Jenner & Block – Government Contracts Legal Round-Up – 2024 Issue 12

Claims Updates

Associated Energy Group, LLC v. The United States and Kropp Holdings, Inc., No. 23-20 47 (July 2, 2024)

• Associated Energy Group, LLC (AEG) challenged the award by Defense Logistics Agency (DLA) for a second twelve-month sole-source bridge contract (Bridge Contract) to Kropp Holdings, Inc. (KHI) for its aviation Into-Plane Reimbursement Card and Ships' Easy Access Card programs. The Court of Federal Claims dismissed the case on standing grounds for multiple reasons.
• First, the court found that AEG was not an actual or prospective bidder for the bridge contract because it did not submit a capability response to DLA's sole-source notice by the prescribed deadline. AEG argued that its failure to respond to the sole-source notice should not deprive it of standing because no other potential interested offerors responded to the sole-source notice. In addition, AEG submitted a letter to DLA expressing its disappointment with DLA's second sole-source award after the notification deadline.
• The court rejected these arguments, holding that under Digitalis Education Solutions, Inc. v. United States a party must submit a statement of capability during the prescribed period in order to establish standing as an actual or prospective bidder for a sole-source contract; letters of disappointment are insufficient.
• AEG also argued that DLA should have assumed that AEG was an actual or prospective bidder for the bridge contract because that procurement directly related to the solicitation that AEG was already participating in. The court rejected this argument as well because 1) AEG represented, in the sister case involving the solicitation, that it was not directly related to any pending or previously filed case(s) in the Court of Federal Claims, including the present dispute, and 2) a plaintiff cannot automatically be a prospective bidder simply because it participated in related procurements.
• Second, the court found that AEG was not economically interested in the bridge contract because AEG was incapable of performing the bridge contract's combined services immediately without time for a transition and an interruption in services.
• Third, the court found that AEG waived it right to contest the terms of the bridge contract because it did not respond to the sole-source notice during the prescribed period and it possessed full knowledge of the sole-source notice and its terms/purpose, and knew that KHI was going to be awarded the bridge contract.

For contractors, this case underscores the importance of responding to a sole-source notice by the prescribed deadline in order to maintain potential protest standing.

Avue Technologies Co. v. Department of Health and Human Services, CBCA 8087(6360)-REM, 8088(6627)-REM (July 1, 2024)

• On remand from the Federal Circuit's decision in Avue Techs. Corp. v. Sec'y of Health & Hum. Servs., 96 F.4th 1340 (Fed. Cir. 2024), where the court held that the board had improperly dismissed a claim for lack of jurisdiction without considering one of the bases for jurisdiction asserted by the parties, the board again dismissed the claim for lack of jurisdiction and in the alternative, rejected the contractor's claim on the merits.
• Avue sought damages for the FDA's alleged breach of its master subscription agreement (MSA) with Avue, which the parties entered into by virtue of a task order FDA had awarded for Avue software off of another contractor's GSA FSS schedule contract.
  • The board rejected the government's argument that the MSA was not contractual at all, concluding that this argument ignored the weight of authority that has acknowledged that software licenses can form contracts whose terms the government may violate; however, the board held that the MSA was not a procurement contract that the board has the jurisdiction to address under the Contract Disputes Act (CDA). The board explained that the government's receipt of Avue's software licenses is not an "acquisition . . . of property or services" subject to the CDA because the government had instead received "conditional permission from Avue" to use the software at issue through the GSA schedule contractor, who arranged for the licenses to be in place to sell the licenses on its schedule contract—at bottom, the government did not pay Avue for the use of its software, nor did it directly procure the licenses from Avue.
  • The board further denied that Avue had privity of contract with the government through the GSA schedule contractor's FSS contract. Avue was not a "contractor" named in the schedule contractor's agreements with either GSA or the FDA, and Avue never signed a contract with the government. Avue also did not have privity of contract with the government as a non-prime contractor where it failed to show that the GSA schedule contractor had "acted as a purchasing agent for the United States" when buying Avue software.

This decision affirms that software license agreements such as MSAs or End User License Agreements may create enforceable contracts with the government but are most likely not procurement contracts within the meaning of the CDA, and the boards will most likely not consider CDA claims raised against the government based on such licensing agreements.

Tri Vet Contracting Co. Inc. v. Department of Veterans Affairs, CBCA 8030 (June 25, 2024)

• The board dismissed for failure to state a claim regarding a contractor's appeal seeking recovery of material price increases caused by COVID-19 in the performance of its fixed-price contract.
  • Tri Vet submitted a proposal to provide construction services to renovate a VA medical center on a firm-fixed-price basis on August 31, 2020, and was awarded the contract. After starting performance, Tri Vet submitted eight claims for the costs it incurred as a result of increased prices for materials caused by various shortages created by the COVID-19 pandemic. Tri Vet argued before the board that 1) when the government declared COVID-19 to be a public health emergency, it "overruled" or "suspended" FAR 16.202-1, which states that a "firm-fixed-price contract provides for a price that is not subject to any adjustment on the basis of the contractor's cost experience in performing the contract"; 2) that the increases in material prices changed the scope of the performance of the contract such that it was entitled to an equitable adjustment under the FAR 52.243-4, Changes clause; and 3) that the price increases constituted a constructive change.
  • The board rejected each of these arguments. First, the board noted that Tri Vet had submitted its proposal six-months after the start of the COVID-19 pandemic and was aware that prices could increase as a result but did not propose or negotiate to shift the risk of cost increases to the government. Recognizing that it is a normal risk under fixed-price contracts that market conditions will change, the board denied that the government's declaration of the COVID-19 pandemic as a public health crisis countermanded the assumptions set forth in FAR 16.202-1.
  • The board further rejected that there was a written change order by the government under FAR 52.243-4 to adjust the contract price based on COVID-19 related inflation or that the material cost increases constituted a constructive change. The board observed that while COVID-19 may have increased the cost of materials, the materials at issue were nonetheless the same ones "required to complete the original terms of the contract," such that no constructive change occurred.

Contractors should keep in mind that when they enter into fixed-price contracts, they assume the risk that conditions will change and increase the cost of performance. Even where the change is created by extraordinary circumstances, such as a national public health emergency, the boards will most likely be unwilling to grant the contractor relief under fixed-price contracts.

ASG Solutions Corporation. v. United States, No. 23-1029, Fed. Cl. (June 18, 2024)

• The Court of Federal Claims denied ASG's motion to stay judgment and enjoin debarment until the Federal Circuit resolved its appeal.
• The Navy terminated ASG for default for failure to perform a task order for engineering and program management support services under an infinite delivery, infinite quantity contract. ASG challenged the termination and sought to convert the termination for default to a termination for convenience under the CDA. The court dismissed ASG's CDA claims, and ASG appealed.
• The Navy pursued additional sanctions against ASG, including a proposed debarment that would prevent ASG from retaining task orders it holds with various federal agencies. ASG filed a motion to stay the court's judgment and enjoin the debarment, characterizing the sanctions as "effectively a death sentence."
• Judge Hertling denied the motion, finding that a stay of judgment would be "meaningless" because the court "did not order the debarment" and that "such challenge must be brought in district court under the Administrative Procedure Act."

This case is a reminder of the patchwork of jurisdictional rules that can apply to contractor disputes with the federal government; even when considering claims arising from the same contract or underlying events, contractors and their counsel must carefully consider the jurisdictional framework for each argument—and, as a bonus point—when considering related claims that could require concurrent litigation in district court and the Court of Federal Claims, be sure to take a look at 28 USC § 1500 and the tortured line of cases attempting to interpret it.

Protest Update

Sparksoft Corp., B-422440, B-422440.2 (June 25, 2024)

• GAO sustained a protest challenging the award of a task order for security testing services where CMS disparately evaluated key personnel qualifications.
• The solicitation established a two-phase evaluation scheme. Sparksoft was one of two offerors invited to participate in Phase II, which was limited to the assessment of proposed key personnel including the systems security officer (SSO). CMS assigned Sparksoft a "Some Confidence" rating and Titania Solutions Group Inc. (TSG) a "High Confidence" rating for their respective key personnel. CMS ultimately awarded the task order to TSG's higher-rated, higher-priced proposal.
• Sparksoft's protest alleged that CMS disparately evaluated TSG's SSO for having a certification that Sparksoft's SSO also possessed. CMS conceded that it overlooked the certification but maintained that its error was non-prejudicial because (1) the certification offers little differentiation between proposals given that both offerors' personnel have it and (2) there were other qualitative differences between the offerors' proposals.
• GAO disagreed, explaining that the agency assigned TSG a strength for the certification and the tradeoff decision expressly differentiated between the offerors' SSOs based on this inaccurate finding.

In assessing allegations of disparate treatment, GAO does not engage in hypothetical reevaluation of proposals and will resolve doubts regarding prejudice in the favor of protesters.

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