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U.S. Agencies Given Wide Discretion to Award Contracts Based on Factors Other Than Price
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June 14, 2010
By David Beck
Weeks Marine, Inc., a large marine construction and dredging contractor, filed a pre-award bid protest challenging the Army Corps of Engineers’ decision to change the solicitation process for dredging and shore protection contracts in its South Atlantic Division from sealed, competitive bidding to a negotiated bidding system.
Previously, district offices within the division had awarded contracts on a project-by-project basis by competitive bidding. Under the new system, multiple contractors would be awarded indefinite duration indefinite quantity (IDIQ) multiple-award task order contracts (MATOC) on a division-wide basis in four categories of projects. The new system would use a negotiated, best value process rather than sealed bidding approach to initially select contractors. The selection criteria were technical merit, past performance, price (based on a sample proposal) and utilization of small business. The Corps would select several contractors for each category of work. Task orders would be issued for particular projects, and contractors chosen in the initial screening for that category of work would submit bids and compete for particular task orders. Those tasks orders would be awarded based on Low Price Technical Acceptable procedures in most cases, with Best Value Trade Off procedures being used for some task orders.
Weeks filed a pre-award protest and sought a permanent injunction barring the Corps from implementing the new procurement process. Weeks contended that using the MATOC solicitation process violated 10 USC §2304(a)(2), which requires use of sealed bidding whenever an agency awards a contract based solely on price and price-related factors, and that the government’s change in solicitation procedures lacked a rational basis.
The Corps asserted that the change in the procurement process would shorten the procurement cycle, reduce administrative costs, reduce the need for emergency procurements after natural disasters and promote national security.
The Court of Federal Claims agreed with Weeks. It determined that although the Corps claimed it would be evaluating non-price-related factors in making awards, the proposed evaluation factors did “not permit the determination of any meaningful distinctions among the offerors, nor [did] they allow for any different ways to make task orders awards.” Consequently, the Court of Federal Claims reasoned, despite the new evaluative criteria, the government actually would be making determinations based on price. Therefore, it held, negotiated bidding was improper under 10 USC §2304(a)(2). The court also reviewed the Corps’ claimed rationales for the new system and found them to be lacking in a factual basis or to be illogical. Accordingly, the court found there was no rational basis for the new procedures. The court permanently enjoined use of the new procurement procedure.
The Corps appealed to the U.S. Court of Appeals for the Federal Circuit, which reversed. Weeks Marine, Inc. v. United States, 575 F.3d 1352 (Fed. Cir. 2008).
On appeal, the Corps argued that, on its face, the new solicitation procedure did not violate 10 USC §2304(a) and was supported by a rational basis. It argued that the process considered non-price-related factors, including technical merit, past performance and small business concerns.
In determining the appropriate competitive procedure to use, §2304(a) requires that the U.S. agency solicit sealed bids if:
|  | Time permits the solicitation, submission and evaluation of sealed bids;
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| | The award will be made on the basis of price and other price-related factors;
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| | It is not necessary to conduct discussions with the responding sources about their bids; and
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| | There is a reasonable expectation of receiving more than one sealed bid.
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If these criteria are not satisfied, the statute requires that the agency request competitive proposals.
The court wrote that §2304(a)(1)(B) requires agencies to “use the competitive procedure or combination of competitive procedures that is best suited under the circumstances of the procurement.” The court noted that § 2304(a) provides that in conducting a procurement, an agency shall obtain full and open competition through the use of competitive procedures.
While acknowledging that the new approach represented a “significant departure” form current practice, the Federal Circuit found -- with little analysis -- that the government had complied with the requirements of §2304(a). The solicitation stated that the Corps would consider non-price related factors and that past performance was more important than price – and that was the end of the inquiry for the Federal Circuit.
The appeals court then reviewed “whether the government had established a rational basis for the structuring of the procurement.” The court stated that a “highly deferential” rational basis review is used for procurement decisions, pointing to its recent decision in CHE Consulting, Inc. v. United States, 552 F.3d 1351 (2008). Under that standard, the court wrote, “we sustain an agency action ‘evincing rational reasoning and consideration of relevant factors.’ ”
The court then addressed the seven reasons presented by the government for the new procurement scheme: 1) to obtain more qualified contractors by using factors other than price alone; 2) to reduce procurement time; 3) to reduce administrative costs; 4) to reduce the need for emergency procurements; 5) to allow for greater coordination among the districts in the South Atlantic Division; 6) to increase the use of small businesses; and 7) to improve national security needs through more timely completion of dredging activities near military bases.
The court noted that Weeks did not argue that the Corps objectives were not legitimate. Rather, it argued that the Corps had not produced empirical evidence demonstrating that the new procedure would achieve those objectives.
The court held that each of the reasons constituted a legitimate objective, supported by a clearly articulated rationale. The court explained that for a government procurement decision to be upheld, it is not necessary that the government provide empirical evidence showing the government’s need for the new scheme. Rather, the government need only supply a rational basis for its decisions. Thus, the government need only “demonstrate that it is working to avoid risks before they become historical fact and that it has supplied a reasoned chronicle of its risk assessment.” The court wrote that it was not allowed second guess the agency decision even if it would have proceeded in different as an original proposition.
Over a dissent, the Federal Circuit did affirm the Court of Federal Claims’ holding that Weeks had standing as an interested party to make the bid protest. Both courts found that Weeks had a direct economic interest that would be affected by the award based on a substantial chance of receiving contracts and was an actual or prospective bidder, particularly considering its capability to perform the contracts and prior significant work for the South Atlantic Division. Weeks had performed 18 dredging contracts in the division in the previous five years. The dissenting judge wrote that because Weeks had not yet suffered any harm from the new process, it had no standing. He wrote that Weeks had not shown that it would be awarded less work than before.
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