Government Contracts Monitor

Federal Circuit Overrules COFC's "Narrowly Targeted" Review Standard; Corrective Action Challenges Just Became a Lot Harder

November 7, 2018

As we have discussed, a significant percentage of bid protests end up in an agency taking some form of corrective action, either entirely voluntarily based upon the agency’s internal assessment, or as the result of external pressures – formal or informal – from the Government Accountability Office (GAO), the Department of Justice or a Court. A critical issue in such situations is the scope of the corrective action, and the extent to which the parties to the procurement, and particularly the original awardee, can challenge the same if the proposed corrective action appears to be going too far.

In an important new decision, the United States Court of Appeals for the Federal Circuit (the “Federal Circuit”) has overturned a line of decisions in which the U.S. Court of Federal Claims (COFC) had ruled that an agency’s proposed corrective action must be “narrowly targeted” or “tailored” to that which is necessary to remedy the identified procurement defects. The Federal Circuit ruled that the “narrowly targeted” standard violates and is contrary to the “highly deferential” “rational basis” standard under the Administrative Procedures Act (“APA”) that the Federal Circuit has consistently used to review agency corrective action.

As stated by the Federal Circuit, “corrective action only requires a rational basis for its implementation,” or, as otherwise stated, “whether the contracting agency provided a coherent and reasonable explanation of its exercise of discretion.” Applying this to the instant facts, the Federal Circuit, in finding the agency’s corrective action reasonable, stated that the agency “was not required to address every option, but rather to provide a reasonable corrective action and adequately explain its reasoning for doing so.” The Federal Circuit further stated that “[e]ven if we agreed … that the [agency] had other, better options available,” “we … refuse to ‘substitute [our] judgment’ for that of the [agency] by determining whether there was another, perhaps preferable solution.” In contrast, “[a]sking whether a selected remedy is as narrowly targeted as possible to any identified error in the bidding process requires more than a finding of rationality or reasonableness.”

The decision is Dell Federal Systems, L.P. v. United States, Fed. Cir. Nos. 2017-2516, 2017-2535 & 2017-2554 (“Dell”), publicly issued Oct. 5, 2018. The case involved an estimated $5 Billion procurement for multiple indefinite-delivery, indefinite-quantity (“IDIQ”) contracts for “commercial-off-the shelf” (COTS) computer hardware, such as desktop computers, tablet computers and printers, over a 10-year period. The procurement was conducted on a lowest-price technically acceptable (LPTA) basis. 58 proposals were received, of which three were rejected as non-responsive. The agency awarded nine contracts, including one to Dell, after finding the other 46 unacceptable on various grounds, without holding discussions.

Twenty-one unsuccessful offerors protested to GAO. The agency conducted an internal review in response to these protests, and determined to take corrective action. The corrective action consisted of reopening the procurement, holding discussions with all responsive offerors, inviting and evaluating revised proposals and making new award decisions. The GAO dismissed the protests based on the stated intended corrective action. In order to level the playing field (since the awardees’ prices had been disclosed in the debriefings and award notices), the agency decided to disclose all offerors’ pricing.

Several of the original awardees then protested to the COFC. While the protestors did not dispute that there had been procurement errors, they challenged the corrective action as being overbroad and not narrowly targeted to the errors found. The COFC agreed. The COFC found that the agency had rationally identified two procurement defects relating to (1) “ambiguities in the Equipment Submission Form,” and (2) the agency’s failure to hold discussions.” However, the COFC found that the agency’s corrective action “is not rationally related to any procurement defects,” and there was “a more narrowly targeted post-award solution that the [agency] entirely failed to consider” – namely, clarifications and reevaluation. (Emphasis added). The COFC therefore enjoined the agency’s proposed corrective action. Both the Government and various intervenors appealed, challenging the COFC’s “narrowly targeted” standard of review, as well as the COFC’s unreasonableness decision.

As stated above, the Federal Circuit reversed and reinstated the agency’s chosen corrective action. First, the Federal Circuit held that the COFC’s “narrowly targeted” standard violated the Federal Circuit’s precedent and APA standard of review. Second, the Federal Circuit held that the agency’s proposed corrective action was reasonable and logically related to the identified procurement defects. The Court further held that the agency’s pricing release was reasonable under the circumstances.

The bottom line is that the Federal Circuit’s ruling means that agencies will have much greater leeway in formulating corrective action, so long as (1) there is a reasonable nexus between the procurement errors identified, and the chosen corrective action, (2) the agency rationally explains and justifies its choices. Conversely, it will be much harder for adversely-impacted offerors to challenge corrective action. Certainly, the “narrowly targeted” standard is now out. However, that does not mean that all corrective action challenges are foreclosed. The Federal Circuit did not depart from its prior decisions authorizing and sustaining corrective action challenges in appropriate cases. Agencies will still need a legally sustainable basis for taking corrective action, and will not be able to act arbitrarily. However, the review standard in such cases will be the traditional, highly deferential, APA review standard, and protestors will have a correspondingly higher hill to climb and heavier burden of proof.

Attorneys

Hopewell Darneille