The government’s appeal of a permanent injunction enjoining the agency from continuing with a major IT procurement is denied, where the Court of Federal Claims correctly found that the agency had failed to consider whether available commercial items could meet its requirement, despite multiple responses from the protester regarding its products and despite the agency’s own market research, which recommended a hybrid approach that incorporated commercial items. The court affirmed the lower court’s judgment that the agency must demonstrate its compliance with the requirements of the Federal Acquisition Streamlining Act before it could continue with the acquisition.
The government appealed from a permanent injunction on its solicitation of bids for Distributed Common Ground System—Army Increment 2, which was granted by the Court of Federal Claims after it concluded that the Army failed to determine whether its needs could be met by a commercial item.
Palantir USG Inc. filed a pre-award bid protest challenging the Army’s solicitation for DCGS-A2, alleging that the Army failed to determine whether its needs could be met by commercial items before issuing the contested solicitation, in violation of language in the Federal Acquisition Streamlining Act, which requires federal agencies to acquire commercial items to the maximum extent practicable.
While two independent assessments commissioned by the Army recommended the agency take a hybrid acquisition approach incorporating commercial-off-the-shelf items and specialized software development, the Army concluded that DCGS-A2 could not be procured as a commercial product. The solicitation did allow that the final product could incorporate COTS items, government-furnished information, government off-the-shelf items, or open source products.
In its pre-award protest, Palantir argued that its software products could satisfy the Army’s needs. An initial protester filed with the Government Accountability Office was denied, but Palantir’s protest in the Court of Federal Claims proved successful. The court found the agency failed to explain what commercial items possibly were available or had been considered and that its market research report lacked any information regarding possible commercial items that could be modified to fit its needs.
The court found no evidence the Army considered Palantir’s products prior to issuing the solicitation, despite Palantir’s responses to requests for information. Based on the total absence of any discussion of commercial items, the court concluded that the Army had decided to follow a developmental approach early in the procurement, to the exclusion of commercially available alternatives. Based on the potential harm to Palantir should it be precluded from offering its product, the court permanently enjoined the Army from awarding a contract under the solicitation, and directed it to properly and sincerely comply with FASA before awarding a contract for the DCGS-A2 requirement.
On appeal, the government questioned whether the trial court went beyond the statutory and regulatory language of FASA and its implementing regulations and imposed heightened obligations; and whether the trial court wrongly discarded the presumption of regularity and substituted its judgment in determining that the Army acted arbitrarily and capriciously and in violation of FASA.
First, the government argued that COFC erroneously added requirements that the Army was required to “fully investigate,” “fully explore,” “examine,” and “evaluate” whether all or part of its requirements could be satisfied by commercially available items, such as Palantir’s product. However, the appeals court was not persuaded. The court explained that FASA requires an agency to “determine” whether there are commercial items available to meet its needs, and that the trial court’s use of words other than “determine” did not change or add to this requirement.
Further, the appeals court agreed with COFC that the Army acted arbitrarily when it determined that the DCGS-A2 requirement could not be met with commercial items. The court found that the Army’s own market research identified the desirability of hybrid options that used commercial solutions. Further, Palantir had advised the Army that its products could meet the requirement or be modified to that effect, which the agency acknowledged in its RFI response analysis. Further, the record included statements from other DoD personnel requesting Palantir’s data management platform and attesting that the platform was a proven capability currently in use by other defense agencies.
However, the Army did not use the results of that market research to determine whether there were commercial items that could meet its requirements, could be modified to meet its requirements, or could meet its requirements if those requirements were modified to a reasonable extent. Further, the Army’s assertion that the procurement required a developmental approach was conclusory in nature, with little explanation or supporting evidence. In contrast, the court found ample evidence in the record supporting Palantir’s assertion that its products could meet the Army’s needs.
Based on this record, the appeals court held that COFC correctly found the Army had given scant attention to the availability of commercial products and had not met the statutory requirement that it consider commercial items for the DCGS-A2 requirement. The court acknowledged there is no specific requirement for agencies to document their determinations, but explained that the record should contain some evidence such consideration was made and to support the agency’s decisions.
Next, the government alleged COFC wrongly discarded the presumption of regularity in determining that the Army’s action was arbitrary and capricious and did not comply with FASA. The appeals court disagreed. The court explained that under the Administrative Procedure Act, even where an explanation or reason is not required for an agency’s determination, a reviewing court has the power to require an explanation.
The appeals court found that COFC had extensively cited evidence showing that the Army’s decision was arbitrary and capricious and in violation of FASA. In particular, the court performed a searching review and analysis of the Army’s market research, its D&F for award of a single-source IDIQ, and determination of non-commercial item, before it concluded that the Army neglected to determine whether possible commercially available alternatives meet or could be modified to meet the requirements of the Army’s acquisition. Accordingly, the appeals court held that COFC properly determined that the record evidence rebutted the presumption of regularity. The appeals court therefore affirmed COFC’s judgment that the Army must satisfy FASA requirements before proceeding with the acquisition.
Palantir USG Inc. is represented by Theodore Olson of Gibson, Dunn & Crutcher LLP, and by Karen Louise Manos, Amir C. Tayrani, Josh Krevitt, Hamish Hume, Stacey K. Grigsby, Jon Knight, Joshua Riley, and David Boies of Boies, Schiller & Flexner, LLP. The government is represented by Domenique Grace Kirchner, Chad A. Readler, Robert Edward Kirschman Jr., and Douglas K. Mickle, Commercial Litigation Branch, Civil Division, Department of Justice.
