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There has been significant uncertainty as to where a company can
protest an Other Transaction (“OT”) award. As
we
previously reported, cases such
as SpaceX, MD Helicopter,
and Kinemetrics have provided useful data
points. The most recent decision of the U.S. Court of Federal
Claims (“COFC”) in Hydraulics International,
Inc. v. United States1 is consistent with this
line of cases, finding that the COFC has jurisdiction when the U.S.
Department of Defense (“DoD”) expressly contemplates
issuing a follow-on production contract to one or more of the OT
recipients upon successful completion of the OT.
The OT Prototype Project
The Army needed upgraded Aviation Ground Power Units
(“AGPUs”) to service military helicopters. To
accomplish the AGPU upgrade, the Army selected an OT agreement as
the purchasing vehicle. The Army awarded an OT to a
consortium,2 which issued a Request for Enhanced
White papers for the AGPU upgrade prototype project. The
project was for a base effort of one prototype AGPU, with an option
for a second phase of ten prototypes, and contemplated awarding the
base effort to up to two contractors. Once the base effort was
completed, the Army would run tests and decide whether to
down-select to one of the base effort vendors for the second
phase. Specifically, the Request for Enhanced Whitepapers
stated, pursuant to the Army’s OT authority, “[u]pon a
determination that this competitively awarded prototype project has
been successfully completed, this project may result in the award
of a follow-on production contract for over 150 AGPUs without the
use of competitive procedures.”
Five bidders, including Hydraulics International, submitted
whitepapers in response to the request. The Army reviewed the
whitepapers and selected two other offerors for award of the base
effort using a best-value determination.
Hydraulics International’s Protest
Hydraulics International filed a bid protest at the COFC,
contending that the Army misevaluated its schedule and price
information in its whitepaper submission and waived a key
requirement when evaluating the proposals from the two successful
offerors.
The Government argued that the COFC lacked subject matter
jurisdiction over the protest because the dispute was not “in
connection with a procurement or a proposed procurement” as
required under 28 U.S.C. § 1491(b)(1) (the “Tucker
Act”). Specifically, the Government contended that the
Army was acquiring AGPU prototypes using its OT authority, and an
OT agreement is not a “procurement.” Furthermore,
the Government asserted that the OT awards were not “in
connection with” a proposed procurement because any
“follow-on production” from the OT awards was
conditional and may never occur.
In contrast, Hydraulics International argued that the COFC
had jurisdiction to hear the case under the Tucker Act because the
possibility of a follow-on production contract for 150 AGPUs
without competition placed these OT awards “in connection
with a procurement.”
Court’s Decision
The Court found that it had jurisdiction under the Tucker
Act. The Tucker Act grants the COFC “jurisdiction to
render judgment on an action by an interested party objecting to a
solicitation by a Federal agency for bids or proposals for a
proposed contract or to a proposed award or the award of a contract
or any alleged violation of statute or regulation in connection
with a procurement or a proposed procurement.” 28 U.S.C.
§ 1491(b)(1). The term “procurement” includes
all stages of the process of acquiring property or services,
beginning with the process for determining a need for property or
services. In a previous decision concerning an OT award, the
Court noted, “the Federal Circuit has held that ‘[t]he
operative phrase “in connection with” is very sweeping
in scope.’”3
The Court noted that the DoD’s OT authority allows it to
enter into OT agreements to “carry out prototype
projects.” 10 U.S.C. § 4022(a)(1). When
pursuing OT prototype projects, the DoD is required to use
competitive procedures “[t]o the maximum extent
practicable.” 10 U.S.C. § 4022(b)(2). If the
initial prototype phase uses competitive procedures, a
“follow-on production contract or transaction” may be
awarded “without the use of competitive
procedures.” 10 U.S.C. § 4022(f)(2). However,
the statutes granting the DoD OT authority are silent on the Tucker
Act, bid protests, judicial review, and the COFC.
The Court reasoned that, for it to have jurisdiction over the
OTs at issue, the OTs must be “in connection with a
procurement or a proposed procurement.” The Court stated
that OTs themselves are not “procurement
contracts”;4 thus, the Court focused its
analysis on the OT’s connection to a “proposed
procurement.” The Court concluded that the upgraded AGPU
OT awards were “in connection with a procurement or a
proposed procurement” because they are part of the
Army’s process for determining a need for acquisition.
The Government stressed that although the Request for Enhanced
Whitepapers contemplated a follow-on production contract for 150
AGPUs without the use of competitive procedures, it did not
guarantee that a follow-on production contract would be
awarded. However, the Court found it immaterial whether the
potential procurement of 150 AGPUs ever occurs, so long as the
Government has initiated the process for determining a need for
acquisition and that acquisition might occur via
procurement. The Court reasoned that the OT awards in this
case initiated the process for determining a need for acquisition,
and they are “in connection with” that process because
they may result in the exclusion of Hydraulics International from
consideration for a follow-on production contract. Therefore,
the Court found that it has subject matter jurisdiction over
Hydraulics International’s protest.
Having found that it had jurisdiction to hear Hydraulics
International’s protest, the Court granted the
Government’s motion for judgment on the administrative
record, concluding that the Army acted rationally when it evaluated
proposals. In reaching this conclusion, the Court applied the
arbitrary and capricious standard of review, stating, “[w]hen
this Court evaluates a bid protest, ‘the inquiry is whether
the agency’s action was arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law and, if so,
whether the error is prejudicial.’”5
Takeaways
When added to the existing pieces of the
puzzle, Hydraulics International shows that
disappointed OT competitors can bring bid protests to the COFC if
successful performance of the Prototype OT agreement could
transition into a potential follow-on production contract without
the use of competitive procedures. Then the COFC can review
the protest just like it would any other bid protest. Although
the Court’s finding of jurisdiction is not surprising, the
applied standard of review is significant. Many of the common
bid protest arguments are rooted in CICA and other statutes that
specifically apply to procurement contracts and not OT
awards. Therefore, at least some standards should apply
differently.
The Court applied its arbitrary and capricious standard of
review, and general bid protest precedent, even generally reviewing
the best value trade off, without any examination of whether there
has actually been a “violation of law or regulation” in
connection with a procurement or proposed procurement. The
Court seems to be saying that the Tucker Act’s protest
jurisdiction extends to any objection to “a proposed award or
the award of a [non-procurement] contract . . . in connection with
a procurement or a proposed procurement.” 28 U.S.C.
§ 1491(b)(1).
This not the only route the Court’s analysis could have
taken. Because the Court determined an OT itself is not a
procurement contract, the Court could have focused on the Tucker
Act’s third prong, which applies to “any alleged
violation of statute or regulation in connection with a
procurement or a proposed procurement.” 28 U.S.C. §
1491(b)(1) (emphasis added). The difference in approach
affects the standard of review that should be applied. Under
the Court’s analysis, it could apply the Administrative
Procedure Act’s arbitrary and capricious standard of review
to the award decision (which it did) without having to show a
violation of a statute or regulation. The alternative approach
would require a showing that the DOD, by, for instance, straying
from its RFP, violated its statutory charge to use competitive
procedures to the maximum extent practicable. However, this
second approach would likely give the DoD more leeway than the
arbitrary and capricious standard applied to the award
decision.
The Court’s decision is another piece of the puzzle and
provides some clarity regarding the Court’s jurisdiction over
OT awards. The takeaway is this: If a disputed OT award
contemplates issuing a follow-on production contract to one or more
of the OT recipients without the use of competitive procedures,
then the award is sufficiently made “in connection
with” a procurement to establish jurisdiction.
Footnotes
1 Hydraulics International, Inc. v. United
States, Docket No. 1:22-cv-00364 (Fed. Cl. Aug. 8,
2022).
2 Although this OT was awarded through a consortium,
the Court still had jurisdiction despite the consortium creating a
layer of separation between the Government and the consortium
members. This was the logical decision, as the Government, at
the end of the day, was making all of the evaluation and source
selection decisions.
3 Hydraulics International, Inc. v. United
States, Docket No. 1:22-cv-00364 (Fed. Cl. Aug. 8, 2022)
(quoting Space Expl. Techs. Corp. v. United States,
144 Fed. Cl. 433, 439–40 (2019)).
4 The Court stated categorically that OTs are not
“procurement contracts.” Generally, this is
accurate, in the sense that OTs are, by design, not subject to laws
or regulations that apply specifically to “procurement
contracts,” like the Competition in Contracting Act
(“CICA”) or the Federal Acquisition Regulation
(“FAR”). But OTs are indisputably contracts and,
at least for purposes of DoD’s Prototype OT authority, may be
used to procure certain goods and services. DoD’s
Prototype OTs are unique in this latter respect; agencies with only
general OT authority, like NASA and TSA, are (likely) still bound
by the limitations in the Federal Grant and Cooperative Agreement
Act (“FGCAA”), which prohibits federal agencies from
using anything other than a procurement contract when acquiring
goods or services for the Government’s direct
benefit. Rocketplane Kistler, B-310741, Jan. 28,
2008, 2008 CPD ¶ 22; but
see MorphoTrust USA, LLC, B-412711, May 16,
2016, 2016 CPD ¶ 133. Congress has granted DoD express,
specific authority to award OTs for prototyping projects, which
supersedes the general requirements in the FGCAA. But, in
doing so, Congress was silent on whether a Prototype OT may itself
be considered a “contract” or a
“procurement” for purposes of the Tucker Act. A
straightforward reading of the plain language of the statute
suggests it might, notwithstanding common assumptions to the
contrary.
5 Id. (quoting Glenn Def. Marine
(ASIA), PTE Ltd. v. United States, 720 F.3d 901, 907 (Fed.
Cir. 2013)).ed
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.
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