United States: September 2018 Bid Protest Roundup

This month's round-up covers a slew of interesting bid protests from the Government Accountability Office (GAO) and the Court of Federal Claims (COFC) covering the most recent case in the Department of Education debt collection saga, responsibility matters, standing, and corporate restructuring.

FMS Investment Corp., et al. v. United States and Alltran Education, Inc., No. 18-862C, et al., e-filed Sept. 14, 2018

September brings yet another episode in the Department of Education (DoE) debt collection solicitation saga.  As you may know, the DoE and a group of private collection agencies have been embroiled in protest proceedings regarding student loan debt collection services.  Most recently, in the case of FMS Investment Corp., et al. v. United States and Alltran Education, Inc., a group of eight collection agencies filed a post-award protest after the DoE suddenly cancelled the solicitation.

In December of 2015, the DoE issued a solicitation for the collection and administration of defaulted student loans.  A year later, the DoE awarded seven contracts resulting in twenty-two disappointed offerors filing protests with the GAO.  The GAO recommended corrective action, and the next day one of the protesters withdrew its GAO protest and filed a new protest at COFC.  In December 2017, two years after the initial solicitation, the DoE terminated the seven contracts for convenience.  The next month, the DoE issued a revised solicitation and ultimately awarded two contracts, which resulted in twenty protests being filed by disappointed offerors at the Court of Federal Claims (COFC).  The protesters moved to enjoin the DoE from proceeding with the new awards and COFC granted those motions in part.  The Government indicated it did not plan to continue litigating the protest and the court suspended briefing.  During the suspension, the Government proposed to announce its next steps with the procurement on May 4, 2018.  On May 3, however, the ED cancelled the solicitation, thus inspiring the litigation that led to this decision.

In its cancellation notice, the ED explained its new plan to implement use of "enhanced servicers" to begin collecting on student loan accounts sooner than the private collection agencies.  The ED expected the "enhanced servicers" to continue handling the collection for the life of the accounts, resulting in a diminished need for collection agencies.  The notice further asserted that the ED's current small business debt collectors could manage the existing portfolio.  As such, the ED moved to dismiss the protests and lift the injunction on the ground that the claims were rendered moot when it cancelled the solicitation.  After the court denied the protesters' motion for leave to add a claim, eight of the original twenty protesters filed complaints arguing that the ED's decision to cancel the solicitation was arbitrary and capricious, and should therefore be reversed.

Although the COFC has made clear that each agency knows its needs best, the agency must be able to articulate clearly its rationale behind significant policy changes.  The court will not disturb an agency decision supported by reasoned analysis.  After reviewing the Agency Record, the court determined that the ED's alternate plan, to more accurately meet its "needs and requirements," was underdeveloped.  The AR revealed that the ED issued its notice of cancellation on the same day it received an internal memorandum discussing the "enhanced servicers" program.  Furthermore, the AR lacked detailed information regarding the program, such as timeline for implementation, requests for proposals, funding, processing capacity, etc.  The court also noted that the AR did not contain any support for the ED's assertions regarding the eleven small business debt collectors.  While the ED argued its current collectors could handle the existing portfolio, the agency failed to address any increase in future loan volumes.

After concluding that the solicitation cancellation amounted to a significant policy change, the court ordered the agency to restore the procurement to its position prior to cancellation because the agency failed to provide adequate justification for its actions.  This, of course, may lead to further litigation as the earlier protests are resurrected.

Takeaway: Although agencies have discretion to determine their needs, they must exercise the discretion in a reasonable manner.  When an agency fails to utilize reasonable measures, or fails to adequately document the considerations justifying its decisions, GAO and the COFC will scrutinize the agencies' actions, especially when they amount to major shifts in contracting approach or policy.

Elevator Service, Inc., B-416258.2, B-416258.3, Sept. 13, 2018

Our next case comes from the GAO, and involves a solicitation's special responsibility criteria.  In particular, the protester, Elevator Service, Inc., protested an award of a contract arguing that the awardee's proposal failed to conform to material solicitation requirements.  In the case of Elevator Service, Inc., the Department of Veterans Affairs (VA or Agency) issued a Request for Proposals for elevator maintenance services that was set aside for a service‑disabled veteran-owned small business.  The solicitation indicated that award would be made to the offeror with the lowest price that was also deemed responsible.  The offerors were required to meet both general responsibility standards and a special standard of responsibility concerning personnel qualifications.  Regarding the special standard, offerors were expected to provide additional documentation confirming that its mechanics met specific criteria.  The solicitation also included submission instructions requiring offerors to provide proof of compliance with a limitation on subcontracting requirement.

Elevator Service, Inc. submitted its proposal along with three other offerors.  After a review of the proposals, the Agency determined that all of the proposed prices were too high and requested revised proposals.  All four offerors submitted revised proposals and the agency awarded the contract to JohnsonDanforth, Inc. and this protest ensued.

Elevator Service, Inc. argued that JohnsonDanforth's proposal should have been rejected for two reasons.  Elevator Service, Inc. alleged that (1) JohnsonDanforth failed to include proof of compliance with the subcontracting limitation requirement; and (2) JohnsonDanforth's proposal did not adequately demonstrate that it was capable of performing the duties outlined in the Statement of Work (SOW).

The GAO reviewed and denied both of Elevator Service, Inc.'s protest arguments.  Elevator Service, Inc.'s first argument was rejected because the solicitation did not indicate that failure to provide proof of compliance with the subcontracting limitation would render an offeror ineligible for award.  GAO cited the difference between instructions and evaluation criteria, noting that instructions are treated differently than evaluation criteria and the instructions section merely provides "guidance to assist offerors in preparing and organizing proposals."  Elevator Service, Inc., B‑416258.2, B-416258.3, Sept. 13, 2018 at 3.

To assess Elevator Service, Inc.'s second argument, the GAO reviewed the record to determine whether JohnsonDanforth provided evidence of compliance to permit the Agency to reasonably conclude that JohnsonDanforth was responsible and could perform the work.  This determination is often left to the discretion of the contracting officer.  After a review of the plain language of the solicitation, the GAO concluded that offerors were expected only to provide evidence that their proposed mechanics met the specified criteria in the Special Standards of Responsibility section of the RFP.  The GAO denied Elevator Service, Inc.'s protest on the ground that JohnsonDanforth adequately met all compliance criteria set forth in the solicitation and was a responsible offeror.

Takeaway: The requirements in an instruction section of a solicitation are not treated the same as the criteria set forth in the evaluation section.  The instructions generally provide guidance to aid offerors in preparing proposals, whereas the evaluation section contains minimum standards that, if not met, may result in disqualification

Advanced Management Strategies Group Inc./Reefpoint Group v. United States and Enterprise Resource Performance Inc., COFC No. 18-326C; Filed: August 3, 2018, Refiled: August 21, 2018

Standing to file a protest is a threshold matter that must be addressed before the merits of a protest will be considered.  Advanced Management Strategies Group Inc. serves as an important reminder that, although standing is most often demonstrated by proving that the protester is next in line for award, there are other ways to confirm standing.

One alternative mechanism to demonstrate standing is to show that the agency considered the protester for award by including the company in the competitive range or in the best value trade-off determination.  The government argued that Advanced Management Strategies Group's protest should be denied because the protester was not next in line for award and therefore lacked standing.

The Court of Federal Claims (COFC) rejected the argument and held that the protester had standing because it was within "active zone of consideration."  Alfa Laval Separation Inc.  United States, 175 F.3d 1365, 1367 (Fed. Cir. 1999). The court agreed, finding that the agency performed a best value trade-off between awardee Enterprise Resource Performance, Inc.'s proposal and Advanced Management Strategies Group's, as well as a trade-off between Enterprise Resource Performance and another offeror. According to the court, when the agency's best value trade-off includes the protestor, even when it was not, notionally, the second-rated offeror, the protestor has established that it would have had a substantial chance of receiving the award but for an alleged error.  Further, the court noted that agencies have broad discretion to choose from a range of proposals in a best value trade-off, provided the choice is rational.  Therefore the board could not conclude that there was no chance the agency might have selected Advanced Management Strategies Group for award.

After finding that the protester had standing, the COFC sustained the protest, finding that the agency's evaluation was arbitrary because it considered the past performance of a company that was a strategic business partner but was not specifically proposed as a subcontractor.  Although the agency was permitted to consider the past performance of the awardee's subcontractors, it was not clear what the strategic business partner would do, or whether any of the past performance advantages of the company would actually assist with the awardee's contract performance.

Takeaway: Although standing is most often satisfied by a showing that the protester is next in line for award, there are other considerations that meet the minimum standing requirements.  Government contractors should be aware that standing can be satisfied if, for example, the company is included in a competitive range, considered during the best value determinations, and is within the reasonable zone of consideration for award.

Wyle Laboratories, Inc., B-416528, Sept. 7, 2018

U.S. Customs and Border Patrol (CPB) issued a Request for Quotations (RFQ) to firms holding a General Services Administration (GSA) One Acquisition Solution for Integrated Services (OASIS) contract.1  The protester, Wyle Laboratories, Inc., entered into an asset purchase agreement with another company where it transferred all assets and liabilities, including those related to the OASIS contract, to that company.  The agreement required Wyle to assist the new company with the preparation of responses to requests for task order proposals and quotations until the novation had been fully granted.

Almost two weeks after CPB released the RFQ, Wyle notified GSA of its transaction with the new company and requested that the new company be recognized as the successor-in-interest to its OASIS contract.  Wyle filed a pre-award protest with the GAO arguing that the solicitation terms were unduly restrictive of competition because it limited past performance information to only the prime contractor.  Wyle then submitted its quotation explaining that Wyle would serve as the prime contractor performing contract administration duties during the novation period until the new company could take over and assume such responsibilities.

Wyle claims that the solicitation is unduly restrictive because it deprives it and its successor in interest a fair opportunity to submit a quotation for consideration.  The Agency moved for dismissal on the ground that Wyle could not be considered an interested party.  In making this determination during a pre-award protest, the GAO assessed whether the entity has the "capability and intent to compete under the solicitation."  Wyle Laboratories, Inc., B-416528, Sept. 7, 2018 at 3.

Wyle argued that it had a direct economic interest because the solicitation did not prohibit prime/subcontractor teaming agreements.  It further asserted that the GAO should not consider hypothetical evaluations from the agency regarding Wyle's capability and intent to compete under the solicitation.  Nevertheless, Wyle admitted that it would not perform any work for the task order and it did not explain exactly how performing its limited contract administration duties resulted in an economic interest.  As a result, GAO dismissed the protest because Wyle could not demonstrate a sufficient direct economic interest in the procurement and it was not an interested party.

Takeaway: The GAO is likely to look closely at whether a protester is an interested party, especially where the company is going through a transaction or novation that may eventually result in the protester no longer holding the contract.  Thus, parties should think carefully about the means by which they can demonstrate their "capability and intent to compete under the solicitation" for pre-award protest standing.

Dyncorp International v. United States and JPATS Logistics Services, No. 18-557 C Filed: August 9, 2018; Reissued: September 6, 2018

  This protest was filed after Dyncorp had a similar protest denied at the GAO.  Dyncorp's initial post-award protest at the GAO challenged the Air Force's contract award to JPATs Logistics Services (JLS) by arguing, among other things, that JLS was not a responsible offeror because it was financially unstable.  In support of its argument, Dyncorp cited a recent debt restructuring undertaken by JLS's parent, IAP Worldwide Services (IAP).  After the GAO denied the protest, Dyncorp initiated this protest proceeding at the COFC.  In the COFC case, DynCorp argued that the award was unreasonable because the Air Force failed to consider JLS's corporate role as a subsidiary to IAP, and its financial status arising from its parent's debt restructuring.

Dyncorp specifically alleged that the agency's evaluation was incomplete and unreasonable because it did not consider the impact of statements in JLS's offer that inaccurately identified the awardee as a joint venture instead of a subsidiary of IAP.  DynCorp insisted that the Air Force's failure to consider the inaccuracy was unreasonable and prevented the agency, which was assisted by the Defense Contract Management Agency (DCMA), from properly considering JLS's dire financial condition resulting from IAP's 2014 debt restructuring.

The court rejected the argument and concluded that JLS and IAP were financially stable.  Relying on DCMA's conclusions, the COFC noted that the restructuring likely helped JLS's financial capacity and, like the DCMA, pointed out IAP's "upward trend in sales, net worth, and cash flow" since the debt restructuring.  The court found that the administrative record clearly reflected the Air Force's (and DCMA's) consideration of the awardee's financial standing and that the debt restructuring did not provide an adequate basis to conclude that JLS was non‑responsible.

Takeaway: In 2016, the GAO denied the notable protest of Lockheed Martin Integrated Systems, Inc., B‑410189.5, B-410189.6, Sept. 27, 2016, 2016 CPD ¶ 273, which raised numerous protest grounds challenging a contract award to an entity that had recently undergone a corporate restructuring.  At the time, GAO recognized that consideration of the impact of a corporate restructure on a contract award is a highly fact intensive process.  Nevertheless, similar to other protest grounds, the assessment itself focuses on what facts were disclosed, and the agency's consideration of the disclosed facts against the actual and likely outcome.  Corporate restructurings related to debt and financial issues can serve as red flags, but in the Dyncorp protest, the COFC found that the restructuring had been considered and had helped the awardee emerge as a financially stable entity.  Dyncorp's decision to raise this protest ground, which related to a parent corporation's debt restructuring in 2014, depicts the competitive landscape for government contracts.  Companies should continue to be aware of restructurings resulting from mergers, changes in ownership, and asset acquisitions, and consider whether any such activity could impact the awardee's ability to perform the contract, or the agency's assessment of offers.

Footnotes

1 MoFo attorney Alex Ward represented the intervenor/awardee in this case:  JPATS Logistics Services, LLC.

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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