Kropp Holdings, Inc. v. United States, 24-2155

Background

DLA issued an RFP for administration of the AIR Card aviation-fuel payment program; incumbent Kropp Holdings, Inc. (KHI) and Associated Energy Group, LLC (AEG) competed; AEG was awarded after evaluations and corrective actions.
RFP required electronic submission to Energyfuelcards@dla.mil by a 10:00 a.m. deadline and specified that timeliness would be determined by the receipt timestamp on the submission inbox; proposals were in four volumes and included a mandatory verbatim “no cost” certification as a gate requirement.
Administrative record screenshots and metadata showed AEG’s Volumes 1 and 2 arrived in the DLA submission inbox after 10:00 a.m.; DLA nevertheless treated AEG as timely and awarded the contract to AEG.
DLA later permitted after-FPR contact with AEG (but not KHI) so AEG could supply the required “no cost” certification; AEG proposed a walled-off division (PPS) and mitigation measures for organizational conflicts of interest (OCIs) and DLA credited AEG/PPS with AEG’s corporate experience and past performance.
KHI protested at GAO multiple times; GAO sustained one protest relating to subcontractor identification and DLA conducted limited reevaluation but again awarded to AEG; KHI sued in the Court of Federal Claims alleging multiple procurement errors.
Court found several prejudicial errors (AEG’s late submission; unequal/misleading post-FPR communications; irrational attribution of AEG’s corporate experience/past performance to the walled-off PPS) that fatally infected the best-value decision, and permanently enjoined performance and re-award to AEG.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Timeliness of AEG's initial proposal	AEG’s Vols.1–2 arrived after the 10:00 a.m. deadline; acceptance violated the RFP and FAR “late is late” rule	AEG and Govt: timestamps or server handshakes show timely receipt or exceptions apply	Held: AEG’s submission was late under the RFP (inbox receipt timestamp controls); government control/electronic exceptions do not apply; acceptance prejudiced KHI
Post-FPR communications to AEG only (no-cost certification)	DLA’s limited re-opening with only AEG cured a material gate defect and constituted improper discussions, disadvantaging KHI	Govt/AEG: exchanges were mere clarifications or corrective-action-limited, not discussions; any contact was narrowly scoped	Held: Contacts constituted improper post-FPR discussions (material error) but KHI failed to prove prejudice from these particular discussions on the record
Organizational conflicts of interest (OCIs) and mitigation	AEG’s OCI mitigation (firewalled PPS, recusal, unnamed subcontractor) was insufficient; statute section 886 bars awards with OCIs	Govt/AEG: mitigation plan was reasonable; firewalls and recusal can mitigate impaired-objectivity OCIs; section 886 claim lacks standing/ripe	Held: KHI lacks standing and claim under section 886 is unripe; DLA’s acceptance of AEG’s OCI mitigation was not shown to be unreasonable on the record
Attribution of corporate experience/past performance to PPS	DLA irrationally credited PPS (a walled-off division) with AEG’s corporate experience/past performance, despite PPS being distinct	Govt/AEG: PPS is a division of AEG; as offeror AEG’s experience may be credited; some staff would move to PPS	Held: Unreasonable to credit PPS with AEG’s experience/past performance given express separation; prejudicial error that affected best-value decision

Key Cases Cited

Labatt Food Serv., Inc. v. United States, 577 F.3d 1375 (Fed. Cir. 2009) (a late proposal is tantamount to no proposal; “late is late” principle)
Bannum, Inc. v. United States, 404 F.3d 1346 (Fed. Cir. 2005) (bid protest burden: show error and prejudice under APA)
Motor Vehicle Manufacturers Ass'n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29 (1983) (arbitrary and capricious review standard)
Banknote Corp. of America v. United States, 56 Fed. Cl. 377 (2003) (agencies must evaluate proposals based on solicitation terms)
Alfa Laval Separation, Inc. v. United States, 175 F.3d 1365 (Fed. Cir. 1999) (agency bound by solicitation terms; cannot waive standards without amendment)
Weeks Marine, Inc. v. United States, 575 F.3d 1352 (Fed. Cir. 2009) (procurement decisions set aside where lacking rational basis or violating procedure)
Data General Corp. v. Johnson, 78 F.3d 1556 (Fed. Cir. 1996) (protestor must show both significant procurement error and prejudice)
Axiom Resource Management v. United States, 564 F.3d 1374 (Fed. Cir. 2009) (OCI analysis is fact-specific and discretionary)