In late May 1997, we filed a postaward protest suit in the United States Court of Federal Claims for ATA Defense Industries, Incorporated (ATA), seeking to undo an award of a delivery order placed under a Federal Supply Schedule (FSS) contract with a competitor, Caswell International Corporation. On June 27, 1997, the Court granted ATA's request for an injunction after finding that the award to Caswell was arbitrary, capricious, an abuse of discretion, and not in accordance with law. This is the first time the Court has granted relief under its new authority to consider postaward protests.
The ruling is precedent setting in an area of great interest to the government and to contractors. The use of FSS contracts has expanded dramatically as agencies have realized that they can save time and (sometimes) money by resorting to the simplified FSS procedures. But some agencies see use of FSS contracts as a way to avoid what they view as cumbersome procedures. Just as the ATA Defense Industries case shows, agencies too often use FSS contracts to do an end run around the requirement to obtain full and open competition. Here, for example, over 35 percent of the value of products and services ordered had never been subjected to competition, and the Army took the view that as much as 50 percent of its FSS order could consist of non-FSS items. The ATA Defense Industries case will rein in such anti-competitive practices.
The case arose out of a requirement to upgrade two Army tank and fighting vehicle target ranges at Fort Stewart, Georgia. ATA and Caswell are fierce competitors in the business of supplying armor target systems to the Army. ATA sells its target systems on the open market. On the other hand, Caswell, besides offering open market products, holds an FSS contract that includes some, but not all, of the items the Army required at Fort Stewart. In fact, over 35 percent of the products and services needed were not listed on Caswell’s FSS contract. The case focused on whether the Army properly could buy its range upgrade requirements off the FSS contract when some of the products needed were not listed on Caswell’s FSS contract.
The Army issued an FSS delivery order to Caswell for both the FSS and non-FSS items, after deciding that only Caswell could supply the non-FSS items because of the need to provide an electronic match between the FSS items and non-FSS items. However, included in the list of “proprietary” items the Army decided could only be supplied by Caswell were such services as ditch digging, and supply and installation of rail beds and rails, radios, and cabling. ATA challenged the delivery order as one issued in violation of the Competition in Contracting Act of 1984.
The Court agreed with ATA, finding that there was no rational basis for the Army’s conclusion that only Caswell could supply the non-FSS items, or, for that matter, the entire range upgrade “system” the Army needed. It held that there was no authority for the Army to order any non-FSS items under an FSS contract. The Court also rejected arguments that “unique and compelling urgencies” allowed the Army to avoid conducting a competitive procurement for its range upgrade needs. Thus, the Court ordered the Army to terminate Caswell’s contract and to comply with the Competition in Contracting Act of 1984 in the recompetition.
ATA Defense Industries is the first case in which the United States Court of Federal Claims has granted relief under its new postaward jurisdiction. Apart from this, the case is significant for several other reasons: (1) it holds there is no authority to bundle FSS items with non-FSS items in an FSS delivery order; (2) it limits the Court’s review solely to the stated basis on which the contracting officer acted as shown by the preaward administrative record; and (3) it assures that prospective offerors unlawfully excluded from the competition have standing to bring protest suits.
The Court in ATA Defense Industries rejected the Army’s argument that it may purchase both FSS items and non-FSS “incidentals” under an FSS order. Agencies have resorted to this practice of “bundling” non-FSS items with FSS items to take advantage of the FSS’s simple ordering procedures and avoid time consuming sealed bid or negotiated procurement procedures. Agencies have sometimes used bundling in situations where FSS items are insufficient to meet their needs, and necessary non-FSS items constitute a substantial portion of their requirements. Indeed, in the ATA Defense Industries case, Army and General Services Administration (GSA) lawyers advised the contracting officer that they routinely approved use of bundling where as much as 50 percent of the total order consisted of non-FSS items.
The “incidentals” bundling theory had its origins in pre-Competition in Contracting Act of 1984 (CICA) General Accounting Office (GAO) cases holding that no law or regulation prevented the inclusion, in FSS orders, of non-FSS incidental items of relatively low value. See Synergetics International, Inc., B-213018, 84-1 CPD ¶ 232 (Feb. 23, 1984); Stanley and Rack, B-204565, 82-1 CPD ¶ 217 (March 9, 1982); Rack and Stanley, B-205059, 82-1 CPD ¶ 494 (May 25, 1982). CICA changed these rules by mandating that, except in seven narrowly defined circumstances, all purchases must be subjected to full and open competition. GAO apparently never directly considered the effect of CICA on its “incidentals” case law, and it continued to rely on the earlier cases. See Raymond Corporation, B-246410, 92-1 CPD ¶ 252 (March 2, 1992); Amray, Inc., B-238682, 90-1 CPD ¶ 480 at 3 (May 16, 1990).
In ATA Defense Industries, however, the Court found that bundling runs afoul of CICA’s full and open competition mandate. The Court said that the “authority of an agency to purchase products against the FSS does not extend to incidentals,” because the incidental items have never been subjected to competition. The Court noted that, at the time of CICA’s passage, Congress had considered abolishing the FSS program because it did not result in competitive prices. H.R. Rep. No. 861, 98th Cong. (1984). Congress sanctioned continued use of FSS contracts only if FSS procedures guaranteed that full and open competition applied to the products obtained. Since bundling avoids competition for non-FSS incidentals, the CICA mandate is not met.
This holding is consistent with, and is a significant reinforcement of, CICA’s full and open competition mandate. It also is consistent with the one case in which the GAO directly construed CICA in the FSS context. In Komatsu Dresser Company, B-246121, 92-1 CPD ¶ 202, 71 Comp. Gen. 260 (Feb. 19, 1992), GAO held that ordering more than an FSS maximum order limitation violated CICA because there had been no competition on such high-value orders. In addition, although the Court did not discuss this point, it can be argued that the Federal Acquisition Streamlining Act (FASA) and the Federal Acquisition Regulation (FAR) expressly prohibit the practice of bundling, since its effect is to split agency requirements so as to avoid otherwise applicable competition requirements. See 41 U.S.C. § 427(b) (“[a] proposed purchase or contract for an amount above the simplified acquisition threshold may not be divided into several purchases or contracts for lesser amounts in order to use the simplified acquisition procedures”); 10 U.S.C. § 2302b; FAR 13.103(c).
ATA Defense Industries closes a loophole some agencies have constantly tried to expand, and it should rein in abuse of the FSS contract process through bundling. Contracting officers will be taking a perilous course if they purchase bundled incidentals beyond a de minimis value-likely the $2,500 micro-purchase threshold under which competition requirements do not apply. It means that contracting officers must abide by the CICA competition mandate, or face valid protests against such actions based on ATA Defense Industries.
Next, ATA Defense Industries is important because it further defines the scope of the Court’s review in protest actions. (The Court started this process in Cubic Applications, Inc. v. United States, 37 Fed.Cl. 339 (1997), when it held that it would not give weight to after the fact rationalizations that appeared in the GAO administrative record.) The Court made clear in ATA Defense Industries that, in protest cases, it will review only the action actually taken by the contracting officer, and not another action the contracting officer says that he might have taken.
In ATA Defense Industries, the Army contended that the Court should sustain its award because the contracting officer believed there were unique and compelling urgencies and that the non-schedule contract items were “incidentals” that could be purchased under the schedule contract order. The Court decided that both of these were essentially after-the-fact rationalizations or arguments of counsel.
The crucial point, the Court explained, was that the contracting officer did not find urgency and did not rely upon the “incidentals” theory before award. Instead, the contracting officer justified his bundling of non-FSS items solely on the “one reliable source” exception of 10 U.S.C. § 2304(c)(1) and FAR 6.302-1. Saying that it “could not possibly affirm the contracting officer’s decision based on a rationale the contracting officer never decided to adopt,” the only action the Court reviewed was the sole source justification, which it decided lacked a reasonable basis.
This holding reinforces the rule that contracting officers must determine and document in advance the basis for their decisions. This rule should have a salutary effect, since it will force contracting officers to make considered decisions after weighing all their options and selecting the procedure best suited to the circumstances as required by CICA. 10 U.S.C. § 2304(a)(1)(B).
It will help assure that contracting officers will consider competitive procedures before resorting to non-competitive procedures simply for administrative convenience. It will also preclude attempts to create new rationales after a protest suit has been filed, as happened in the ATA Defense Industries case.
Finally, ATA Defense Industries is significant because it represents the Court’s first close examination of the “interested party” standing requirement contained in its new jurisdictional statute, 28 U.S.C. § 1491(b). The Court adopted an expansive view of section 1491(b) that is consistent with standing principles applied in Scanwell suits filed in the U.S. District Courts.
The Army argued that ATA was not an “interested party” under section 1491(b) because ATA had not submitted a bid or brought suit before contract award. The Court rejected this argument as contrary to existing law and sound contracting policy. Finding no requirement that interested parties must sue before contract award, the Court also noted that section 1491(b) expressly says that it has jurisdiction “without regard to whether suit is initiated before or after the contract is awarded.”
While the Court acknowledged that section 1491(b) does not define the term “interested party,” it held that ATA met the definition of that term as used in the GAO, and former GSBCA, case law; that is, ATA was an actual or prospective bidder whose direct economic interest was affected by the award of a contract. ATA had expressed an interest in competing, and was prevented from doing so solely by the illegal actions of the Army in awarding the schedule contract delivery order.
The Court adopted the view of the Fifth Circuit in Rapides Regional Medical Center v. Department of Veterans Affairs, 974 F.2d 565, 570 (5th Cir. 1992), that, in such circumstances, ATA was a prospective bidder who stood ready and willing to participate had it been offered the opportunity to do so. Thus, the Court suggested that it would judge its standing requirements by the same standards applicable in the District Courts.
The Court also rejected the Army’s argument that ATA lost its status as a prospective bidder once the contract was awarded. The Army’s argument was based on the following language in MCI Telecommunications Corp. v. United States, 878 F.2d 362, 365 (Fed. Cir. 1989): “one who has not actually submitted an offer must be expecting to submit an offer prior to the closing date of the solicitation. After the date for submission of proposals has passed, however, the would-be protester can no longer realistically expect to submit a bid on the proposed contract, and, therefore, cannot achieve prospective bidderhood with regard to the original solicitation.”
The Court distinguished MCI as standing only for the proposition that to be a “prospective bidder,” a party must expect to submit a bid. ATA met that requirement when it timely expressed an interest in bidding and was precluded from submitting a bid only by the Army’s illegal actions. In contrast, in MCI, since the protester had chosen on its own not to submit a proposal before the closing date, it had not achieved prospective bidderhood at the relevant time. The Court also explained that adopting the Army’s position would have the effect of blocking suits revealing unlawful procurement actions, encouraging awards made in secrecy, and spawning unnecessary protective preaward suits.
The Court’s holding on standing is important because it assures that the same parties who have long had access to the District Courts under Scanwell jurisdiction will also be able to sue in the United States Court of Federal Claims. The ATA Defense Industries case should foreclose further attempts to narrow the Court’s jurisdiction in protest cases.
— Claude Goddard
Copyright © 1997 Kilcullen, Wilson & Kilcullen. All rights reserved.