T O O U R F R I E N D S A N D C L I E N T S

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1 T O O U R F R I E N D S A N D C L I E N T S June 20, 2002 Agency Corrective Action In Bid Protests An agency s decision to take corrective action in response to a bid protest opens a Pandora s Box of issues and opportunities for all interested parties. Taking corrective action in this context refers to a situation in which an agency faced with a bid protest acknowledges that one or more aspects of the initial procurement may have been conducted improperly, and voluntarily notifies the interested parties that it will reopen the procurement process in an effort to correct any mistakes that may have been made. Recent decisions by the General Accounting Office (GAO) and the Court of Federal Claims illustrate that both the substance and the timing of corrective action are important issues that require careful consideration by the procuring agency and the parties involved in bid protest litigation. Agency Discretion and Corrective Action An agency s decision concerning whether or not to take corrective action rarely will satisfy all of the offerors in a particular procurement. Where the agency decides not to take corrective action in response to a bid protest, a disappointed offeror usually will proceed with its protest and challenge the agency s decision to maintain the status quo. On the other hand, where an agency responds to a protest by choosing to initiate corrective action, the agency may face objections from other offerors, most likely the original awardee, who will be understandably reluctant to revisit the process that resulted in the contract award. Two recent bid protest decisions, one from the GAO and one from the Court of Federal Claims, demonstrate the balance that agencies must strike in dealing with the inevitable clash of interests among the various offerors. In Alatech Healthcare, Inc., B , April 29, 2002, the GAO denied a protest filed by Alatech Healthcare, LLC, in which Alatech objected to the U.S. Agency for International Development s (AID s) proposed corrective action in connection with an earlier protest filed by Custom Services International, Inc. Custom Services had protested AID s initial decision to award the contract to Alatech, arguing that Alatech s proposal was technically unacceptable. In response to this protest, AID announced that it intended to take corrective action by relaxing certain of the RFP s technical requirements in order to better reflect the agency s actual needs. AID also indicated an intent to solicit revised technical and pricing proposals from Alatech and Custom Services. A Partnership Including Professional Corporations New York One New York Plaza New York, NY Washington, DC 1001 Pennsylvania Avenue, NW Washington, DC Los Angeles 350 South Grand Avenue Los Angeles, CA London 99 City Road London EC1Y 1AX United Kingdom Paris 7, rue Royale Paris France

2 Alatech objected to the portion of AID s proposed corrective action that called for resubmission of price proposals. Alatech argued that permitting Custom Services to submit a revised price proposal was prejudicial to Alatech and therefore improper. Alatech based its argument on the fact that certain aspects of its initial price proposal had been disclosed to Custom Services in a debriefing following AID s initial decision to award the contract to Alatech. Alatech maintained that AID s plan to obtain revised pricing in these circumstances created an impermissible auction, and asserted that AID could cure any deficiency in the original acquisition without obtaining revised pricing. The GAO rejected Alatech s arguments, noting that agencies have broad discretion in implementing corrective action where such action is necessary to ensure fair and impartial competition. The GAO held that because AID s relaxation of the RFP s technical requirements could have a material impact on an offeror s pricing, it was proper for AID to permit the offerors (Alatech and Custom Services) to submit revised price proposals along with their revised technical proposals. The GAO found that there was no prejudice to Alatech from AID s actions, because the new approach allowed both parties to submit offers based on accurate assumptions regarding the agency s actual requirements. The GAO also noted that seven months had passed since the original prices were submitted, and the AID was justified in seeking revised price proposals in order to ensure that prices reflected actual market conditions at the time of the impending contract award. Along with objecting to AID s plan to solicit revised price proposals, Alatech also complained of AID s failure to provide it with pricing information related to Custom Services initial price proposal. Alatech argued that that because portions of its pricing information had been disclosed in AID s initial post-award debriefing to Custom Services, AID was now required under FAR to disclose similar information concerning Custom Services initial price proposal in order to equalize competition. The GAO rejected Alatech s arguments. The GAO held that even if the earlier disclosure of Alatech s pricing information provided an advantage to Custom Services, AID was only required to equalize that advantage if the initial disclosure resulted from some form of improper action on the part of the agency. The GAO found that AID s earlier disclosure to Custom Services was not improper, because FAR (d)(2) contemplates that the successful offeror s pricing information will be provided to unsuccessful offerors during the course of a post award debriefing. The GAO also held that the provisions of FAR did not apply to the type of unit pricing proposed by an unsuccessful offeror such as Custom Services and sought by the initial awardee, in this case, Alatech. On the other hand, in MCII Generator & Electric, Inc. v. United States, No C (Fed. Cl. March 13, 2002), the United States Court of Federal Claims (COFC) held that the Army acted improperly in reopening a solicitation via an amended Request for Proposals (RFP) after having initially awarded a contract to MCII. The Army characterized its decision to reopen the solicitation as corrective action taken in response to an earlier GAO bid protest filed by one of MCII s competitors in the - 2 -

3 procurement. MCII reacted to the Army s decision by filing suit in the COFC. At the outset of its analysis, the COFC noted that while the Army was accorded significant deference with respect to its procurement decisions, the Army was nonetheless required to demonstrate a rational basis for its decision to reopen competition. Moreover, as the COFC stated, the decision to take corrective action must be rationally related to the defect that is identified. The administrative record in MCII revealed only two possible bases for the Army s decision to reopen competition, and the COFC held that neither provided an adequate justification for the Army s actions. The first potential justification reflected in the record related to purported flaws in the Army s initial past performance evaluation of MCII. The COFC noted that all parties to the litigation agreed that the initial past performance evaluation was flawed, and that MCII s proposal had to be reevaluated using the proper approach. After acknowledging this deficiency in the Army s initial evaluation, the COFC pointed out that reevaluation is not the same thing as resolicitation. The COFC went on to hold that there was no evidence in the record that established a connection between the flawed past performance evaluation and the Army s decision to reopen competition, rather than simply reevaluating MCII s proposal using a proper application of the solicitation s past performance evaluation criteria. After rejecting the past performance justification, the COFC went on to reject a second potential basis for reopening the competitition, i.e., the Army s desire to reevaluate the pricing of certain Packaging and Marketing (P/M) prices. The COFC pointed out that the Army had vigorously defended its P/M pricing evaluation methodology throughout the earlier GAO protest. The Army s new found concerns relating to the P/M pricing evaluation were not based on any concession that the earlier evaluation was flawed, but rather they were based on the assertion that a new evaluation approach could potentially result in an even better pricing arrangement from the Army s standpoint. The COFC rejected this argument, holding that a mere desire to take a good result and make it even better was a legally insufficient basis upon which to amend an RFP and reopen competition after making an initial award. The COFC also rejected the Army s reliance on Federal Acquisition Regulation (FAR) , which permits an agency to amend an RFP when either the government s requirements or the terms and conditions of the proposed contract undergo a material change. In addressing the Army s invocation of FAR , the COFC pointed out that The Government does not contend that the Administrative Record shows that the re-competition is founded on a changed requirement or changed condition. Achieving a better result in place of a good decision, especially a marginally better result, is not a changed need or changed condition. The COFC concluded its analysis by pointing out that in any event, the Army had failed to provide any evidence that its proposed new methodology for evaluating P/M pricing would result in a better procurement decision than the earlier decision to award to MCII. The decisions in Alatech and MCII provide examples of the balance that must be struck by courts and administrative forums in evaluating an agency s plan for corrective action in response to a protest following contract award. Alatech demonstrates that agencies have significant discretion in this regard, and agencies can tailor their - 3 -

4 corrective action in a manner that best suits the agency s acquisition needs. MCII, however, shows that this discretion is not unlimited, and demonstrates that any decision to reopen competition must be rationally related to a specific defect that arose in connection with the agency s initial contract award. Timing Of Corrective Action And Recovery Of Protest Costs While the nature of an agency s corrective action is usually of great significance to all parties involved in a bid protest, the timing of corrective action has also taken on greater importance, particularly with respect to the availability of attorneys fees for the protester who challenged the agency s award decision by filing the protest in the first place. The GAO s recent decision in Georgia Power Co., B , May 2, 2002, highlights the issues involved in such a request for attorney fees following agency corrective action. In Georgia Power, the GAO addressed a situation in which the procuring agency had taken corrective action in response to a protest relating to the Army s privatization of electrical distribution services at two Army facilities. The Army had chosen to delay its corrective action until after the protesters had filed comments in response to the agency report. Based upon the proposed corrective action, the GAO dismissed the protests as academic, but it retained jurisdiction to review the protesters claim for costs. The protesters based their claim on the argument that the Army had unduly delayed taking corrective action in the face of a clearly meritorious protest, thus forcing the protesters to expend unnecessary time and resources in responding to the agency report. The Army challenged the claim for costs, arguing that CICA limited the GAO s ability to recommend reimbursement of protest costs to those situations in which GAO made a finding that a solicitation, proposed award or award of a contract does not comply with a statute or regulation. The Army asserted that GAO had not made such a finding here because the protest was dismissed after the Army promised to take corrective action. The GAO disagreed with the Army s view, finding that the protest had been clearly meritorious from the start, and that the Army had unduly delayed its decision to take corrective action. The GAO agreed that its ability to recommend reimbursement of costs was contingent upon a finding that the agency had violated a solicitation or regulation, but pointed out that nothing in CICA precluded the GAO from making such a finding in response to a protester s claim for reimbursement of costs following an agency s voluntary decision to take corrective action. The GAO also rejected the Army s reliance on the U.S. Supreme Court s decision last year in Buckhannon Board & Care Home, Inc. v. West Virginia Dept. of Health & Human Resources, 532 U.S. 598 (2001). The Buckhannon decision had addressed the proper meaning of the term prevailing party under certain attorney fee-shifting statutes. The Buckhannon court held that in order to qualify as a prevailing party under these federal fee-shifting statutes, the party seeking to recover its fees had to demonstrate that its litigating position had resulted in a judicially sanctioned change in the legal relationship of the parties. In reaching this conclusion, Buckhannon rejected the so-called catalyst theory, in which lower federal courts had held that a claimant could demonstrate - 4 -

5 prevailing party status under federal fee-shifting statutes by showing that the lawsuit brought about a voluntary change in the defendant s conduct. Based on this holding in Buckhannon, the Army argued that since it took corrective action before GAO issued any decision in the protest, George Power was not a prevailing party and therefore was not entitled to its attorney fees under CICA. See Brickwood Contractors, Inc. v. United States, No (Fed. Cir. May 3, 2002) (applying Buckhannon decision to EAJA claim and holding that protester, in case where agency took corrective action, was not a prevailing party). In rejecting the Army s prevailing party argument, the GAO noted that the Supreme Court in Buckhannon addressed the meaning of the term prevailing party in federal fee-shifting statutes as a legal term of art. The GAO then pointed out that CICA authorizes reimbursement of costs incurred by an appropriate interested party, as opposed to a prevailing party. Based on these differences in the plain language of the relevant statutes, the GAO held that Buckhannon did not preclude reimbursement of costs in instances where an agency unduly delays taking corrective action in response to a bid protest filed pursuant to CICA at the GAO. Accordingly, the GAO recommended that the protester be awarded its attorneys fees in connection with the protest. Conclusion Agencies have significant discretion in determining whether or not to take corrective action in response to a bid protest, but that discretion is not unlimited. The substance of an agency s decision may be subject to challenge from either the protester or the original awardee, and the timing of the agency s decision may have a significant impact on the agency s obligation to reimburse a protester for its protest costs. Awareness of the constantly evolving caselaw in these areas should therefore be a top priority for both agency procurement officials and for government contractors who are actual or prospective participants in current and future federal procurements. Washington, DC James J. McCullough Deneen J. Melander Abram J. Pafford