United States: October 2018 Bid Protest Roundup

This month's bid protest round-up takes a closer look at an agency's discretion to take corrective action, as well as potential pitfalls with joint ventures and subsidiaries, and clarification on protest timing with the DoD debriefing rules.

Dell Federal Systems, L.P., et al. United States, No. 2017-2516 et al. (Fed. Cir. Oct. 5, 2018).

In a rare Federal Circuit decision, the court reversed a Court of Federal Claims (COFC) decision and held that agencies are not required to "narrowly tailor" corrective action. Instead, agencies only need to meet a rational basis threshold for their corrective actions.

The Department of the Army (the Army) solicited proposals in May 2016 for indefinite-delivery, indefinite-quantity (IDIQ) contracts for commercial-off-the-shelf (COTS) computer hardware such as desktop computers, laptops, tablets, and printers. The total estimated contract value was $5 billion over a ten-year period. The Army received 58 proposals, 52 of which were from small businesses. Of these, only nine were deemed acceptable for the Technical Approach and Past Performance evaluation factors. The Army saw no meaningful reason to open discussions and awarded nine contracts: five under the small business category including Blue Tech, Inc. (Blue Tech) and Red River Computer Company (Red River) and four under the full-and-open category including Dell Federal Systems, L.P. (Dell).

HPI Federal LLC (HPI), CDW Government LLC (CDW), and 19 other offerors protested the award at the Government Accountability Office (GAO). The protesters argued that many of the offers that were disqualified were eliminated for minor or clerical errors and misunderstandings that could have been resolved through clarifications and discussions. In response, the Army conducted an internal review and decided to institute corrective action wherein it would reopen the procurement, conduct additional discussions, and make a new award decision. The Army explained this decision by explaining how Army counsel advised that procurements in excess of $100 million likely need to have discussions pursuant to DFARS 215.306(c)(1), and there was ambiguity in certain solicitation requirements. Dell and Blue Tech (two of the original awardees) (Appellees) appealed this corrective action decision to COFC, which granted the Appellees' motion for judgment on the administrative record and permanently enjoined the Army from proceeding with its corrective action. COFC found that even though there were rationally identified procurement defects that required correction, the agency's proposed corrective action was overbroad. COFC held that corrective action must narrowly target the defects it is trying to remedy. A more narrow remedy would have been clarifications and reevaluation.

The federal government and contractors HPI Federal LLC and CDW Government LLC (Appellants) appealed the COFC decision. The Appellants argued that COFC applied the wrong standard in considering whether the corrective action was narrowly targeted and the corrective action was "rationally related to the procurement defect." The Federal Circuit agreed with Appellants that COFC had applied an incorrect heightened standard beyond APA's rational basis review that had never been adopted by the Federal Circuit or the Supreme Court. Although Appellees attempted to argue that the "narrowly targeted" requirement is not a heightened standard but merely an application of the rational basis standard, the Federal Circuit was unpersuaded and said that adopting the "narrowly targeted" standard would undermine the deference of an APA rational basis review.

After establishing the correct standard, the Federal Circuit went on to determine that the Army has a rational basis for corrective action because it was rationally related to the procurement defects.

Takeaway: The Federal Circuit has spoken on COFC's "narrowly tailored" rule for corrective action, and they have rejected it. The Federal Circuit reinstituted the great deference of the APA rational basis rule. This may make it more difficult to challenge the breadth of agency corrective action going forward, as Ideal Industries demonstrates.

Ideal Industries, Inc., v. United States, No. 18-1275 (Fed. Claims Oct. 22, 2018).

Decided on the heels of the court's precedential decision in Dell Federal Systems regarding the nearly unchecked discretion agencies have to craft corrective action, in Ideal Industries, Inc., COFC held that the agency's corrective action was reasonable. The case considered whether the Army's decision to take corrective action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."

The Army and the Marine Corps issued a solicitation for the purchase of additional General Mechanics Tool Kits (GMTKs). The solicitation prescribed that proposals would be evaluated on a lowest-price-technically-acceptable basis. Snap-On Industrial (Snap-On) submitted the lowest-priced offer and IDEAL Industries, Inc. (IDEAL) submitted the second lowest priced offer. Snap-On's offer was rejected, however, because it did not provide other than certified cost and price data required by the solicitation. Therefore, the Agency awarded the contract to IDEAL.

Snap-On filed an agency-level protest arguing that the solicitation's request for price data conflicted with FAR 15.403(a)(2) and was not necessary to determine price reasonableness. The Agency decided to take corrective action in response to Snap-On's protest. As part of the corrective action, IDEAL's contract award was terminated for convenience and the solicitation was reissued with three changes: (1) an increase in the estimated quantities of GMTKS; (2) a small change in the tool layout; and (3) the removal of the requirement that offerors submit supporting price data.

IDEAL filed a protest with GAO alleging that the Agency failed to provide a rationale for the corrective action, that the amended solicitation did not make any material change to the original solicitation, and that the Agency's decision to release IDEAL's pricing information from the initial round of offers disadvantaged IDEAL in competing under the amended solicitation. GAO denied IDEAL's protest because the termination of IDEAL's contract, amendments to the solicitation, and reissuance of the amended solicitation were within the Agency's broad discretion to take corrective action. After evaluating proposals under the revised solicitation, the Agency awarded the contract to Snap-On. IDEAL filed a complaint with COFC, alleging that the Agency unlawfully terminated the contract with IDEAL and improperly reopened the solicitation.

The court found the Agency's corrective action (terminating IDEAL's contract and reissuing a revised solicitation) reasonable because the original solicitation had solicited cost data that was not required by FAR 15.402 or 15.403. The court concluded that by taking corrective action, the Agency followed the FAR's preferred price reasonableness analysis. For these reasons, the complaint was dismissed.

Takeaway: The Court of Federal Claims has received the message from the Federal Circuit: agencies are afforded great discretion in corrective action and will only be subject to a "rational basis" test.

BDO USA LLP; B-416504, October 1, 2018.

GAO denied a protest in which the protester argued that it satisfied Request for Quotation (RFQ) requirements while the agency found the protester ineligible for award. Instead, GAO held that the agency reasonably found the protester's quotation ineligible for failing to meeting RFQ requirements.

The agency issued an RFQ under the GSA PSS contract under FAR subpart 8.4. BDO USA, LLP (BDO) submitted its quotation with the CAGE code of a wholly owned subsidiary of BDO instead of its own CAGE code. The agency performed research to clarify this confusion about two CAGE codes and discovered that the CAGE code supplied by BDO had the required secret facility clearance (FCL) but did not hold a GSA PSS contract. The agency found that either CAGE code would not be eligible because one did not hold the contract and the other did not hold the clearance. The agency did not believe BDO could aggregate the two different entities to become eligible for award. The agency also cited the NISPOM, incorporated into the RFQ, which requires the parent organization have an FCL as the same or higher level as a subsidiary.

BDO in its protest attempted to argue that the other CAGE code entity is not actually a subsidiary but instead a "branch office that is part of the larger BDO USA contracting entity." The reason there is a separate CAGE code is because the Defense Security Service required BDO to assign a different CAGE code unique to the business location that would receive the FCL. BDO argued that it should be eligible for award because it is a single entity that possesses both the GSA contract and a secret FCL and the agency was "reading into the Solicitation a requirement that does not exist—namely that the CAGE code for the Offeror and the CAGE code for the Secret FCL be identical." GAO found that even if this information was all true, it was not before the agency when it was evaluating protester's quotation. GAO ultimately found that the agency's decision to find BDO's quotation ineligible for award was reasonable because the quotation and subsequent clarifications failed to establish that it satisfied RFQ requirements.

Takeaway: If, in fact, it was true that BDO has a separate CAGE code for its secret FCL location, they failed to adequately communicate this to the agency. This could be a classic case of miscommunication. However, if the CAGE code was for a subsidiary, it is clear that the agency did not consider that eligible for award. Contractors should be careful to describe the relationship between any extra CAGE codes and the offeror CAGE code so as to preserve eligibility for award.

Yona-Brixtel LLC, B-416649, September 12, 2018.

It is rare that parties fight over who has authority to file a protest on behalf of an offeror, but just such a thing happened in Yona-Brixtel. GAO understandably refused to resolve the dispute between the two parties and dismissed the case for lack of standing, since it could not be established that the protester was an interested party.

In this case, an employee of Yona Systems, one of Yona-Brixtel's joint venture (JV) partners, filed a protest of the agency's evaluation of Yona-Brixtel's proposal, among other protest grounds. Shortly after the protest was filed, an officer of Brixtel—for unclear reasons—contacted GAO to inform them that the JV agreement required consensus among JV executives before filing a protest. An executive from Yona Systems responded and said that Yona Systems was the managing venture and the managing duties had been delegated to the individual who filed the protest. GAO found that "the protester and Brixtel has conflicting interpretations of the joint venture agreement, and as such, disagree regarding whether the protester is authorized to file this protest on behalf of the joint venture." Although the joint venturers asked GAO to resolve the issue, GAO will not resolve a dispute between private parties. So, the protest was dismissed and the JV lost its opportunity to protest.

Takeaway: When forming a JV, make a clear plan about who is responsible for any potential protests and make sure it is clearly documented should issues arise. Remember that it is the JV as a whole, not the members, who are interested parties for the purposes of a protest.

Celeris Systems Inc., GAO B-416890, October 11, 2018.

Recent changes to debriefings with Department of Defense (DoD) agencies may cause some potential protesters confusion. (For more information on these new debriefing rules, see our previous blog post here.) In Celeris Systems, GAO dismissed a protest as immature when the extended briefing procedures of 10 U.S.C. § 2305(b)(5)(B)(vii)-(b)(5)(C) had commenced but not concluded.

GAO's bid protest regulations provide that it will not consider a protest when a debriefing is required and the protest is filed before the debriefing date offered to the protester. 4 CFR § 21.2(a)(2). Instead, protests should be filed no later than ten days after the debriefing (for purposes of GAO timeliness) and no later than five days after the debriefing for a stay. In this case, the debriefing began on September 24, 2018, with the protester submitting questions on September 26. The protester filed the protest on September 28, 2018, before it received answers to those questions. As of the date the agency filed its dismissal request, it had not yet provided answers to those questions.

The protester argued that the agency was required to submit answers to questions by October 2 and it had not. An agency's obligation to answer questions should not delay a firm's ability to file a protest to meet timing requirements.

GAO found the protest to be premature, as it was filed before the conclusion of the debriefing process. In terms of the newer extended debriefing process, this means that a protest must be filed after the debriefing closes or after the agency answers the offeror's questions. However, GAO also pointed out that a protest filed within ten days of the date on which the debriefing is held will be considered timely, so the protester will have ten days from the date on which the agency answers its debriefing questions. GAO also pointed out that the law requires a stay of contract performance only if the agency receives notice of a protest filing within five days after the offered debriefing date or within ten days of the award, whichever is later. 31 U.S.C. § 3553(d). This language is unclear with regard to a debriefing followed by question and answer, because it says "offered debriefing date" instead of saying when the debriefing concludes. The GAO decision neglected to include 31 U.S.C. § 3553 (d)(4)(B), which states "[f]or procurements conducted by any component of the Department of Defense, the 5-day period described in subparagraph (A)(ii) does not commence until the day the Government delivers to a disappointed offeror the written responses to any questions submitted pursuant to section 2305(b)(5)(B)(vii) of title 10."

Takeaway: There is no need to rush to protest before DoD debriefings close, because the protest will be timely after that. In fact, protests filed prior to that will be dismissed as immature. Of course, an immature protest can be refiled at a later date, while an untimely protest will be dismissed entirely, so, when in doubt, check with legal counsel or file early.

*Victoria Dalcourt Angle is a Law Clerk in our Washington, D.C. office and not admitted to the bar.

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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