The Future of Protest Jurisdiction Involving Other Settlement Agreements: Does the Hydraulics Int’l Decision Represent a Sea Change to the US COFC? | Insights and Events

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In a recent decision, Hydraulics Int’l, Inc. c. United Statesthe Federal Claims Court (“COFC” or “Court”) has exercised jurisdiction over a bid challenge challenging the award of an alternate transaction agreement (OTA).1

Background

involved in International hydraulics was the Department of the Army’s upgrade to Military Helicopter Ground Power Units (APGUs), used for servicing Army helicopters when not in flight. To achieve this upgrade, the military selected an OTA as the purchase vehicle. In terms of process, the Army first awarded an OTA to a consortium that engages industry and academia in OTA prototype projects. In turn, the consortium issued a Request for Enhanced White Papers (RWPs) to its consortium members, with the goal of eventually entering into separate OTAs with the Army-selected contractors. Of particular importance to the question of jurisdiction, the RWP provided, pursuant to the Army’s OTA authority under Section 2371b(f) (now § 4022(f)), “On the Determination that this prototype project awarded by way of competition has been successfully completed, this project may give rise to the award of a follow-up production contract for more than 150 AGPUs without recourse to competitive procedures”2 (emphasis added).

Five entrepreneurs, including International hydraulics, submitted responses to the RWP. After the Army evaluated the white paper submissions, it selected two more contractors for OTA award. The protester then filed a post-award protest with the COFC, challenging his non-selection. In particular, the protester’s complaint alleged that the military misjudged its white paper submission and improperly waived or relaxed key solicitation requirements when selecting the two contractors to be awarded.

The government has decided to dismiss the protester’s complaint for lack of jurisdiction in the matter, arguing that the protest is not “in connection with a bargain or proposed bargain” as required by Tucker Law, 28 USC § 1491(b)(1) . In response, while agreeing that the OTAs themselves were not supply contracts, the protester argued that the Court had jurisdiction to hear the protest under the Tucker Act. The protester argued that because the RWP established the possibility of a follow-on production contract for 150 AGPUs without competition, the OTAs were therefore “in relation to a market“.3

Analysis

Ultimately, the Court found that it possessed Tucker Law jurisdiction to hear the protest. First, the Court noted that the Tucker Act grants the COFC “jurisdiction to enter judgment upon an action of an interested party objecting to a solicitation by a federal agency of bids or proposals for a proposed contract or a proposal or award of a contract or any alleged violation of any law or regulation in connection with a contract or proposed contract.” 28 USC § 1491(b)(1) The Court then pointed out that the Court of Appeals for the Federal Circuit held that the key phrase “in connection with” had a very broad scope.4

Recognizing that the parties did not dispute that the OTAs in question were not themselves public markets, the Court focused its analysis on the “connectivity” of the OTAs to a market or to a proposed market. Although the Tucker Act itself does not define “public procurement” or “proposed procurement,” the Court noted that the Federal Circuit relies on the definition of procurement in 41 U.S.C § 111, which states: “ The term “procurement” includes all stages of the process of acquiring goods or services, beginning with the process of determining a need for goods or services and ending with the completion and closing of the contract. Focusing its analysis of the jurisdictional issue further, the Court stated that “if AGPU OTAs are part of the military’s ‘procurement need determination process’, then they are tied to a proposed contract and this Court has jurisdiction over plaintiff’s claim.”5

Then, applying this standard, the Court considered the main arguments of the government in support of its assertion that the OTAs were not linked to a proposed market: (1) although the RWP envisaged a production contract subsequent, it did not guarantee such a transaction; and (2) the Army reserved the right to pursue any subsequent acquisition by means other than procurement. Citing the Federal Circuit’s decision in Distributed Sols., Inc. v. United States539 F.3d 1340 (Fed. Cir. 2008) – in which the Federal Circuit granted jurisdiction over a challenge involving a request for information from an agency that did not result in a bargain – the Court explained that ‘It was irrelevant that the potential market for 150 APGUs occurred as long as the government initiated the process of determining a need for procurement and the procurement could be done through procurement.6 Finally, the Court reviewed the record and concluded that each aspect of the RWP was specifically suited to determining the Army’s asset requirements (i.e., enhanced AGPUs).seven For these reasons, the Court found subject matter jurisdiction over the protest and dismissed the government’s motion to dismiss.

Although this legal update focuses on the Court’s ruling on the jurisdictional issue, it is worth mentioning that the Court ultimately denied the protest allegations, applying the arbitrary and capricious standard of review.8 Based on its review of the record and consideration of the protester’s allegations, the Court concluded that International hydraulics failed to discharge the “heavy burden of demonstrating that the award decision had no rational basis”.9

Take away food

The International hydraulics The decision is notable because it provides a potential avenue for disappointed offerors who wish to challenge an agency’s award of an OTA. Specifically, if the live competition contemplates the award of a subsequent production contract, and that subsequent production contract may involve a supply contract, COFC may find Tucker Law jurisdiction over a protest involving this OTA competition. On the other hand, if a live tender were to preclude the possibility of using the tender to establish a subsequent contract, such a situation could be considered to be indistinguishable from the relevant facts in Hydraulic Int’l.

Moreover, until the Federal Circuit rules on the question of the OTA’s protest jurisdiction, it is unclear to what extent other COFC judges will choose to adopt the reasoning of Hydraulic Int’l. Even though the landscape of OTA events at COFC is not fully developed, entrepreneurs involved in OTA competitions should take note of International hydraulics and consider the Court’s decision when challenging an agency’s award of an OTA.


1 Hydraulics Int’l, Inc. c. United Statesn° 22-364 (August 8, 2022).

2 International hydraulics, Inc., at 3.

3 In the alternative, the protester requested that the court transfer the case to the federal district court in the event the court finds it lacks jurisdiction.

4 Hydraulics International, Inc.at 6.

5 Hydraulics International, Inc.at 8.

6 The Court also noted that the government’s position was inconsistent with two recent decisions, one from the COFC and the other from the District of Arizona, each declaring that the COFC has jurisdiction when a disputed OTA is linked to a market or a market project. International Hydraulics, Inc., to 10 (quoting Kinemetrics, Inc. c. United States, 155 Fed. Cl. 777 (2021), and MD Helicopters Inc. v. United States, 435 F. Supp. 3d 1003 (D.Arizona 2020)).

seven In this regard, the Court noted that the government had confirmed during oral argument that the central objective of the OTA was to replace the old AGPUs. International hydraulicsInc., at 9. Relying heavily on the fact that OTAs initiated a process to determine a need for ownership, the Court said that “[s]This activity fits perfectly into the first “step of the federal contract acquisition process”. Hydraulics International, Inc.at 11 (quoting Distributed Floors., Inc.539 F.3d to 1346).

8 Describing the applicable standard of review, the Court said:

When this Court assesses a bid challenge, “the question is whether the agency’s action was arbitrary, capricious, an abuse of power, or otherwise inconsistent with the law and, if so, whether the mistake is prejudicial”. Glenn Def. Marine (ASIA), PTE Ltd. vs. United States720 F.3d 901, 907 (Fed. Cir. 2013); see also Sys. Application & Techs., Inc., c. United States, 100 fed. Cl. 687, 711 (2011), aff’d691 F.3d 1374 (Fed. Cir. 2012).

International hydraulicsInc., at 6.

9 Hydraulics International, Inc.at 26 years old.

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