain as to how the Air Force intended to interpret the eligibility language.

The Federal Circuit went on to explain that the question and answer discussed above removed the ambiguity. Additionally, the question and answer were incorporated into the final solicitation. Because the eligibility provision, as clarified in the referenced answer, referred to whether the CVR facially indicated the company was a subsidiary of a foreign company, Exelis was eligible. Critically, there was nothing in the CVR that facially indicated that Exelis was a subsidiary of a foreign company because, as the protesters conceded, it was impossible for the CVR to indicate such status. The Federal Circuit reached this conclusion despite the fact that the Air Force originally understood that the CVR provided a means for determining whether a company was a subsidiary of a foreign company.

The appeals court also addressed an argument that protesters did not waive their objections to the eligibility provision under the Circuit's decision in Blue & Gold Fleet, L.P. v. United States, because any ambiguity was latent and not patent. The Circuit rejected that argument, noting that the ambiguity in the solicitation was patent and was removed following the referenced question and answer.

The circuit court next stated that the "question becomes whether the solicitation language, as properly interpreted in light of the questions and answers, contained a possible defect, and if so, whether the possible defect was patent or latent." The court explaineed that without resolving the issue of whether the provision was defective, any purported defect was patent and should have been protested prior to the close of bidding. The Federal Circuit added that while the record did not indicate that the protesters knew it was impossible to register as a subsidiary of a foreign company, they could reasonably have known and, in any event, were charged with knowledge of the law and fact appropriate to the subject matter.

In a concurring opinion, Judge Reyna wrote that the protests should have been dismissed as untimely by the lower Court, explaining that despite notice of uncertainty as to whether competitors owned by a non-Danish entity would be eligible for award, none of the prospective bidders protested before submitting their proposals. According to Judge Reyna, there was no need to determine whether the solicitation was ambiguous or defective – given the purpose of the timeliness bar to solicitation protests, a protester with actual knowledge of a defective solicitation provision cannot sidestep Blue & Gold by asserting that the defect is latent.

The Circuit's decision obviously emphasizes the need for offerors to carefully scrutinize solicitation provisions, including questions and answers incorporated into the solicitation, and assess whether there is a material ambiguity or defect in the solicitation's language. If there is, offerors should realize that if they do not timely protest the terms of the solicitation, the Federal Circuit's recent decision as well as other relevant precedent may preclude them from objecting to the language after award.

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