Federal Circuit Affirms Sole-Source Justification

Not too many government contracting disputes make it to a federal court of appeals—the level just a step below the U.S. Supreme Court. The most notable recent examples would probably be the Federal Circuit’s decision in Kingdomware Technologies (which, as SmallGovCon readers know, was ultimately overturned by the Supreme Court in 2016) and the D.C. Circuit’s decision Rothe Development (which the Supreme Court declined to consider).

But recently, the Federal Circuit issued a decision of note to government contractors. In AgustaWestland North America v. United States, the Court issued guidance on what constitutes a “procurement decision” and upheld the Army’s decision to buy helicopters on a sole-source basis.

Let’s take a look.

The facts of AgstaWestland date back to the Army’s 2005 decision to procure light utility helicopters by full and open competition. Airbus was ultimately awarded that contract in 2006 and, under it, the Army would purchase UH-72A Lakota helicopters.

In 2012—four years before Airbus’s contract expired—the defense budget underwent dramatic reductions. As a result, the Army implemented Army Execution Order 109-14, which, among other things, retired the Army’s existing helicopter training platform and designated the UH72A Lakota (procured under Airbus’s then-ongoing contract) as its institutional training helicopter.

To comply with the Order, the Army thought that it needed to increase its number of Lakota helicopters. It issued a sources sought notice in 2014 to explore its sole source options but ultimately decided to instead exercise Airbus’s remaining options (permitting the procurement of 412 helicopters). This left the Army 16 helicopters short of its total requirement; so, in late 2015, the Army issued a Justification & Approval to acquire these helicopters from Airbus on a sole-source basis.

AgustaWestland was a disappointed bidder under the Army’s 2005 solicitation and filed a complaint in the Court of Federal Claims, challenging the Army’s sole-source decision here. The Court of Federal Claims granted AgustaWestland a preliminary injunction (preventing the Army from proceeding with the acquisition), from which the Army appealed.

Ultimately, the Federal Circuit ruled in the Army’s favor and reversed the Court of Federal Claims. In doing so, it addressed a couple of questions important for government contractors to bear in mind:

  1. What is a “procurement?”

This seems like a straightforward question, but it’s sometimes not. It’s important, too: under the Tucker Act, the Court of Federal Claims has jurisdiction to consider an alleged violation of a statute or regulation in connection with a procurement or proposed procurement. But the Act doesn’t actually define what a “procurement” is.

But, applying the definition applied to the Office of Federal Public Policy, the Court noted that a “procurement” is “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 or closeout.” In other words, a “procurement” involves the initiation of the government’s process for determining the need for an acquisition all the way through contract closeout.

Applying that definition, the Court found the Execution Order was not a procurement. It was instead a part of a restructuring initiative for existing Army assets; the Order did not direct or discuss the need to procure additional helicopters.

On the other hand, the Army’s sole source acquisition of 16 helicopters from Airbus was a procurement decision. As a result, the Court of Federal Claims had jurisdiction under the Tucker Act to consider the propriety of the sole source decision.

  1. Was the sole-source decision properly supported?

Under the FAR, a sole-source contract is permitted when it is a follow-on contract for the continued development or production of a major system or specialized equipment, and award to an alternative source would result in substantial duplication of costs or unacceptable delays in fulfilling the agency’s requirements. Applying this definition here, the Federal Circuit found it “irrelevant” that the sole-source award was a new contract to Airbus—all that mattered was that it was a contract for the continued development or production of a major system.

Supporting the sole-source decision, the contracting officer found that Airbus was the only responsible source for the contract because it has exclusive ownership of all data rights required to produce, maintain, and modify the UH-72 Lakota. According to the Army, procuring a new helicopter from another source would result in significant duplication of costs and would unreasonably delay the Army’s ability to fill gaps in its helicopter fleet.

The Federal Circuit found this rationale to be sufficient, meaning that the sole-source decision was neither arbitrary nor capricious.

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At the end of the day, AgustaWestland’s nuanced legal principles will probably be more applicable to contracting officers (or government contracts attorneys) than contractors. But contractors considering a protest challenging a sole-source justification might nonetheless pay attention to the Court’s rationale.

In any event, AgustaWestland is worth discussing given the relative infrequency of bid protest decisions from the Federal Circuit.