A Federal Appellate Court Ruling Has Big Implications for Contractors with Commercial Technologies Hoping to Compete for Government Contracts

The Federal Acquisition Streamlining Act (FASA) requires that Federal agencies seriously consider whether existing commercial items will meet their acquisition requirements before seeking to develop new technologies. In a recent case, Palantir Technologies protested when the Army failed to consider commercial technologies for its second-generation Distributed Common Grounds System (DCGS-A) intelligence system. Read on to learn why the COFC’s ruling may set a precedent for more protests from commercial vendors.

The Basics of the Procurement

The Army’s DCGS-A intelligence system combines intelligence and weather information from various sources into a single product that Army components can access. The agency asked researchers at MITRE to perform the initial market survey that is required when going out for a new procurement. The results of the survey called for the procurement to take a “hybrid” approach that would combine commercial items, modify them for Army needs, and integrate them with customized systems. To that end, the Army sought information from industry in three RFIs.

Palantir responded to the RFIs by explaining their approach in creating their commercial software, which had already been sold to the USMC, ICE, and DIA. Palantir’s response also expressed concern that the Army’s RFIs seemed focused on a software development project for a completely new system. Nonetheless, the Army’s review concluded that there was no commercial item solution available, and the agency issued an RFP for a software development project.

 

The Bones of the Protest

Excluded from the procurement, Palantir first headed to GAO. The contractor complained that the Army had failed to meet the statutory requirement that the Government procure commercial items (including modified ones) “to the maximum practicable extent.” When GAO denied the protest, Palantir took its case to the Court of Federal Claims (COFC). Unlike GAO, the COFC sided with the protestor.

 

The Army Appeals

Disappointed with the COFC’s ruling, the Army appealed to the US Court of Appeals for the Federal Circuit. The agency argued that the Court had applied the wrong legal test, but the appellate court disagreed. The Court felt that although the COFC had used different words, the concepts were the same. Without a visible record, the Army had been “arbitrary and capricious” when it excluded commercial offerings from the procurement, and the Court instructed the Army to go back to the drawing board.

 

What It All Comes Down To

The lynchpin of the Court of Appeals’ ruling was that there had been ample evidence that Palantir’s system might have met the Army’s needs, perhaps with modifications, but that there was no evidence that the agency had truly considered it. It seemed that the Army had pre-judged how they wanted to conduct the procurement, and that ruled out a commercial item solution like that of Palantir. Without the ability to show exactly why they’d chosen not to pursue a commercial solution, the Army didn’t have much of a case.

It’s important to note that statute and regulations don’t require that an agency document its analysis for a determination based on market research that a commercial item won’t work. Nonetheless, it certainly comes in handy when such decisions are subject to evaluation and review in a bid protest. Even though the Army had the benefit of the doubt in the proceedings, the Court still needed an adequate record to review what the agency had done and make sure it was done with reason. In this case, the Army hadn’t put forth that effort. The Army’s decision also flew in the face of MITRE’s recommendation, as well as another internal study, that supported a hybrid approach. This also weakened the Army’s case.

 

 Implications for Commercial Technology Contractors

Although Palantir won in Court, the contractor doesn’t necessarily win the contract. The Army now has to make an honest effort to evaluate whether any existing commercial item (not just Palantir’s) will work. That mean’s there is still room for them to decide against a commercial item, so long as they can validate their choice in the record. So we’ll have to wait and see whether Palantir’s protest doubly pays off in earning them the contract.

That said, the ruling is a big deal. Having risen all the way up to the Court of Appeals for the Federal Circuit, the case how sets a binding precedent that COFC judges will have to follow. GAO (where most bid protests are filed) will likely take a harder look at such cases. And that means that agencies will have to sit up and take notice, making good faith efforts to determine whether or not commercial items or modified commercial items will meet their needs when doing acquisition planning and market research. Wise contracting officers will document their decisions.

Contractors, on the other hand, may be more likely the protest under similar circumstances. That said, this is probably only the case for contractors who can invest significant resources for something that might or might not get them a contract at the end of the day. After all, these are pre-award bid protests in which contractors are fighting for just a chance at the opportunity to compete. So contractors will have to determine whether they want to settle for being excluded from the game or protest and risk losing even if they do compete.

For more on this subject, listen to my interview on Federal News Radio’s “Federal Drive with Tom Temin.”

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