The Future of Protest Jurisdiction Involving Other Transaction Agreements: Does the Hydraulics Int’l Decision Represent a Sea Change at the US COFC?

In a recent decision, Hydraulics Int’l, Inc. v. United States, the Court of Federal Claims (“COFC” or “Court”) exercised jurisdiction over a bid protest challenging the award of an Other Transaction Agreement (OTA).¹

Background

At issue in Hydraulics Int’l was the Department of the Army’s upgrade to military helicopter Aviation Ground Power Units (APGUs), used for servicing Army helicopters when not in flight. To achieve this upgrade, the Army selected an OTA as the purchasing vehicle. In terms of process, the Army first awarded an OTA to a consortium that engages industry and academia in OTA prototype projects. In turn, the consortium issued a Request for Enhanced Whitepapers (RWP) to members of its consortium, with the goal of ultimately entering into separate OTAs with the contractors selected by the Army. Of particular importance to the jurisdiction issue, the RWP provided, pursuant to the Army’s OTA authority under section 2371b(f) (now § 4022(f)), “Upon a determination that this competitively awarded prototype project has been successfully completed, this project may result in the award of a follow-on production contract for over 150 AGPUs without the use of competitive procedures”² (emphasis added).

Five contractors, including Hydraulics Int’l, submitted responses to the RWP. After the Army evaluated the whitepaper submissions, it selected two other contractors for award of OTAs. The protester then filed a post-award protest at the COFC, contesting its non-selection. In particular, the protester’s complaint alleged that the Army misevaluated its whitepaper submission and improperly waived or relaxed key solicitation requirements when selecting the two contractors for award.

The government moved to dismiss the protester’s complaint for lack of subject matter jurisdiction, arguing that the protest is not “in connection with a procurement or a proposed procurement,” as required under the Tucker Act, 28 U.S.C. § 1491(b)(1). In response, while agreeing that the OTAs themselves were not procurement contracts, the protester maintained the Court had jurisdiction to hear the protest under the Tucker Act. The protester argued that because the RWP established the possibility of a follow-on production contract for 150 AGPUs without competition, the OTAs were therefore “in connection with a procurement.”³

Analysis

Ultimately, the Court concluded that it possessed Tucker Act jurisdiction to hear the protest. First, the Court noted that the Tucker Act grants the COFC “jurisdiction to render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1). The Court then pointed out that the Court of Appeals for the Federal Circuit has held that the operative phrase “in connection with” is very sweeping in scope.⁴

Recognizing that the parties did not dispute that the OTAs in question were not procurement contracts themselves, the Court focused its analysis on the “connectivity” of the OTAs to a procurement or a proposed procurement. While the Tucker Act itself does not define “procurement” or “proposed procurement,” the Court noted that the Federal Circuit relies on the definition of procurement in 41 U.S.C. § 111, which states: “The term ‘procurement’ includes all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” Further focusing its analysis of the jurisdictional issue, the Court stated that “if the AGPU OTAs are part of the Army’s ‘process for determining a need for acquisition,’ then they are in connection with a proposed procurement and this Court has jurisdiction over plaintiff’s complaint.”⁵

Next, applying this standard, the Court addressed the government’s main arguments in support of its contention that the OTAs were not in connection with a proposed procurement: (1) although the RWP contemplated a follow-on production contract, it did not guarantee such a transaction; and (2) the Army reserved the right to pursue any subsequent acquisition through non-procurement means. Citing the Federal Circuit’s decision in Distributed Sols., Inc. v. United States, 539 F.3d 1340 (Fed. Cir. 2008)—in which the Federal Circuit found jurisdiction over a challenge involving an agency request for information that did not result in a procurement—the Court explained that is was immaterial whether the potential procurement of 150 APGUs ever occurs so long as the government initiated the process for determining a need for acquisition and that acquisition might occur via procurement.⁶ Finally, the Court examined the record and found every aspect of the RWP to be specifically tailored toward determining the Army’s need for property (i.e., upgraded AGPUs).⁷ For these reasons, the Court found subject matter jurisdiction over the protest and denied the government’s motion to dismiss.

Although this Legal Update focuses on the Court’s ruling on the jurisdictional issue, it is worth mentioning that the Court ultimately denied the protest allegations, applying the arbitrary and capricious standard of review.⁸ Based on its review of the record and consideration of the protester’s allegations, the Court found that Hydraulics Int’l did not meet the “heavy burden of showing that the award decision had no rational basis.”⁹

Takeaways

The Hydraulics Int’l decision is noteworthy as it provides a potential pathway for disappointed offerors that wish to contest an agency’s award of an OTA. Specifically, if the OTA competition contemplates the award of a subsequent production contract, and that subsequent production contract could possibly involve a procurement contract, then the COFC could find Tucker Act jurisdiction over a protest involving that OTA competition. On the other hand, if an OTA competition were to disclaim the possibility of using the competition to establish a subsequent procurement contract, such a situation might be found to be distinguishable from the pertinent facts in Hydraulics Int’l.

Further, until the Federal Circuit weighs in on the issue of OTA protest jurisdiction, it is unclear to what extent other COFC judges will choose to adopt the reasoning of Hydraulics Int’l. Even though the landscape for OTA protests at the COFC is not fully developed, contractors involved in OTA competitions should take note of Hydraulics Int’l and consider the Court’s ruling when deciding whether to contest an agency’s award of an OTA.

 

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¹ Hydraulics Int’l, Inc. v. United States, No. 22-364 (Aug. 8, 2022).

² Hydraulics Int’l, Inc., at 3.

³ In the alternative, the protester requested that the Court transfer the case to federal district court in the event the Court found it lacked jurisdiction.

⁴ Hydraulics Int’l, Inc., at 6.

⁵ Hydraulics Int’l, Inc., at 8.

⁶ The Court also noted that the government’s position did not align with two recent decisions, one from the COFC and one from the District of Arizona, each holding the COFC has jurisdiction when a disputed OTA is in connection with a procurement or proposed procurement. Hydraulics Int’l, Inc., at 10 (citing Kinemetrics, Inc. v. United States, 155 Fed. Cl. 777 (2021), and MD Helicopters Inc. v. United States, 435 F. Supp. 3d 1003 (D. Ariz. 2020)).

⁷ On this matter, the Court noted the government confirmed during oral argument that the central OTA goal was to replace the legacy AGPUs. Hydraulics Int’l, Inc., at 9. Relying heavily on the fact that the OTAs initiated a process for determining a need for property, the Court stated that “[s]uch activity fits squarely within the first ‘stage of the federal contracting acquisition process.’” Hydraulics Int’l, Inc., at 11 (quoting Distributed Sols., Inc., 539 F.3d at 1346).

⁸ Describing the applicable standard of review, the Court stated:

When this Court evaluates a bid protest, “the inquiry is whether the agency’s action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law and, if so, whether the error is prejudicial.” Glenn Def. Marine (ASIA), PTE Ltd. v. United States, 720 F.3d 901, 907 (Fed. Cir. 2013); see also Sys. Application & Techs., Inc., v. United States, 100 Fed. Cl. 687, 711 (2011), aff’d, 691 F.3d 1374 (Fed. Cir. 2012).

Hydraulics Int’l, Inc., at 6.

⁹ Hydraulics Int’l, Inc., at 26.