Justifying Sole-Source Procurements: A Recent FAA Bid Protest Decision Provides a Roadmap
Published in The Air & Space Lawyer, Volume 26, November 3, 2013. © 2013 by the American Bar Association. Reproduced with permission. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association
In addition to being the nation’s aviation regulator, the Federal Aviation Administration (FAA) is also the principal provider of air traffic control services in the United States. The FAA pro- vides services not only within the United States but also in vast areas of international airspace over the Atlantic, Pacific, and Arctic Oceans. As such, the FAA is somewhat unique among federal agencies in that it directly participates in an industry it regulates.
Moreover, in anticipation of a trebling of air traffic by 2025, the FAA is implementing the Next Generation Air Transportation System (NextGen). NextGen will broadly transform the air traffic control system by transitioning from ground-based technologies to the use of satellite-based systems.[i] In order to operate and renovate this service enterprise, the FAA must acquire, operate, and maintain substantial amounts of capital equipment. NextGen is expected to cost as much as $42 billion by 2025, and already has involved procurements from private industry worth up to $7.3 billion.[ii] The investment in NextGen represents a vast commercial opportunity for the private sector.
It is essential for current and prospective commercial suppliers to the FAA to understand the agency’s unique procurement system as it grows in economic impor- tance. The FAA acquisition process differs from that of the rest of the U.S. government in several important aspects, from its regulations and policy guidance, to the process by which its acquisitions may be protested.
A recent case before the FAA’s Office for Dispute Resolution for Acquisition (ODRA) may be a harbinger of significant changes to the agency’s procurement process.[iii] The case involved the bid protest of a manufacturer, Diamond Antenna & Microwave Corporation, that had been denied the opportunity to compete for FAA contracts long held by an incumbent competitor. In its decision, the ODRA determined that the FAA had failed to apply its own requirements for competitive bidding. The Diamond decision illustrates the unique features of FAA procurement and lays out a framework for contractors interested in doing business with the FAA.
This article provides an overview of the FAA procurement system, details the facts and legal arguments in the Diamond bid protest, and provides analysis of the decision in the context of lessons learned for doing business with the FAA.
Acquisition Management System
The FAA is one of a handful of agencies not bound by the Federal Acquisition Regulations (FAR).[iv] In 1995, at the direction of Congress, the FAA developed the Acquisition Management System (AMS) to address the agency’s unique needs and to provide for more timely and cost-effective acquisitions of equipment and materials.[v] In granting the FAA administrator the authority to develop the AMS, Congress exempted the agency from certain provisions of federal acquisition law, most notably including the FAR and the Competition in Contracting Act (CICA).[vi]
The AMS consists of two primary components: policy and guidance. AMS policy includes the agency- wide, mandatory requirements of the AMS. This policy applies to all activities associated with the agency’s needs for products, services, and facilities, along with the determination of requirements. AMS guidance implements the AMS policy. The guidance consists of agency-endorsed guidelines, processes, instructions, templates, databases, handbooks, checklists, and other information that supplements, expands, illustrates or implements AMS policy. This information provides direction in planning and executing acquisition management policy and all related life-cycle management activities. FAA procurement officials are directed to follow AMS guidance unless there is a rational basis for adopting a different approach.
Although the FAA operates under different acquisition regulations than other agencies, the AMS mirrors other federal procurement regulations in many ways. Contracting opportunities valued at $100,000 or greater are advertised to the public, on both the FAA’s website as well as the federal contracting website FedBizOpps.[vii]
The FAA also sets aside acquisitions for various categories of small businesses and offers a mentor/protégé program to encourage the development of small businesses. It also utilizes the Federal Supply Schedules (FSS), a program administered by the General Services Administration that allows agencies to buy commonly used supplies and services in varying quantities while obtaining discounts associated with volume buying. [viii]
The AMS demonstrates a strong and consistent preference for competition in FAA procurements.[ix] However, the AMS allows the FAA to enter into single-source con- tracts without competition when it is in the FAA’s “best interest and the rational basis for the decisions is documented.”[x] With the exception of emergency situations, the AMS requires that market analysis be conducted to support each single-source decision; the method and extent of the analysis depend on the requirement.[xi]
The rational basis for a single-source procurement must be documented and approved by the service organization responsible for the program.[xii] If the service organization determines that a single source will be part of an overall investment program, the rational basis must be documented in the Implementation Strategy and Planning Document.[xiii] If, during the life cycle of the investment program, the service organization determines that a single source is necessary, the rational basis must be documented in a procurement plan or, if no procurement plan is necessary, as a separate document.[xiv] The contracting officer is required to document objective criteria supporting the decision to single-source, which may include the results of market analysis, cost or price data, unique qualifications or performance capability, and past performance.[xv]
Once a basic contract has been awarded, the FAA may modify the contract to extend an option, or to satisfy a follow-on procurement for more of the same products or services. However, a market analysis and a documented and approved rational basis are still required in order for the FAA to proceed with an extension or follow-on con- tract without additional competition.
The FAA has been faulted for failing to perform reasonable cost and price analyses prior to conducting noncompetitive contract actions.[xvi] In a random sample of 25 noncompetitive awards in FY 2009, the FAA failed to perform effective cost and pricing analyses for eight contracts, resulting in possible overpayments of approximately $670,000. In light of the potential financial implications of improper sole sourcing for vendors and taxpayers alike, it is important to under- stand the unique process by which vendors may protest FAA procurement decisions.
Protesting Before the ODRA
Like its unique procurement regulations, the FAA also maintains its own dispute resolution body that is separate and distinct from the rest of the federal government. The ODRA has exclusive jurisdiction to resolve or adjudicate bid protests of FAA procurement decisions. Like protests of other federal agencies before the Government Accountability Office (GAO), an ODRA protestor must be an interested party. The AMS defines an interested party as “one whose direct economic interest has been or would be affected by the award or failure to award an FAA contract.”[xvii]
Strict protest filing deadlines also apply. Protests alleging defects or other improprieties in the solicitation must be filed before the time set for receipt of proposals. All other protests must be filed by the later of the following deadlines: (1) seven business days after the protestor knew or should have known of the grounds for protest or (2) five business days after receiving a post-award debriefing from the FAA Product Team.[xviii]
There is a strong presumption in the AMS that procurement activities and contractor performance will continue during the pendency of the protest. Because CICA does not apply to FAA procurements, there is no automatic stay if a protest is filed within a certain time frame. Instead, a protestor must request a suspension of award at the time it files the protest and set forth specific information demonstrating compelling reasons for the suspension.[xix] The ODRA has issued suspension decisions in only a handful of cases.[xx]
The ODRA uses alternative dispute resolution (ADR) as its primary means of dispute resolution. A protest will not proceed to adjudication unless the parties are unable to agree on the use of ADR, or when the use of ADR does not completely resolve all of the issues.[xxi] The selected ADR neutral (Neutral), a dispute resolution officer made available to parties who consent to ADR, will provide an early neutral evaluation, assessing the strengths and weaknesses of the parties’ positions as to the facts and law, in order to facilitate further discussion and resolution. Unless otherwise agreed to by the parties, any communications with the Neutral during ADR will not become part of the administrative record should the protest proceed to adjudication.[xxii]
If ADR does not successfully resolve all of the issues in a protest, an ODRA administrative judge will preside over adjudicative proceedings, managing development of an administrative record and preparing findings of fact, recommendations for a remedy, and a final order. Unlike GAO protests, there may be limited, focused discovery, including the taking of deposition testimony where justified.[xxiii]
ODRA final orders may be appealed by non-agency parties to either the U.S. Court of Appeals for the District of Columbia Circuit or the federal court of appeals where the appellant resides.
Diamond Antenna Protests
A recent case involving multiple protests brought by Diamond Antenna & Microwave Corporation (Diamond), a Massachusetts-based company, illustrates the AMS and ODRA in action, and provides a roadmap for contractors who may seek to do business with the FAA in the future. After months of procedural disputes and ADR, Diamond was able to bring its case to an ODRA judge to challenge a sole-source acquisition. The ODRA found in favor of Diamond, ruling that the FAA had improperly restricted competition in violation of its own acquisition regulations.
The Joint Surveillance System (JSS) is a network of long-range surveillance radars, primarily operated and maintained by the FAA, that provides communication and radar data to both FAA and U.S. Air Force control centers. The Air Route Surveillance Radar Model 4 (ARSR-4) is the newest long-range search radar in the JSS, providing a radar coverage area of from 200 to 250 nautical miles. Implemented during the 1990s, ARSR-4 systems are installed primarily along the borders and coastal areas of the United States, with a training site at the FAA’s Mike Monroney Aeronautical Center in Oklahoma City.
ARSR-4 systems rotate on their base, requiring intricate rotary joint components. During the initial ARSR-4 implementation process, Kevlin Corporation manufactured the necessary rotary joint components through a contract with the FAA.[xxiv] Although Kevlin was the original manufacturer of the rotary joint components, several other national firms build, repair, and upgrade similar products on behalf of the U.S. government. Despite the competition in the field, the FAA for the past decade has issued single-source contract awards to Kevlin for replacement or upgrade of the ARSR-4 rotary joint components.[xxv]
Diamond’s First Protest
In April 2012, the FAA once again attempted to issue a single-source award to Kevlin. In order to justify a single-source award under AMS regulations, the FAA published a market survey for several rotary joint components to support the ARSR-4.[xxvi] The market survey identified the names and part numbers of the Kevlin-manufactured items but did not pro- vide the performance or design information required for another vendor to compete for the contract. The market survey stated that the FAA “[did] not have specifications or drawings to allow for open market fabrication of identical unit.”[xxvii] The survey further claimed that any contractor submitting a bid for the work “must have access to the original equipment manufacturer’s (OEM) specifications and drawings” and “provide documentation to the FAA showing proof for rights to use the data from the OEM.”[xxviii] Obviously no other companies had access to Kevlin’s documents, allowing the FAA to justify another single- source award to Kevlin.[xxix]
One of Kevlin’s competitors, Diamond Antenna & Microwave Corporation, filed a bid protest to the ODRA in May 2012.[xxx] Diamond claimed in its protest that it could meet the FAA’s requirements if it could access basic specifications and capability measurements that are standard in the industry—information that Diamond could obtain by taking measurements from an ARSR-4 unit, or that the FAA could provide by confirming that measurements previously published in Kevlin catalogs remained accurate. The Diamond protest argued that the FAA violated the competition requirements of the AMS by requiring contractors to demonstrate their rights to OEM data. Instead, the protest reasoned, the FAA should provide contractors with the basic specifications and capability measurements (collectively known as “top level data”) for the ARSR-4 so that multiple contractors could compete to replace and upgrade ARSR-4 rotary joint components.
Diamond’s Second Protest
While the initial protest was pending, the FAA executed a single-source justification (SSJ) to support its single-source contract award to Kevlin.[xxxi] The SSJ relied on three grounds to support an award to Kevlin: (1) proprietary rights claimed by Kevlin; (2) the potential for competitors to reverse engineer Kevlin’s rotary joint components; and (3) configuration management issues, including that the components should be interchangeable.
Diamond filed a second protest of the FAA’s public announcement of its intent to issue another single- source award to Kevlin in August 2012.[xxxii] In its second protest and in related filings, Diamond argued that the FAA had failed to provide supporting documentation for the grounds set forth in its SSJ. Diamond further claimed that the SSJ grounds were insufficient and/or incorrect and thus should not be used to limit competition. In particular, Diamond asserted that (1) Kevlin had not claimed proprietary rights as required by the AMS, and that top-level data was not proprietary in any event; (2) top-level data would not allow for reverse engineering; and (3) Diamond could produce interchangeable components, providing better value and an alternative supplier in case Kevlin ever was unable or unwilling to provide the components.
After ADR failed to reach a resolution, the ODRA consolidated the two protests for adjudication.
The ODRA reviewed each of the three specific grounds that the FAA had identified to support its intended single-source purchase from Kevlin. Although each of the bases cited were in theory capable of supporting an SSJ, the ODRA concluded that the FAA had not provided any supporting information sufficient to satisfy the requirements for single sourcing as detailed in the AMS. The ODRA first addressed the FAA’s claim that Kevlin held the proprietary rights for the design and fabrication of the ASRS-4 rotary coupler. Although the ODRA noted that the FAA might be correct in its conclusions regarding proprietary rights, it had failed to “document” the “adequate, objective supporting data” required by the AMS Policy, including providing any discussion of “patents, proprietary data, copyrights or other such limitations.”[xxxiii] Additionally, the ODRA found that the FAA’s Market Survey (cited as supporting documentation in the SSJ) was defective because it started with the premise that the OEM’s drawings are required by all potential contractors. The ODRA noted that this effectively proscribed other potential competitors from demonstrating that they had the capability to deliver the item through other legal rights, knowledge, ability, time, or competitive pricing.[xxxiv]
Next, the ODRA ruled on the FAA’s argument regarding the cost and time associated with reengineering, designing, and prototype testing of new replacement critical parts. Specifically, the FAA claimed that it would not be cost-effective and would not meet mission requirements without causing excessive delay to the program. As with the proprietary rights rationale, the SSJ did not provide any citations or attachments, such as a cost estimate to reengineer the items, an estimated time for reengineering, or a measure and estimate for what constituted an excessive delay.[xxxv] The ODRA thus found that the FAA’s claim failed due to lack of supporting documentation.
The final rationale cited in the SSJ stated in its entirety: “Additionally, continuing with Kevlin Corporation rotary couplers enforces configuration management.”[xxxvi] The ODRA noted that this rationale also failed, as it contained none of the analysis called for by the AMS Guidance relating to standardization.[xxxvii]
The ODRA concluded that the FAA’s SSJ lacked substantial evidence to support a single-source award to Kevlin. Noting that the protested acquisition was one in a series of related acquisitions with Kevlin stemming back to at least 2003, the ODRA stated that a procurement plan or similar systematic documentation addressing the life-cycle management of the ARSR-4 system should have been part of the record.[xxxviii] The ODRA thus concluded that the FAA had failed to give consideration to methods of maintaining competition throughout the life cycle of the components.
Practical Effects of Decision
Vendors interested in pursuing contracts with the FAA can glean useful information and guidance from ODRA’s Diamond decision. First, the AMS favors competition in most procurement scenarios. The AMS directs the FAA to find creative solutions to avoid single-source procurements and increase competition among vendors. In particular, the AMS requires that the FAA consider “methods of maintaining com- petition throughout the lifecycle of any product or service,” including “dual sourcing, obtaining reprocurement data and data rights, open system designs, and any other appropriate methods.”[xxxix] This policy and guidance, however, sometimes come into tension with FAA procurement personnel’s preference to issue single-source contracts to particular vendors. Oftentimes, once an incumbent vendor claims proprietary rights in components that are essential to the FAA’s needs, the FAA may attempt to find the requisite rational basis to justify single sourcing from that company.[xl] Vendors seeking to compete for FAA contracts should remain mindful that FAA procurements do not always match AMS requirements—and stand ready to protest FAA actions that violate the AMS.
Although the FAA must announce its intended single-source awards, a detailed SSJ is generally not published as part of that announcement.[xli] A request under the Freedom of Information Act (FOIA) may produce the SSJ, but it will likely be redacted to prevent disclosure of the confidential proprietary information. Even a redacted version of the SSJ, however, may indicate whether the FAA has acted in accordance with AMS requirements. In addition, a review of the SSJ may indicate the level of supporting data that the FAA has provided to justify its single- source award. If the FAA has failed to adequately detail its justification, the ODRA is likely to sustain a protest of a single-source award. The Diamond protest demonstrates that such a protest may stop long-standing anticompetitive practices, thus allowing other vendors to compete for FAA contracts.
As the FAA works to implement NextGen over the coming years, the FAA will need to adapt its procurement system to keep pace with the program’s $42 billion price tag. The scope of NextGen technologies is broader than existing air navigation facilities and must prove durable as technologies evolve and emerge. Given the interdependent nature of NextGen technologies, one company’s proprietary interest in any particular component could have long-term implications for other companies’ ability to compete for follow-on contracts.
AMS policy suggests that the FAA should obtain multiple sources for NextGen technologies wherever possible. The FAA may also acquire the data rights and/or top-level data specifications for these technologies from their developers in order to ensure that it can maintain competition over the life cycle of these products. Industry stakeholders should stay involved in the process, and advise the FAA of their capabilities on an ongoing basis. As the FAA develops the NextGen portfolio, it is essential that industry partners monitor the acquisition process and ensure that com- petition remains robust.
1. NextGen Implementation Plan, Fed. Aviation Admin. (Mar. 2012), http://www.faa.gov/nextgen/implementation/ media/NextGen_Implementation_Plan_2012.pdf.
2. U.S. Gov’t Accountability office, GAo-11-132R, integration of current implementation efforts with long-term planning for the next Generation Air transport System (2010), http://www.gao.gov/products/GAO-11-132R.
3. Protest of Diamond Antenna & Microwave Corporation Under Solicitation No. DTFAAC-12-R-03466, Docket Nos. 12-ODRA-00605, 12-ODRA-0617, Findings and Recommendations (Dec. 5, 2012) [hereinafter Findings and Recommendations].
4. In addition to the FAA, the Central Intelligence Agency, the U.S. Postal Service, and the Federal Reserve are a few of the other major agencies that are not subject to the FAR.
5. The Department of Transportation and Related Agencies Appropriations Act of 1996, Pub. L. No. 104-50, 109 Stat.
436 (1995), directed the FAA to develop what would become the AMS, notwithstanding current provisions of federal acquisition law.
6. Federal Acquisition Regulations, 48 C.F.R. § 6.101; The Competition in Contracting Act of 1984, codified at 41 U.S.C. § 253, 10 U.S.C. § 2304.
7. Even if the FAA intends to issue a single-source award, it will post a notice of its intentions on its contracting website.
8. In addition to utilizing the FSS, the FAA maintains master ordering agreements (MOAs) with small businesses pursuant to which it issues task orders for comprehensive management, engineering, and technical support services. It also utilizes qualified vendor lists (QVLs) of pre-cleared vendors that meet the agency’s qualifications for certain categories of work.
9. The AMS makes clear that the FAA favors competition not only during the initial procurement process, but also throughout the life cycle of the item or service being purchased: “Consideration should be given to methods of maintaining competition throughout the lifecycle [sic] of any product or service. Methods to be considered may include dual sourcing, obtaining reprocurement data and data rights, open system designs, and any other appropriate methods.” Fed. Aviation Admin., Acquisition management System Revision policy 126.96.36.199.7. (1997), http://ntl.bts.gov/data/letter_am/ ams0697.pdf [hereinafter AMS policy].
10. Id. at 188.8.131.52.
11. “[M]arket analysis may be as simple as a telephone call or as formal as a market survey advertisement to learn of industry capabilities.” Id. at 184.108.40.206.1.
12. The term “service organizations” encompasses a wide variety of organizations within the FAA, including any organization that manages investment resources, regardless of appropriation, to deliver services. Service organizations can include service units, program offices, and directorates, and they may be engaged in air traffic services, safety, security, regulation, certification, operations, commercial space transportation, air development, or administrative functions. Id.at 1.2.3.
13. The Implementation Strategy and Planning Document (ISPD) defines the overall life-cycle management for an investment program, and may include acquisition of systems and equipment, construction or modification of facilities and the physical infrastructure, and procurement of services.
14. Fed. Aviation Admin., Acquisition management System Guidance T.220.127.116.11(1)(b) (2011) [hereinafter AmS Guidance].
15. AmS policy, supra note 9, at 18.104.22.168.
16. The Office of the Inspector General (OlG) for the Department of Transportation conducted an audit of non- competitive awards in FY2009 and found various faults in the FAA’s methodology in determining price reasonableness, resulting in some possible overpayments. office of inspector Gen., FAA must Strengthen its cost and price Analysis processes to prevent overpaying for noncompetitive contracts, ZA-2011-089 (2011), http://www.oig.dot.gov/node/5552.
17. See 14 C.F.R. § 17.15(a); Protest of Metro Monitoring Services, Inc., Docket No. B98-ODRA-00047 (1998).
18. 14 C.F.R. § 17.15(a) (3).
19. The elements to determine whether a protestor has demonstrated compelling reasons for suspension of the procurement or contract performance are similar to those to receive a preliminary injunction. See id. § 17.15(d).
20. See generally Protest of Crown Communication, Inc., Docket No. 98-ODRA-00098, Interlocutory Decision on Suspension Request (1998); Protest of J.A. Jones Mgmt. Servs., Inc., Docket No. 99-ODRA-00140, Interlocutory Decision on Suspension Request (1999).
21. 14 C.F.R. § 17.35.
22. Id. § 17.39(c).
23. See 14 C.F.R. Part 17 for greater detail about procedures during protests before ODRA.
24. Kevlin’s proprietary interest in ARSR rotary joint components appears to trace back to the early 1990s, when it received Texas Instruments’ ARSR rotary joints from the FAA for repair. Findings and Recommendations, supra note 3, at 6.
25. During the course of the Diamond protest discussed in text, Kevlin and the FAA submitted three contracts: Con- tract No. DTFAAC-11-P-04210 (dated Apr. 13, 2011); Contract No. DTFAAC-11-D-0001 (dated Oct. 28, 2010); Contract No. DTFA02-02-D-00570 (modified Sept. 22, 2003).
26. Specifically, the market survey was for the acquisition of 13 rotary joint L-Band Beacons (PIN 2133611) and 13 rotary joint L-Band Receivers (PIN 2133711), manufactured by Kevlin Corporation.
27. Market Survey, Solicitation No. DTFAAC-12-R-03466 (Apr. 12, 2012).
29. Diamond protested a prior single-source award to Kevlin. See Protest of Diamond Antenna & Microwave Corporation, FAA Docket No. 11-ODRA-00583. The protest was denied because, in its response to the market survey, Diamond had failed to provide documentation demonstrating that it had the right to use OEM data, and therefore the FAA’s justification for a single source had a rational basis. Diamond’s attempts to submit required documentation during the course of the protest proceedings could not provide a basis for attacking the award.
30. This initial protest was docketed as Case Number 12-ODRA-00605.
31. Kevlin was acquired by Cobham PLC in 1996 and is now a division of Cobham Defense Electronic Systems.
32. The second protest, filed August 24, 2012, was docketed as Case Number 12-ODRA-00617.
33. Findings and Recommendations, supra note 3, at 10–12.
34. Id. at 11.
35. Id. at 12–13. The ODRA noted that the SSJ gave “no insight whatsoever into the bases” for the Munroney Center’s conclusory statements regarding the cost and time to reverse engineer the components.
36. Id. at 13.
37. With regard to standardization, the AMS Guidance pro- vides that an SSJ “discuss duplication of costs not expected
to be recovered through competition or unacceptable delays in terms of the overall life cycle of a product or service,” as well as duplicated “learning curves in areas such as testing, familiarization, and certification. . . .” The SSJ should “[i]nclude factual examples and data to support conclusions.” AMS Guidance, supra note 14, at T.22.214.171.124, app. 1.
38. Findings and Recommendations, supra note 3, at 14.
39. AmS policy, supra note 9, at 126.96.36.199.6. http://ntl.bts. gov/data/letter_am/ams0697.pdf.
40. As ODRA noted in its decision, the Munroney Center “ha[d] created a perpetual, non-competitive single source acquisition plan for [the ARSR-4 rotary coupler] components.” Findings and Recommendations, supra note 3, at 14.
41. Except in emergencies, the FAA must inform industry about the basis for the decision to contract with a single source in any action over $100,000. AmS policy, supra note 9, at 188.8.131.52. However, this announcement can be as simple as stating that the specifications and drawings are proprietary to the firm with which the FAA intends to contract, without going into further detail.
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