Pre-award bid protest is granted where agency interpreted scope of Trade Agreements clause in solicitation too narrowly, improperly required offerors to certify compliance with the clause, and inappropriately disclaimed its responsibility to determine whether contractor had complied with the clause.
Acetris Health LLC filed a pre-award protest to challenge the Department of Veterans Affairs’ interpretation of a solicitation for the supply of Entecavir tablets, a Hepatitis B medication.
Prior to the protest, Acetris had a contract with the VA to supply Entecavir. The contract incorporated FAR 52.225-5, the Trade Agreements clause, which required Acetris to supply products that were either (1) sourced from certain designated countries covered by international trade agreements, or (2) U.S.-made—that is, mined, produced, manufactured, or substantially transformed in the United States.
During performance on the previous contract, VA became concerned about Acetris’ compliance with the Trade Agreements clause because the company sourced Entecavir’s active ingredient from India, which was not a designated country under the clause. VA asked Acetris to obtain a determination from U.S. Customs and Border Protection on Entecavir’s origin. CBP determined that Entecavir’s country of origin was India. While Acetris manufactured Entecavir tablets in New Jersey, CBP reasoned that the active ingredient came from India, was not “substantially transformed” by the manufacturing process, and thus the end product was still fundamentally a foreign good. Acetris appealed CBP’s determination to the Court of International Trade.
While the appeal was pending, VA issued a new solicitation for Entecavir, which, like the previous contract, incorporated the Trade Agreements clause. Based on VA’s responses to offerors’ questions, Acetris filed a pre-award protest with COFC, seeking injunctive and declaratory relief on the grounds that VA was misinterpreting the Trade Agreement clause and improperly relying on CBP’s decision. Believing—despite VA’s responses and CBP’s decision—that its Entecavir was a U.S.-made product, Acetris submitted a proposal in response to the new solicitation. VA rejected Acetris’ proposal, reasoning that CBP had already determined that Entecavir was not a U.S.-made product so the proposal violated of the Trade Agreements clause.
Acetris’ pre-award protest, however, was still pending. VA moved to dismiss the protest, contending the court lacked jurisdiction and that the complaint failed to state a claim. The court denied the motion to dismiss. Thereafter, VA filed a second motion to dismiss, arguing that Acetris lacked standing. Acetris moved to supplement the record, and then both parties moved for judgment on the administrative record.
The court first addressed VA’s motion to dismiss for lack of standing. VA argued that Acetris could not demonstrate that it had been prejudiced by the agency’s conduct because the company did not submit the lowest priced proposal and therefore did not have a “substantial chance” of receiving the contract. The court noted, however, that although a contract had been awarded to a lower-priced offeror, Acetris had filed its protest before the award. The “substantial chance” test does not apply to pre-award protests because there is no factual basis for a “but for” prejudice analysis.
VA also argued that Acetris lacked standing because it had not submitted a proposal at the time it filed its protest and thus had not suffered any injury. Citing 28 U.S.C. § 1491, the court dismissed this argument, reasoning that a protester need not submit a proposal to challenge an aspect of a procurement. Furthermore, the court found Acetris had a direct economic interest in receiving the Entecavir contract and that VA’s conduct in allegedly misconstruing the Trade Agreements clause had impacted that interest.
The court next addressed Acetris’ motion to supplement the record. Acetris wanted the court to consider search results from a VA pharmaceutical catalog, some documents related to Acetris’ previous contract to supply Entecavir, and a declaration memorializing telephone conversations concerning the previous contract. The court refused the declaration and the documents concerning the previous contract, finding they contained facts that were already part of the administrative record. The court did, however, agree to add the search results from the pharmaceutical catalog, reasoning that this document was relevant to assessing the harm Acetris may have suffered from VA’s conduct.
The court then turned to the parties’ cross-motions for judgment on the administrative record. The court first considered Acetris’ argument that VA had misconstrued the Trade Agreements clause. Essentially, Acetris argued that VA’s interpretation of the clause improperly ignored the Buy American statute, which provides that the federal government can only acquire goods manufactured in the U.S. The FAR defines these U.S. manufactured goods as “domestic end products.” The definition includes goods with “components of foreign origin” so long as those components are not reasonably available in the U.S.
The Trade Agreements Act, from which the Trade Agreements clause is derived, is an exception to the Buy American statute; it allows the government to acquire foreign goods from countries that are parties to certain trade agreements. Acetris argued that VA’s construction of the Trade Agreements clause was too narrowly focused on that clause’s definition of U.S.-made goods. More specifically, Acetris contended, if a good was a domestic end product under the Buy American statute—which Entecavir, with a foreign component that was not readily available in the U.S., allegedly was—then it was necessarily a U.S.-made product under the Trade Agreements clause. Again, the Trade Agreements clause is an exception to the restrictions of the Buy American statute. So if a product is acceptable under the Buy American statute, it should not then be excluded by the Trade Agreements clause.
VA, however, disputed this interpretation, contending that whether a product is a domestic end product under the Buy American statute has no bearing on whether it is U.S.-made. Rather, the proper test for determining whether a product is U.S is the Trade Agreements Act rule of origin.
The court agreed with Acetris. The court noted that a U.S. made product under the Trade Agreements Act includes products that are mined, produced, or manufactured in the U.S, which is identical the FAR’s definition of a domestic end product. Thus, all domestic end products must qualify as U.S.-made products under the Trade Agreements Act. Moreover, the court found that VA’s interpretation was absurd in that it would prevent the federal government from procuring a class of products—domestic end products—that it had the ability to purchase regardless of whether the Trade Agreements Act applied. Accordingly, the court found the VA’s interpretation of the Trade Agreements clause arbitrary and capricious.
Aside from interpretation of the Trade Agreements clause, Acetris also contended that VA erred in requiring offerors to certify compliance with the Trade Agreements Act. The court agreed that this was unreasonable. In mandating that offerors certify that their products were Trade Agreements Act compliant, VA was effectively directing offerors to affirmatively represent that their products were “wholly” manufactured or substantially transformed in the U.S. or a designated country. But this conflicted with other provisions in the solicitation—namely, the Trade Agreements clause, which only requires offerors to certify that their products are U.S.-made. As noted, however, U.S-made can refer to a product that is manufactured in the U.S. with some foreign components; the product need not be “wholly” manufactured in the U.S. Thus, requiring offerors to certify Trade Agreements Act compliance was arbitrary.
Acetris also complained that the solicitation improperly required offerors to identify the country of origin of each product. The court, however, found this appropriate, reasoning that VA has a responsibility to ensure that all the offered Entecavir tablets are U.S.-made or from a designated country. Accordingly, information about a product’s country of origin is highly relevant. Asking offerors to supply this information as part of their proposals is not unreasonable.
The court then turned to Acetris’s contention that VA improperly relied on CBP in determining whether the Entecavir products were U.S.-made. The court agreed that this was an error. First, the court noted, procuring agencies are responsible for ensuring compliance with all pertinent laws and regulations. Second, there is nothing in the Trade Agreements Act that specifies that CBP, as opposed to the procuring agency, is responsible for determining compliance with the Act. The Act only empowers CBP to determine whether a product is “wholly” manufactured in another county; it does not authorize CBP to determine whether a product is U.S.-made or a domestic end product. Third, VA had not identified, and the court could not find, any FAR provision that directs agencies to refer Trade Agreements clause issues to CBP.
And so, the court found Acetris was entitled to the following declaratory relief: (1) the term “U.S.-made end product” includes domestic end products as defined in the FAR, and VA’s misinterpretation of that term was arbitrary; (2) VA should not have required offerors to certify that their products were Trade Agreement Act compliant; and (3) VA’s failure to independently assess compliance—and instead rely on CBP—was arbitrary.
Finally, the court considered whether Acetris was entitled to injunctive relief. Applying the four prong test, the court found that the company had prevailed on the merits. As to the irreparable injury factor, the court noted that Acetris had not offered the lowest price. Thus, with respect to the specific procurement, the company had not suffered irreparable harm. Nevertheless, the court found that Acetris’s ability to compete for future contracts would be diminished if VA made awards the way it had with this procurement. The court found that the diminished ability to compete on future contracts constituted irreparable harm.
Turning to the balance of harms factor, the court found that VA had not offered any evidence on the harm it would suffer if it were prohibited from (1) construing U.S.-made to exclude domestic end products, or (2) relying on CBP to assess compliance with the Trade Agreements clause. As a result, the balance of harms favored Acetris.
Applying the fourth, public interest, factor, the court noted that there is an overriding public interest in preserving the integrity of the procurement process by requiring the government to follow its own procurement regulations. Moreover, VA had not articulated any countervailing public interest that would be impacted by requiring the agency to properly interpret the Trade Agreements clause.
In sum, the court denied the VA’s motion to dismiss. The court granted in part Acetris’s motion to supplement the record. The court, in large part, granted Acetris’ motion for judgment on the administrative, finding the company entitled to declaratory and injunctive relief.
Acetris is represented by Stephen E. Ruscus. The government is represented by Daniel B. Volk of the U.S. Department of Justice.
