Legal Precedent Reduces Federal Procurement Accountability

BREMERTON, Wash., April 12, 2012 — Digitalis Education Solutions, Inc. challenged the government in a recent precedent-setting federal bid protest lawsuit (Digitalis Education Solutions, Inc. vs. US). Unfortunately the new precedent is a blow to insuring competitive bidding and makes it much harder to hold federal agencies accountable for improper procurement practices.

In late September, 2010 the US Department of Defense Education Activity (DoDEA) signed a $2.3 million sole-source (non-competitive) contract with a minor competitor of Digitalis in the digital planetarium market. The DoDEA runs the schools on US military bases worldwide.

In federal government procurement, sole-source contracts are supposed to be reserved for rare cases, such as emergencies or situations where no competing products exist. An agency is supposed to first do market research and to certify only one product meets their requirements. The agency must then post a public notice so that potential competitors can express interest. If the agency finds credible alternatives, it should open the contract to competitive bidding, to best serve the agency and taxpayers.

In this case evidence indicated that the DoDEA inappropriately used a sole-source procurement simply to spend budgeted funds before the fiscal year end a few days later. Agency procurement staff, who were already aware there were competitors in this industry, posted notice on a Friday afternoon with responses due by the following Tuesday.

The digital planetarium market is quite competitive, with several US manufacturers and others overseas. During the short notice period another US competitor found the notice and expressed interest. Rather than changing to a competitive award, the agency consulted its chosen contractor to help create new requirements that seemed to rule out any other supplier. The requirements were changed significantly the same day responses were due. The other company gave up.

Digitalis is in a known competitive market; so its staff were searching for competitive notices. Digitalis did not find the sole source notice during the short notice period. When the notice was discovered in early October, Digitalis immediately protested the large contract, which amounted to approximately five percent of digital planetaria in existence at the time.

The DoDEA refused to consider Digitalis' protest (taking over a month to respond), so Digitalis had only one option, to sue the agency in the Federal Court of Claims. This was a huge step for the small company, but stakes were high and there appeared to be ample evidence of inappropriate bidding procedures.

Unfortunately, Judge Eric Bruggink ruled that Digitalis did not have standing to challenge the bid because Digitalis did not do so within the very brief notice period. The ruling seemed unjust to Digitalis because of the brevity of the period and the known competitors for what should have been a competitive process. Digitalis would have submitted a competitive bid had one been posted.

Digitalis appealed to the US Court of Appeals for the Federal Circuit. The specific issue of whether the test for standing and sole source procurements should be the same as the test for standing in competitive bidding had not previously been clearly defined. Unfortunately, the three judge panel ruled that the tests should be the same in both settings, limiting the challenge to those who were directly affected as interested parties, and requiring that an expression of interest be made within the notice period.

Under this new precedent, a “contractor” may not protest a sole source procurement unless the contractor has already expressed interest to the agency about that specific procurement during the public notice period. Otherwise the contractor is not an “interested party” who can bring a protest suit. This is despite the seemingly clear definition of an interested party as “an actual or prospective bidder or offerer whose direct economic interest would be affected by the award of the contract or by failure to award the contract.” [28 U.S.C. Section 1491(b)(1)]

The issue remains open whether a notice period might be too short to be reasonable. The court offered no guidance on a reasonable notice period, except that three business days (with significant changes on the final day) were sufficient in this case. Using these criteria the court found that Digitalis still did not have standing to bring the DoDEA to court.

Unfortunately this precedent is a stiff affront to the goals of good government procurement. While it is understandable that the court wanted to make a clear precedent that was easy to apply, it puts the onus on potential contractors to police federal agencies. If potential contractors are not constantly monitoring federal agency notices for any type of procurement, the agency can easily slip through an inappropriate sole source procurement and not be held accountable.

This is especially true in small specialized markets like the planetarium market, where the federal government had previously purchased only a few digital systems. Because the court found this very short notice period acceptable, all contractors now must be on constant vigil for similar situations.

The beauty of a simple standing test appears to have been allowed to trample actual justice. It is hard to imagine how contacting the agency during the notice period would have helped, since the agency knew Digitalis existed and another competitor contacted the agency during the notice period, but to no avail.

In this instance, government documents establish that DoDEA was aware of Digitalis specifically because of its research for a previous sole source contract that should have been competitively bid. Despite that, they proceeded with a sole source bid a second time. Unfortunately the federal courts have decided that Digitalis has no right to adjudication. “It's hard to see how justice was served here, not to mention the taxpayer,” summed up Robert Spearman, President of Digitalis.

The decision is available at: