United States: Rare Federal Circuit Protest Decision Affirms Agency Discretion In Sole Source Context

Last Updated: February 1 2018
Article by J. Alex Ward and Ethan E. Marsh

Last week, the Federal Circuit issued a rare opinion on a bid protest in Agustawestland North America, Inc. v. United States.  Bid protest decisions by the Court of Federal Claims are seldom appealed by protesters because the ability to get a meaningful remedy quickly dissipates as contract performance commences.  In this case, however, the Government was motivated to appeal an adverse decision of the Court of Federal Claims because the lower court had enjoined the Army's ability to purchase sixteen UH‑72A Lakota helicopters.

Although the Federal Circuit's decision is highly fact specific and does not break new ground on any disputed legal issue, it highlights the high degree of deference afforded to agencies by the Federal Circuit, even when the agencies are making sole‑source decisions.

The underlying protest was precipitated by the Army's decision in 2015 to issue a sole‑source contract to Airbus for sixteen UH-72A Lakotas.  A decade earlier, the Army had competitively awarded a contract to Airbus for up to 493 Lakotas.  Presidential strategic guidance in 2012 and a 2014 implementing order from the Army led the Army to conclude that it needed to procure sixteen additional helicopters beyond the capacity of the 2006 contract.  In a December 2015 Justification and Approval (J&A), the Army concluded that Airbus was the only responsible source to fulfill its requirement and thus decided to bypass the general requirement for "full and open" competition.  The legal rationale for the Army's decision was FAR 6.302-1(a)(2)(ii), which provides an exception to full and open competition for a "follow-on contract for the continued development of production of a major system or highly specialized equipment" and "it is likely that award to any other source would result in (A) [s]ubstantial duplication of cost to the Government that is not expected to be recovered through competition or, (B) [u]nacceptable delays in fulfilling the agency's requirements."  The J&A first noted the Army did not have a license to the technical data rights needed to produce the Lakota UH-72A and that Airbus was unwilling to sell those rights.  It then asserted that procuring and sustaining an alternative helicopter to the Lakota would result in substantial duplication of costs and would take approximately three years.  The cost duplication claim, as well as a finding that the ultimate contract cost would be fair and reasonable, was supported by a cost analysis.

In the initial protest at the Court of Federal Claims, Chief Judge Braden enjoined the sole‑source procurement for two major reasons.  First, she concluded that the Army's 2014 order implementing the presidential strategic guidance was a procurement decision subject to the Court's bid protest jurisdiction because that order established the Lakota as the Army's training helicopter, thus effectively making the decision regarding the Army's future helicopter purchases.  Chief Judge Braden reasoned that, because the implementing order was not supported by a J&A as required by the FAR, that order violated the FAR and CICA.  Second, Chief Judge Braden reviewed the December 2015 J&A supporting the sole‑source award and found it wanting.  In particular, she determined the sole‑source contract was not a "follow-on contract" because it was a "new contract" and also criticized the J&A's cost analysis and its assertion that a competitive procurement would take three years.  In addition, she took issue with the fact that the Contracting Officer had signed the J&A prior to obtaining legal review and the concurrence of the special competition advocate.

The Federal Circuit disagreed with the Court of Federal Claims on both counts.  According to the Federal Circuit, the Army's 2014 order implementing the presidential strategic guidance was not a procurement decision because it did not contemplate purchasing any helicopters.  Rather, it envisioned using existing assets only.  Because it was not a procurement decision, the Court's bid protest jurisdiction did not extend to that order.  While this finding may seem to intrude on the Court of Federal Claims' fact‑finding, the Federal Circuit justified it on the basis that it reviews jurisdictional questions de novo.  The Federal Circuit also found the J&A to be "a coherent and reasonable explanation of its exercise of discretion" adequately supported by the record.  The Court stated the sole‑source contract was a follow-on contract because it was for continued production of the Lakota, which was a major system.  The Federal Circuit also brushed off Chief Judge Braden's concerns over the cost analysis and assertions about scheduling, noting that the J&A concluded that the sole‑source procurement could be completed at a fair and reasonable price and finding, without much explanation, that the Army's factual findings were adequately supported.  Finally, the Circuit rejected the objection that the J&A was defective because the Contracting Officer signed it before obtaining concurrence from her legal advisor and competition advocate.  According to the Federal Circuit, the only approvals needed were those of the Contracting Officer and senior procurement executive.  Accordingly, the Federal Circuit found the J&A to be unobjectionable.

In a procedural point, the Circuit reversed the lower court's decision to permit supplementation of the administrative record.  Under Axiom Res. Mgmt., Inc. v. United States, 564 F.3d 1374 (Fed. Cir. 2009), supplementation is appropriate only where "the omission of extra-record evidence precludes effective judicial review."  The Federal Circuit criticized the lower court for providing only "conclusory statements that it could not conduct effective judicial review without the supplemented material," but the Circuit Court notably did not provide any analysis of its own to support its opposite conclusion that the record was "sufficient to review the Army's sole source procurement."  Thus, while the Federal Circuit continues to look closely at the Court of Federal Claims' decisions to supplement the administrative record, its continuing failure to provide concrete guidance about the meaning of "necessary in order not 'to frustrate effective judicial review'" will leave litigants and lower courts guessing.  The takeaway is that it is incumbent on counsel to provide a detailed rationale for why supplementation is required so that the trial judge has fodder for her findings.

Although each of these conclusions taken individually does not result in any new pronouncement of a new legal holding, taken together the conclusions once again highlight the high level of deference agencies will receive in carrying out their acquisitions.

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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