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Friday, October 31, 2014

To procure or not to procure: is that the question?

The U.S. Court of Federal Claims is a court of limited jurisdiction. It can hear some contract disputes, but not all contract disputes, for instance. If a case is brought to the court which is beyond its jurisdiction, however juicy the merits and what it may have to say about the merits, it cannot; it must dismiss the case.

Sometimes, though, the comments it makes in doing so are juicy in their own rights.

The case in this post is one of those, even though the juicy remarks may not be reported in this post.  I have presented it chopped, sliced and diced to my own ends, so do not rely on this rendition as an accurate reproduction of the case.  If you want to know what it really says, read the whole case at the link. 

And if you really want to understand the matter better, read the cases cited in this case. There have been many trying to resolve the simple question, "what is procurement?"  (And while at it, I added a word on "is procurement an inherently governmental action?" whilst reading one of the cases cited.)

In short (read the long version at the link), this is a protest about a decision of the government to use software it had developed and came to own, rather than go to the market to allow other software providers a crack at the work.

VFA, INC. v. USA, U.S. Court of Federal Claims No. 14-173C, (October 2014)
The DoD uses a particular software package in making decisions about sustainment, restoration, and modernization of its facilities. VFA owns and markets a similar software product. The Under Secretary of Defense for Acquisition, Technology, and Logistics issued a memorandum to standardize the use of the
program at all of DoD’s military installations.

VFA filed a bid protest in this Court, alleging that the DoD’s standardization decision excludes VFA and others from competing for contracts to provide facilities management software, in violation of the Competition in Contracting
Act, 10 U.S.C. § 2304 (“CICA”). Simply put, VFA contends that the DoD should be conducting competitive procurements for this software product. The Government argues that an internal standardization decision is not a “procurement” for purposes of the Court’s Tucker Act jurisdiction, and consequently VFA is not an interested party who may challenge such a decision.

In a federal agency as large as DoD, it became increasingly apparent that multiple and different facilities condition assessment tools across DoD installations generated inconsistent and incomparable data. A 2012 Senate Report noted that the DoD “does not have a set of standards or metrics that can be used to inform budget decisions and Congress on the minimal annual levels of funding required to recapitalize the physical plant at a rate that matches the design lives of facilities in the [DoD] inventory.” The report further noted, “[b]udget pressures and other priorities can result in funds appropriated for facility sustainment being used to fund other categories of base operating support. This leads to facilities that do not receive minimal levels of annual preventative maintenance, and are not modernized to current standards for safety, security, and technology.” The report concluded that, “[o]ver the long-term, underfunded maintenance on [DoD]’s facilities costs the Department more in eventual repairs and replacement.”

To address the concerns raised by the consultants and Congress, the DoD made a policy decision to standardize its facility condition assessments. As part of this policy, the DoD chose to standardize the software it developed and owns itself, which was widely used in almost all of its installations, and which had received recognition for cost savings.

The Court must determine whether a plaintiff has established subject matter jurisdiction before proceeding to review the merits of the complaint. The jurisdiction of this Court is limited and extends only as far as prescribed by statute. Where subject matter jurisdiction is challenged, the plaintiff must establish the Court’s jurisdiction by a
preponderance of the evidence. If the Court finds that it lacks subject matter jurisdiction, it must dismiss the claim.

Under the Tucker Act, this Court has “jurisdiction to render judgment on an action by an interested party objecting to . . . any alleged violation of statute or regulation in connection with a procurement or proposed procurement.” In this case, VFA has challenged the government’s actions under CICA and the FAR, but the key phrase for Tucker Act jurisdiction is that Plaintiff’s protest must be “in connection with a procurement or a proposed procurement.” Id. Since neither the Tucker Act nor CICA define the term “procurement,” the Federal Circuit has held that 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 and ending with contract completion and closeout.” See Distributed Solutions 539 F.3d at 1345-46.

While many courts have cited Distributed Solutions for the proposition that Tucker Act bid protest jurisdiction is broad, the holding remains limited by the facts of the case. Distributed Solutions involved an attempted circumvention of federal procurement law when the Government sought to acquire software for a joint program between the U.S. Agency for International Development (“USAID”) and the State Department. The Government delegated to a contractor the task of selecting private vendors to provide the software. The Government, along with the designated contractor, issued a Request for Information (“RFI”) which stated that the objective of the government’s effort was to “select and implement acquisition and assistance solutions that meet the unique functional requirements of both [USAID and the Department of State].” The RFI specifically stated that it was “for market research purposes only” and would “not result in a contract award.”

After reviewing the responses to the RFI, the Government told the vendors that it had “decided to pursue alternative courses of action.” But, the contractor then issued its own RFI, and used the responses to select the software vendors it wanted. The Government initiated a type of procurement competition without actually committing to award a contract to the best offeror, thereby circumventing applicable federal procurement laws. [NB. My take: The first RFI was used to develop the government's determination of need, an aspect of "procurement". Then, once that was done, the second RFI was used to narrow the field of competition to select the awardee.] Thus, the Federal Circuit concluded that a procurement existed and that a legally compliant competition was required.

The present case is much different in key respects. Here, the DoD never contemplated or initiated a procurement process. The Government did not issue an RFI, did not receive information from vendors, and did not plan to award any contract. From the DoD’s standpoint, it already possessed the SMS program it wanted to use, and there was no reason to acquire anything. VFA is requesting a competitive procurement in order to sell to the Government something it already possesses.

Plaintiff argues for the application of other standardization decisions where this Court has interpreted the breadth of § 1491 jurisdiction broadly. While these cases involved software standardization decisions by the Government, the Court finds that the similarities end there.

In Savantage, the Department of Homeland Security (“DHS”) conducted a solesource procurement for financial systems application software. DHS decided to standardize its software on the Oracle and SAP systems, signing a “Brand Name Justification” instead of conducting a competition. DHS then issued a solicitation for services to migrate to these systems. Plaintiff challenged the underlying standardization decision to use the software of Oracle and SAP, and this Court accepted jurisdiction of the protest. The Court found that DHS expanded its systems contracts with Oracle and
SAP without any competition for the new work. Specifically, the Court ruled that the “expansion of work fits squarely within the congressional definition of ‘procurement’ because it is an acquisition of additional property or services from Oracle and SAP.” The Court rightly held that acquiring new work from a private vendor is, by definition, a procurement action on the part of the Government.

Similarly, in Google, the Department of Interior “restricted competition exclusively to the Microsoft BPOS-Federal and the Microsoft Desktop and Service Software for messaging and collaboration solutions,” in effect standardizing on a single private vendor’s product instead of conducting a competition.

In all of these software standardization cases, the Government attempted to conduct asole-source procurement without any competition. The existence of a procurement triggered this Court’s jurisdiction.

VFA argues in the alternative that the Court should follow the reasoning of recent “insourcing” cases, positing that the DoD’s use of its own software to the exclusion of VFA and others constitutes “insourcing” and grants this Court jurisdiction. In all of the cited insourcing cases, the DoD was obligated to compare cost efficiency between civilian and contractor personnel under 10 U.S.C. § 129a (“The Secretary of Defense shall establish policies and procedures for determining the most appropriate and cost efficient mix of military, civilian, and contractor personnel to perform the mission of the Department of Defense.”).

Each of the cases involved a required cost comparison, and this fact alone distinguishes them from the present case. The fact that the DoD compared the cost of the private contractor to its own hiring of civilian personnel is a significant step in the procurement process, and one that was never taken in this case. Further, each of these cases required the hiring of civilian personnel, not just the use of existing personnel, and thus involved an acquisition process.

VFA has pointed to no regulation or guideline suggesting the DoD was under an obligation to compare the cost of the SMS to the software products offered in the commercial market. Because it was not so required, the Government did not solicit any commercial pricing proposals, did not issue an RFI, and did not conduct an internal review or comparison of products.

Allowing VFA to bring this case, where no procurement or cost comparison process was mandated or undertaken, would so broadly expand this Court’s jurisdiction as to eliminate any restrictions of the Tucker Act. Under VFA’s theory of
jurisdiction, every time the government chooses not to procure a good or service from a private contractor, and instead creates or develops something on its own, the providers of similar products and services would be able to challenge this decision, asking “why don’t you buy from us instead?” The Court is unwilling to open this “Pandora’s box.”
While reviewing the Distributed Solutions decision, I noted another twist on the question of what actions of a government are "inherently governmental" so as to not be delegatable to a non-government entity. Recall from the VFA decision the descriptions of facts in that case: "The Government delegated to a contractor the task of selecting private vendors to provide the software."

In Distributed Solutions, the Government sought
to dismiss the contractors' complaint for lack of jurisdiction, arguing that the protest was not viable, as the contractors were essentially protesting the award of subcontracts by a contractor with a federal agency, and not an award of a contract by an actual federal agency.

On appeal, the contractors contend that the trial court misinterpreted the basis for their complaint. Contrary to the focus of the trial court's analysis, the contractors are not contesting SRA's award of the subcontracts. Rather, they are contesting the government's decision to task SRA with awarding subcontracts for the purchase of software instead of procuring the software itself through a direct competitive process.

We agree, as the contractors' complaint confirms as much. For example, paragraph 8 of the complaint alleges that the government "improperly delegated an inherently governmental function." As another example, paragraph 52 of the complaint alleges that "[b]y initially soliciting information from prospective bidders, improperly inserting SRA into the procedure to do directly what the [government] could not do—select a vendor without being subject to the federal procurement laws—the [government has] attempted to circumvent the federal procurement laws and foreclose any attempt to challenge their actions."
Distributed Solutions is good authority not only for the broad, but limited, reach of the term "procurement", but also for the proposition that government contracting is an inherently governmental activity which cannot be hived off to the private sector.

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