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A simple competition for software licenses ended up in court after the losing bidder claimed a Procurement Integrity Act violation. At issue was a Navy-run competition to supply software licenses over five years under a blanket purchase agreement. Simple, but not trivial, with an estimated ceiling of $2.5 billion. Smith Pachter McWhorter procurement attorney Joe Petrillo filled...
A simple competition for software licenses ended up in court after the losing bidder claimed a Procurement Integrity Act violation. At issue was a Navy-run competition to supply software licenses over five years under a blanket purchase agreement. Simple, but not trivial, with an estimated ceiling of $2.5 billion. Smith Pachter McWhorter procurement attorney Joe Petrillo filled in the Federal Drive with Tom Temin on the details.
Tom Temin: And so often, Joe, these protest cases stem from what should be the most routine thing in the world is bidding for a BPA to supply software licenses. But what happened here?
Joseph Petrillo: Well, this is a high stakes BPA in order to provide the Navy and other DoD components with Microsoft software licenses and software maintenance over a period of up to five years. And it resulted in a decision by the United States Court of Federal Claims in a bid protest case of Incite Public Sector v. United States and Dell Marketing. As I mentioned, it was high stakes because the evaluated value of this procurement was $2.5 billion. The BPA had hundreds of CLNs, about 19 of those were high value and represented the bulk of the price.
Tom Temin: And for the uninitiated, we should say CLN his contract line item. And just in case anyone doesn’t know that particular phrase, go ahead.
Joseph Petrillo: Right. You know, the Navy after a few rounds of competition awarded this BPA to Inside Public Sector, and they had underbid Dell Marketing by a few million dollars, but it only amounted to 1% of the total evaluated price. There were apparently only two bidders. During the debriefing process, Dell received the bottom line price of Inside Public Sector but not the CLN prices. And it sent an email pointing out to the Navy that Microsoft did change its pricing for four of the CLNs very late in the procurement before final proposals were submitted. And therefore, its competitor might have incorrectly priced those four CLNs. So the Navy looked into that. And it found out that Inside Public Sector had not priced years four and five of those CLNs, but Dell had that the price evaluation wasn’t a head to head comparison.
Tom Temin: And by the way, those particular contract line items, even though it was a small number of them, represented a lot of the dollars of the potential value here.
Joseph Petrillo: Sure two of the four were high value ones or those 19 high value ones. So the Navy then suspended the award and notified the offerors that one vendor had priced years four and five of those claims, but the other had zeroed the pricing and told everyone to price out all of the years and resubmit the pricing.
Tom Temin: So could this be considered kind of a best and final request?
Joseph Petrillo: Yeah, it was actually the second best and final request. There was one earlier. And now here’s another one to correct this problem. This time Dell’s price was lower and it received the award. So Inside Public Sector protested to GAO (Government Accountability Office). And as part of that protest, the agency produces certain documents to GAO and the protester’s attorneys. Usually that’s under a protective order. And the protest doesn’t get to see it. But in any event, the attorneys can see it and use the documents in the bid protest proceeding.
It isn’t clear whether the next document I’m going to mention was submitted under the protective order or not. But by the time it got to the appellate court, it was in the public record. And that is an email from Dell, raising the issue. And that was the first time that Inside Public Sector had seen that email. Inside Public Sector or their attorneys saw that email from Dell and found it suspicious. They wonder why Dell had focused on only four out of hundreds of CLNs. So they asked the Navy to look into the matter because there may have been a violation of the Procurement Integrity Act with a leak from the Navy to Dell of that sensitive pricing information.
Tom Temin: We’re speaking with Joseph Petrillo, a procurement attorney with Smith Pachter McWhorter. So what looked like to Dell to take their side was just missing pricing because of the changed price. They said, well, they couldn’t have gotten that, it was a hunch. From Insight’s standpoint, it looked like the Navy had told something to Dell about what Insight had bid.
Joseph Petrillo: That’s right. And they raised that in a supplemental protest to the GAO, and pointed out that the Navy had apparently not looked into that issue. The Navy responded and didn’t have any indication that it was going to look into the issue of the Procurement Integrity Act. So at that point inside public sector made a tactical decision, it decided not to go forward with the GAO protest, but instead filed a protest at the Court of Federal Claims. And when that happens, it’s GAO’s policy to dismiss their protest, so there aren’t two of them pending at the same time, and the court protest proceeded.
So the issue that the Court of Federal Claims faced in this decision was at what point does an agency need to go forward and investigate an allegation of a Procurement Integrity Act violation. The Navy in responding in the court argued that Insight had not met the 14 day rule for protesting Procurement Integrity Act violations. There’s a statute that says you can’t protest those, unless you bring it to the attention of the agency within 14 days. The court held, however, that supplemental protest was good enough to meet that requirement. And it had been filed within the 14 day period. So Navy also pointed out that it wasn’t clear that a Procurement Integrity Act violation had occurred. There were other reasonable explanations for the events, everyone knew that when Microsoft had changed the pricing, it could have created confusion. So the issue now goes to the court as to whether or not those indications were enough with the Navy not to investigate or whether there was enough of an allegation here.
Tom Temin: And the court decided?
Joseph Petrillo: The Court held that the test was going to be whether or not there was a reasonable possibility that a Procurement Integrity Act violation had occurred. What they did was they referred to an earlier case at the Court of Federal Claims, in which the court held that you did not have to conduct an investigation, if there was no possibility, based on the allegations, that a violation had occurred. So they sort of changed that around and well, looked at the inverse and decided that a reasonable possibility the court decided would be sufficient. The protest was granted. And the procurement was remanded to the Navy with instructions to conduct an investigation.
Tom Temin: And that’s where it stands at this point.
Joseph Petrillo: Well, the investigation had a 45-day time limit, the decision was in late December, and in fact, the Navy did report to the court on the investigation. The report said that the alleged violation did not impact the award. No one from Dell Marketing obtained or was provided the CLN level pricing information of Inside Public Sector.
Tom Temin: So the Navy then is trying to convince the court that Dell simply had a good hunch, but no inside information in what Insight had priced?
Joseph Petrillo: Right. And that was the result of an investigation that looked into whether or not Dell had this information. And they were cleared on that issue. There’s been additional briefing, and I guess the court will have to go forward and resolve the rest of the issues in the case.
Tom Temin: I mean, to make an extreme analogy here, if you asked two companies to bid on supplying a brand new Cadillac Escalade, with all the options in one bid $72,000.06, the other bid $1.98, you might reasonably conclude that the other people didn’t take everything into account, even though you wouldn’t have seen their bid.
Joseph Petrillo: It certainly would raise—
Tom Temin: —Not taking sides in any way here. But that’s what this all kind of hinges on.
Joseph Petrillo: You know, sometimes where there’s smoke, there’s fire and sometimes it’s just a smoke machine. So you got to figure out sometimes what you’ve got.
Tom Temin: All right, Joseph Petrillo is a procurement attorney with Smith Pachter McWhorter. Thanks so much.
Joseph Petrillo: Thank you, Tom.