Federal Circuit Affirms Initial Awardee’s Right to Challenge Corrective Action
June 17, 2013
Congratulations! Your company just won a significant, best value procurement, beating out the incumbent and others based primarily on low price. However, the disappointed incumbent has protested the award, creating a not uncommon good news/bad news scenario. The good news is that you believe the protest is either untimely or otherwise without merit. The bad news is that the agency has decided to cave and implement corrective action, canceling your company’s award and reopening the procurement. What do you do now? Do you have to go through the re-compete, which could be risky, and certainly costly, now that your low price has been exposed? Or can you challenge the proposed corrective action now, and potentially get the award reinstated?
The answer, as resoundingly established by the United States Court of Appeals for the Federal Circuit in Systems Application & Technologies, Inc. v. United States (“SA-Tech”), 691 F.3d 1374 (Fed. Cir. 2012), is that you can challenge the corrective action upon its announcement, and do not have to wait for the agency to implement the corrective action. In a definitive decision, the Federal Circuit rejected a wide range of jurisdictional arguments raised by the agency, and held that (1) the Court of Federal Claims (“COFC”) has jurisdiction over such a challenge under the Tucker Act, 28 U.S.C. § 1491(b)(1), (2) the initial awardee has standing to pursue such a challenge, and (3) the challenge is ripe once the agency definitively states its intent to pursue corrective action, and need not be deferred until the corrective action is implemented.
The underlying facts in SA-Tech were discussed in a prior article here addressing the COFC’s ruling sustaining SA-Tech’s protest at the trial court level. Systems Application & Technologies, Inc. v. United States, 100 Fed. Cl. 687 (2011). The critical fact was that the agency announced, in writing to the GAO, the agency’s intent to take corrective action terminating the protestor’s contract and re-opening the competition, premised on a pre-decisional e-mail by a GAO attorney, falling short of actual “outcome prediction,” stating it was likely the GAO would sustain the protest by the disappointed incumbent. The COFC rejected the agency’s various jurisdictional challenges to SA-Tech’s COFC bid protest, and determined that both (1) the GAO attorney’s “advice,” and (2) any independent agency assessment of the protest merits, were arbitrary, capricious and without any rational basis. The COFC directed the agency to reinstate and implement the contract award to SA-Tech.
Interestingly, the agency did not challenge the trial court’s rulings on the merits, and limited the appeal challenges to the jurisdictional issues – namely, (1) jurisdiction, (2) standing, and (3) ripeness. The Federal Circuit definitively rejected the agency’s appeal on all issues, in a sweeping victory for bid protestors that hopefully will finally put these issues to rest for future similar cases.
First addressing jurisdiction, the Court noted the COFC’s “broad grant of jurisdiction” under Section 1491(b)(1), and stated that “[p]rocurement 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 close-out.” SA-Tech, 691 F.3d at 1381 (emphasis in original). The Court pointed out that SA-Tech’s Complaint explicitly objected to the agency’s announced decision to amend or revise the solicitation, and thus was squarely within the Tucker Act’s scope. The Court stated that neither the fact that the agency had not yet implemented the corrective action, nor that SA-Tech was the awardee, was material to the question of jurisdiction, and that “bid protest jurisdiction arises when an agency decides to take corrective action even when such action is not fully implemented,” Id. The Court also rejected the agency’s argument that SA-Tech’s attempt to enjoin the termination of its contract transformed SA-Tech’s “proper protest under the Tucker Act into a claim which could only be adjudicated under the Contract Disputes Act and its concomitant procedural requirements,” stating that “A request for injunctive relief regarding the government’s termination of a contract concerns the scope of the Court of Federal Claim’s equitable powers; it is not an issue of Tucker Act jurisdiction.” Id. at 1381-82.
As to standing, the Court noted that SA-Tech had demonstrated at least a non-trivial competitive injury in that (i) the agency’s decision to re-open the procurement would arbitrarily require SA-Tech to win the same award twice, and (ii) re-opening would be particularly unfair here since SA-Tech’s price had been revealed in a situation where price had been the crucial factor in the original award decision.
Finally, the Court rejected the Government’s ripeness argument, concluding that (i) the decision to take corrective action was a final decision that had been formally communicated to the GAO and the parties, and had resulted in dismissal of the GAO decision, and (ii) SA-Tech had the requisite hardship due to the harms SA-Tech would incur in a recompetition. Moreover, the Court noted that even having to pursue a remedy under the Contract Disputes Act, were the contract to be terminated, would be a hardship under the ripeness analysis. In this latter regard, the Court noted that the standard for ripeness requires “a lesser showing of hardship” than the irreparable injury required to obtain injunctive relief.
The Federal Circuit’s definitive jurisdictional, standing and ripeness holdings confirm that agencies cannot arbitrarily take corrective action and set-aside awards merely to appease a protestor or avoid a protest. Rather, agencies must have a legally sustainable basis for taking corrective action. Moreover, the SA-Tech decision confirms that the original awardee has standing and the ability to challenge proposed corrective action believed to be wrong, immediately upon the announcement of the corrective action, and does not have to go through the expense and risks, or await the outcome, of the announced proposed corrective action process.
This is particularly important in today’s current procurement environment, where agencies seem increasingly ready and willing to take corrective action to avoid having to contest a protest, and to avoid the attorney’s fees that might be assessed were the protest to be lost. Obviously, there are many cases where corrective action might well be warranted. However, in other cases, it is now unequivocally clear that the initial awardee does have an alternative and can get judicial review as to whether the corrective action really is necessary and justified.
Hopewell Darneille is the attorney responsible for the content of this article.