Agency Failed to Follow Rules on OTA Transactions; GAO B-416061, Oracle America Inc.

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Protest challenging the agency’s entry into a follow-on production transaction under the agency’s other transaction authority is sustained, where the agency did not have authority to enter into the agreement without competition, because it had not provided adequate notice of the possibility of a follow-on transaction and because it did not wait until work on the prototype project was successfully completed before entering into the production transaction.

Oracle America Inc. protested the Army’s entry into an other transaction agreement with REAN Cloud LLC, which was awarded as a follow-on production OTA (P-OTA) for cloud migration and cloud operation services. Oracle argued that, in entering into the P-OTA, the Army did not properly exercise the authority granted to it under the statute.

As an initial matter, the agency argued that Oracle was not an interested party to challenge the agency’s use of an OTA. Although GAO has concluded that OTAs are not procurement contracts and therefore will not review challenges of those agreements under its bid protest jurisdiction, it will review a timely protest that an agency is improperly using its other transaction authority. Therefore, GAO held it had jurisdiction.

In challenging Oracle’s standing, the agency argued that Oracle’s failure to submit a solution brief in response to the commercial solutions opening (CSO) meant that Oracle is not an actual or interested bidder. In response, Oracle argued that the CSO did not provide adequate notice of the agency’s intent to award a production OTA, as compared to only a prototype OTA. The protester also alleged that the areas of interest (AOI) posting did not reasonably advise potential contractors of the solution sought by the agency nor the intended scope of the P-OTA. Oracle maintained that if the AOI and/or the CSO had accurately described the prototype competition, or had advised parties that the Army contemplated the award of a P-OTA, it would have submitted a solution brief.

In awarding the follow-on P-OTA without competition, the Army relied on the exception under that permits such award if a prototype OTA of similar subject matter was competed. However, GAO found that neither the CSO nor the AOI contemplated the prototype OTA awarded nor any follow-on P-OTA. For example, the “ideal solution” described in the AOI published by the Defense Innovation Unit (Experimental) included geospatial services and data analytics and visualization geospatial. However, these attributes were not sought by USTRANSCOM, on whose behalf DIUx entered into the OTA. Similarly, the AOI stated that DIUx sought deployment to a government cloud and/or an on-premises cloud infrastructure, while USTRANSCOM personnel testified they sought only a solution proposing an off-premise commercial cloud. Likewise, at the time the AOI was formulated, TRANSCOM did not consider using the solution for the migration of classified software applications.

Nevertheless, GAO found the first order placed on the P-OTA anticipates the migration of classified applications. GAO concluded that potential prototype OTA contractors were not advised that the agency intended to award a follow-on P-OTA to a successful vendor. Although the agency argued that the CSO’s inclusion of “possible follow-on production” among OTA benefits provided adequate notice, GAO considered this statement too vague and attenuated to describe the agency’s intended procurement. Therefore, GAO found the material differences between the AOI and the actual solution sought by the agency provided a sufficient basis for Oracle to argue that it would have submitted a solution brief had the AOI reasonably described the intended procurement. Accordingly, GAO determined that Oracle has standing to protest.

On the merits, Oracle argued that the agency did not have the authority to award the P-OTA because the initial, prototype OTA was commercial in nature and thus did not qualify as a prototype project under the relevant regulation. In response, the Army argued the project did comply with internal guidance on prototype projects. According to the agency, a commercial program could still qualify as a prototype project if it had not been previously deployed within DoD, in part due to the DoD’s stringent security requirements.

GAO agreed with the agency that the original effort procured under the prototype OTA properly consisted of a prototype project. GAO concluded that the migration of TRANSCOM’s applications could fairly be called a “pilot” or “test” program, as well as a “demonstration” of REAN’s capabilities. The agency procured an “agile systems development enterprise” that included “the demonstration of a repeatable framework consisting of tools, processes and methodologies for securing, migrating (re-hosting) and refactoring, existing applications into a government-approved commercial cloud environment.” On the record, GAO concluded that the underlying prototype OTA properly consisted of a prototype project.

Next, Oracle challenged the agency’s use of its statutory authority to award a follow-on P-OTA. Oracle argued that the Army lacked the authority to award a follow-on P-OTA because the prototype OTA did not provide for a follow-on P-OTA, as required. Oracle also alleged the P-OTA award was improper because the prototype project is not complete, a prerequisite to award. In response, the agency maintained that its award of the P-OTA complied with the relevant statutory requirements to enter into a follow-on production transaction.

However, GAO disagreed, finding that the prototype OTA did not provide for the award of a follow-on production transaction and that the prototype project provided for in the prototype OTA has not been completed. GAO found the regulations unambiguous on these matters.

GAO concluded that a follow-on P-OTA may only be awarded to the prototype transaction participants without the use of competitive procedures if the transaction entered into under this section for a prototype project—i.e. the prototype OTA itself—provided for the award of a follow-on production contract or transaction to the participants in the transaction.

The Army acknowledged that the prototype OTA did not in any way provide for a follow-on, but argued that the CSO’s reference to a possible follow-on P-OTA satisfy the statutory requirement to “provide for” a P-OTA. However, GAO found the agency failed to consider that such award is only permitted if there is a provision for follow-on production included in a transaction entered into under the regulation. GAO explained that neither the CSO nor the AOI could be a transaction that is entered into, because they are standalone announcements. The “transaction” is the legal instrument itself, and not the solicitation documents. Because the prototype OTA—the transaction entered into—did not provide for a follow-on, GAO found the Army lacked the statutory authority to award the P-OTA without competition and sustained the protest on this basis.

Oracle also asserted the P-OTA was improper because the prototype project was not complete. The Army disagreed. While acknowledging that work added to the OTA under a modification was not complete, the Army maintained that its award of the P-OTA was nevertheless in compliance with the statute because REAN had completed those parts of the prototype project that were included in the P-OTA. In essence, the agency argued the award was proper because the additional work was not part of the prototype project.

GAO disagreed, finding that the regulation calls for the completion of the full project described in the transaction. Because the agency modified the transaction to include the additional work, that work had to be completed prior to the award of the follow-on. GAO held the Army could not argue both that the OTA was properly modified and extended to encompass the additional work and that the prototype project was complete without the completion of the additional work. GAO found that the OTA was modified, and therefore the work on the prototype project was not complete. Accordingly, GAO found the Army did not have statutory authority to award the P-OTA.

Oracle America Inc. is represented by Marcia G. Madsen, David F. Dowd, Luke Levasseur, Roger V. Abbott, and Michael J. Word of Mayer Brown LLP. REAN Cloud LLC is represented by A. Jeff Ifrah, and Whitney A. Fore of Ifrah Law. The government is represented by Rachel E. Woods, and Wade L. Brown, Department of the Army. GAO attorneys Stephanie B. Magnell and Amy B. Pereira participated in the preparation of the decision.

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