United States: May 2019 Bid Protest Roundup

Our monthly bid protest Law360 spotlight will discuss a handful of interesting bid protests from the preceding month, highlighting the most noteworthy aspects of the decisions for companies competing for contracts and agencies seeking procurement.

This installment of our bid protest roundup takes a look at three interesting protests from May.

The first examines the Government Accountability Office's (GAO) rejection of an agency's exclusion of an offeror from competition due to a subcontractor's employment of a former government employee who had a connection to the procurement at issue and a prior professional relationship with at least one of the agency's evaluators.

Our second decision is a case of "third try's a charm," where the Court of Appeals for the Federal Circuit found in favor of the protester after the GAO and the Court of Federal Claims denied a protest challenging a longstanding award limitation found in certain Centers for Medicare & Medicaid Services (CMS) solicitations.

We conclude with a GAO protest involving commercial and government entity (CAGE) codes and facility clearances (FCLs) and the importance of being clear with what one is requesting.

Obsidian Solutions Group, LLC, B-417134, B-417134.2: The GAO sustained this protest objecting to the agency's exclusion of an offeror due to the offeror's subcontractor's hiring of a former government employee and that person's appearance at an oral presentation on the offeror's behalf.

Facts:

The procurement involved multiple-award indefinite delivery/indefinite quantity (IDIQ) contracts, with awards to be made to all offerors that satisfied the solicitation's minimum qualification requirements. As relevant here, the solicitation required each offeror to make an oral presentation addressing, among other things, the offeror's approach to a scenario involving the Marine Air-Ground Task Force Staff Training Program (MSTP).

The protester, in advance of its oral presentation, submitted a slide deck that pictured its oral presentation team and a list of participants, including a particular subcontractor employee. This employee was a former government employee who recently retired from the MSTP and had been involved in the issuance of the MSTP standard operating procedures, which were incorporated by reference into the solicitation. The employee's government ethics officer had issued him a post-government employment opinion letter, opining that he was not prohibited from representing the protester and its subcontractor before the government after leaving government service.

The contracting officer notified the protest that the former government employee's participation gave the "appearance of impropriety" and created an apparent Organizational Conflict of Interest (OCI) because: (1) his name appeared in "the solicitation materials"; (2) his knowledge of the MSTP standing operating procedures might influence the agency's evaluators; (3) the MSTP procedures were "relatively recent" with respect to the procurement cycle; and (4) the employee previously was the supervisor of one of the technical evaluation team members. The contracting officer subsequently issued formal notice of the protester's exclusion from the competition based upon the possibility that the former government employee gave the protester access to competitively useful non-public information and potentially influenced the agency's evaluators as a result of his role in issuance of the MSTP procedures.

Following notice of its exclusion, Obsidian protested to the GAO.

Analysis:

The GAO first clarified that, although the agency referred to an apparent OCI, allegations that an offeror's hiring or association with former government employees who are alleged to have access to non-public, competitively useful information are more accurately categorized as unfair competitive advantages under FAR subpart 3.1 rather than as OCIs under FAR subpart 9.5.

As with OCIs, however, allegations of unfair competitive advantage and the appearance of impropriety must be based on "hard facts" and not "mere innuendo or suspicions." The GAO cited its prior precedents for the principle that "[a] person's familiarity with the type of work required resulting from the person's prior position in the government is not, by itself, evidence of an unfair competitive advantage."

Here, because every qualified offeror would receive an IDIQ contract award, the GAO found that hiring a former agency employee did not give the protester a competitive advantage over the other offerors. Nor did the GAO find the agency had identified any "hard facts" establishing access to competitively useful information. First, the MSTP standard operating procedures was a public document, and the employee's insider knowledge of how it was drafted and what was excluded from it was irrelevant, and there was no suggestion he "steered" the process to benefit the protester. Second, his knowledge of budgets was irrelevant, as price was not an evaluation factor for the competition, and the total ceiling value of all task orders was published in the solicitation. Finally, his potential knowledge of the incumbent's performance shortfalls was irrelevant, as the agency could articulate no basis for how such knowledge could harm the incumbent's chance for award, or enhance the protester's.

Because the record failed to establish the agency's position that the protester had access to competitively useful non-public information, the GAO sustained the protest.

Takeaway:

The unusual nature of this procurement, where every qualified offeror was guaranteed a contract award, made it significantly more difficult for the agency to demonstrate the competitive advantage that might be gained by any non-public information the former government employee might have possessed. This contributed in large measure to the protester's victory.

Although the agency's desire to avoid the appearance of unfairness was admirable, the record as described in the GAO decision lacked any "hard facts" establishing an improper advantage. In other words, the record contained facts that made the agency uncomfortable, but the agency failed to document a rigorous analysis of why those facts required the exclusion of the offeror from the competition.

Although the protester prevailed here, offerors should engage counsel and carefully weigh the pros and cons of involving former government employees in proposal efforts where an agency or a competitor might perceive the potential for the appearance of impropriety or OCI. Even where the revolving-door regulations do not prohibit the former government employee from participating, the question of the appearance of impropriety is broader and more nebulous than those regulations. Thus, even where an agency ethics officer has "cleared" the individual to participate in a matter, an offeror should consider his or her potential usefulness to the proposal effort and the firmness of the offeror's conclusion that no appearance of impropriety exists. In cases of doubt, a good firewall will go a long way toward avoiding the risk of an exclusion or a successful protest.

National Government Services, Inc. v. United States (Federal Circuit 2019): Following an unsuccessful GAO protest, and an unsuccessful second-bite protest at the Court of Federal Claims, the protester prevailed before the Court of Appeals for the Federal Circuit in its challenge to award limitations that for nearly a decade have featured in certain solicitations issued by CMS.

Facts:

CMS uses contractors called Medicare Administrative Contractors (MACs) to administer claims and benefits related to the Medicare program, with MAC contracts covering 12 geographic "jurisdictions" across the country. For nearly a decade, MAC solicitations have included an award limitation policy, preventing any single contractor from receiving more than 26 percent of the national Medicare A/B workload or any set of affiliated contractors from receiving more than 40 percent of the workload. CMS says these limitations are designed to further competition and reduce the risk of placing an overly large share of claims administration with any one entity or family of entities. As it had for prior competitions, CMS included the limitation policy in its solicitation for selecting a MAC contractor for Jurisdiction H.

The protester here objected to the award limitation policy, arguing that it should be able to compete for Jurisdiction H, even if the award would cause it to exceed the maximum workshare percentage allowed by the limitation policy. The protester filed a timely pre-award challenge to the solicitation terms with the GAO, which denied the protest. The protester then filed a "second-bite" protest at the Court of Federal Claims, which similarly denied the protest. The protester then took the unusual step of appealing the denial to the Court of Appeals for the Federal Circuit.

Analysis:

Without addressing the merits of CMS's award limitation policy, the Federal Circuit focused narrowly on the procedural question of whether CMS complied with the Competition in Contracting Act's (CICA's) requirement that agencies procure goods and services using full and open competition unless the agency properly invokes one of the statute's defined exceptions to full and open competition.

The court first rejected the government's argument that it has provided full and open competition as long as an offeror is allowed to "submit" a proposal. The court held that any such submission would be futile in light of the limitation policy, notwithstanding the fact that, in exceptional circumstances, the policy allows a particular offeror to exceed the permitted percentage if no other awardable proposal has been submitted.

The court also rejected the government's argument that the policy does not run afoul of CICA's competition requirements because the limitation is an evaluation factor rather than a limit on competition. The court expressed skepticism about whether this was truly an "evaluation factor" but observed in any event that the policy applied to all jurisdictions and was not a particular performance requirement tailored to a particular solicitation. Because the award limitation policy was "not based on some capability or experience requirement," but rather on an "attempt to divvy up the MAC contracts," it was in essence a competition limitation.

The court then marched through the competition limitations permitted by CICA, and the procedures an agency must follow to invoke those exceptions, and found CMS had satisfied none of them prior to including the award limitation policy in the Jurisdiction H solicitation. And although CICA and the FAR allow agencies to exclude certain sources from a competition under certain circumstances, the court found CMS did not undertake the necessary procedural steps to use those authorities in this procurement.

As a result, and without reaching the question of whether the award limitation policy furthered legitimate agency goals, the Federal Circuit reversed the Court of Federal Claims and remanded the protest for further proceedings.

Takeaways:

There are a few takeaways here.

First, agencies enjoy broad discretion in defining their requirements and imposing reasonable restrictions in solicitations to meet those requirements. It is generally difficult to challenge such restrictions, although protesters occasionally prevail – as we recently saw with the challenge to restrictions in the General Services Administration's (GSA's) OASIS solicitation. When the agency's discretion crosses the line from imposing programmatic requirements to limiting the scope of who may compete, agencies must follow procedures that CICA and its implementing regulations carefully define. Failure to do so may result in a protest being sustained.

Second, protests are not easy to win. It is even more difficult to win a second-bite protest at the Court of Federal Claims after losing at the GAO. Prevailing at the Federal Circuit after suffering defeat at both the GAO and the Court of Federal Claims is quite rare but, as this case shows, not impossible.

Finally, winning a protest does not necessarily mean one gets an award or, for a pre-award protest such as this, that one forces the agency to change the solicitation. CMS lost on appeal because of procedural errors, and the court was careful to state it was not opining on the wisdom of the award limitation policy itself. It will be interesting to see whether CMS's corrective action will consist of changing the terms of the solicitation (and longstanding CMS policy) or simply doing a better job of documenting why a CICA exception is appropriate here, in light of the agency's perceived needs.

BDO USA, LLP, B-416504.2, May 22, 2019: Our final summary involves a firm successfully challenging the rejection of its proposal due to the agency's failure to consider clearance information the offeror provided in its quotation.

Facts:

The agency issued a request for quotations (RFQ) to holders of the GSA's Professional Services Schedule contract holders. As relevant here, the RFQ required each vendor to identify its CAGE code and required the contractor to possess a Secret-level or higher FCL. After an initial protest and cancellation of the RFQ, the agency reissued the RFQ and solicited new quotations.

The protester submitted a timely quotation and identified its CAGE code, as required. It also advised the agency that it held the required FCL under a different CAGE code, which was issued to the same legal entity as was submitting the quotation. The protester's quotation correctly advised the agency that different CAGE codes can be assigned to different offices of the same legal entity.

This response apparently confused the agency, which asked the Defense Security Service (DSS) whether it could award a contract to an offeror under one CAGE code, even though the FCL was registered under a different CAGE code. DSS replied that the vendor's primary CAGE code did not have an FCL listed in the National Industrial Security Program, and any facility "would need to be cleared to the appropriate level of the classified contract." Based upon its understanding of DSS's reply, the agency rejected the protester's quote as failing to meet the RFQ's clearance requirements.

The firm then filed a timely protest of its exclusion, contending that it met the RFQ's requirements.

Analysis:

The GAO first noted that, although CAGE codes can dispositively establish the identity of a legal entity for contractual purposes, the same legal entity can have multiple CAGE codes. The quotation here specified that the protester as a single legal entity had two CAGE codes – one for its headquarters (which held the FCL) and one for the ordering site (which submitted the quote).

The GAO found it unreasonable for the agency to reject the protester's quotation based upon DSS's responses. First, the agency did not provide DSS either with the RFQ's requirements or with the vendor's response. Thus, DSS was unable to opine on whether the protester was awardable. Second, DSS's own responses "suggest[ed] DSS may have improperly equated a CAGE code with a single entity and/or did not fully comprehend the circumstances of the procurement and the basis for the agency's inquiry." Nor did DSS's responses suggest the protester was not in compliance with DSS regulatory requirements, as the agency contended.

The GAO therefore found that the agency unreasonably excluded the protester's quotation and recommended it perform a reevaluation, taking into consideration the vendor's explanation regarding its FCL and CAGE codes.

Takeaways:

Although CAGE codes are ubiquitous and many solicitations require security clearances, there often is misunderstanding – both by offerors and by procuring agencies – about what CAGE codes are and what FCLs require. When a solicitation requires an offeror to demonstrate it has the appropriate clearances, it is worth being especially clear (as the vendor here was) about how clearances track to CAGE codes if there is a discrepancy between the CAGE code of the offeror's submitting site and the site that holds the FCL.

It also is important to seek clarification if a solicitation requires "the offeror" to hold a clearance, but the offeror intends to rely on a clearance held by an affiliate, a joint venture member, or a subcontractor to meet the requirement. If the solicitation is susceptible to different interpretations, it is prudent to ask the agency a question before submitting a proposal.

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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