Is There No Balm in Gilead? The Federal Circuit’s Decision in Dell Federal Systems L.P. v. United States Reinforces Contractors’ Dwindling Options to Effectively Challenge Agency Corrective Action

Michael J. Slattery

Any company that has participated in a federal procurement, and has been involved in subsequent bid protest litigation, is likely familiar with the procuring agency’s ability to take “corrective action.” In a nutshell, “corrective action” refers to a procuring agency’s recognition that it may have committed an error during a procurement, and the agency’s determination that it will take steps to correct this error. Procuring agencies take corrective action in a number of different circumstances.

Perhaps most commonly, procuring agencies take corrective action after the U.S. Government Accountability Office (“GAO”) sustains a protest and recommends that the agency remedy the flaws that GAO has identified in the procurement. Agencies also take corrective action in the context of “outcome prediction” Alternative Dispute Resolution (“ADR”). Pursuant to 4 C.F.R. § 21.10(e), GAO, on its own initiative or upon a request filed by the parties, may use flexible alternative procedures to promptly and fairly resolve a protest, including ADR. Often, when GAO informs a procuring Agency during an ADR conference that GAO is likely to sustain a protest, the procuring Agency will announce that it will take corrective action in order to remedy the procurement errors identified by GAO. See, e.g., Deloitte Consulting, LLC, B-412125.6, Nov. 28, 2016, 2016 U.S. Comp. Gen. LEXIS 348 at *1, *5 (wherein agency took corrective action after GAO sustained a protest).

Finally, agencies take corrective action upon their own initiative, when they recognize procurement errors in the midst of bid protest litigation. See, e.g., American Commercial Group, Inc., B-410157.4, May 16, 2017, 2017 U.S. Comp. Gen. LEXIS 153 at *1, *3 (wherein agency took voluntary corrective action after bid protests were filed and prior to the filing deadline of the Agency Report). Agency corrective action can be a cost-effective means by which the Government quickly remedies procurement defects which obviates the need for further bid protest litigation. However, protesters—not without reason—frequently view corrective action as an opportunity for gamesmanship, through which an agency can reassert control over a flawed procurement, in order to avoid what the agency views as an undesirable outcome to protest litigation. For example, an agency can take corrective action in order to avoid a final GAO decision which finds the agency’s prior, preferred awardee to be ineligible for award. By taking corrective action which permits all offerors, including the prior awardee, to submit revised proposals, the agency can permit its prior awardee to rehabilitate its noncompliant proposal, and remain in contention for award. This type of corrective action deprives the offeror that is next in line for award from automatically obtaining the contract award, and is frequently seen as an unfair means by which agencies attempt to outmaneuver protesters, and swing a contract award to the agency’s favored offeror, despite the procurement flaws that should have precluded such an outcome. See, e.g., Systems Plus, Inc. B-413703.8, May 10, 2017, 2017 U.S. Comp. Gen. LEXIS 123 at *1, *9 (alleging that corrective action improperly favored prior awardee); Goldbelt Specialty Services, Inc., B-409713.2, Oct. 15, 2014, 2014 U.S. Comp. Gen. LEXIS 300 at *1, (wherein protester “argues that the proposed corrective action will change the evaluation ground rules and favor” the prior awardee “over other offerors”); AXIS Management Group, LLC, B-408575.2, May 09, 2014, 2014 U.S. Comp. Gen. LEXIS at *1 (alleging that corrective action prejudicially favors the awardee); L&G Technology Services, Inc., B-408080.2, Nov. 6, 2013, 2013 U.S. Comp. Gen. LEXIS 297 at *1, *8–*9 (wherein protester alleges that corrective action unfairly favored the awardee by permitting it to clarify its intent and demonstrate compliance with solicitation when the agency should have found awardee ineligible for award).

Offerors who believe that an agency’s corrective action produces an improper or unfair result can challenge such corrective action at the GAO, as well as the U.S. Court of Federal Claims (“COFC”), so long as the COFC possesses jurisdiction. See, e.g., 41 U.S.C. § 4106(f)(2) (stating that GAO—and not the COFC—has exclusive jurisdiction of a protest of a task or delivery order valued in excess of $10,000,000). Until September 24, 2018, offerors who sought to challenge agency corrective action possessed a better chance of successfully doing so at the COFC rather than at GAO.

The State of the Law Prior to September 24, 2018

Protesters seeking to challenge corrective action at GAO face an uphill fight due to the deferential standard that GAO applies when reviewing agency corrective action. GAO has long held that “[c]ontracting officers . . . have broad discretion to take corrective action where the agency determines that such action is necessary to ensure a fair and impartial competition.” Honeywell Tech. Solutions, Inc., B-400771.6, Nov. 23, 2009, 2009 CPD ¶ 240 at 4. In addition to enjoying broad discretion regarding whether, and when, to take corrective action, GAO has adopted the position that “the details of a corrective action are within the sound discretion and judgment of the contracting agency.” Northrop Grumman Tech. Servs., Inc., B-404636.11, June 15, 2011, 2011 CPD ¶ 121 at 3. Under governing GAO case law, agencies have discretion to decide the scope of corrective action, including whether discussions will be held, the breadth of such discussions, which offerors shall be included in the corrective action, and the scope of permitted revisions to proposals. Deloitte Consulting, LLP, B-412125.6, Nov. 28, 2016, 2016 U.S. Comp. Gen. LEXIS 348 at *1, *11 (citing Computer Assocs. Int’l., B-292077.2, Sept. 4, 2003, 2003 CPD ¶ 157 at 5 (“An agency’s discretion when taking corrective action extends to the scope of proposal revisions”)); Jacobs Tech., Inc., B-416314; B-416314.2, July 31, 2018, 2018 U.S. Comp. Gen. LEXIS 243 at *1, *9 (citing Hughes Network Sys., LLC, B-409666.3, B-409666.4, Aug. 11, 2014, 2014 CPD ¶ 237 at 3 (“Where an agency has reasonable concerns that there were errors in the procurement, corrective action may appropriately include reopening discussions and requesting revised proposals before reevaluating”)). Indeed, GAO will not disturb an agency’s proposed corrective action so long as the corrective action is deemed reasonable—that is, so long as the corrective action is “appropriate to remedy the flaw which the agency believes exists in its procurement process.” Onésimus Def., LLC, B-41123.3, B-41123.4, July 24, 2015, 2015 CPD ¶ 224 at 5.

Until recently, the COFC afforded agencies much less discretion regarding the propriety and scope of corrective action. The COFC adopted the position that, in cases involving corrective action, the agency’s corrective action had to be narrowly targeted to remedy a particular procurement defect. See Dell Fed. Sys., L.P. v. United States, 133 Fed. Cl. 92, 101, 104 (2017). Specifically, the COFC held that the evidence in the record must show that the agency: (1) identified a defect in the procurement; and (2) considered the ways in which its corrective action would remedy the defect. See id. (emphasis added). Even where an agency rationally identified defects in its procurement, the COFC required that the agency’s corrective action narrowly target the defects it is intended to remedy. Id. at 104 (citing Amazon Web Servs., Inc. v. United States, 113 Fed. Cl. 102, 115 (2013)). Under this COFC authority, an agency cannot use relatively minor defects to justify the full-scale opening of discussions and allowing revisions to quotations that do not relate to the defects. Id.

The COFC’s decision in Dell provided contractors with a greater opportunity to successfully challenge agency corrective action as overbroad, than was possible at GAO. For example, if an agency discovered that it improperly overlooked a deficiency in the awardee’s proposal, and the agency decided to take corrective action that permitted all offerors, including the prior awardee, to submit wholly revised proposals, the COFC case law would allow the offeror who is next in line for award to challenge this agency action as overbroad and not narrowly targeted to fix the procurement defect. The contractor could argue that proper, narrowly targeted, corrective action would consist of disqualifying the deficient awardee and making award to the contractor next in line for award. However, the U.S. Court of Appeals for the Federal Circuit recently reversed the COFC’s decision in Dell. See Dell Federal Systems, L.P v. United States, Nos. 2017-2516, 2017-2535, 2017-2554, Sept. 24, 2018 2018 U.S. App. LEXIS 28240 at *1 (Fed. Cir. 2018). The Federal Circuit decision rescinds contractors’ ability to challenge corrective action on grounds that the corrective action is not narrowly targeted to remedy a particular procurement defect.

The Change Wrought by the Federal Circuit

In Dell Federal Systems L.P v. United States, Nos. 2017-2516, 2017-2535, 2017-2554, Sept. 24, 2018 2018 U.S. App. LEXIS 28240 at *1 (Fed. Cir. 2018), the Army issued Solicitation No. W52P1J-15-R-0122 to procure “commercial-off-the-shelf” computer hardware such as desktop computers, tablet computers, and printers via indefinite-quantity contracts. Id. at *3. The total estimated value of the contract was $5 billion over a ten-year period. The Army received fifty-eight proposals, but determined that only nine proposals qualified as “Acceptable” for the Technical Approach and Past Performance evaluation factors. The Army reserved the right “to conduct discussions and to permit [o]fferors to revise proposals if determined necessary by the [CO].” The Solicitation further explained that “[i]f discussions are opened, all proposals, to include small business proposals previously removed for unacceptability[,] . . . will be included.” Id. at *6. The Source Selection Evaluation Board later said it did “not have a meaningful reason to open discussions” with offerors because doing so “would significantly delay award.” Id. The Army subsequently made nine contract awards to the “Acceptable” offerors. Id.

Twenty-one offerors filed protests at GAO, arguing, among other things, that the proposal deficiencies the Army considered disqualifying were minor or “clerical errors and misunderstandings” resulting from Solicitation ambiguities that could have been resolved through clarifications as defined in FAR 15.306(a)(2). Id. at *7. In response to the GAO protest, the Army conducted an internal review, and issued its Notice of Corrective Action, informing GAO that it had decided “that it would be in the Army’s best interest to take corrective action to resolve all the protests.” Id. at *8 (emphasis added). The Army stated that such corrective action would “consist of the following: (1) opening discussions with all of the remaining offerors, including those who filed protests, (2) requesting final revised proposals, and (3) issuing a new award decision.” Id.

As a result of the Army’s proposed corrective action, the GAO dismissed the unsuccessful offerors’ protests as moot. Id. at *10. Two of the nine initial awardees sued the Government at the COFC, seeking to enjoin the Army’s corrective action, and five other initial awardees joined as intervenors. Id. at *10-*11. The Appellees sought a permanent injunction, arguing that the corrective action was unlawful, and the proposed corrective action to reopen the competition was not reasonable under the circumstances. Id. at *11.

The COFC granted the Appellees’ request for declaratory relief and a permanent injunction of the Army’s corrective action. Id. While the COFC agreed that the Army had rationally identified procurement defects, the Court held that the Army’s corrective action was not rationally related to the procurement defects, and was overbroad. Id. at *11-*12. The Court of Federal Claims thus enjoined the corrective action because it felt there was “a more narrowly targeted post-award solution that the Army entirely failed to consider: clarifications and reevaluation.” Id. at *15.

The Government as well as several initially unsuccessful offerors appealed the COFC’s decision to the U.S. Court of Appeals for the Federal Circuit. After holding oral arguments, the Court reversed the COFC’s decision in its entirety.

The Federal Circuit held that the COFC applied an incorrect legal standard in determining that the Army’s corrective action was overbroad. Id. at *15. Specifically, the Federal Circuit held that the COFC erroneously examined whether the Army’s corrective action was “narrowly targeted” to remedy a procurement defect. Id. at *15. The Federal Circuit held that this constituted a heightened standard that neither it, nor the Supreme Court, had ever adopted. Id. at *16. The standard of review that the Federal Circuit applies to corrective action is the highly deferential, “rational basis” standard of the Administrative Procedure Act, 5 U.S.C. § 706. Id. Citing its own precedent, the Federal Circuit held that pursuant to the “rational basis” standard, a court reviewing agency corrective action examines only whether the proposed corrective action is reasonable. Id. at *16–*17 (citing Croman, 724 F.3d at 1363, 367 (affirming the Court of Federal Claims’ grant of summary judgment in favor of the Government where the agency’s corrective action “decisions were rationally based and not contrary to law”); id. at *17 (citing Raytheon Co. v. United States, 809 F.3d 590, 595 (Fed. Cir. 2015) (explaining that, “for us to uphold the [agency’s] decision to reopen the bidding process, it is sufficient . . . that the grounds relied on by the [agency] . . . rationally justified the reopening under governing law” (emphasis added))); id. (citing Chapman Law Firm Co. v. Greenleaf Constr. Co., 490 F.3d 934, 938 (Fed. Cir. 2007) (affirming Court of Federal Claims’ inquiry, which considered the “reasonableness of the Government’s . . . proposed corrective action”)); id. (citing Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345, 1351 (Fed. Cir. 2004) (holding that the rational basis test asks “whether the contracting agency provided a coherent and reasonable explanation of its exercise of discretion”)). Accordingly, the Federal Circuit held that “[a]sking whether a selected remedy is as narrowly targeted as possible to an identified error in the bidding process requires more than a finding of rationality or reasonableness; therefore, the Court of Federal Claims improperly applied an overly stringent test for corrective action.” Id. at *18.

Applying this legal standard to the facts at hand, the Federal Circuit found that “[t]he Army’s proposed corrective action to reopen procurement and allow proposals to be revised” was “rationally related to the procurement’s defects, i.e., failure to conduct discussions and spreadsheet ambiguities.” Id. at *23. The Federal Circuit reversed the COFC’s grant of an injunction, and held that the Agency was free to proceed with its proposed corrective action. Id. at *35.

Impact of Dell on Future Challenging

The Federal Circuit’s holding in Dell deprives contractors of the ability to challenge corrective action at the COFC on grounds that the corrective action is not narrowly targeted to remedy a procurement defect and is therefore overbroad. Dell unifies the law at GAO and the COFC, requiring only that agency corrective action be “reasonable.” Given the highly deferential nature of this standard, contractors who feel that a procuring agency has unfairly taken corrective action as a means of avoiding what the agency considers an undesirable outcome to a protest (such as the disqualification of the agency’s original awardee), have lost a powerful tool by which to forestall such maneuvering. After Dell, contractors aggrieved by corrective action will find less balm in Gilead.