May Bid Protest Roundup (Law360 Spotlight)

Morrison & Foerster LLP - Government Contracts Insights

[co-author: Markus Speidel-Law Clerk]

This month’s Law360 spotlight examines three protest decisions addressing first article testing, proprietary information in unsolicited proposals, and timely submittal of proposals.

  • In SSI Technology[i], the U.S. Court of Federal Claims (COFC) found a sole source award for urgently needed parts appropriate where the disappointed offeror lacked a current first article test approval.
  • In M3[ii], the U.S. Government Accountability Office (GAO) found the information disclosed in an unsolicited proposal was not proprietary because it lacked innovation.
  • In Cla-Val Co.[iii], GAO found the government properly rejected a hand-delivered proposal as untimely, notwithstanding the protestor’s evidence of a receipt of delivery it received from the commercial carrier.

SSI Tech., Inc

SSI Technology addresses first article testing (FAT) requirements in the context of a sole source award for an urgently needed product. When the original equipment manufacturer (OEM) for the highly technical auxiliary power units (APUs) used to power M88A1/A2 Recovery Vehicles went out of business, the Defense Logistics Agency (DLA) issued a competitive firm fixed price contract to Essex Electro Engineering, Inc. (“Essex”) for suppling the APUs in August 2017. This contract required Essex to complete FAT by August 2018 — a deadline that the DLA inevitably extended to March 2019 after Essex encountered scheduling difficulties. However, notwithstanding this extension, Essex proved unable to complete FAT in a timely manner, thereby forcing the Army, which had officially taken over procurement authority, to terminate Essex’s contract for default in May 2019.

Predicting this outcome might occur, and acknowledging the dwindling supply of APUs, the Army began conducting market research into other potential suppliers in 2018 to determine whether any already had FAT approval and could therefore provide the APUs quickly. Part of this process involved the Army reaching out to Fischer Panda, which had received FAT approval for the APUs from BAE Systems in January 2018. While Fischer Panda could meet the Army’s demands, the Army decided it could not issue a sole source award to Fischer Panda until Essex proved it could not obtain FAT approval. Then, in April 2019, the Army issued a request for information (RFI) to determine whether there were any other sources with the ability to receive an approved FAT waiver and quickly deliver the APUs. After the Army determined that there were no other sources, the Army issued a sole source award to Fischer Panda on August 1, 2019 citing the Army’s urgent and compelling need for the APUs.

However, upon learning about the award to Fischer Panda, the protestor, SSI Technology (“SSI”) informed the Army that it had previously produced APUs, and therefore, could also meet the Army’s needs. Despite the awarded contract to Fischer Panda not containing a FAT requirement, the Army required that SSI submit a proposal and FAT waiver request to prove that it could also provide the APUs. SSI complied, however, the Army denied SSI’s waiver request and moved forward with its sole source award to Fischer Panda. Thereafter, SSI challenged the sole source award, first at the GAO and then at the COFC.

Analysis

SSI alleged that the Army’s sole source award to Fischer Panda circumvented the Competition in Contracting Act (CICA), which mandates “full and open competition” except where an exception exists such as, “an unusually and compelling urgency.”[iv] SSI alleged that the Army failed to properly invoke this exception for two reasons. First, SSI alleged that by not considering SSI for the award, the Army failed to solicit offers from as many sources as practicable. Second, SSI claimed that by requiring SSI to submit a FAT waiver but not requiring Fischer Panda to do the same, the Army allegedly failed to ensure the contractors received impartial, fair, and equitable treatment. The Court found neither argument persuasive.

To invoke the unusual and compelling urgency exception to full and open competition, an agency must supply a written justification and approval (“J&A”), and, inter alia, request offers from “as many potential sources as is practical under the circumstances.”[v] The Court found the Army took reasonable steps to ensure the participation of as many potential sources as practicable where the J&A detailed that the Army had conducted market research, published an RFI on the FedBizOpps website (FBO), and considered past suppliers. SSI had the opportunity to reply to the RFI, yet failed to do so.

SSI argued that the RFI only allowed seven days for potential offerors to submit responses, and alleged that the Army should have reached out to SSI individually, as it had done with Fischer Panda, since SSI had provided the government with APUs in the past. However, it had been ten years since SSI had contracted with the government to provide APUs, and since that time, the APU specifications have changed. Where a contractor has previously produced a product for the government, FAT is appropriate where (1) the processes or specifications have subsequently changed or (2) production was discontinued for an extended period.[vi] Therefore, the Court found that the Army was not “duty-bound” to solicit an offer from a vendor it reasonably concluded lacked the requisite capability to meet its needs.

Furthermore, the Court found that the Army acted reasonably in requiring SSI to obtain a FAT waiver when the sole source solicitation did not require FAT approval. This is because, unlike a competitive procurement, the sole source solicitation contemplated award solely to Fischer Panda, which the Army knew had current FAT approval for the APUs at issue. Fischer Panda was not required to obtain a waiver because the effect of a current FAT and a waiver were equivalent, namely neither required a new FAT. The Court deferred to the Army’s discretion in determining that Fischer Panda’s recent FAT approval was better suited to meet its urgent need for APUs than SSI’s outdated FAT and inexperience with the current APU specifications.

Takeaways

For contractors hoping to offer highly technical goods to the Government, FAT can present a significant hurdle. Contractors who have previously passed FAT should be aware that prior production does not necessitate current approval. Besides a lapse in production, prior FAT approval may be negated by changes in product specifications, and the contractor changing its production process, which can include moving the place of manufacture.

However, as this case points out, contractors can obtain FAT approval from a private party while performing as a subcontractor under a government contract. Keeping this in mind may help to increase opportunities for contractors to keep approvals current. In times of crisis and uncertainty such as the circumstances created by COVID-19, being able to rapidly obtain FAT approval may be essential to winning a contract. In some instances, including an agency’s unusual and compelling urgent need, holding a current FAT may be the distinguishing factor.

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M3 Partners, LLC

In M3 Partners, LLC, the GAO addressed issues of improper use of proprietary information contained in an unsolicited proposal. A decade ago, the Navy procured six UC-12W airplanes (modified commercial Beechcraft) to provide direct support for the warfighters; however, the Navy found difficulties in preventing the converted commercial aircraft engines from exceeding their operational limits. To address the issue, the Navy reconfigured the engine trend monitors (ETMs) and developed an aural tone warning system, which emitted an audible tone when the engine temperatures or torque approached the upper allowable limits.

When similar issues arose more recently with the Navy’s UC-35C aircraft (a modified Cessna), the Navy began to develop a statement of work (SOW) for an aural tone generator system to address aircraft over-speed issues. M3 Partners, LLC (“M3”), during the same period, first submitted a solution in an unsolicited proposal to the Navy in March 2018 suggesting that M3 could reconfigure the ETMs to alert pilots preemptively to engines approaching their upper limits. The Navy rejected the unsolicited proposal (and M3’s resubmitted proposal), resulting in a series of unsuccessful protests.

Analysis

M3, in a follow-on challenge, argued that the Navy misused the contents of its unsolicited proposal to develop a SOW thereby disclosing M3’s solution to the Navy’s Contractor Logistics Support (CLS) provider. The FAR expressly prohibits government personnel from using “any data, concept, idea, or other part of an unsolicited proposal as the basis, or part of the basis, for a solicitation or in negotiations with any other firm unless the offeror is notified of and agrees to the intended use.”[vii] M3 argued that the record showed that the Navy rescinded an earlier Rough Order of Magnitude (ROM) price estimate request and SOW for an audiovisual sensor system after it received M3’s proposed solution, and then later reissued a ROM/SOW to its CLS for an engine auditory alert system in 2019.

GAO reaffirmed its jurisdiction to hear allegations of improperly appropriated information from unsolicited proposals, but noted the protestor’s burden demonstrated a violation of its rights by clear and convincing evidence. Moreover, to prevail on a claim of violation of proprietary rights, the GAO affirmed that the protestor must show (1) that its material was marked proprietary or confidential or that it was disclosed to the government in confidence, and (2) that the material involved significant time and expense in preparation and contained material or concepts that could not be independently obtained from publicly available literature or common knowledge. However, obvious ideas or concepts, which are neither innovative nor unique, are not considered proprietary.

GAO found M3’s arguments failed to meet the exacting clear and convincing standard. First, GAO noted that M3 provided no specific examples of information from its unsolicited proposal that were incorporated into the revised SOW. Although the revised ROM/SOW stated the engine auditory alert system should replicate the UC-12W aural tone alert system, it did not specifically mention reconfiguring ETMs, which was a cornerstone of M3’s unsolicited proposal. Furthermore, although the Navy’s procurement strategy changed after receiving M3’s proposal, the Navy explained that it did not use M3’s data when developing the revised ROM/SOW and, therefore, GAO found that the record did not suggest that the Navy relied on M3’s proposal when deciding to change its strategy.

Second, and more devastatingly, GAO noted that M3’s solution was similar to the solution that the Navy had devised previously for the UC-12W and, therefore, was neither innovative nor unique. GAO explained that M3’s argument illogically suggests that the Navy rectified its earlier issues with the UC-12W airplanes by using a solution that M3 did not propose until several years later. Therefore, GAO found that M3 could not reasonably claim that the Navy misused its unsolicited proposal and it denied the protest.

Takeaways

A contractor who believes the government misused its intellectual property contained in an unsolicited proposal faces an uphill challenge. While the ability to submit unsolicited proposals provides an additional avenue for contractors to work with the government, the contractor should be sure that its proposal truly contains innovative and unique solutions before submitting its proposal. Furthermore, though not at issue in this case, contractors are reminded to clearly mark any information in their proposals that they do not wish disclosed as proprietary and confidential before submitting it to the Government. Secrets openly divulged are no longer secret.

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Cla-Val Co.

Cla-Val Co. is a classic reminder to contractors to triple check the solicitation’s directions for submitting proposals. In December 2019, the Navy issued a request for proposals (RFP), which instructed offerors that the deadline for receipt of proposals was 3:00 p.m. on January 6, 2020. The RFP explicitly stated that email delivery would not be accepted, and provided two different addresses for offerors to submit hard copies of their proposals. The first address (the “Broad Street address”) was to be used if an offeror submitted its proposal via hand delivery, while the second address (the “Langley Avenue address”) was to be used if an offeror submitted its proposal via mail.

Cla-Val Co.mpany (“Cla-Val”) arranged for its proposal to be delivered to the Langley Avenue address, instead of the Broad Street address, by Federal Express (“FedEx”). Cla-Val received a FedEx receipt confirming delivery at 9:39 a.m. on January 6, 2020. However, the facility at the Langley Avenue address is a central receiving location, and when that location receives FedEx or other commercial packages, the Navy signs for all packages in the delivery, then will individually log each delivery into the Navy’s central database in the order received. The facility at the Langley Avenue address did not log Cla-Val’s proposal as being in the central receiving facility until January 7, 2020. On January 22, 2020, the Navy informed Cla-Val that its proposal had been rejected because it was received after the submission deadline. Cla-Val subsequently protested this decision.

Analysis

Cla-Val argued that the Navy improperly rejected its proposal because its proposal was delivered to the Langley Street address before the deadline for receipt of proposals. Alternatively, Cla-Val argued that even if its proposal was delivered late, the Navy still improperly rejected the proposal because it was within the Navy’s control and the delay in delivering the proposal to the contract specialist was the fault of the Navy. GAO rejected both arguments.

GAO explained that it is an offeror’s responsibility to deliver its proposal to the proper place at the proper time. It also explained that both of Cla-Val’s arguments were dependent upon Cla-Val proving that the proposal was within the Navy’s control before the proposal deadline. The only evidence Cla-Val produced to show that the Navy received the proposal prior to the deadline was the receipt of delivery Cla-Val received from FedEx. Unfortunately, however, GAO consistently finds that commercial carrier records, standing alone, do not establish the time of delivery to the government agency since such receipts are not maintained or confirmed by the agency. Applying this precedent, GAO found that the FedEx receipt was insufficient to rebut the Navy’s documentation that it did not receive the proposal until January 7, 2020. Therefore, GAO found that the Navy properly rejected Cla-Val’s proposal as untimely and denied the protest.

Takeaways

Cla-Val Co. is a classic reminder to contractors to always triple check the solicitation’s directions for submitting proposals. Furthermore, if a solicitation requires contractors to submit hard copies of proposals, contractors should be mindful that GAO will not afford weight to a receipt of delivery that the contractor receives from a commercial carrier. Therefore, best practice is to submit proposals early to allow for any internal agency delivery delays.

[i] SSI Tech., Inc. v. United States, — Fed. Cl. —, 2020 WL 2464801 (2020)

[ii] M3 Partners, LLC, B-416685.6, May 4, 2020, 2020 WL 2126303

[iii] Cla-Val Co., B-418443, May 13, 2020, 2020 WL 2512042

[iv] 10 U.S.C. §§ 2304(a)(1)(A), 2304(c)(2).

[v] FAR 6.302-2(c).

[vi] FAR 9.303(b).

[vii] FAR 15.608.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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