freealliance.com, LLC v. United States
17-787
| Fed. Cl. | Oct 27, 2017Background
- NIH issued an RFP under the CIO‑SP3 GWAC that required each offeror (and each CTA member where applicable) to provide verification that its accounting system "has been audited and determined adequate for determining costs applicable to this contract in accordance with FAR 16.301‑3(a)(1)," and, if using a third‑party CPA, the verification had to be on the CPA firm letterhead and certified by a CPA.
- FreeAlliance submitted a FAR 9.601(1) contractor team arrangement (CTA) with two members: HealthTech and Nish; FreeAlliance itself submitted a DCAA audit report, but HealthTech and Nish submitted short third‑party CPA forms that were not on CPA firm letterhead and provided limited or ambiguous substantive language about whether a review had occurred or addressed adequacy for cost‑reimbursement tasks.
- NIH conducted a two‑phase evaluation with Phase 1 consisting of four Go/No‑Go requirements, including the accounting‑system verification; NIH rated FreeAlliance "unacceptable" in Phase 1 because HealthTech’s and Nish’s verifications failed the letterhead and substantive requirements.
- FreeAlliance protested to GAO (denied) and then sued in the Court of Federal Claims, arguing NIH acted arbitrarily and capriciously, treated offerors unequally, failed to engage in required discussions/clarifications, and should have referred a non‑responsibility determination to SBA.
- The Court reviewed the administrative record under the APA arbitrary‑and‑capricious standard, found NIH had a rational basis for enforcing the letterhead and substance requirements and for refusing to permit correction, and concluded NIH did not unequally evaluate offerors or engage in improper discussions. Judgment for the Government.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was NIH arbitrary and capricious in excluding FreeAlliance for noncompliant CTA member verifications? | NIH should have accepted the submitted third‑party forms or sought clarification; exclusion was arbitrary. | The forms were facially noncompliant (no CPA firm letterhead) and substantively ambiguous as to whether a review had occurred or addressed FAR 16.301‑3(a)(1). | Held for defendant: NIH reasonably required letterhead and clear substance; exclusion was not arbitrary. |
| Did NIH apply the verification requirement unequally across offerors? | NIH treated FreeAlliance more harshly than other offerors who had similar deficiencies. | Other offerors’ verifications were distinguishable (more detail, proper letterhead, or were ultimately rejected for other reasons); overall Phase‑1 outcomes control. | Held for defendant: record shows rational bases for distinctions; no unequal treatment shown. |
| Was NIH required to engage in discussions or permit FreeAlliance to correct the deficient verifications? | NIH should have requested clarifications or allowed resubmission to cure the letterhead/substance defects. | FAR and the RFP allow only clarifications (not discussions); the accounting verification is substantive and not a clerical matter NIH had to let be corrected. | Held for defendant: NIH permissibly limited itself to clarifications and was not required to allow corrective submissions. |
| Should the contracting officer have referred a non‑responsibility determination to the SBA for a Certificate of Competency? | Exclusion amounted to a non‑responsibility determination that required SBA referral. | NIH’s determination was based on failure to submit required documentation, not an adverse responsibility finding. | Held for defendant: exclusion rested on solicitation noncompliance, not an SBA‑referable responsibility determination. |
Key Cases Cited
- Weeks Marine, Inc. v. United States, 575 F.3d 1352 (Fed. Cir. 2009) (standard of review for agency procurement decisions; rational‑basis/APA review)
- Labatt Food Servs., Inc. v. United States, 577 F.3d 1375 (Fed. Cir. 2009) (requirement to show prejudice and reasonable likelihood of award to prevail in bid protest)
- Banknote Corp. of Am. v. United States, 56 Fed. Cl. 377 (2003) (agencies must evaluate offerors evenhandedly against common criteria)
- Redland Genstar, Inc. v. United States, 39 Fed. Cl. 220 (1997) (courts defer to reasonable agency decisions even if a different conclusion might be reasonable)
- Mercom, Inc. v. United States, 131 Fed. Cl. 32 (2017) (contractor bears responsibility for proposal compliance; agency not required to correct offeror’s mistakes)