Other transaction authorities may be low-friction, but they’re not protest-proof

Other transaction authorities have become popular. The Defense Department spends $10 billion a year using OTAs. Such procurement avoids the federal acquisition regulation and the defense supplement. But follow-on orders are not protest proof. Why one contractor recently lost a protest case over an OTA follow-on, though, didn’t really concern the merits. We learn more from Haynes Boone procurement attorney Zach Prince, who spoke to the Federal Drive with Tom Temin.

Interview Transcript:

Tom Temin: You don’t hear too much about protests of OTA procurements, but they do happen then, don’t they?

Zach Prince: Yeah, they do happen from time to time. So, there was a notable case brought by SpaceX a few years ago at the Court of Federal Claims. The court there decided that they didn’t have jurisdiction over that type of OTA protest, questionable whether that will continue after this decision. But they transferred that case over to the Middle District of California Federal District Court. Federal district courts really are not equipped to deal with bid protests. They’re not familiar with the legal concepts or the issues, and it’s just not a very efficient way to handle these types of issues.

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Tom Temin: Right. And so therefore you can’t bring it at the Court of Federal Claims, and for that matter, to GAO either?

Zach Prince: I’m not going to go too far down the GAO road because they have started recently suggesting they might be considering OT protests. But the general idea has been, or at least what people have thought the rule is, is that at the court, you could protest a follow-on production OT, rather than just the prototype OT, which is usually the first stage, and so there’d be this bifurcation. The court here did sort of the same thing but extended its reasoning in a way that will allow for a broader swath of protest potentially at the court going forward.

Tom Temin: Right. And if the protests aren’t based on federal acquisition or DFAR standards and practices, then you get into just almost like regular contracting issues in the commercial world, be that as it may then. Let’s talk about this most recent case. This was a protest to the Army over a follow-on contract for a specialized type of field vehicle.

Zach Prince: Yeah, that’s right. So, this was a follow-on production contract for rough terrain container handlers, which I had to look them up there.

Tom Temin: Sounds exciting.

Zach Prince: They’re forklifts that can operate in strange conditions. They’re big machinery. They look pretty cool. So, the protester and the awardee had both won this prototype OT originally and they delivered a prototype that both of them, the Army decided were successful. So, the Army restricted a competition for follow-on production to those two entities and the other one of course. One, the protester first challenged the issue before the Army and an agency level protest, and the agency said, ‘OK, we’ll take corrective action.’ But the corrective action wasn’t good enough in the view of the protesters. So, they filed a protest at the Court of Federal Claims and that’s what sparked this protest decision.

Tom Temin: Right. So, which implies or we should infer from the fact that even though you got a prototype OTA contract initially to build the prototype. In this case, it was Independent Rough Terrain Center LLC was the losing follow-on bidder. The OTA prototype recipient is also eligible for a production contract under OTA rules.

Zach Prince: Yeah, so DOD’s OTA rules allow them to issue sole source follow-on production contracts, either as another OTA or as a standard procurement contract. Here, they did it under the Other Transaction Authority. But the argument was from the protester that they didn’t follow their own solicitation requirements and they evaluated this improperly.

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Tom Temin: All right, and so what happened then? I mean, who? What did the court say?

Zach Prince: The most interesting part of this case, I think, for those who are in this world and deal with OTAs from time to time, is the court’s analysis for why it had jurisdiction over OTA protests. So, the government and the awardee both argued, ‘No court, you have no jurisdiction at all over anything with an OTA, whether it’s prototype or production.’ And they can make that argument because the Federal Circuit hasn’t weighed in. You’ve just had the Court of Federal Claims assert jurisdiction in some earlier cases that involved production specifically. The court disagreed. The court said, ‘No, we do have jurisdiction because the Tucker Act, which is what gives the Court of Federal Claims jurisdiction over protests, grants jurisdiction over protests relating to procurements.’ This is not a procurement contract for certain purposes in that DFAR doesn’t apply and DFARS don’t apply. But it is by just a dictionary definition of procurement. It’s a procurement contract. The government is buying goods or services, right? And there are some prototypes, perhaps, where they aren’t doing that. The SpaceX one is a notable example because there, the government was basically just funding commercial space industry. They weren’t obtaining title to anything. They weren’t getting anything. It was just to promote this industry. Most prototypes, the government is buying the prototype, right? So, this logic should allow for almost any OTA prototype or production to be brought if there’s a protest action in the Court of Federal Claims if other judges accept it.

Tom Temin: We’re speaking with procurement attorney Zach Prince. He’s a partner at Haynes Boone, and yet, in ruling against the protester, the court found something really far removed from the merits of whether one prototype was better than the other or the Army’s procedure was somehow defective.

Zach Prince: This is probably the third protest that I can think of over the last year that involved the same facts their SAM registration, the System for Award Management, for the protester had lapsed at some point last year, and the prototype or the production solicitation incorporated a clause from DFAR so it doesn’t usually have the far but this one says this far clause applies that states that you have to have your SAM registration active from the time you submit your quote until award and it lapsed. So, the Army latched onto this as a way to kick him out, not have to deal with the protest. I mean, I think it was very opportunistic, but the plain language of this clause says what it says, and it made them ineligible.

Tom Temin: Wow, a technicality. Basically?

Zach Prince: It really is, because they fixed it pretty quickly. I mean, SAM registrations can lapse. The person who’s dealing with it and your company often is not checking it daily and thinking, ‘Oh gosh, we better jump on this.’ Sometimes, the systems have issues. Sometimes, there’s some little questions that you just need to run down and answer to. It can lapse and well, you’re out of luck, unfortunately.

Tom Temin: Yeah, and by the way, do we know what is that the protester was protesting about? What merits it said was wrong with the Army’s selection of the other OTA contractor?

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Zach Prince: They had a slew of arguments that they raised to the court, and it was mostly about the corrective action that they didn’t think the agency was doing enough. They thought they ought to have reopened proposals in certain ways, particularly looking at past experience. And they had some argument about why they thought the awardees delivered prototype wasn’t actually adequate, but that they didn’t get there.

Tom Temin: Right? I guess maybe they thought the other forklift would tip over on rocky terrain and theirs wouldn’t or something. We’ll never know. I guess my overall question is you’ve mentioned that there have been a couple now of kind of famous or landmark-setting protests under OTA. Do you get the sense that there’s an acceleration of protests under OTA, because the whole idea of OTA is supposed to be reduced friction for critical items?

Zach Prince: I kind of doubt it. So I think we’ll see probably a few more at the court now that we’ve got this decision. But typically, if you’ve got an OTA that is allowed to be sole source and you do it sole source, there’s not much to protest about. It’s where there’s a limited competition and one of the competitors is disappointed for one reason or another, right? So those happen, and we see them, but part of the advantage of agencies using OTAs is being able to expedite the process. If they start getting bogged down in protest, it stops being as favorable of a procurement solution.

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