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Hardware and Software Can Be Bundled in Bid Package When Sound Reason Is Shown, U.S. Court Holds
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January 12, 2009
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By W. Samuel Niece
Howrey LLP
The U.S. Court of Appeals for the Federal Circuit has affirmed a decision upholding an agency’s bid package that bundled (or merged) both hardware and software maintenance for a government computing system into a single procurement. CHE Consulting, Inc. v. United States, No. 2007-5172 (Fed.Cir. December 30, 2008). Click here to view the opinion.
The Naval Oceanographic Office (NAVO) operates a computing center that acquires and analyzes worldwide oceanic and shoreline data. The computing center includes a data storage tape library and a retrieval system that automatically retrieves the tape containing requested data, mounts the tape to a drive, reads the data, dismounts the tape from the drive and returns the tape to its storage slot.
The tape retrieval system was developed and manufactured by Storage Technology Corporation (StorageTek), and the software for the system is the intellectual property of StorageTek. Thus, only StorageTek (or its licensees) can perform maintenance on the software, but there is no intellectual property bar to other firms performing maintenance on the hardware.
On behalf of NAVO, the General Services Administration bundled the requirements for maintenance of the hardware and of the software into one Request for Proposals. CHE Consulting, Inc. protested (at both the agency level and at the U.S. Court of Federal Claims) that the bundling constituted a violation of the Competition in Contracting Act (CICA), 10 USC §2304 (a)(1)(A), and that the hardware and software maintenance should be split so that CHE could compete for the hardware maintenance work.
NAVO argued that it did not want to get involve in resolving finger-pointing disputes between separate hardware and software maintenance contractors and, for that reason, required a single-provider maintenance contract. GSA and the Court of Federal Claims denied CHE’s protests, and CHE appealed to the Federal Circuit.
The Federal Circuit looked to the General Accounting Office’s decision in In re National Customer Engineering, No. B-251135, 1993 WL 86835 (Comp.Gen. March 11, 1993). There, GAO found the Interior Department’s concerns about finger-pointing to be outweighed by its duty under CICA to maximize competition and thus sustained a protest against combining hardware and software maintenance in to a single contract. However, the Federal Circuit distinguished the cases:
In reaching that decision, however, GAO foresaw situations similar to this case:
“We recognize that in certain circumstances our Office has upheld the legitimacy of bundling where the agency cited the need to obtain the benefit of dealing with only one contractor accountable for all repairs and maintenance, thus relieving the government of the need to analyze the source of equipment problems to identify the correct contractor to service the equipment. In those cases, however, the agency rationale was based on the paramount need for the availability of the system in emergency situations. Where time is critical, the agency’s requirement may render unacceptable any lapse of service, however brief, caused by the need to coordinate between contractors.”
Accordingly, the Federal Circuit affirmed the Court of Federal Claims’ decision denying the protest:
This court detects nothing irrational in a contracting officer’s decision to maintain one point of contact, rather than two, for the maintenance of a complex system whose downtime would jeopardize national security interests. NAVO articulated a sound reason for its procurement decision, and this court sees no basis to disturb it.
Thus, at least in defense procurements, the Federal Circuit has indicated a willingness to defer to an agency decision to bundle requirements in order to minimize downtime.
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For more information about the issues covered in this report, please contact W. Samuel Niece in our San Francisco office at 415-848-4979 or at nieces@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2009 Howrey LLP
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