Protests challenging the VA’s decision to transfer its solicited requirements to another agency is sustained. Indeed, the agency’s decision was so catastrophic the court felt compelled to quote a Longfellow poem about a prideful ship captain whose decisions resulted in a “dreary wreck awash upon the shoals.” The VA had issued a solicitation for medical supplies. While that procurement was proceeding, the VA decided—going against the advice of knowledgeable agency personnel—to transfer the requirement it was soliciting to another agency. The VA never told offerors about the planned transfer and just went ahead and made awards. Needless to say, when the offerors learned of the transfer decision, they sued. The court found that the administrative record contained no support for the transfer decision, so the decision lacked a rational basis. What’s more, the transfer decision drastically changed the VA’s needs. Basically, the VA was going to terminate the contracts shortly after awarding them. The court reasoned that in light of the planned transfer, the VA was required under FAR 15.206 to amend the solicitation to reflect its changed requirements.
The Defense Logistics Agency and the Department of Veterans Affairs both procure medical supplies through Medical Surgical Prime Vendor (MSPV) programs. The MSPV programs allow the agencies to procure medical supplies from a standardized list of supplies, which increases consistency and lowers costs.
The VA’s MSPV program had been plagued by deficiencies. In 2019, in an attempt to address these deficiencies, the VA began to explore ways to transfer its medical supply requirements to the DLA’s MSPV program. VA staff voiced concerns with the possible transition, such as terminating the extant or future MSPV contracts.
But the VA was undeterred and went ahead with a pilot program to test the transition plan. The VA’s health care facilities are divided into eighteen geographic regions called Veteran Integrated Service Networks (VISN). The VA and DLA agreed that one of the VISNs would begin to purchase its medical supplies using DLA’s MSPV program.
The VISN pilot program fell behind schedule. Indeed, a GAO report found serious problems with the pilot program. Unfazed, the VA asked DLA to prepare a plan to transfer the VA’s entire MSPV program to DLA. DLA thought the transfer was “crazy” and “wild stuff!” As the discussions continued into 2020, the VA acknowledged several challenges, including the fact that it was unclear whether DLA’s contractors could accommodate the increased workload that was coming after the transfer. Despite this, the VA and DLA finalized a transition plan that would go live in March 2022.
In 2020 and early 2021, while the VA was planning to transfer its MSPV program, it was also soliciting offers for its MSPV program. The VA planned to transfer its MSPV program in 2022, but the solicitation contemplated a nine-year period of performance beginning in 2021. Despite this discrepancy, the VA awarded contracts for its MSPV program to Medline Industries, Inc. and Cardinal Health 200, LLC.
An unsuccessful offeror, Concordance Healthcare Solutions, LLC, filed a protest with GAO challenging the awards. In response to the protest, the VA took corrective action to reopen price discussions. GAO dismissed the protest as academic.
Thereafter, Medline, an awardee of the VA’s MSPV contract, filed suit in the Court of Federal Claims. Medline challenged the planned transfer of VA’s MSPV program to DLA. Additionally, in seeking to protect its award, Medline challenged the scope of the corrective action the VA took in response to Concordance’s GAO protest.
Concordance also filed suit with the COFC. Like Medline, Concordance challenged the transfer of VA’s requirements to DLA. Concordance also objected the terms of the VA’s MSPV solicitation. Concordance claimed that the planned transfer of requirements constituted a material change of the VA’s requirement and thus, under FAR 15.206, the contracting officer was required to amend the solicitation.
The court consolidated Medline’s and Concordance’s protests. Cardinal Health, which was also awardee of the VA’s MSPV contract intervened. The VA asked the court to remand the protests. The court denied the request. The parties then all moved for judgment on the administrative record.
Although the case had a complicated background and difficult legal issues, the court quickly disposed of the main issue, finding that the VA’s decision to transfer its requirements to DLA was irrational. An agency action lacks a rational basis if there is no support for it in the administrative. Here, the government conceded that the administrative record lacked support for the transfer. The court noted that the transfer potentially violated a bunch of federal statutes, but given the agency’s concession, the court didn’t need to get into it.
The court then addressed Concordance’s argument that the transfer was a material change in requirements necessitating a solicitation amendment in accordance with FAR 15.206. As an initial matter, the court found that the solicitation did not reflect the VA’s current needs. Even if the transfer did not go through, the VA’s requirements had necessarily changed through the course of planning. With each passing day after the VA issued the MPSV solicitation, it continued to plan the transition of its requirement to another agency. Indeed, the solicitation included a VISN that had already been transferred to the DLA as part of the pilot program. Whatever the VA originally required, those requirements almost certainly changed after two years of changes in agency policy and partial transition.
The government, Medline, and Cardinal argued that even if the VA’s requirements had changed, Concordance had not been prejudiced by the VA’s failure to amend the solicitation. They contended that Concordance had not shown how it would have amended its proposal to ensure that it would have a substantial chance at award if the VA had amended.
The court found that this argument was incorrect as a factual matter. Concordance had credibly shown that if the VA amended, it would have dramatically changed its pricing strategy. Indeed, the court reasoned that it was just common sense that Concordance would have changed its proposal. The company had been forced to submit a proposal while the status of the requirement was in limbo. That uncertainly affected its pricing.
Having found that Medline and Concordance had prevailed on the merits of their challenge to the transfer, the court found that they were entitled to injunctive relief. They had demonstrated harm in that they had lost the opportunity to fairly compete for the VA’s MSPV requirements. The balance of harms favored Medline and Concordance. The government was continuing to received MSPV services through bridge contracts. An injunction would not result in a major disruption. The court enjoined the government from proceeding with the transfer and from making an award under the current iteration of the VA’s MSPV solicitation.
Lastly, the court noted that Concordance had also asserted a claim against the government for breach of implied contract of fairly consider offers by issuing the VA’s MSPV solicitation despite an undisclosed plan to transfer those requirement to DLA. The court agreed that this was a breach, and that Concordance was entitled to recover it bid preparation and proposal costs.
Medline is represented by Kristin E. Ittig, Stuart Tuner, Nathaniel E. Castellano, and Aime JH Joo of Arnold & Porter Kaye Scholer, LLP. Concordance is represented by Aron C. Beezley, Patrick R. Quigley, Lisa A. Markman, Nathaniel J. Greeson, and Sarah S. Osborne of Bradley Arant Boult Cummings LLP. Intervenor Cardinal Health is represented by Merle M. DeLancey, Jr. of Blank Rome LLP. The government is represented by Mollie Finnan and Sarah E. Kramer of the Department of Justice, Jason Fragoso of the Department of Veterans Affairs, as well as Gale Furman and Katherine McCulloch of the Defense Logistics Agency.
