Pre-award bid protest challenging an agency’s Contract Awards Limitations policy is denied where the policy does not restrict full and open competition, the agency has the statutory authority to implement the policy, and the policy is not irrational.

National Government Services Inc. brought suit in the COFC, challenging two solicitations issued by the Centers for Medicare and Medicaid Services for Medicare administration work, claims processing, and payment services.

Each solicitation had a Contract Award Limitations policy under which CMS would not award (1) any single contractor more than 26 percent, in prime contracts, of the Medicare administrative workload, nor (2) any one set of affiliates more than 40 percent, in prime contracts, of the administrative workload. NGS claimed this policy impermissibly restricted fair and open competition, that CMS did not have statutory authority to impose the limitation, and that the limitation lacked a rational basis. The government moved to dismiss NGS’s complaint, in part, for lack of standing. In addition, NGS and the government both moved for judgment on the administrative record.

The court first addressed the government’s motion to dismiss for lack of standing. As noted, NGS protested the limitations policy contained in two solicitations. At the time it bid on the two solicitations, NGS was performing 19.8 percent of the Medicare administration workload. One of the solicitations sought a contractor only for 5.9 percent of the workload. If NGS were awarded that contract, its total workload would amount to 25.7 percent, which was still below the 26 percent cap. Therefore, the government argued, at least with respect to one solicitation, the limitation did not actually or imminently threaten NGS’s chances of receiving award and thus NGS’s economic interest were not affected by the limitations policy in one of the solicitations.

However, COFC found that NGS had also bid on a third Medicare solicitation, which had not yet been awarded and which NGS had not protested. The court reasoned that NGS had a reasonable possibility of receiving the award of this third, un-protested contract—the company had previously demonstrated its capability of winning and successfully performing Medicare contracts. If NGS were to receive this award, it would increase its overall workshare and foreclose the possibility of being awarded either of the contracts it protested.

The court held this was not a trivial injury and could impact NGS’s business over the next several years. Moreover, the court continued, to the extent that NGS may suffer competitive injury from the limitations policy, such injury could be averted by a judicial ruling on the merits of the protest. Thus, NGS had a definite economic stake in both solicitations and standing to protest both.

The court next turned to NGS’s argument that the Contract Award Limitations policy impermissibly restricted full and open competition as required by CICA. The court disagreed, noting that the limitation policy did not prevent offerors from submitting bids; it only limited the amount of work they may be awarded. Moreover, that a particular offeror may be prevented from receiving an award because it already has a certain share of the national workload does not mean that the agency will not consider all proposals in good faith. The solicitation required CMS to evaluate all proposals to determine best value and then determine whether an offerors workload cap would be exceeded.

Additionally, the solicitations gave CMS discretion to award a contract to an offeror who exceeded the workload limit to ensure performance continuity. Contrary to NGS’s contentions, the limitations policy did not create a partial set-aside for less qualified offerors; any offeror may submit a proposal and receive a good faith consideration for the award.

NGS also argued that the Contract Award Limitations policy was void because CMS lacked the statutory authority to implement such a limitation. The court, however, reasoned that two provisions of the Social Security Act—42 U.S.C. §§ 1395kk-1(a)(2) and 1395-1(b)(2)—give discretion to CMS to impose such requirements on Medicare procurements as it sees fit. The court concluded that regulations intended to manage program risk to ensure that an entity does not take on more work than it can reasonably manage—which was what the limitations policy was intended to do in part­—fit squarely within the CMS’s discretionary powers delineated in the Social Security Act.

Additionally, the court reasoned, the Social Security Act does not require CMS to employ “full and open competition” in Medicare administration procurements. Rather, the Act merely requires the agency to use “competitive procedures.” CMS is permitted by statute to use competitive procedures but can exclude a particular offeror if necessary to maintain competition or reduce cost of the procurement. The Contract Award Limitations policy achieved both of those goals and thus was well with CMS’s statutory authority.

Finally, the court was unpersuaded by NGS’s arguments that the limitations policy lacked a rational basis. The court noted that before implementing the policy, CMS had hired a firm to analyze the potential effects of the policy on competition. Additionally, before implementing the policy, CMS issued multiple Requests for Information to gauge industry sentiment. Most firms generally supported the policy. What’s more, CMS conducted internal discussions about the policy before implementing it. The court found that the record contained extensive contemporaneous documentation of the agency’s thought processes in devising the policy. Given this record, the court was unable to find the policy lacked a rational basis.

NGS further contended that the policy was irrational because the risks the policy was intended to mitigate were hypothetical. But the court found that an agency has no obligation to point to past experiences in order to satisfy a rational basis review. In fact, agencies have an obligation to identify risks and avoid them before they become historical fact.

Still, NGS argued that the policy was irrational because it made an arbitrary distinction between a single entity contractor and a contractor with affiliates. As noted, the policy capped a single entity’s workload at 26 percent, but affiliates were capped at 40 percent. NGS contended that this distinction would allow contractors to game the system by setting up sham affiliate companies to increase their workload share.

However, the court believed this problem was illusory. To be eligible for award, a new entity had to demonstrate the necessary experience and thus would have to team with an experienced contractor. Moreover, as NGS acknowledged, operating a new entity requires significant time and expense and is not a simple undertaking. The court found it telling that NGS itself had not attempted to game the system by creating a new entity.

The court denied the government’s motion to dismiss, denied NGS’s motion for judgment on the administrative record, but granted the government’s motion for judgment on the administrative record.

NGS is represented by Anuj Vohra. The government is represented by William Rayel, Department of Justice.