Legal Update
Sep 9, 2022
Court of Federal Claims Maintains Jurisdiction Over Other Transaction Agreement
Like the James Webb telescope expanding our understanding of the universe, the Court of Federal Claims (“COFC”), in Hydraulics International, Inc. v. United States (Fed. Cl., Aug. 8, 2022), expanded the government procurement community’s understanding of the jurisdiction of the COFC over Other Transaction Agreements (“OTAs”). After initial hurdles, the court now appears prepared to hear challenges to agencies’ OTA award decisions,[1] although the government still has greater latitude (and thus greater discretion) in its evaluation methods than in FAR-based procurements.
Federal agencies with OTA authority are using it on an increasing number of acquisitions, because OTAs encourage responses from non-traditional vendors, support supporting dual-use projects, and encourage flexible, quicker, and cheaper solution design and execution.[2] In other words, agencies view OTA authority as ideal for acquiring solutions that depend on the ingenuity of the marketplace.
Historically, challenges to OTAs were limited at both the Government Accountability Office ("GAO") and the federal courts. Currently, the GAO will not consider protests challenging the evaluation of OT awards (for the reason that OTAs are not procurement contracts). However, GAO will entertain protests challenging the agency’s improper use of a non-procurement instrument to procure goods or services. In other words, the GAO will consider whether the agency has failed to comply with its statutory OT authority. See Oracle America, Inc., B-416061, May 31, 2018 (holding that GAO only has “jurisdiction to hear the challenge to the Army’s exercise of its other transaction authority,” but not to the manner of competition, because the contract itself is not a “procurement contract.”).[3]
In 2019, COFC signaled that it might have jurisdiction over an OTA. In Space Exploration Techs. Corp. v. United States, 144 Fed. Cl. 433 (2019), the parties agreed that the phase 1 prototype OTAs were not procurement contracts, but that the phase 2 procurement would result in a procurement contract. The protester argued that the Air Force’s evaluation and award of the phase 1 prototype OTAs were “in connection with” the phase 2 procurement contract. The court disagreed, finding that the two OTAs were “separate and distinct” solicitations and acquisition strategies.” On this basis, the court concluded that COFC lacked jurisdiction under the Tucker Act (14 U.S.C. § 1491) and transferred the case to California federal district court. The federal court, applying an Administrative Procedure Act standard of review, determined that the Air Force’s actions were not arbitrary or capricious, and denied SpaceX its requested relief. From Space Exploration, we can infer that where COFC finds that an OTA is issued “in connection with” a procurement, COFC will find it has exclusive jurisdiction under the Tucker Act.
In 2021 protesters started to see light at COFC, when in Kinemetrics, Inc. v. United States, 155 Fed. Cl. 777 (2021), the COFC maintained jurisdiction over the challenge because the “solicitation had a direct effect on the award of a contract.” However, the Kinemetrics court limited its review to “whether the government followed its own process” and denied Kinemetrics’s challenges to the agency’s evaluation.
All of these cases led to the COFC’s recent decision in Hydraulics, in which the government again argued that the court lacked jurisdiction because the OTA prototype effort[4] was not connected to a procurement or a proposed procurement.[5] The court denied the government’s motion and kept jurisdiction, finding on the facts that the OTAs were connected to determining a government need, the assessment of need was an early step in the government procurement process, and the court had jurisdiction over challenges in connection with a procurement or proposed procurement.
Unfortunately for the protester, after taking jurisdiction, the court nevertheless denied Hydraulics’s various challenges to the agency’s evaluation and award decision, finding that the protester had failed to show that the agency’s evaluation lacked a rational basis. In this respect, the court’s newfound jurisdiction remains still a small part of the bid protest universe. While contractors challenging FAR-based procurement contracts have both the FAR and extensive case law as checks on the agency’s evaluation methodology, in OTAs, agencies remain free to write their own standards. Thus, the court’s ability to review may not bring much relief. However, given that this area is wide open, a disappointed contractor with good facts may wish to raise a challenge and plant its flag.
[1] Note: These decisions were all challenges to the authority exercised by the relevant Department of Defense agency under 10 U.S.C. § 4022 (which, prior to renumbering, was 10 U.S.C. § 2371(b)). While the court in Hydraulics did not limit its jurisdiction to challenges under this statute, OTA statutes vary by agency.
[2] There are 11 federal agencies with OTA authority, although not all of those agencies use that authority regularly.
[3] See also MD Helicopters, Inc., B-417379, April 4, 2019 (dismissing protest challenging the agency’s evaluation of proposals and award decision).
[4] The Kinemetrics parties agreed that “OTAs themselves are not procurements.”
[5] 28 U.S.C. § 1491(b)(1) grants the Court of Federal Claims and federal district courts jurisdiction over solicitation and award challenges as well as “any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.”