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Sunday, August 24, 2014

Administrative reviewers and an obligation to substantiate basis of decision in law and fact

Articles in the informative legal website Lexology suggest that, at least in the federal arena, US courts are taking a more careful look at the reasoning offered up by an administrative procurement review authority, both as to its legal underpinnings as well as its factual ones.

In applying any implications this may have for Guam, or your own jurisdiction, it is important to distinguish the standard of review that is applied in your particular situation. For instance, on Guam the standard of administrative review by the Public Auditor (Office of Public Accountability) is de novo, and that decision is final unless judicially appealed (unlike the advisory opinion of the GAO -- the federal government's Government Accountability Office). 

However, on judicial review of the Gaum OPA decision, the court must give "great weight and the benefit of reasonable doubt" to decisions of the Public Auditor, but it is not conclusive on the court, and "any determination of an issue or a finding of fact by the Public Auditor" is not final if it is "arbitrary, capricious, fraudulent, clearly erroneous, or contrary to law". 

It seems to me that, in practice, the result would be the same in the federal regime as under Guam law, as indicated by the last article below in which the Court equates "not rational" with "arbitrary and capricious".

As usual, you must read the source articles because I tend to selectively cut, re-arrange, paraphrase, drop footnotes and citations, and otherwise "edit" to suit myself in the post at hand.

The first case was first seen as perhaps limited to the issue of conflicts of interest, in the 2010 article A retreat from hard line OCI decisions? The COFC overturns a controversial GAO ruling, by attorneys Anne Bluth Perry and Jessica M. Madon of the law firm Sheppard Mullin Richter & Hampton LLP.   I do not address the conflicts issues:
On July 16, 2010, the Court of Federal Claims (“COFC”) determined that a Government Accountability Office (“GAO”) bid protest recommendation that an awardee, Turner Construction Co (“Turner”), be disqualified on the basis of organizational conflicts of interest (“OCI”) under an Army Corps of Engineers (the “Army”) hospital renovation contract was irrational.

In the context of a bid protest, the COFC reviews agency procurement decisions to determine if they are “arbitrary and capricious” or “lack a rational basis.” If the agency procurement action in question is the following of a GAO recommendation, then the agency’s decision will be found to lack a rational basis only if the GAO recommendation “is itself irrational.” This is precisely what COFC found in Turner.

The Court found that GAO had summarily assumed that, during the course of the potential merger discussions, the parties were “effectively aligned” and had a “community of interests” whereas the CO had determined, based on a post-award analysis of the facts, that the parties were merely “potential merger partners, with no community of interests.” Since GAO had not identified any hard facts of a “sufficient alignment of interests,” COFC found that GAO’s assumption of such an alignment was irrational.

GAO’s conclusion that there was a “biased ground rules” OCI (where an offeror skews the competition in its favor) was similarly determined to be irrational because the COFC found that GAO again ignored the CO’s detailed factual findings. Rather, GAO opted to assume that there was the opportunity to skew the competition unfairly and thus ignored all of the actual facts showing that the competition was not skewed.

The same lack of any hard facts was found with respect to GAO’s view that there was an “unequal access OCI.” Again, GAO was held to have improperly relied upon the possibility that the party had inside information. Reiterating the requirement for hard facts, the COFC held that the GAO needed to find “the ‘possession’ of undisclosed, competitively useful information” before finding such an unequal access OCI.
The Federal Claims Court decision was itself appealed, as reported in the next article in 2012, Federal courts overrule GAO and require reinstatement of low bidder, authored by Attorney Bram Hanono from the same Sheppard Mullin firm:
In Turner Construction Co., Inc. v United States, 645 F.3d 1377 (Fed. Cir. 2011) ("Turner II"), the United States Court of Appeals for the Federal Circuit affirmed the Court of Federal Claims' ("COFC") decision in Turner Construction Co., Inc. v. United States, 94 Fed.Cl. 561 (2010) ("Turner I") that a GAO bid protest recommendation was irrational.

In Turner II, the court affirmed the COFC's finding that the GAO irrationally refused to follow the CO's fact-based conclusion that no OCI existed. The court further held that the COFC properly ordered the Army to restore the contract with Turner based on the COFC's broad equitable powers to fashion appropriate remedies.

Turner II is a reminder that the COFC has the independent jurisdiction to review underlying procurement decisions, as well as GAO decisions, even when the GAO recommends that an agency take corrective action. In the Turner cases, the Army was required to restore Turner's contract, even though the Army had previously followed the GAO's recommendation to rescind the contract. The Turner cases may signal a shift in the Federal Courts to give more weight to the CO's decision on a bid protest and less weight to the GAO's recommendations.
Finally (for this post at any rate), there is the recent article Corrective action catch 22: Court of Federal Claims holds agency action must be rational even if GAO protest decision was not, written by attorneys C. Joël Van Over and Alexander B. Ginsberg of the law firm Pillsbury Winthrop Shaw Pittman LLP:
The United States Court of Federal Claims’ July 15, 2014 decision in RUSH Construction, Inc. v. United States, reflects the unusual circumstance in which the court effectively sat in appellate review of an earlier bid protest decision by the Government Accountability Office (GAO) after the U.S. Army Corps of Engineers ("CoE") followed GAO’s recommendation in that decision. The court ultimately overruled GAO when it found that it was arbitrary and capricious for the agency to follow GAO’s irrational recommendation. In so doing, the court cited numerous flaws in GAO’s reasoning and its reliance on inapposite case law.

An unsuccessful bidder protested at GAO, contending that the errors rendered RUSH’s bid ambiguous and non-responsive. GAO agreed, finding that RUSH’s bid contained material deviations from the terms of the solicitation, which could not be waived. In reaching this conclusion, GAO’s legal analysis was succinct—in fact, it was largely confined to one paragraph, wherein GAO stated:

A bid that fails to include a price for every item required by the IFB generally must be rejected as nonresponsive. HH & K Builders . This includes a bidder's failure to provide a responsive bid for optional contract line items, which thus renders the entire bid nonresponsive. Massillon Constr. & Supply, Inc.. This rule reflects the legal principle that a bidder who has failed to submit a price for an item generally cannot be said to be obligated to furnish that item. United Food Servs.. Therefore, where a page in a bidder's schedule does not clearly indicate that the prices apply to an option that the IFB requires to be priced, the bid is ambiguous and thus, nonresponsive. Thompson Metal Fab, Inc.

GAO cited a fifth case, Pro Alarm Co., via footnote for the principle that a bidder’s failure to “acknowledge an amendment may be waived where the amendment results in less stringent obligations on the bidder ... .” In sustaining the protest, GAO recommended that the CoE “reject RUSH’s bid as nonresponsive... .”

The Court of Federal Claims explained: “[a]n inquiry into the rationality of the GAO decision is the same as an inquiry into whether the agency had a rational basis for its decision.” The court then conducted a thorough analysis of each of the cases GAO cited, observing that the cases “fall into one of three lines of analysis—that is, either omitted price cases, unacknowledged solicitation amendment cases, or ambiguous bid cases.” Ultimately, the court concluded that GAO failed with regard to all three of these “lines of analysis.”

The Court said, "GAO has relied on the legal principles set forth in three cases involving the omission of a price. But it has offered no explanation as to how these legal principles support the decision it reached in this case.”

Next, the court stated: “By analyzing the omission of a bid schedule note under Pro Alarm Company, GAO equates such an omission with an unacknowledged solicitation amendment. But GAO offers no explanation for why it made this comparison. There is no obvious parallel between the two fact scenarios, and GAO does not attempt to analogize the facts of Pro Alarm Company to those of RUSH.”

The court also rejected GAO’s case citation on the issue of ambiguity, writing: “GAO then cited to Thompson Metal Fab for the proposition that ‘where a bidder’s schedule does not clearly indicate that the prices apply to an option that the IFB requires to be priced, the bid is ambiguous and thus, nonresponsive.’ ... GAO appears to have concluded summarily that RUSH’s bid schedule was ambiguous, without examining its own case law that sets forth standards for evaluating bid ambiguity.”)
Because the court found that “GAO seems to have premised its decision on inapposite case law,” the court held that “GAO’s decision was not rational” and that the CoE’s corrective action implementing GAO’s recommendation necessarily was “arbitrary and capricious.” Thus, the court granted RUSH’s motion for judgment on the administrative record.

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