Analytical Graphics, Inc. v. United States

In the United States Court of Federal Claims

No. 16-1453C

Filed: November 17, 2017

Reissued: December 12, 20171

* * * * * * * * * * * * * * *

ANALYTICAL GRAPHICS, INC., *

* Bid Protest; Cross-Motions for

Protestor, * Judgment on the Administrative

v. * Record; Small Business Set-Aside;

* Commercial Availability; 10 U.S.C.

UNITED STATES, * § 2377.

*

Defendant, *

*

v. *

*

APPLIED DEFENSE SOLUTIONS, *

INC., *

*

Defendant-Intervenor. *

*

* * * * * * * * * * * * * * *

Seamus Curley, Stroock & Stroock & Lavan LLP, Washington, D.C., for protestor.

With him was Daniel J. Cook, DLA Piper LLP, Washington, D.C.

James W. Poirier, Senior Trial Counsel, Commercial Litigation Branch, Civil

Division, United States Department of Justice, Washington, D.C., for defendant. With him

were Douglas K. Mickle, Assistant Director, Commercial Litigation Branch, Robert E.

Kirschman, Jr., Director, Commercial Litigation Branch, and Chad A, Readler, Acting

Assistant Attorney General, Civil Division, Department of Justice. Of counsel were

Christopher Cole, and Jason Templin, United States Air Force.

Edward J. Tolchin, Offit Kurman, P.A., Bethesda, Md., for defendant-intervenor.

1 This opinion was issued under seal on November 17, 2017. The parties were given the

opportunity to propose redactions to the court. No redactions were proposed. The opinion,

therefore, is unsealed and issued for publication.

OPINION

HORN, J.

Analytical Graphics, Inc. (Analytical Graphics) filed a post-award bid protest in this

court challenging Solicitation No. FA2550-16-R-8008 (the solicitation), issued by the

United States Air Force (Air Force) on behalf of the Joint Interagency Combined Space

Operations Center (JICSpOC) for its Space Situational Awareness (SSA) data

requirements, as well as the contract subsequently awarded to defendant-intervenor

Applied Defense Solutions, Inc. (Applied Defense). Analytical Graphics filed suit in the

United States Court of Federal Claims after the United States Government Accountability

Office (GAO) denied protestor’s GAO protest. See generally Analytical Graphics, Inc., B-

413385, 2016 WL 6212299 (Comp. Gen. Oct. 17, 2016). In this court, Analytical Graphics

asserts that the Air Force acted arbitrarily and capriciously when it issued the solicitation

as a non-commercial item solution, because Analytical Graphics alleges that a majority

of the services that the Air Force sought were available commercially, and further argues

that Air Force acted arbitrarily and capriciously when it issued the solicitation as a set-

aside for small businesses.

FINDINGS OF FACT

By way of background to understand the protest currently before the court,

JICSpOC was established by the Department of Defense in October 2015. Even before

JICSpOC was formally established, the Air Force had begun market research “for a new,

firm-fixed price subscription service for commercial space observation and analysis

capabilities.” The Air Force sought a “solution to include hardware, software, training, and

a commercial subscription service to include Space Situational Awareness Suite and

Battle Management Command and Control software licenses.” The parties have jointly

stipulated that “the Air Force took a two-phase approach to determining and obtaining

commercial capabilities that could contribute to the JICSpOC mission: (1) to test products

found in the marketplace, and (2) to contract for operating capabilities.” On August 24,

2015, the contracting officer issued a market research report (the JICSpOC market

research report), recommending a sole source award to Analytical Graphics.2 The

JICSpOC market research report indicated that:

Limited market research was conducted. Given the national security

implications of the requirement, the use of various market research tools is

necessarily constrained. For example, it is not practicable to engage

industry with synopses for sources sought, draft request for proposals,

capability statements/analysis, and other standard market research tools

used for full and open competitions.

Regarding Analytical Graphics, the JICSpOC market research report stated:

2 The parties have stipulated that “[t]he market research report leading to the AGI

[Analytical Graphics] contract stated that the procurement was classified under NAICS

Code 511210, Software Publishers.”

2

AGI’s ComSpOC [Commercial Space Operations Center] is cutting edge in

the industry. Research confirms potential sources are time away from

providing the tools AGI has developed commercially for application-level

mission needs. The Government has determined that no other commercial

sources currently produce or offer comparable capabilities in terms of the

space situational awareness that AGI publicly offers for sale.

Commercial item: FAR 2.101 defines commercial item, other than real

property, that is of a type customarily used by the general public or by non-

governmental entities for purposes other than governmental purposes, and-

- (i) Has been sold, leased, or licensed to the general public; or, (ii) Has

been offered for sale, lease, or license to the general public. ComSpOC is

available on the Analytical Graphics, Inc website (agi.com) for sale to the

general public. This subscription service new and emerging technology with

limited commercial sales; however, ComSpOC has been bought by the

commercial company, Boeing Inc, to launch two commercial satellites. The

backbone of ComSpOC is based on commercial software known as Space

Situation Awareness (SSA). SSA is available and sold to the general public

via the internet and GSA schedule. Therefore, FAR Part 12, Acquisition of

Commercial Items, applies to the acquisition and has been determined by

the contracting officer to be a commercial item.

The JICSpOC market research report also explained the difference between a

license and subscription service, indicating:

License versus Subscription Service: Market research indicates this is a

commercial software subscription and not a software license or agreement.

In a license, the government gets rights to copy and use a software

application, while in a subscription service; the government gets a

subscription to use the software via the internet. The confusion stems from

the central role of “software” in software as a service. Bottom line, what the

government will do with the software. If the government puts a copy of a

software application on a computer--downloads it, installs it from a disk,

etc.--the contract calls for a license. Copyright law gives the software’s

owner a monopoly over the right to copy it (to “reproduce” it), so the

government needs a copyright license to make a copy and put it on a

computer. In a subscription service, the government does not put software

on a computer, or copy it at all. The software sits on the contractor’s

computer and the government merely accesses it via the Internet. With no

copies, copyright plays no role in the transaction, so the government does

not need a copyright license. During the term of the contract, the contractor

shall provide the application to government via the internet.

Finally, the JICSpOC market research report stated that “AGI provided a capability brief

to the government customer. The customer has determined AGI is capable of providing

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this capability. At this time, there are no known commercial items with the capabilities

similar to ComSpOC.”

In addition to the JICSpOC market research report, the contracting officer also

issued a streamlined acquisition strategy summary (the JICSpOC streamlined acquisition

strategy summary), again recommending a sole source award to Analytical Graphics.

The JICSpOC streamlined acquisition strategy summary noted that “[t]he Government

will acquire AGI’s commercial products and capabilities collectively known as Commercial

Space Operations Center (ComSpOC). The period of performance is 10 months from

contract award.” (emphasis in original). The JICSpOC streamlined acquisition strategy

summary also indicated that:

A search of General Service Administration, Space Symposium, and

technical publications revealed no commercial product with similar

capabilities other than AGI. In Space News, Lockheed Martin Space

Systems, working with Australia's Electra Optic Systems, announced

August 2014, it is planning a new space object-tracking site in western

Australia and hopes to sell the data commercially and to the Government in

the future. No commercial products are currently available for sale other

than ComSpOC.

AGI has provided a capability brief to the Government customer. At this

time, there are no other known commercial items with the capabilities similar

to ComSpOC.

Similar to the JICSpOC market research report, the JICSpOC streamlined acquisition

strategy summary provided a rationale for proceeding under “FAR 12: Acquisition of a

Commercial Item:”

Commercial Item: FAR 2.101 defines commercial item, other than real

property, that is of a type customarily used by the general public or by non-

governmental entities for purposes other than governmental purposes, and-

- (i) Has been sold, leased, or licensed to the general public; or, (ii) Has

been offered for sale, lease, or license to the general public. ComSpOC is

available on the Analytical Graphics, Inc. website (agi.com) for sale to the

general public. In addition, this subscription service has been bought by

commercial companies such as Boeing Inc to launch two commercial

satellites. The backbone of ComSpOC is based on a commercial software

known as Space Situation Awareness (SSA). SSA is available and sold to

the general public via the internet and GSA schedule. Therefore, FAR Part

12, Acquisition of Commercial Items, applies to the acquisition and has

been determined by the contracting officer to be a commercial item.

This is a sole source requirement; therefore, FAR Part 15 applies. When

contracting in a sole source environment, the request for proposal will be

tailored to remove unnecessary information and requirements.

4

After the JICSpOC market research report and JICSpOC streamlined acquisition strategy

summary, the contracting officer issued Solicitation Number FA2550-15-R-8002 to

Analytical Graphics. The solicitation included CLIN 0001, which stated: “ComSpOC

Subscription Service and Technical Support, including the AGI SSA and BMC2 SW

Prototype/Risk Evaluation License IAW Statement of Objectives, 1 Sep 15,” and CLIN

0002,3 which stated:

Onsite Data Processing Solution to include Hardware, Operating

System/Software and Installation. Provide all necessary hardware for on-

site data processing as well as all remote access log-in capabilities

necessary to view and obtain ComSpOC subscription services and data

from the contractor’s processing center. Install and support initial system

software configuration. Install and support the complete (target) system

hardware configuration.

On September 29, 2015, the Air Force awarded Analytical Graphics, Contract No.

FA2550-15-C-8008, a sole-source, fixed price contract (the JICSpOC contract). The

period of performance was September 29, 2015 to July 30, 2016. 4 The value of the

JICSpOC contract was $8,426,064.00.5 The parties have stipulated that “[d]uring contract

negotiations, the Contracting Officer negotiated a data rights addendum with AGI which

was made part of the contract.” The JICSpOC data rights addendum stated, in its entirety:

DFARS 252.227-7015-Technical Data Commercial Items

DATA RIGHTS ADDENDUM

AGI grants AFSPC a limited, non-exclusive, non-transferable, non-

sublicenseable right to access and use the features and functions of the

ComSpOC Subscription Service for the Period of Performance, in

accordance with the ComSpOC Corporation's Spacebook Subscription

Service Agreement. ComSpOC Corporation is a wholly-owned subsidiary

of AGI.

AGI shall provide to AFSPC a Prototype/Risk Reduction License to AGI’s

SSA Software Suite for the Period of Performance in accordance with AGI’s

SSA Software License Agreement.

3 The remaining CLINs refer to training and a “Commercial Communications Leased

Line.”

4 The Air Force declined to exercise its option to extend the JICSpOC contract, allowing

the JICSpOC contract to expire on July 31, 2016.

5 The JICSpOC contract was broken out by CLINs. The fixed price for CLIN 0001 was

$8,071,580.00, the fixed price for CLIN 0002 was $229,586.00, the fixed price for CLIN

0003 was $38,636.00, the fixed price for CLIN 0004 was $38,636.00, and the fixed price

for CLIN 0005 was $47,626.00.

5

AGI shall provide to AFSPC a Prototype/Risk Reduction License to AGl’s

BMC2 Software Suite for the Period of Performance in accordance with

AGl's BMC2 Software License Agreement.

The ComSpOC Subscription Service shall only be used for the purpose of

the JICSpOC activities. Usage is limited to those “JICSpOC activity users.”

These users are defined as those JICSpOC, AFSPC HQ, and SMC

personnel engaged in JICSpOC activities.

Furthermore, usage and distribution of any data resulting from the

ComSpOC Subscription Service is limited as follows:

• ComSpOC raw data and products, including ComSpOC output products,

may be used to directly support JICSpOC activities. These raw data and

products will not be used for R&D purposes by other capability providers

and developers, nor will they be used to reverse engineer and improve the

tools of other participating capability providers and developers.

• Live data included in ComSpOC output products will not be transferred

outside of the JICSpOC facility. However, historical data included in

ComSpOC output products may be distributed outside the JICSpOC facility

to be used solely as part of JICSpOC activities.

ComSpOC output products included as part of a JICSpOC operational

report may be made available to all DoD personnel. ComSpOC output

products not included as part of a JICSpOC operational report shall be

limited in availability to JICSpOC, AFSPC HQ, and SMC personnel. Such

availability to personnel beyond these Identified organizations shall require

AGI’s prior consent.

Commercial items are subject to the policies in other parts of the FAR. FAR

Part 12 shall take precedence for the acquisition of commercial items. This

addendum shall take precedence over the attached service and license

agreements.

(capitalization in original).

Approximately one month after the JICSpOC contract was awarded to Analytical

Graphics, the contracting officer began market research for the contract at issue in the

above captioned protest, which was ultimately awarded to Applied Defense on October

21, 2016. The contracting officer first issued a Request for Information (RFI) on November

4, 2015, “to conduct market research, a continuous process for collecting and analyzing

information about capabilities within the market to satisfy agency needs.” The November

4, 2015 RFI continued, “the US Air Force needs processed, commercial Space Situational

Awareness (SSA) data for operational use. SSA data must originate from non-DoD

sensors and be validated on commercial systems outside of the Department of Defense

(DoD) network.” The parties have stipulated that the list of capabilities in the RFI was

6

similar to the “Application Technical Specifications”6 in the JICSpOC contract and further

stipulated that “[a]t the time this RFI was issued, the contracting officer anticipated that

the application ultimately procured for operations would probably be a commercial item.”

6 The RFI sought information about the ability of offerors to provide the following

applications:

 Include a mix of optical, radar and passive radio frequency (RF) systems

capable of providing astrometric, radiometric, and/or photometric data.

 Provide high definition ephemeris data on space objects to include

position, status, accuracy/confidence, covariance, and historical

trending data.

 Provide specific meta-data on the source of the observations such as

latitude, longitude, and altitude; time of collection, owner/operator,

and/or country of origin.

 Provide sensor status, such as Non-Mission Capable, Fully Mission

Capable, or Partially Mission Capable.

 Provide realistic SSA sensor collection opportunities considering

feasibility and timing for metric and non-metric data needed to support

SSA courses of actions.

 Be capable of processing metric observations from sensors from any

commercial or US Government, civil, and/or international entity in any

format.

 Be capable of identifying, when technically possible, possible, associate,

characterize, monitor and track observable space objects whose orbits

are not in the Geosynchronous Earth Orbit (GEO) belt, including, but not

limited to, objects in Low Earth Orbit (LEO), Medium Earth Orbit (MEO),

and Highly Elliptical Orbit (HEO).

 Provide a threat analysis for specified high interest US satellites,

depicting time and distance, as well as required time for a specified

threat to maneuver into a threatening position.

 Provide a threat analysis to current and planned operations of space-

based mission capabilities supporting Intelligence, Surveillance and

Reconnaissance (ISR), Communications, Position, Navigation and

Timing (PNT), Missile Warning, and Weather.

 Provide predicted and real time characterization of all launch and early

orbit operations, to include direct ascent Anti-satellite (ASAT) threats, by

7

Fifteen potential offerors responded to the November 4, 2015 RFI, including

Analytical Graphics, Applied Defense and ExoAnalytic Solutions, Inc. (Exo).

Subsequently, on March 29, 2016, the contracting officer issued the first amended RFI,7

which included a revised statement of the needs, indicating: “The US Air Force needs

commercial SSA data for operational use. SSA data must originate from non-DoD

sensors and be real-time. See attached for minimum salient characteristics.” The parties

have stipulated:

In the amended RFI, The Air Force sought information about collections of

data, software and personal services that could meet certain minimum

requirements. The Air Force included a list of ten “Salient Characteristics”

that the Air Force considered to be “minimum requirements” for the SSA

system:

SALIENT CHARACTERISTICS: The collection of non-governmental SSA

data, processing tools, personnel, and contracted support will be referred

to as the Commercial SSA System.

• Provide metric, non-metric, and Space Object Identification (SOI)

observations from data collected from a minimum of 10 worldwide sensors

outside the control of the USG, at least half of which must not be terrestrial

sensors in North America (e.g. sensors in Europe, on orbit).

• Document whether sensors can be utilized on an on-demand basis or if

their use must be pre-planned and list the additional costs for on-demand

service, if applicable.

• Provide the format and source of the data.

• Ingest authorized DoD data (raw or processed observations) into any

contractor event processing or analysis capability.

determining orbital trajectories, projected conjunctions with projected

launch vehicle path, etc.

 Support the ability to assess feasible courses of action, for deliberate

and/or crisis action planning, to maximize safety of flight, continued

operations, and response options of space assets and missions to

support warfighter needs and commander’s intents.

7 The contracting officer subsequently issued a second amended RFI, on April 1, 2016,

to publicly answer four questions submitted by potential offerors, as well as a third

amended RFI, issued on April 5, 2016, to extend the deadline for submissions by five

hours. Subsequently, the contracting officer issued a fourth amended RFI, dated May 11,

2016, which is discussed further below.

8

• Ensure they export their data, one-way, to DoD networks of equal or higher

classification for additional processing.

• Provide for threat warning assessment by detecting and notifying

JICSpOC personnel of a space object entering or projected to enter a user-

definable area around specific resident space objects (RSO) within 15

minutes of entering. NOTE: 15 minutes is the unclassified value.

• Process and correlate feature-type data (Visual Magnitude (Vmag), Radar

Cross Section (RCS) changes, RF spectrum, etc.).

• Ability to detect hostile and non-hostile maneuvers and analyze the

change of behavior, to include the revised orbit, within 2 minutes of

maneuver detection.

• Augment DoD persistent monitory capabilities by maintaining custody of

designated objects (e.g. Super High Interest Objects) to the maximum

degree possible.

• Provide telemetry data on the orbits of all detectable objects.

(capitalization in original). On April 6, 2016, fifteen potential offerors again responded to

the first amended RFI, including Analytical Graphics, Applied Defense, and Exo.

Analytical Graphics, Applied Defense, and Exo. Analytical Graphics stated that it could

meet the Air Force’s minimum salient characteristics and explained that “[t]he

Government’s requested product (the Commercial SSA System) requires a private

implementation of AGI’s Commercial Space Operations Center (ComSpOC) consisting

of four AGI products, all of which are available commercially.” In response to the RFI

question: “Describe how your product meets the definition of commercial item in FAR

2.101,” Analytical Graphics explained:

AGI’s product meets the definition of commercial item in FAR 2.101 as

follows:

1. The product is of a type customarily used by the general public or by non-

governmental entities for purposes other than governmental purposes, and

a. Has been sold, leased, or licensed to the general public; or,

b. Has been offered for sale, lease, or license to the general public;

2. The product evolved from an item described in (1) of this definition

through advances in technology or performance and that is not yet available

in the commercial marketplace, but will be available in the commercial

marketplace in time to satisfy the delivery requirements under a

Government solicitation.

3. The product related services are of a type offered and sold competitively

in substantial quantities in the commercial marketplace based on

9

established catalog or market prices for specific tasks performed or specific

outcomes to be achieved and under standard commercial terms and

conditions.

Analytical Graphics also suggested that:

Since the Government is procuring a commercial item, AGI recommends

that source selection evaluation be done under FAR Part 12 (12.6,

Streamlined evaluation of offers), which will enable the Government to

select a commercial solution provider who not only meets but exceeds the

majority of the salient characteristics, with recent and relevant past

performance, and with a price that can be justified based on these

contributing inputs.

The parties have stipulated that Applied Defense, in contrast to Analytical

Graphics, indicated in its response that “it would lead a consortium of organizations long

involved in SSA to provide a Commercial SSA System,” and that “the consortium could

meet the minimum salient characteristics set forth in the amended RFI.” In response to

the RFI question: “Describe how your product meets the definition of commercial item in

FAR 2.101,” Applied Defense responded:

The definition of the product in the Salient Characteristics is not available in

the general public and as such would not meet these criteria. Due to the

nature of the published requirements, it is our assessment that any existing

product which meets all of those requirements would only do so with

significant security concerns. This is a topic which could be addressed

further at Industry Day and subsequent direct interactions. With that said

we do believe commercially sourcing of data, processing, and services is

very achievable and that non-US Government sourced products and

services can mature quickly in an open marketplace if security and policy

restrictions are eased.

Regarding the procurement generally, Applied Defense indicated that:

It is our strong belief that No Single Bundle of Commercial Products or

Services will meet the USG needs. The requirements for SSA and the

mission needs are such that a multiple award IDIQ type strategy is the only

workable strategy. Sensor types satisfying the operational needs are so

diverse, covering not only global geography but spanning all orbit regimes

for small or large, bright or faint, and emitting or quiet, that new sensor

phenomenology can only be brought online in a multiple award, non-

monopoly marketplace. If the USG were to select only one provider of

sensors and processing they would artificially restrain competition,

innovation, and bring great long term risk to US commercial and sovereign

10

interests. A very real fear is that the marketplace would be dominated by a

monopoly or duopoly, much like the launch industry had been dominated by

two providers, to the detriment of the interests of the US Government and

US industry competitiveness worldwide. The US Government should be

concerned that they may evolve the SSA arena into a commercial market

dominated by a monopoly.

In its response to the first amended RFI, Exo indicated that it could meet the

government’s minimum salient characteristics. In response to the RFI question: “Describe

how your product meets the definition of commercial item in FAR 2.101,” Exo stated, in

part, “ExoAnalytic’s commercial data and software packages meet the FAR 2.101

definition of commercial items as they have been sold and/or offered for sale to the

general public, and are used for purposes other than governmental purposes.” Both

Applied Defense and Exo indicated in their April 6, 2016 responses that they were small

businesses “according to the criteria of the relevant NAIC code.” Analytical Graphics

indicated that it was not a small business.

The parties have stipulated that, after the submissions to the first amended RFI,

“[t]he Air Force determined that the responses of AGI and ADS [Applied Defense]

indicated that AGI and ADS could satisfy all 10 of the minimum salient characteristics,

and that the response of Exo indicated that Exo could satisfy 9 of the minimum salient

characteristics.”

After receiving the responses to the first amended RFI, the Air Force held a

classified industry day on April 15, 2016, inviting eight potential offerors to the event,

including Applied Defense, Exo, and Analytical Graphics.8 Regarding protestor’s

participation at the industry day, the parties have stipulated that:

During the Industry Day, AGI had a one-on-one meeting with the Air Force

during which the Agency confirmed that AGI solutions satisfied the

requirements. AGI was asked whether it was willing to negotiate greater

data rights to satisfy unique Government needs. AGI responded

affirmatively. An Industry Day One-on-One summary document later

memorialized this exchange, explaining that “AGI stated they have no

problem with giving the USG [United States Government] full data rights

and ‘it makes sense.’”

(internal references omitted).

8 The court notes that the parties have stipulated that “[t]he portion of the market research

conducted during industry day was not conducted directly by the contracting officer -- who

lacked both technical expertise and the necessary security clearance.” The parties agree

that the agency relied upon the agency’s technical expert, Lieutenant Colonel Anthony

Calabrese.

11

Subsequent to the industry day, the Air Force generated a draft Performance Work

Statement. The contracting officer, in a limited deposition taken after the protest was filed

in this court, stated that, in her opinion, there were multiple factors that could not be met

by a commercial item.9 She stated:

I determined it to be a noncommercial requirement although some of it could

be met with commercial items, I did not feel that the entire solution could be

network commercial items, due to several factors, which included services,

the data -- services, data rights, the DOD publications and regulations and

the type of contract that I was planning to utilize. The combination of those

led me to believe it was noncommercial.

Regarding data rights, at the deposition, protestor’s counsel asked the contracting officer,

“you just testified that because you had a small business set aside, you didn't approach

AGI to negotiate [the data rights]?” The contracting officer answered:

I already had. There was no reason to have to negotiate. AGI had said in

their market research that they were willing to negotiate. So at that time I

have to take the fact that AGI stated several times you were willing to

negotiate rights. However, at the same time, I was making a decision on the

small business set aside, so based on the fact -- I was making a

noncommercial decisions [sic] and yours was a commercial solution, and I

had two small businesses capable, there was no reason to have to -- you

wouldn't negotiate rights unless you had a proposal and you were going into

discussions.

After generating the draft Performance Work Statement, the contracting officer

issued a fourth amended RFI, dated May 11, 2016, which included the draft Performance

Work Statement, asked potential offerors to comment on the draft Performance Work

Statement and indicated in the section identified as “Scope:” “This is a non-personal

services contract to provide nongovernmental space situational awareness (SSA)

software and services. Nongovernmental SSA solutions are required to augment the

Government’s ability to detect and characterize space threats and improve integration

between DoD, intelligence community, interagency, and nongovernmental space

assets.”10 In addition, the fourth amended RFI stated that the Air Force was considering

9On November 22, 2016, the court issued an Order, which stated, in part, “for the reasons

explained at the hearing, the protestor is permitted to take a deposition of the Contracting

Officer.” The protestor requested the deposition, over the defendant’s and intervenor’s

objections, which the court granted, noting that although “depositions are unusual in

protests,” there were questions about what the contracting officer considered in making

her decision, and how she handled the data rights issue.

10 The parties have stipulated that “[t]he Contracting Officer testified that, prior to the

issuance of the fourth amended RFI, the Contracting Officer began to doubt that the

requirement could be satisfied in full with a commercial item.”

12

issuing the procurement as a small business set-aside. The fourth amended RFI asked

the potential offerors to address a series of questions, including, “[t]he Government is

considering NAICS code 511210, Software Publisher. Do you believe this is an

appropriate NAICS code? If not, please provide the NAICS code you consider to be most

appropriate and why,” and “[d]o you have a Top Secret facility clearance?”

Applied Defense responded to the fourth amended RFI on May 20, 2016. The

parties stipulated that “ADS asserted that it would be eligible for a small business set-

aside, but further asserted that the appropriate NAICS code category was ‘Engineering

Services.’” Exo likewise responded to the fourth amended RFI, and like Applied Defense

indicated it would be eligible for a small business set-aside, but unlike Applied Defense,

Exo stated: “ExoAnalytic is a small business under NAICS code 511210, and considers

this NAICS code appropriate for the subject acquisition.”

Analytical Graphics responded to the fourth amended RFI on May 23, 2016, and

suggested that its commercial solution, consisting of the ComSpOC SSA Subscription

Service, SSA Software Suite, and BMC2 Software, all commercial items, met the

requirements of the draft Performance Work Statement. Regarding the issue of a small

business set-aside, Analytical Graphics indicated that

Although AGI understands the need of the Government to consider small

business, AGI recommends that the Government purchase AGI's

Commercial SSA System as a commercial item under FAR Part 12

(Commercial Item Acquisition). The reasons for this are: 1) the

Government's requirements (from the FBO Announcements, Salient

Characteristics, and PWS) indicate that the Government wants a

Commercial SSA System; 2) 41 USC 3307 and FAR Part 12 requires that

commercial items be purchased when commercial items are available; and

3) a commercial item exists and has uniquely demonstrated that it exceeds

the salient characteristics and provides the best value to the Government

with the lowest risk during the JICSpOC exercises, as well as on other

Government and Commercial contracts.

Given that AGI does not qualify as a small business under any relevant

NAICS code, AGI recommends that the Government not pursue a small

business set-aside because it would preclude the Government from

procuring the best available commercial solution, one that has uniquely

demonstrated it satisfies the requirements and provides the best value at

the lowest risk. Additionally, FAR Part 12 policy (12.102 (c)) states that FAR

Part 12 shall take precedence over other FAR parts (including FAR Part 19

– Small Business Programs), when a policy in another part of the FAR is

inconsistent with FAR Part 12. Furthermore, based upon market research

and experience, AGI believes there are no small businesses with existing

commercial items that can meet the Government's requirements. As a

result, it is not reasonable to expect that the Government will obtain offers

from at least two responsible small businesses, as required by FAR Part

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19.502-2 (b)1 [sic], which mandates that the Government has to have a

reasonable expectation that offers will be obtained from at least two

responsible small business concerns and that award will be made at fair

market prices.

Additionally, there is no reason to limit competition to small business due to

security concerns. AGI has uniquely demonstrated under AFSPC Contract

No. FA2550-15-C-8006 that it has satisfied all of the security requirements

at the JICSpOC and can meet the security requirements in the PWS.

Finally, if commercial acquisition is used, there is still significant opportunity

for small business participation. AGI has a commercial products

subcontracting plan in place under its GSA contract (per FAR 19.704(d)),

the preferred type of plan for contractors furnishing commercial items. This

plan has goals for small business participation that are in accordance with

the Small Business Program. For GFYE 2015, small business participation

under AGI’s commercial products subcontracting plan totaled 44%. For this

procurement of AGI's Commercial SSA System, AGI expects 22% will be

provided by small business.

(emphasis in original; footnote omitted).

On May 31, 2016, the contracting officer recommended a small business set-aside,

and on June 1, 2016, the agency’s small business specialist concurred with the

recommendation of a small business set-aside. The same day, June 1, 2016, the

contracting officer wrote a Memorandum for Record with the subject: “Noncommerciality

for Services and Government Purpose Rights.” The memorandum began:

The Government’s requirement is for the contractor to provide government

purpose rights for the raw data identified in the performance work statement

to specified locations at Schriever AFB, Peterson AFB, Vandenberg AFB,

and other locations directed by the Government. Product data shall be

available with government purpose rights and shall be distributed to

operations centers at: Offutt AFB, Vandenberg AFB, Chantilly, five specified

intelligence locations; and other locations as deemed necessary by the

Government. Such data may be shared for government use only, with other

contractors.

The Government’s rights typically would be limited to standard commercial

uses as a “commercial item.” AGI’s license agreements included the

following statement: You may NOT allow the processed data to be viewed

outside the organization or program for which the software is licensed

without the prior written consent of the vendor. The Government must have

government purpose rights to allow the Government to make strategic,

tactical, and course-of-action decisions real-time. The Government will not

be able to obtain written permission prior to providing raw data, processed

14

data, or end products to another government agency or a contractor

supporting a government requirement. The contracting officer assessed the

data rights required were substantially different than standard commercial

use.

(capitalization in original). Two days later, on June 3, 2016, the contracting officer wrote

a Memorandum for Records with the subject: “Pricing for Analytical Graphics and

ExoAnalytical [sic] Solutions.” The memorandum stated:

The majority of respondents did not provide a price list for their products

during market research. ExoAnalytical's [sic] price list was utilized to

develop the Government's independent cost estimate and historical data

from other contracts.

Analytical Graphics’ prices were high compared to the Government's IGE.

Based on the contracting officer's understanding of the requirement, an

estimate was developed. The estimate utilizing AGI's price list was twice

the estimate of the Government's IGE [Independent Government Estimate].

See attached spreadsheet for details.

The parties have stipulated that “[t]he Contracting Officer testified that, at the time she

prepared this memorandum, she doubted whether a commercial item could satisfy the

Government requirement, but no formal decision had been made.”

As noted in the parties’ joint stipulations of fact, “[b]etween June 7, 2016 and June

15, 2016, various Air Force officials signed the justification and authorization document

to approve limiting competition to ADS and Exo, pursuant to the authority of 10 U.S.C. [§]

2304(c)(6) and 48 C.F.R. [§] 6.302-6.” (internal references omitted). The parties have

stipulated that:

The J&A [justification and authorization] document assumed the possible

award of “one or more negotiated, non-commercial, hybrid-type contracts

space situational awareness (SSA) capabilities to be deployed at the Joint

Interagency Combined Space Operations Center (JICSpOC).” The J&A

document also assumed “the CO determined the acquisition is suited for a

total small business set aside,” and noted that an “extensive market

research report is in draft to support the conclusion that two small

businesses are capable of fulfilling the government’s requirement.”

(internal references omitted). The justification and authorization document explained:

(U)[11] For this acquisition, the government: 1) publicly sought sources for

the opportunity to fulfill its requirements, 2) disclosed the salient features of

the products/services sought, 3) transparently communicated the security

11 The court in uncertain why each new paragraph begins with “(U).”

15

requirements associated with the acquisition, 4) evaluated thoroughly

capability statements from all respondents, 5) provided an exchange of

information opportunity at an Industry Day event, and 6) re-publicized the

opportunity for industry consideration following the Industry Day event.

(U) As a result of government exchanges with industry as listed above, the

government identified eight firms that demonstrated a rudimentary

understanding of the government’s requirements and possessed sufficient

security clearances to participate in the government’s Industry Day event.

(U) In reviewing the results of informational exchanges and vendor

presentations from the Industry Day, the Contracting Officer (CO) and the

Program Manager (PM) jointly determined that three of the firms

participating in Industry Day were small business concerns that could

potentially provide the products/services as prime contractors.

(U) In follow-on discussions with the three small business concerns, two of

the firms expressed strong interest in submitting proposals as prime

contractors. The PM assesses two of the interested small businesses as

having capability to provide the required products and services for this

requirement as prime contractors. Therefore the CO determined the

acquisition is suited for a total small business set-aside as prescribed at

FAR 19.502-2(a); that is, within the context of the national security

constraints imposed on this acquisition.

(U) The CO finds a reasonable expectation exists for receiving proposals

from two responsible small business concerns, and that award can be made

at fair market prices. For this acquisition, the two small businesses that have

emerged from the Requests for Information (RFI) and Industry Day

processes appear to be uniquely qualified at this time in terms of security

qualifications and possessing the capabilities required, or ability to obtain

them, to facilitate the objectives contemplated in the Performance Work

Statement (PWS). The two small businesses are ExoAnalytics [sic] and

Applied Defense Solutions (ADS).

(U) Both ExoAnalytics [sic] and ADS were determined by the PM to have

responded affirmatively to the questions posed by the government in the

RFI and Industry Day exchanges. Both firms have demonstrated extensive

experience with space observation technologies. Both have ongoing

contractual relationships with the government and have developed, or

helped to develop, capabilities currently in use in both the Defense and

Intelligence communities. Both firms are postured to team as needed with

an extensive network of commercial and non-government sources to

facilitate delivery of the required products/services. Both firms have

requisite facility and personnel security clearance posture to begin

delivery/performance immediately upon contract award. Given these

16

factors, ExoAnalytics [sic] and ADS are reasonably assessed to have

unique qualifications to provide/perform the SSA work contemplated in the

PWS. Thus through [sic] these elements of market research, the CO and

PM conclude that ExoAnalytics [sic] and ADS are presently the only two

small businesses with demonstrated capabilities necessary to deliver the

non-government, non-developmental SSA requirements for the JICSpOC,

as put forth in the government’s PWS.

As related to market research, the justification and authorization document stated:

(U) Market research was conducted, including two RFls posted to the GPE

[Government Point of Entry] and an industry day conducted between the

first and second RFI. The initial RFI provided potential offerors with

notification of security requirements and a list of salient characteristics

offeror products and services would need to demonstrate to receive

consideration for an industry day invitation. Responses from the initial RFI

were assessed to gauge potential technical capabilities as well as security

clearance requirements. Firms that did not demonstrate a rudimentary

understanding of the requirements and those without appropriate clearance

levels were not invited to attend industry day. For the industry day, the

Program Manager (PM) determined disclosure of classified information to

those invited was necessary to sufficiently explain the government's

requirements and allow for a meaningful exchange of information. This led

to the conclusion that eight responding firms possessed requisite security

clearance requirements and demonstrated a rudimentary capability to

potentially participate in the acquisition.

(U) Following industry day presentations, the PM and CO jointly determined

three small business concerns were potential candidates for prime contract

award. The three small businesses were contacted to discuss prime

contract interest. Two of the small business firms (ExoAnalytics [sic] and

ADS) expressed strong desire to participate as a prime contractor for the

requirements. The third firm (Rincon) affirmed their desire to participate, but

only in terms of subcontracting opportunities.

(U) An extensive market research report is in draft to support the conclusion

that two small businesses are capable of fulfilling the government's

requirement.

Regarding the cost, the justification and authorization document stated:

(U) Determination by the Contracting Officer that the anticipated cost

to the Government will be fair and reasonable.

(U) The Contracting Officer (CO) anticipates that cost to the Government

may be determined to be fair and reasonable on the basis of price and/or

17

cost analysis and by using certified cost or pricing data to analyze elements

of cost. Given the government with solicit for the award of one or more

contracts for the work, the CO further anticipates that proposed costs to the

government will be driven by competitive forces.

(emphasis in original).

On June 21, 2016, the Air Force produced a Market Research Report which

contained the evaluation of the each of the offerors that had responded to the first

amended RFI.12 Of the seventeen offerors who had responded to the Air Force, only two,

Applied Defense and Analytical Graphics, meet all ten of the ten “Salient Characteristics”

identified by the Air Force. Notably, Exo met nine of the ten “Salient Characteristics,”

failing to meet the characteristic: “Process and correlate feature-type data (Visual

Magnitude (Vmag), Radar Cross Section (RCS) changes, RF spectrum, etc.”

The Market Research Report contained a section titled “Commercial

Opportunities,” which stated in full:

The RFI originally sought to obtain SSA data from a commercial solution.

However, it became apparent after market research that the data and

services required could only be met through noncommercial sources

because of the following factors: limited commercial data solutions are

available, the required services to be performed are not found in the

commercial marketplace, the Government requires unique hardware

requirements and the Government’s desire to obtain complete technical

rights. Also, the commercial data solutions that are available focus on safety

of flight and do not meet all of the requirements for SSA as listed in the

PWS. Additionally, some vendor’s responses stated their solution was a

commercial product; however, most vendors were unable to provide a

commercial price list or commercial customers for the software. Lastly, upon

review of the PWS, the DoD and AF regulations governing the execution of

the requirement, the Government’s desire to obtain data rights, and the

integration of the product data into national security operations makes this

requirement noncommercial. It is hereby determined that the requirement is

not offered to the general public in the commercial marketplace and is not

a commercial service as described in FAR Part 12.

For the section titled: “Government’s Presence/Leverage in the Market,” the Market

Research Report indicated:

Although market research determined limited commercial data solutions are

available; the required services to be performed, unique hardware

requirements, the integration of product data into national security

12The parties’ joint stipulations of fact indicate that the Market Research Report was

written “by the contracting officer and program manager.”

18

operations and the Government’s desire to obtain complete technical rights

of the data are not commonly or readily available in the commercial

marketplace. Additionally, the commercial data solutions that are available

focus on safety of flight and do not meet all the requirements for Space

Situational Awareness as listed in the PWS.

Regarding the small business possibility, the Market Research Report indicated that

“[t]hree of the eight respondents deemed capable through market research as outlined in

section E are small businesses. Two respondents (ADS and ExoAnalytics [sic]) stated

they could perform 50% or more of the work [as the prime contractor].”

Concurrent to the justification and authorization document and the Market

Research Report, the Air Force developed an acquisition plan, and as stipulated to by the

parties: “The acquisition plan was signed on various dates between June 30, 2016 and

July 12, 2016. The commercial item determination from the market research report is

repeated in the acquisition plan.”13 (internal citations omitted). The acquisition plan, in a

section titled “Product or Service Descriptions,” stated:

The majority of this acquisition is commodity based. Approximately 71% of

the estimated contract value is commodity and 29% of the estimated

contract value is embedded non-personal services. The PWS is written IAW

FAR part 37.6 to minimize non-performance aspects. There are, however,

several DOD and AF directives that preclude a completely performance-

based contract. Inclusion of these directives has been limited to the extent

practicable.

The PWS in combination with the service summary (SS) will identify the

minimum contractor performance requirements and associated

performance thresholds. The SS Items are the key measures of success for

contractor operations and are considered by the acquisition team from a

risk management and contract quality assurance perspective.

The sources sought announcement requested comments regarding the

PWS and service summaries. Industry has not recommended any specific

performance thresholds and highly recommends the Government utilize

only measurable and attainable thresholds.

During the deposition taken after the protest was filed in this court, the contracting officer

indicated that “in her view, the ‘commodity’ portion of the contract could be satisfied by

commercial items, but that the services portion could not be satisfied by commercial

items.” On June 30, 2016, the Air Force finalized its decision to move forward with a non-

13The acquisition plan reflects that on June 30, 2016, the Competition Advocate, the Staff

Judge Advocate, and the Approval Authority all signed the acquisition plan, and that on

July 12, 2016, the Director of the AFSPC (Air Force Space Command) Small Business

Programs signed the acquisition plan.

19

commercial item small business set-aside acquisition. The following day, on July 1, 2016,

the Air Force issued Solicitation No. FA2550-16-R-8008,14 and limited the competition to

only two small businesses: Exo and Applied Defense. The solicitation was issued as a

best value and indicated:

The Government will select the best overall offer, based upon an integrated

assessment of Technical/Technical Risk, and Cost/Price. The Government

may only award a contract to an offeror who is deemed responsible in

accordance with the FAR, as supplemented, whose proposal conforms to

the solicitation’s requirements (to include all stated terms, conditions,

representations, certifications and all other information required by Section

L of this solicitation) and is judged, based on the evaluation factors, to

represent the best value to the Government.

The solicitation explained the evaluation process: “Subfactor 1 will be evaluated as a

combined technical/risk. Subfactor 2 as acceptable/unacceptable. Cost/Price will be

evaluated for reasonableness, completeness, affordability and realism.” Subfactor 1

addressed technical products, and Subfactor 2 addressed technical products, and both

subfactors required the offerors to demonstrate an acceptable approach and

understanding of the solicitation’s “Nongovernmental SSA Requirements,” the

Performance Work Statement’s “Nongovernmental Space Situational Awareness

Requirements,” and the Performance Work Statement’s “Nongovernmental Space

Situational Awareness Product Requirements.” Regarding price:15

The price evaluation assesses each offeror’s proposed price for base and

two 12-month option period [sic] for reasonableness and affordability. An

assessment that the proposal is not reasonable or affordable will result in

the offer being considered unacceptable for award. The burden of proof for

price reasonableness rests with the offeror. Price reasonableness and

affordability will be evaluated using techniques described in FAR 15.404-

1(b) as necessary.

The parties have stipulated that, “[a]fter July 1, 2016, AGI learned that the RFP

had been issued and that responses were due on or before July 18, 2016. AGI learned

that the Solicitation was set aside for small businesses and sought a non-commercial

SSA solution. The Air Force further restricted the set-aside competition to only two firms,

Exo and ADS.” (internal reference omitted). The Air Force explained the agency’s

decision to Analytical Graphics in an email, which stated, in part:

14The solicitation was subsequently amended on July 6, 2016, July 20, 2016, August 25,

2016, and September 12, 2016.

15 The solicitation also indicated that “[t]he Government will perform a cost realism

analysis of all offers based on the offeror’s cost/price proposal total estimated contract

price for CLIN X002 only.”

20

Through market research and evolving requirements, the JICSpOC

software requirements have been determined to be non-commercial for the

Space Situational Awareness integrated solution. The Government’s has a

reasonable expectation of obtaining offers from two or more responsible

small business concerns that are competitive in terms of market prices,

quality, and delivery. Therefore, this acquisition shall be set-aside

exclusively for small business. The RFP will not be posted to FedBizOps

due to the classified nature of the some of the documents.

On July 11, 2016, Analytical Graphics filed a bid protest at the GAO. Analytical

Graphics alleged that the Air Force’s decision to set aside the procurement for small

businesses was unreasonable and an abuse of discretion. Analytical Graphics

additionally alleged that the Air Force’s decision to “disregard the statutorily-mandated

preference for commercial items was unreasonable, arbitrary, capricious, and contrary to

law.”16

On October 17, 2016, the GAO denied Analytical Graphics’ protest. See Analytical

Graphics, Inc., B-413385, 2016 WL 6212299. The GAO indicated that, regarding

Analytical Graphics’ contention that Air Force unreasonably set the procurement aside

for small businesses, “we find no basis to sustain the protest,” and held that “[f]urther,

nothing in the record supports the protester’s argument that the Air Force unreasonably

concluded that ADS could meet the agency’s requirements.” Id. at *4, *8. The GAO

explained that for a small business set-aside determination, the Air Force was not

required to make a responsibility decision, but only an “informed business judgment that

there is a reasonable expectation of receiving acceptably priced offers from small

business concerns that are capable of performing the contract.” Id. at *6. Regarding Exo,

Analytical Graphics had argued that Exo “could meet only 9 of the 10 minimum

requirements,” which “meant that the agency could not reasonably expect this firm to be

a responsible offeror.” The GAO noted that “ExoAnalytic stated that it could perform the

requirements, and there is no allegation of misrepresentation in this regard,” and that

“[n]either FAR § 19.502-2(b) nor the decisions by our Office require an agency to request,

or a prospective small business offeror to provide, a complete technically-acceptable

approach in response to market research.” Id. The GAO, therefore, determined that

“[u]nder the applicable standards for making a set-aside determination, we find no basis

to conclude that the agency’s judgment here regarding ExoAnalytic was unreasonable.”

Id. Specifically regarding Applied Defense, the GAO indicated that although protestor

“AGI argues that the Air Force unreasonably found that ADS would be capable of meeting

the agency's requirement,” “the agency found that ADS could meet all 10 of the minimum

requirements.” Id. at *7. The GAO concluded that, “given the discretion afforded to

agencies in exercising their business judgment to determine whether to set aside a

requirement for small businesses, we conclude that the record here does not show that

the agency's determination regarding ADS was unreasonable.” Id. at *8.

16 At the GAO, Analytical Graphics raised a third issue, which it does not raise in this

court, that the Air Force unreasonably had required that the proposed solutions only

identify up to 200 resident space objects.

21

Regarding Analytical Graphics’ protest ground that the Air Force improperly

designated the solicitation requirements as non-commercial, the GAO first indicated that

“[d]etermining whether a product or service is a commercial item is largely within the

discretion of the contracting agency, and such a determination will not be disturbed by

our Office unless it is shown to be unreasonable. Palantir USG, Inc., B-412746, May 18,

2016, 2016 CPD ¶ 138 at 4.” Analytical Graphics, Inc., B-413385, 2016 WL 6212299, at

*9.17 Regarding the procurement currently at issue, rather than deciding the merits of the

commerciality protest ground, the GAO referred to its earlier conclusion that that the Air

Force reasonably set the procurement aside for small businesses and stated that

Analytical Graphics “does not demonstrate why the agency’s evaluation of the

commerciality of the services affects the assessment of the capabilities of the two

potential small business offerors.” Id. The GAO concluded:

Thus, even if the requirements were deemed commercial, the protester has

not demonstrated that such a designation would affect the agency’s

conclusion here that the two small business firms are capable of meeting

those requirements. Because AGI, a large business, is ineligible to compete

for the award, we conclude that it is not an interested party to challenge the

terms of the solicitation, and dismiss its remaining arguments.

Id.

The day after the GAO issued its decision, on October 18, 2016, the contracting

officer made the “Determination and Finding Contractor Responsibility,” and the Source

Selection Evaluation Board recommended award to Applied Defense. The same day,

October 18, 2016, the Source Selection Authority determined that Applied Defense and

Exo were both “considered technically good.” (emphasis in original). The Source

Selection Authority explained that for Subfactor 1, products, “SSA software products were

rated based on a combination of technical acceptability and contract performance risk.

Both offerors met all requirements and demonstrated a thorough approach and

understanding to perform the product requirements in the PWS. Both proposals contained

two strengths each,” and for Subfactor 2, services, “[b]oth offerors were rated as

17 There is not much precedent in the Federal Circuit regarding challenges to

commercial/non-commercial standards. As discussed below, however, Palantir USG, Inc.

and Palantir Technologies, Inc., after their GAO protest was unsuccessful, filed a bid

protest in the court which was assigned to the undersigned. In Palantir USG, Inc. v. United

States, 129 Fed. Cl. 218 (2016), in a different procurement from the one referenced

above, which did not present a small business set-aside issue, and with different facts

presented, the undersigned determined that pursuant, to 10 U.S.C. § 2377, the United

States Army had failed to conduct a proper commercial availability evaluation. See

Palantir USG, Inc. v. United States, 129 Fed. Cl. at 289. The Palantir decision is currently

on appeal to the United States Court of Appeals for the Federal Circuit. See Palantir USG,

Inc. v. United States, Case No. 17-1465 (Fed. Cir. Jan. 9, 2017).

22

acceptable.” (emphasis in original). For the comparative analysis, the Source Selection

Authority determined:

Comparing the two offerors’ proposals resulted in an assessment that both

proposals were good and offered equivalent software and services per the

solicitation. The technical differences are in details and not in overall

performance, risk, or acceptability. A point-by-point comparison would show

that the required data would be provided and handled similarly in a secure

fashion; each offeror would be able to access and task a global network of

SSA sensors; each offeror would provide effective and efficient analysis

tools and support to JICSpOC experiments; and each offeror would

adequately staff the effort. There are distinctive strengths, however: the

ExoAnalytic sensor network is twice the size of ADS’s network; ADS will be

able to demonstrate its capability in the JICSpOC earlier than ExoAnalytic.

These distinctions, however, are not enough to select one bidder over

another on a purely technical or risk basis as both are considered

technically good.

(emphasis in original). Regarding cost/price, the Source Selection Authority determined:

The final proposal revision cost/price proposals submitted by both offerors

are reasonable, realistic (no probable cost adjustments were necessary),

affordable, and complete. ADS offers the lowest total evaluated price at

$24,252,038, which is $8,102,266 lower than ExoAnalytic’s proposed price

of $32,354,304. Both offerors were responsive to the RFP and met all

requirements; acknowledged and responded to all amendments; conformed

to all required terms and conditions; and included all required certifications.

The Professional Compensation Plan was acceptable for both offerors. In

addition, ADS and ExoAnalytic were deemed to be responsible in

accordance with FAR 9.104, as supplemented.

The Source Selection Authority indicated the Source Selection Evaluation Board

recommended award to Applied Defense, and noted that “[t]echnical performance and

risk are equivalent. While both offerors demonstrated strengths in their approach, the non-

similar ExoAnalytic strengths compared to ADS’s strengths does not justify an $8 million

price difference. The determining factor, therefore, is price. ADS’s price is significantly

lower than that quoted by ExoAnalytic for the similar products and services.” The Source

Selection Authority concluded:

I made no tradeoffs in the evaluation of either the technical or cost/price

factors. I assessed that the offerors’ “good [sic] technical approaches and

understanding and similar strengths are equal. While I acknowledge

ExoAnalytic’s 96-percent average availability rate to track tasked objects is

a strength, ADS’s ability to exceed PWS requirements, matched with a

cost/price $8,102,266 less than ExoAnalytic, represents the best value to

the Government.

23

(emphasis in original). After informing Exo that it would not receive the award, on October

21, 2016, the Air Force awarded a contract to Applied Defense.

As noted above, after the protest Analytical Graphics filed at GAO was

unsuccessful, Analytical Graphics, Inc., B-413385, 2016 WL 6212299, and after the Air

Force made the award to Applied Defense the protestor filed the current post-award bid

protest in this court. The complaint in this court has seven counts. Count one alleges that

the Air Force violated 10 U.S.C. § 2377 (2012) and 48 C.F.R. § 10.002 (2017) and 48

C.F.R. § 11.002 (2017) by ignoring the statutorily mandated preference for commercial or

non-developmental items. Similarly, count two alleges that the Air Force violated 10

U.S.C. § 2377 and 48 C.F.R. § 10.002 and 48 C.F.R. § 11.002 by refusing to tailor the

requirements “in a manner that would allow the agency to take advantage of available

commercial SSA solutions.” Count three alleges that the Air Force’s decision to procure

a non-commercial solution in order to obtain broader data rights violated 10 U.S.C. § 2320

(2012), as well as several provisions of the FAR. Count four alleges that the Air Force’s

failure to negotiate the terms of Analytical Graphics software license violated 10 U.S.C. §

2320 (2012), as well as several provisions of the FAR. Count five alleges that “[t]he Air

Force’s ‘Rule of Two’ determination underlying the set-aside decision was arbitrary,

capricious, and an abuse of discretion and unlawfully restricts competition in violation of

the Competition in Contracting Act, 10 U.S.C. § 2304.” Count six alleges that “[t]he Air

Force’s ‘Rule of Two’ determination underlying the set-aside decision was arbitrary,

capricious, and an abuse of discretion because the Air Force did not analyze price as

required under 48 C.F.R. § 19.502-2(b).” Finally, count seven alleges that “[t]he award of

a contract to ADS was arbitrary, capricious, and an abuse of discretion because the

underlying procurement was conducted in violation of law.”

The complaint also asked this court to enter a temporary restraining order, a

preliminary injunction and a permanent injunction. After a hearing, the court denied the

temporary restraining order and preliminary injunction. After discussion with the parties

at a hearing, and with the agreement of the parties, the court set a schedule for briefing

regarding the protestor’s request for:

A permanent injunction requiring the Air Force to rescind the Solicitation

and to take any and all necessary corrective action needed to remedy its

legal violations, including, at a minimum, by (1) terminating the contract with

ADS; (2) issuing a revised Solicitation that complies with the statutory

mandated preference for commercial items and; (3) conducting the

procurement on an unrestricted basis, consistent with the Air Force’s market

research that demonstrated there are no small businesses with existing

non-developmental solutions that satisfy the Air Force’s SSA requirements.

Without a temporary restraining order in place, the procurement has continued pursuant

to the contract award made to intervenor Applied Defense.

24

The parties have filed cross-motions for judgment on the Administrative Record.

Protestor argues that “the Air Force has arbitrarily and capriciously violated the statutory

preference for commercial items in the Federal Acquisition Streamlining Act (‘FASA’) and

Federal Acquisition Regulation (‘FAR’) Part 12’s implementation of the preference.”

Analytical Graphics also contends, “[a]dditionally, the Air Force wrongfully set-aside this

procurement for small businesses. . . .” According to the defendant, the “contracting

officer acted reasonably, and well within her discretion, when conducting market

research.” Defendant also argues that the Air Force’s market research, and the

determination based on the market research, were appropriate and that the documents

in the Administrative Record do not support Analytical Graphics’ argument that the Air

Force erred in not issuing the solicitation as a commercial item or nondevelopmental item.

Defendant and intervenor also stress that the procurement was a proper small-business

set-aside, because the Air Force properly concluded that two small businesses could

meet the requirements. According to defendant, Analytical Graphics, which is not a small

business, therefore, does not have standing to challenge the Air Force’s evaluation.

DISCUSION

This protest presents difficult, extremely fact based commercial availability issues,

regarding which little precedent exists, and equally novel small business set-aside issues.

As noted above, the parties have filed cross-motions for judgment on the Administrative

Record on the issues of the Air Force’s compliance with 10 U.S.C. § 2377 and the small

business set-aside. See 48 C.F.R. § 19.502-2 (2017). Rule 52.1(c) of the Rules of the

United States Court of Federal Claims (RCFC) (2017) governs motions for judgment on

the Administrative Record. The court’s inquiry is directed to “‘whether, given all the

disputed and undisputed facts, a party has met its burden of proof based on the evidence

in the record.’” Mgmt. & Training Corp. v. United States, 115 Fed. Cl. 26, 40 (2014)

(quoting A & D Fire Prot., Inc. v. United States, 72 Fed. Cl. 126, 131 (2006) (citing

Bannum, Inc. v. United States, 404 F.3d 1346, 1356–57 (Fed. Cir. 2005))); see also Eco

Tour Adventures, Inc. v. United States, 114 Fed. Cl. 6, 21 (2013); DMS All-Star Joint

Venture v. United States, 90 Fed. Cl. 653, 661 (2010).

The Administrative Dispute Resolution Act of 1996, Pub. L. No. 104-320, §§ 12(a),

12(b), 110 Stat. 3870, 3874 (1996), provides that protests of agency procurement

decisions are to be reviewed under Administrative Procedure Act (APA) standards,

making applicable the standards outlined in Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859

(D.C. Cir. 1970), and the line of cases following that decision. See, e.g., Per Aarsleff A/S

v. United States, 829 F.3d 1303, 1309 (Fed. Cir. 2016) (quoting NVT Techs., Inc. v. United

States, 370 F.3d 1153, 1159 (Fed. Cir. 2004)) (“Protests of agency procurement decisions

are reviewed under the standards set forth in the Administrative Procedure Act (‘APA’),

see 28 U.S.C. § 1491(b)(4) (citing 5 U.S.C. § 706), ‘by which an agency's decision is to

be set aside only if it is arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law[.]’”); Impresa Construzioni Geom. Domenico Garufi v. United States,

238 F.3d 1324, 1332 (Fed. Cir. 2001)); Res. Conservation Grp., LLC v. United States,

597 F.3d 1238, 1242 (Fed. Cir. 2010) (“Following passage of the APA in 1946, the District

of Columbia Circuit in Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859 (D.C. Cir. 1970), held

that challenges to awards of government contracts were reviewable in federal district

25

courts pursuant to the judicial review provisions of the APA.”); Galen Med. Assocs., Inc.

v. United States, 369 F.3d 1324, 1329 (Fed. Cir. 2004) (citing Scanwell Labs., Inc. v.

Shaffer, 424 F.2d at 864, 868, for its “reasoning that suits challenging the award process

are in the public interest and disappointed bidders are the parties with an incentive to

enforce the law”); Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345, 1351

(Fed. Cir. 2004) (“Under the APA standard as applied in the Scanwell line of cases, and

now in ADRA cases, ‘a bid award may be set aside if either (1) the procurement official’s

decision lacked a rational basis; or (2) the procurement procedure involved a violation of

regulation or procedure.’” (quoting Impresa Construzioni Geom. Domenico Garufi v.

United States, 238 F.3d at 1332)); Info. Tech. & Applications Corp. v. United States, 316

F.3d 1312, 1319 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2003).

When discussing the appropriate standard of review for bid protest cases, the

United States Court of Appeals for the Federal Circuit addressed subsections (2)(A) and

(2)(D) of 5 U.S.C. § 706, see Impresa Construzioni Geom. Domenico Garufi v. United

States, 238 F.3d at 1332 n.5, but focused its attention primarily on subsection (2)(A). See

Croman Corp. v. United States, 724 F.3d 1357, 1363 (Fed. Cir. 2013) (“‘[T]he proper

standard to be applied [to the merits of] bid protest cases is provided by 5 U.S.C.

§ 706(2)(A) [(2006)]: a reviewing court shall set aside the agency action if it is “arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with law.”’” (quoting

Banknote Corp. of Am. v. United States, 365 F.3d at 1350–51 (citing Advanced Data

Concepts, Inc. v. United States, 216 F.3d 1054, 1057–58 (Fed. Cir.), reh’g denied (Fed.

Cir. 2000)), aff’d, 365 F.3d 1345 (Fed. Cir. 2004)))), reh’g and reh’g en banc denied (Fed.

Cir. 2013) (alterations in original). The statute says that agency procurement actions

should be set aside when they are “arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law,” or “without observance of procedure required by

law.” 5 U.S.C. § 706(2)(A), (D) (2012);18 see also Tinton Falls Lodging Realty, LLC v.

18 The language of 5 U.S.C. § 706 provides in full:

To the extent necessary to decision and when presented, the reviewing

court shall decide all relevant questions of law, interpret constitutional and

statutory provisions, and determine the meaning or applicability of the terms

of an agency action. The reviewing court shall—

(1) compel agency action unlawfully withheld or unreasonably delayed;

and

(2) hold unlawful and set aside agency action, findings, and conclusions

found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law;

(B) contrary to constitutional right, power, privilege, or immunity;

26

United States, 800 F.3d 1353, 1358 (Fed. Cir. 2015); Orion Tech., Inc. v. United States,

704 F.3d 1344, 1347 (Fed. Cir. 2013); COMINT Sys. Corp. v. United States, 700 F.3d

1377, 1381 (Fed. Cir. 2012) (“We evaluate agency actions according to the standards set

forth in the Administrative Procedure Act; namely, for whether they are ‘arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with law.’” (quoting 5

U.S.C. § 706(2)(A); Bannum, Inc. v. United States, 404 F.3d at 1351)); Savantage Fin.

Servs. Inc., v. United States, 595 F.3d 1282, 1285–86 (Fed. Cir. 2010); Weeks Marine,

Inc. v. United States, 575 F.3d 1352, 1358 (Fed. Cir. 2009); Axiom Res. Mgmt., Inc. v.

United States, 564 F.3d 1374, 1381 (Fed. Cir. 2009) (noting arbitrary and capricious

standard set forth in 5 U.S.C. § 706(2)(A), and reaffirming the analysis of Impresa

Construzioni Geom. Domenico Garufi v. United States, 238 F.3d at 1332); Blue & Gold

Fleet, L.P. v. United States, 492 F.3d 1308, 1312 (Fed. Cir. 2007) (“‘[T]he inquiry is

whether the [government]’s procurement decision was “arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law.”’” (quoting Bannum, Inc. v. United

States, 404 F.3d at 1351 (quoting 5 U.S.C. § 706(2)(A) (2000))); NVT Techs., Inc. v.

United States, 370 F.3d at 1159 (“Bid protest actions are subject to the standard of review

established under section 706 of title 5 of the Administrative Procedure Act (‘APA’), 28

U.S.C. § 1491(b)(4) (2000), by which an agency’s decision is to be set aside only if it is

‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ 5

U.S.C. § 706(2)(A) (2000).”) (internal citations omitted); Info. Tech. & Applications Corp.

v. United States, 316 F.3d at 1319 (“Consequently, our inquiry is whether the Air Force’s

procurement decision was ‘arbitrary, capricious, an abuse of discretion, or otherwise not

in accordance with law.’ 5 U.S.C. § 706(2)(A) (2000).”); Eco Tour Adventures, Inc. v.

United States, 114 Fed. Cl. at 22; Contracting, Consulting, Eng’g LLC v. United States,

104 Fed. Cl. 334, 340 (2012). “In a bid protest case, the agency’s award must be upheld

unless it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance

with law.’” Turner Constr. Co. v. United States, 645 F.3d 1377, 1383 (Fed. Cir.) (quoting

PAI Corp. v. United States, 614 F.3d 1347, 1351 (Fed. Cir. 2010)), reh’g and reh’g en

(C) in excess of statutory jurisdiction, authority, or limitations, or short

of statutory right;

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections

556 and 557 of this title or otherwise reviewed on the record of

an agency hearing provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject

to trial de novo by the reviewing court.

In making the foregoing determinations, the court shall review the whole

record or those parts of it cited by a party, and due account shall be taken

of the rule of prejudicial error.

5 U.S.C. § 706.

27

banc denied (Fed. Cir. 2011); see also Tinton Falls Lodging Realty, LLC v. United States,

800 F.3d at 1358 (“In applying this [arbitrary and capricious] standard to bid protests, our

task is to determine whether the procurement official's decision lacked a rational basis or

the procurement procedure involved a violation of a regulation or procedure.”) (citing

Savantage Fin. Servs., Inc. v. United States, 595 F.3d at 1285–86); Glenn Def. Marine

(ASIA), PTE Ltd. v. United States, 720 F.3d 901, 907 (Fed. Cir.), reh’g en banc denied

(Fed. Cir. 2013); McVey Co., Inc. v. United States, 111 Fed. Cl. 387, 402 (2013) (“The

first step is to demonstrate error, that is, to show that the agency acted in an arbitrary and

capricious manner, without a rational basis or contrary to law.”); PlanetSpace, Inc. v.

United States, 92 Fed. Cl. 520, 531–32 (2010) (“Stated another way, a plaintiff must show

that the agency’s decision either lacked a rational basis or was contrary to law.” (citing

Weeks Marine, Inc. v. United States, 575 F.3d at 1358)).

The United States Supreme Court has identified sample grounds which can

constitute arbitrary or capricious agency action:

[W]e will not vacate an agency’s decision unless it “has relied on factors

which Congress has not intended it to consider, entirely failed to consider

an important aspect of the problem, offered an explanation for its decision

that runs counter to the evidence before the agency, or is so implausible

that it could not be ascribed to a difference in view or the product of agency

expertise.”

Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 658 (2007) (quoting

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)); see

also Tinton Falls Lodging Realty, LLC v. United States, 800 F.3d at 1358; F.C.C. v. Fox

Television Stations, Inc., 556 U.S. 502, 552 (2009); Ala. Aircraft Indus., Inc.-Birmingham

v. United States, 586 F.3d 1372, 1375 (Fed. Cir. 2009), reh’g and reh’g en banc denied

(Fed. Cir. 2010); In re Sang Su Lee, 277 F.3d 1338, 1342 (Fed. Cir. 2002) (“[T]he agency

tribunal must present a full and reasoned explanation of its decision. . . . The reviewing

court is thus enabled to perform meaningful review . . . .”); Textron, Inc. v. United States,

74 Fed. Cl. 277, 285–86 (2006), appeal dismissed sub nom. Textron, Inc. v. Ocean

Technical Servs., Inc., 223 F. App’x 974 (Fed. Cir. 2007). The United States Supreme

Court also has cautioned, however, that “courts are not free to impose upon agencies

specific procedural requirements that have no basis in the APA.” Pension Benefit Guar.

Corp. v. LTV Corp., 496 U.S. 633, 654 (1990).

Under an arbitrary or capricious standard, the reviewing court should not substitute

its judgment for that of the agency, but should review the basis for the agency decision to

determine if it was legally permissible, reasonable, and supported by the facts. See Motor

Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (“The scope of

review under the ‘arbitrary and capricious’ standard is narrow and a court is not to

substitute its judgment for that of the agency.”); see also Turner Constr. Co., Inc. v. United

States, 645 F.3d at 1383; R & W Flammann GmbH v. United States, 339 F.3d 1320, 1322

(Fed. Cir. 2003) (citing Ray v. Lehman, 55 F.3d 606, 608 (Fed. Cir.), cert. denied, 516

U.S. 916 (1995)). “‘“If the court finds a reasonable basis for the agency’s action, the court

should stay its hand even though it might, as an original proposition, have reached a

28

different conclusion as to the proper administration and application of the procurement

regulations.”’” Weeks Marine, Inc. v. United States, 575 F.3d at 1371 (quoting Honeywell,

Inc. v. United States, 870 F.2d 644, 648 (Fed. Cir. 1989) (quoting M. Steinthal & Co. v.

Seamans, 455 F.2d 1289, 1301 (D.C. Cir. 1971))); Jordan Pond Co., LLC v. United

States, 115 Fed. Cl. 623, 631 (2014); Davis Boat Works, Inc. v. United States, 111 Fed.

Cl. 342, 349 (2013); Norsat Int’l [America], Inc. v. United States, 111 Fed. Cl. 483, 493

(2013); HP Enter. Servs., LLC v. United States, 104 Fed. Cl. 230, 238 (2012); Vanguard

Recovery Assistance v. United States, 101 Fed. Cl. 765, 780 (2011).

Stated otherwise by the United States Supreme Court:

Section 706(2)(A) requires a finding that the actual choice made was not

“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance

with law.” To make this finding the court must consider whether the decision

was based on a consideration of the relevant factors and whether there has

been a clear error of judgment. Although this inquiry into the facts is to be

searching and careful, the ultimate standard of review is a narrow one. The

court is not empowered to substitute its judgment for that of the agency.

Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), abrogated on

other grounds by Califano v. Sanders, 430 U.S. 99 (1977) (internal citations omitted); see

also U.S. Postal Serv. v. Gregory, 534 U.S. 1, 6–7 (2001); Bowman Transp., Inc. v.

Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974), reh’g denied, 420 U.S. 956

(1975); Co-Steel Raritan, Inc. v. Int’l Trade Comm’n, 357 F.3d 1294, 1309 (Fed. Cir. 2004)

(In discussing the “arbitrary, capricious, and abuse of discretion, or otherwise not in

accordance with the law” standard, the Federal Circuit stated: “the ultimate standard of

review is a narrow one. The court is not empowered to substitute its judgment for that of

the agency.”); In re Sang Su Lee, 277 F.3d at 1342; Advanced Data Concepts, Inc. v.

United States, 216 F.3d at 1058 (“The arbitrary and capricious standard applicable here

is highly deferential. This standard requires a reviewing court to sustain an agency action

evincing rational reasoning and consideration of relevant factors.” (citing Bowman

Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. at 285)); Lockheed Missiles &

Space Co. v. Bentsen, 4 F.3d 955, 959 (Fed. Cir. 1993); BCPeabody Constr. Servs., Inc.

v. United States, 112 Fed. Cl. 502, 508 (2013) (“The court ‘is not empowered to substitute

its judgment for that of the agency,’ and it must uphold an agency’s decision against a

challenge if the ‘contracting agency provided a coherent and reasonable explanation of

its exercise of discretion.’” (quoting Keeton Corrs., Inc. v. United States, 59 Fed. Cl. 753,

755, recons. denied, 60 Fed. Cl. 251 (2004), and Axiom Res. Mgmt., Inc. v. United States,

564 F.3d at 1381)), appeal withdrawn, 559 F. App’x 1033 (Fed. Cir. 2014) (internal

citations omitted); Supreme Foodservice GmbH v. United States, 109 Fed. Cl. 369, 382

(2013); Alamo Travel Grp., LP v. United States, 108 Fed. Cl. 224, 231 (2012); ManTech

Telecomms. & Info. Sys. Corp. v. United States, 49 Fed. Cl. 57, 63 (2001), aff’d, 30 F.

App’x 995 (Fed. Cir. 2002); Ellsworth Assocs., Inc. v. United States, 45 Fed. Cl. 388, 392

(1999) (“Courts must give great deference to agency procurement decisions and will not

lightly overturn them.” (citing Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 743–44

(1985))), appeal dismissed, 6 F. App’x 867 (Fed. Cir. 2001), and superseded by regulation

as recognized in MVS USA, Inc. v. United States, 111 Fed. Cl. 639 (2013).

29

According to the United States Court of Appeals for the Federal Circuit:

Effective contracting demands broad discretion. Burroughs Corp. v. United

States, 223 Ct. Cl. 53, 617 F.2d 590, 598 (1980); Sperry Flight Sys. Div. v.

United States, 548 F.2d 915, 921, 212 Ct. Cl. 329 (1977); see NKF Eng’g,

Inc. v. United States, 805 F.2d 372, 377 (Fed. Cir. 1986); Tidewater

Management Servs., Inc. v. United States, 573 F.2d 65, 73, 216 Ct. Cl. 69

(1978); RADVA Corp. v. United States, 17 Cl. Ct. 812, 819 (1989), aff’d, 914

F.2d 271 (Fed. Cir. 1990). Accordingly, agencies “are entrusted with a good

deal of discretion in determining which bid is the most advantageous to the

Government.” Tidewater Management Servs., 573 F.2d at 73, 216 Ct. Cl.

69.

Lockheed Missiles & Space Co. v. Bentsen, 4 F.3d at 958–59; see also Res-Care, Inc. v.

United States, 735 F.3d 1384, 1390 (Fed. Cir.) (“DOL [Department of Labor], as a federal

procurement entity, has ‘broad discretion to determine what particular method of

procurement will be in the best interests of the United States in a particular situation.’”

(quoting Tyler Constr. Grp. v. United States, 570 F.3d 1329, 1334 (Fed. Cir. 2009))), reh’g

en banc denied (Fed. Cir. 2014); Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 995

(Fed. Cir. 1996); Geo-Med, LLC v. United States, 126 Fed. Cl. 440, 449 (2016); Cybertech

Grp., Inc. v. United States, 48 Fed. Cl. 638, 646 (2001) (“The court recognizes that the

agency possesses wide discretion in the application of procurement regulations.”);

Furthermore, according to the Federal Circuit:

Contracting officers “are entitled to exercise discretion upon a broad range

of issues confronting them in the procurement process.” Impresa

Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324,

1332 (Fed. Cir. 2001) (internal quotation marks omitted). Accordingly,

procurement decisions are subject to a “highly deferential rational basis

review.” CHE Consulting, Inc. v. United States, 552 F.3d 1351, 1354 (Fed.

Cir. 2008) (internal quotation marks omitted).

PAI Corp. v. United States, 614 F.3d at 1351; see also Weeks Marine, Inc. v. United

States, 575 F.3d at 1368–69 (“We have stated that procurement decisions ‘invoke[ ]

“highly deferential” rational basis review.’ Under that standard, we sustain an agency

action ‘evincing rational reasoning and consideration of relevant factors.’” (quoting CHE

Consulting, Inc. v. United States, 552 F.3d at 1354 (quoting Advanced Data Concepts,

Inc. v. United States, 216 F.3d at 1058))).

On a motion for judgment on the administrative record, a disappointed bidder has

the burden of demonstrating the arbitrary and capricious nature of the agency decision

by a preponderance of the evidence. See Tinton Falls Lodging Realty, LLC v. United

States, 800 F.3d at 1364; see also Grumman Data Sys. Corp. v. Dalton, 88 F.3d at 995–

96; Davis Boat Works, Inc. v. United States, 111 Fed. Cl. at 349; Contracting, Consulting,

Eng’g LLC v. United States, 104 Fed. Cl. at 340. The Federal Circuit has indicated that

“[t]his court will not overturn a contracting officer’s determination unless it is arbitrary,

capricious, or otherwise contrary to law. To demonstrate that such a determination is

30

arbitrary or capricious, a protester must identify ‘hard facts’; a mere inference or suspicion

. . . is not enough.” PAI Corp. v. United States, 614 F.3d at 1352 (citing John C. Grimberg

Co. v. United States, 185 F.3d 1297, 1300 (Fed. Cir. 1999)); see also Turner Constr. Co.,

Inc. v. United States, 645 F.3d at 1387; Sierra Nevada Corp. v. United States, 107 Fed.

Cl. 735, 759 (2012); Filtration Dev. Co., LLC v. United States, 60 Fed. Cl. 371, 380 (2004).

A bid protest proceeds in two steps. First . . . the trial court determines

whether the government acted without rational basis or contrary to law when

evaluating the bids and awarding the contract. Second . . . if the trial court

finds that the government’s conduct fails the APA review under 5 U.S.C.

§ 706(2)(A), then it proceeds to determine, as a factual matter, if the bid

protester was prejudiced by that conduct.

Bannum, Inc. v. United States, 404 F.3d at 1351; FirstLine Transp. Sec., Inc. v. United

States, 119 Fed. Cl. 116, 126 (2014); Eco Tour Adventures, Inc. v. United States, 114

Fed. Cl. at 22; Archura LLC v. United States, 112 Fed. Cl. 487, 496 (2013). To prevail in

a bid protest case, the protestor not only must show that the government’s actions were

arbitrary, capricious, or otherwise not in accordance with the law, but the protestor also

must show that it was prejudiced by the government’s actions. See 5 U.S.C. § 706 (“[D]ue

account shall be taken of the rule of prejudicial error.”); see also Glenn Def. Marine

(ASIA), PTE Ltd. v. United States, 720 F.3d at 907 (“In a bid protest case, the inquiry is

whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise

not in accordance with law and, if so, whether the error is prejudicial.”) ; Linc Gov’t Servs.,

LLC v. United States, 96 Fed. Cl. 672, 694-96 (2010). In describing the prejudice

requirement, the Federal Circuit also has held that:

To prevail in a bid protest, a protester must show a significant, prejudicial

error in the procurement process. See Statistica, Inc. v. Christopher, 102

F.3d 1577, 1581 (Fed. Cir. 1996); Data Gen. Corp. v. Johnson, 78 F.3d

1556, 1562 (Fed. Cir. 1996). “To establish prejudice, a protester is not

required to show that but for the alleged error, the protester would have

been awarded the contract.” Data General, 78 F.3d at 1562 (citation

omitted). Rather, the protester must show “that there was a substantial

chance it would have received the contract award but for that error.”

Statistica, 102 F.3d at 1582; see CACI, Inc.-Fed. v. United States, 719 F.2d

1567, 1574-75 (Fed. Cir. 1983) (to establish competitive prejudice, protester

must demonstrate that but for the alleged error, “‘there was a substantial

chance that [it] would receive an award--that it was within the zone of active

consideration.’”) (citation omitted).

Alfa Laval Separation, Inc. v. United States, 175 F.3d 1365, 1367 (Fed. Cir.), reh’g denied

(Fed. Cir. 1999); see also Glenn Def. Marine (ASIA), PTE Ltd. v. United States, 720 F.3d

at 912; Allied Tech. Grp., Inc. v. United States, 649 F.3d 1320, 1326 (Fed. Cir.), reh’g en

banc denied (Fed. Cir. 2011); Info. Tech. & Applications Corp. v. United States, 316 F.3d

at 1319; Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d at

1332-33; OMV Med., Inc. v. United States, 219 F.3d 1337, 1342 (Fed. Cir. 2000);

Advanced Data Concepts, Inc. v. United States, 216 F.3d at 1057; Stratos Mobile

31

Networks USA, LLC v. United States, 213 F.3d 1375, 1380 (Fed. Cir. 2000).

In Data General Corp. v. Johnson, the United States Court of Appeals for the

Federal Circuit wrote:

We think that the appropriate standard is that, to establish prejudice, a

protester must show that, had it not been for the alleged error in the

procurement process, there was a reasonable likelihood that the protester

would have been awarded the contract . . . . The standard reflects a

reasonable balance between the importance of (1) averting unwarranted

interruptions of and interferences with the procurement process and (2)

ensuring that protesters who have been adversely affected by allegedly

significant error in the procurement process have a forum available to vent

their grievances. This is a refinement and clarification of the “substantial

chance” language of CACI, Inc.-Fed. [v. United States], 719 F.2d at 1574.

Data Gen. Corp. v. Johnson, 78 F.3d 1556, 1562 (Fed. Cir.), reh’g denied, en banc

suggestion declined (Fed. Cir. 1996); see also Glenn Def. Marine (ASIA), PTE Ltd. v.

United States, 720 F.3d at 912; Bannum, Inc. v. United States, 404 F.3d at 1353, 1358

(“The trial court was required to determine whether these errors in the procurement

process significantly prejudiced Bannum . . . . To establish ‘significant prejudice’ Bannum

must show that there was a ‘substantial chance’ it would have received the contract award

but for the [government’s] errors” in the bid process.) (citing Info. Tech. & Applications

Corp. v. United States, 316 F.3d at 1319; Alfa Laval Separation, Inc. v. United States,

175 F.3d at 1367; Statistica, Inc. v. Christopher, 102 F.3d at 1581; Data Gen. Corp. v.

Johnson, 78 F.3d at 1562); see also Todd Constr., L.P. v. United States, 656 F.3d 1306,

1315 (Fed. Cir. 2011); Advanced Data Concepts, Inc. v. United States, 216 F.3d at 1057

(using a “reasonable likelihood” rule); Stratos Mobile Networks USA, LLC v. United

States, 213 F.3d at 1380 (using a “substantial chance” test); Archura LLC v. United

States, 112 Fed. Cl. at 496 (using a “substantial chance” test); Info. Scis. Corp. v. United

States, 73 Fed. Cl. 70, 96 (2006) (using a “substantial chance” test), recons. in part, 75

Fed. Cl. 406 (2007).

Small Business Set-Aside versus Commercial Availability

Prior to reaching the issue of commercial availability 10 U.S.C. § 2377, both

defendant and intervenor argue that the Air Force’s decision to make the procurement a

small business set-aside must be addressed first. Intervenor states: “The small business

set aside should be analyzed first and it is clear that this decision comported with statute

and regulation and that, therefore, AGI lacks standing to proceed to challenge the

commerciality issues.” Intervenor emphasizes that “[t]he commerciality rule is subject to

the Rule of Two.” Defendant agrees, arguing that “once the small business set-aside is

ruled proper, both of AGI's remaining claims should be dismissed for lack of standing

because AGI is not eligible for award.” By contrast, protestor emphasizes that “[t]he

commerciality determination must come first,” and argues that “[t]he statutorily mandated

preference for commercial items and the Rule of Two are interpreted harmoniously by

AGI, but the defendants’ interpretation extinguishes the commercial item preference.”

32

The only thing all parties properly agree on is that agency market research must precede

both a commercial availability determination and a small business set-aside

determination.

Regarding the small business set-aside determination, the FAR provides that: “The

purpose of small business set-asides is to award certain acquisitions exclusively to small

business concerns.” 48 C.F.R. § 19.501(a) (2017); see also Proxtronics Dosimetry, LLC

v. United States, 128 Fed. Cl. 656, 680 (2016). 48 C.F.R. § 19.502-2(b) indicates that:

The contracting officer shall set aside any acquisition over $150,000 for

small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business

concerns offering the products of different small business concerns (see

paragraph (c) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides

shall not be made unless such a reasonable expectation exists (see

19.502–3 as to partial set-asides). Although past acquisition history of an

item or similar items is always important, it is not the only factor to be

considered in determining whether a reasonable expectation exists. In

making R & D small business set-asides, there must also be a reasonable

expectation of obtaining from small businesses the best scientific and

technological sources consistent with the demands of the proposed

acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b).

The “Preference for acquisition of commercial items” statute, 10 U.S.C. § 2377,

states:

(a) Preference.--The head of an agency shall ensure that, to the maximum

extent practicable--

(1) requirements of the agency with respect to a procurement of supplies or

services are stated in terms of--

(A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent

that commercial items suitable to meet the agency’s needs are not

available, nondevelopmental items other than commercial items, may be

procured to fulfill such requirements; and

33

(3) offerors of commercial items and nondevelopmental items other than

commercial items are provided an opportunity to compete in any

procurement to fill such requirements.

(b) Implementation.--The head of an agency shall ensure that

procurement officials in that agency, to the maximum extent practicable--

(1) acquire commercial items or nondevelopmental items other than

commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the

agency contracts to incorporate commercial items or nondevelopmental

items other than commercial items as components of items supplied to the

agency;

(3) modify requirements in appropriate cases to ensure that the

requirements can be met by commercial items or, to the extent that

commercial items suitable to meet the agency’s needs are not available,

nondevelopmental items other than commercial items;

(4) state specifications in terms that enable and encourage bidders and

offerors to supply commercial items or, to the extent that commercial items

suitable to meet the agency’s needs are not available, nondevelopmental

items other than commercial items in response to the agency solicitations;

(5) revise the agency’s procurement policies, practices, and procedures not

required by law to reduce any impediments in those policies, practices, and

procedures to the acquisition of commercial items; and

(6) require training of appropriate personnel in the acquisition of commercial

items.

(c) Preliminary market research.--(1) The head of an agency shall

conduct market research appropriate to the circumstances--

(A) before developing new specifications for a procurement by that agency;

(B) before soliciting bids or proposals for a contract in excess of the

simplified acquisition threshold; and

(C) before awarding a task order or delivery order in excess of the simplified

acquisition threshold.

(2) The head of an agency shall use the results of market research to

determine whether there are commercial items or, to the extent that

34

commercial items suitable to meet the agency’s needs are not available,

nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were

modified to a reasonable extent.

(3) In conducting market research, the head of an agency should not require

potential sources to submit more than the minimum information that is

necessary to make the determinations required in paragraph (2).

(4) The head of an agency shall take appropriate steps to ensure that any

prime contractor of a contract (or task order or delivery order) in an amount

in excess of $5,000,000 for the procurement of items other than commercial

items engages in such market research as may be necessary to carry out

the requirements of subsection (b)(2) before making purchases for or on

behalf of the Department of Defense.

10 U.S.C. § 2377 (emphasis in original). The regulation implementing 10 U.S.C. § 2377,

48 C.F.R. § 10.002, states:

(a) Acquisitions begin with a description of the Government’s needs stated

in terms sufficient to allow conduct of market research.

(b) Market research is then conducted to determine if commercial items or

nondevelopmental items are available to meet the Government’s needs or

could be modified to meet the Government’s needs.

(1) The extent of market research will vary, depending on such factors as

urgency, estimated dollar value, complexity, and past experience. The

contracting officer may use market research conducted within 18 months

before the award of any task or delivery order if the information is still

current, accurate, and relevant. Market research involves obtaining

information specific to the item being acquired and should include—

(i) Whether the Government’s needs can be met by—

(A) Items of a type customarily available in the commercial marketplace;

(B) Items of a type customarily available in the commercial marketplace with

modifications; or

(C) Items used exclusively for governmental purposes;

35

(ii) Customary practices regarding customizing, modifying or tailoring of

items to meet customer needs and associated costs;

(iii) Customary practices, including warranty, buyer financing, discounts,

contract type considering the nature and risk associated with the

requirement, etc., under which commercial sales of the products or services

are made;

(iv) The requirements of any laws and regulations unique to the item being

acquired;

(v) The availability of items that contain recovered materials and items that

are energy efficient;

(vi) The distribution and support capabilities of potential suppliers, including

alternative arrangements and cost estimates; and

(vii) Size and status of potential sources (see part 19).

(2) Techniques for conducting market research may include any or all of the

following:

(i) Contacting knowledgeable individuals in Government and industry

regarding market capabilities to meet requirements.

(ii) Reviewing the results of recent market research undertaken to meet

similar or identical requirements.

(iii) Publishing formal requests for information in appropriate technical or

scientific journals or business publications.

(iv) Querying the Governmentwide database of contracts and other

procurement instruments intended for use by multiple agencies available at

https://www.contractdirectory.gov/contractdirectory/ and other Government

and commercial databases that provide information relevant to agency

acquisitions.

(v) Participating in interactive, on-line communication among industry,

acquisition personnel, and customers.

(vi) Obtaining source lists of similar items from other contracting activities

or agencies, trade associations or other sources.

(vii) Reviewing catalogs and other generally available product literature

published by manufacturers, distributors, and dealers or available on-line.

36

(viii) Conducting interchange meetings or holding presolicitation

conferences to involve potential offerors early in the acquisition process.

(c) If market research indicates commercial or nondevelopmental items

might not be available to satisfy agency needs, agencies shall reevaluate

the need in accordance with 10.001(a)(3)(ii) and determine whether the

need can be restated to permit commercial or nondevelopmental items to

satisfy the agency’s needs.

(d)(1) If market research establishes that the Government’s need may be

met by a type of item or service customarily available in the commercial

marketplace that would meet the definition of a commercial item at subpart

2.1, the contracting officer shall solicit and award any resultant contract

using the policies and procedures in part 12.

(2) If market research establishes that the Government’s need cannot be

met by a type of item or service customarily available in the marketplace,

part 12 shall not be used. When publication of the notice at 5.201 is

required, the contracting officer shall include a notice to prospective offerors

that the Government does not intend to use part 12 for the acquisition.

(e) Agencies should document the results of market research in a manner

appropriate to the size and complexity of the acquisition.

48 C.F.R. § 10.002. The FAR also addresses multiple statutory provisions at 48 C.F.R.

§ 11.002:

(a) In fulfilling requirements of 10 U.S.C. 2305(a)(1), 10 U.S.C. 2377, 41

U.S.C. 3306(a), and 41 U.S.C. 3307, agencies shall—

(1) Specify needs using market research in a manner designed to—

(i) Promote full and open competition (see part 6), or maximum practicable

competition when using simplified acquisition procedures, with due regard

to the nature of the supplies or services to be acquired; and

(ii) Only include restrictive provisions or conditions to the extent necessary

to satisfy the needs of the agency or as authorized by law.

(2) To the maximum extent practicable, ensure that acquisition officials—

(i) State requirements with respect to an acquisition of supplies or services

in terms of—

(A) Functions to be performed;

(B) Performance required; or

(C) Essential physical characteristics;

(ii) Define requirements in terms that enable and encourage offerors to

supply commercial items, or, to the extent that commercial items suitable to

meet the agency's needs are not available, nondevelopmental items, in

response to the agency solicitations;

(iii) Provide offerors of commercial items and nondevelopmental items an

opportunity to compete in any acquisition to fill such requirements;

37

(iv) Require prime contractors and subcontractors at all tiers under the

agency contracts to incorporate commercial items or nondevelopmental

items as components of items supplied to the agency; and

(v) Modify requirements in appropriate cases to ensure that the

requirements can be met by commercial items or, to the extent that

commercial items suitable to meet the agency's needs are not available,

nondevelopmental items.

48 C.F.R. §11.002(a).

In consideration of the above described framework, defendant argues that “there

is statutory and regulatory support for the contention that small business set-aside

decisions should be made on a priority basis before further consideration of a

procurement.” By contrast, the protestor argues that “the Air Force has arbitrarily and

capriciously violated the statutory preference for commercial items in the Federal

Acquisition Streamlining Act (‘FASA’) and Federal Acquisition Regulation (‘FAR’) Part

12’s implementation of the preference.”

In a statutory construction analysis, the first step is “to determine whether the

language at issue has a plain and unambiguous meaning with regard to the particular

dispute in the case.” Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002) (quoting

Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)); see also Caraco Pharm. Labs., Ltd.

v. Novo Nordisk A/S, 132 S. Ct. 1670, 1680 (2012) (“We begin ‘where all such inquiries

must begin: with the language of the statute itself.’” (quoting United States v. Ron Pair

Enters., Inc., 489 U.S. 235, 241 (1989))); Bettcher Indus., Inc. v. Bunzl USA, Inc., 661

F.3d 629, 644 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2011); Jimenez v.

Quarterman, 555 U.S. 113, 118 (2009) (“As with any question of statutory interpretation,

our analysis begins with the plain language of the statute.”); Strategic Hous. Fin. Corp. of

Travis Cnty. v. United States, 608 F.3d 1317, 1323 (Fed. Cir.) (“When interpreting any

statute, we look first to the statutory language.”), reh'g and reh'g en banc denied (Fed.

Cir. 2010), cert. denied, 562 U.S. 1221 (2011); Mgmt. and Training Corp. v. United States,

115 Fed. Cl. at 42 (“Principles of statutory interpretation dictate that the court begin its

analysis with the text of the regulation at issue because, if the terms of the regulation are

unambiguous, the plain language of a regulation is controlling.”). “The plainness or

ambiguity of statutory language is determined by reference to the language itself, the

specific context in which that language is used, and the broader context of the statute as

a whole.” Robinson v. Shell Oil Co., 519 U.S. at 341 (citing Estate of Cowart v. Nicklos

Drilling Co., 505 U.S. 469, 477 cert. denied 505 U.S. 1218 (1992); McCarthy v. Bronson,

500 U.S. 136, 139 (1991)). “‘Beyond the statute’s text, the traditional tools of statutory

construction include the statute’s structure, canons of statutory construction, and

legislative history.’” Bartels Trust for the Benefit of Cornell Univ. ex rel. Bartels v. United

States, 617 F.3d 1357, 1361 (Fed. Cir.) (quoting Bull v. United States, 479 F.3d 1365,

1376 (2007)), reh’g en banc denied (Fed. Cir. 2010); see also Caraco Pharm. Labs., Ltd.

v. Novo Nordisk A/S, 132 S. Ct. at 1680 (“[W]e consider each question [of statutory

interpretation] in the context of the entire statute.” (citing Robinson v. Shell Oil Co., 519

U.S. at 341)); Roberts v. Sea-Land Servs., Inc., 132 S. Ct. 1350, 1356 (2012); Bush v.

38

United States, 655 F.3d 1323, 1329 (Fed. Cir. 2011), cert. denied, 132 S. Ct. 2681 (2012).

The initial inquiry into the statutory text ceases “if the statutory language is

unambiguous and ‘the statutory scheme is coherent and consistent.’” Barnhart v. Sigmon

Coal Co., 534 U.S. at 450 (quoting Robinson v. Shell Oil Co., 519 U.S. at 340); see also

Bettcher Indus., Inc. v. Bunzl USA, Inc., 661 F.3d at 644. In interpreting the plain meaning

of the statute, it is the court’s duty, if possible, to give meaning to every clause and word

of the statute. See Alaska Dep’t of Envtl. Conservation v. EPA, 540 U.S. 461, 489 n.13

(2004) (“It is, moreover, ‘“a cardinal principle of statutory construction” that “a statute

ought, upon the whole, to be so construed that, if it can be prevented, no clause,

sentence, or word shall be superfluous, void, or otherwise insignificant.”’” (quoting TRW

Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174

(2001)))); Williams v. Taylor, 529 U.S. 362, 404 (2000) (describing as a “cardinal principle

of statutory construction” the rule that every clause and word of a statute must be given

effect if possible); see also Setser v. United States, 132 S. Ct. 1463, 1470 (2012) (“Our

decision today follows the interpretive rule they invoke, that we must ‘give effect . . . to

every clause and word’ of the Act.” (omission in original) (quoting United States v.

Menasche, 348 U.S. 528, 538–39 (1955))); Sharp v. United States, 580 F.3d 1234, 1238

(Fed. Cir. 2009). Similarly, the court must avoid an interpretation of a clause or word

which renders other provisions of the statute inconsistent, meaningless, or superfluous.

See Duncan v. Walker, 533 U.S. at 174 (noting that courts should not treat statutory terms

as “surplusage”). “[W]hen two statutes are capable of co-existence, it is the duty of the

courts . . . to regard each as effective.” Radzanower v. Touche Ross & Co., 426 U.S.

148, 155 (1976); see also Xianli Zhang v. United States, 640 F.3d 1358, 1368 (Fed. Cir.)

(citing Cathedral Candle Co. v. U.S. Int’l Trade Comm’n, 400 F.3d 1352, 1365 (Fed. Cir.

2005)), reh’g and reh’g en banc denied (Fed. Cir. 2011), cert. denied, 132 S. Ct. 2375

(2012); Hanlin v. United States, 214 F.3d 1319, 1321 (Fed. Cir.), reh’g denied (Fed. Cir.

2000).

When the statute provides a clear answer, the court’s analysis is at an end. See

Barnhart v. Sigmon Coal Co., 534 U.S. at 450; see also Arko Foods Int’l, Inc. v. United

States, 654 F.3d 1361, 1364 (Fed. Cir. 2011) (“‘[W]here Congress has clearly stated its

intent in the language of a statute, a court should not inquire further into the meaning of

the statute.’” (quoting Millenium Lumber Distrib., Ltd. v. United States, 558 F.3d 1326,

1328 (Fed. Cir.), reh’g denied (Fed. Cir. 2009)); Am. Airlines, Inc. v. United States, 551

F.3d 1294, 1300 (Fed. Cir. 2008), reh’g granted, 319 F. App’x 914 (Fed. Cir. 2009). Thus,

when the “‘statute’s language is plain, “the sole function of the courts is to enforce it

according to its terms.”’” Johnson v. United States, 529 U.S. 694, 723 (2000) (quoting

United States v. Ron Pair Enters., Inc., 489 U.S. at 241 (quoting Caminetti v. United

States, 242 U.S. 470, 485 (1917))); see also Bartels Trust for the Benefit of Cornell Univ.

ex rel. Bartels v. United States, 617 F.3d at 1361 (citing Sharp v. United States, 580 F.3d

at 1237); Jimenez v. Quarterman, 555 U.S. at 118; Hartford Underwriters Ins. Co. v. Union

Planters Bank, N.A., 530 U.S. 1, 6 (2000)); Candle Corp. of Am. v. U.S. Int’l Trade

Comm’n, 374 F.3d 1087, 1093 (Fed. Cir.), reh’g and reh’g denied (Fed. Cir. 2004).

Indeed, in construing a statute, courts “‘must begin with the language employed by

39

Congress and the assumption that the ordinary meaning of that language accurately

expresses the legislative purpose.’” Schindler Elevator Corp. v. United States, 131 S. Ct.

1885, 1891 (2011) (quoting Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175 (2009)

(internal quotation marks omitted)). Even “‘[w]hen terms used in a statute are undefined,

we give them their ordinary meaning.’” Schindler Elevator Corp. v. United States, 131 S.

Ct. at 1891 (quoting Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995)).

Consequently, if a statute is plain and unequivocal on its face, there is usually no need to

resort to the legislative history underlying the statute. See Whitfield v. United States, 543

U.S. 209, 215 (“Because the meaning of [the statute’s] text is plain and unambiguous, we

need not accept petitioners’ invitation to consider the legislative history . . . .”), reh’g

denied sub nom. Hall v. United States, 544 U.S. 913 (2005). But see Chamberlain Grp.,

Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1196 (Fed. Cir. 2004) (“Though ‘we do not

resort to legislative history to cloud a statutory text that is clear,’ Ratzlaf v. United States,

510 U.S. 135, 147–48 (1994), we nevertheless recognize that ‘words are inexact tools at

best, and hence it is essential that we place the words of a statute in their proper context

by resort to the legislative history.’” (quoting Tidewater Oil Co. v. United States, 409 U.S.

151, 157 (1972))), reh’g and reh’g en banc denied (Fed. Cir. 2004), cert. denied, 544 U.S.

923 (2005).

Legislative history may be helpful in certain instances “to shed light on what

legislators understood an ambiguous statutory text to mean when they voted to enact it

into law.” Bruesewitz v. Wyeth LLC, 131 S. Ct. 1068, 1081–82 (2011) (citing Exxon

Mobile Corp. v. Allapatah Servs., Inc., 545 U.S. 546, 568 (2005); see also Xianli Zhang

v. United States, 640 F.3d at 1373. Legislative history, however, does not “trump[] clear

text.” Bartels Trust for the Benefit of Cornell Univ. ex rel. Bartels v. United States, 617

F.3d at 1361 (citing Sharp v. United States, 580 F.3d at 1238; Glaxo Operations UK Ltd.

v. Quigg, 894 F.2d 392, 396 (Fed. Cir. 1990)). The Supreme Court has noted, however,

that when it appears that the plain language of a statute resolves the issue, a court is to

“look to the legislative history to determine only whether there is [a] ‘clearly expressed

legislative intention’ contrary to that language, which would require us to question the

strong presumption that Congress expresses its intent through the language it chooses.”

INS v. Cardoza-Fonseca, 480 U.S. 421, 432 n.12 (1987) (citing United States v. James,

478 U.S. 597, 606 (1986); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447

U.S. 102, 108 (1980)).

The United States Supreme Court also has held that the specific terms of a statute

supersede general terms within that statute or within another statute that might otherwise

control. See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 228–29 (1957)

(“Specific terms prevail over the general in the same or another statute which otherwise

might be controlling.” (quoting D. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 (1932)));

see also Bloate v. United States, 559 U.S. 196, 207 (2010); Bulova Watch Co. v. United

States, 365 U.S. 753, 761 (1961). In addition, the Supreme Court has endorsed “the

‘normal rule of statutory construction’ that ‘identical words used in different parts of the

same act are intended to have the same meaning.’” Gustafson v. Alloyd Co., 513 U.S.

561, 570 (1995) (quoting Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 342

(1994)); see also Kislev Partners, L.P. ex rel. Bahar v. United States, 84 Fed. Cl. 385,

40

389, recons. denied, 84 Fed. Cl. 378 (2008).

The defendant and intervenor both point to the language of “shall” in 48 C.F.R.

§ 19.502-2(b),19 as evidence of the need to perform the small business set-aside

determination before the commercial availability analysis. Defendant states:

This section [§ 19.502-2(b)] - which includes the mandatory term “shall” -

requires the Government to set-aside acquisitions when the Rule of Two is

satisfied. Accordingly, the Air Force was bound by the mandatory "Rule of

Two" directive to set aside this procurement for a small business, once the

Air Force made the necessary findings.

(emphasis in original). Defendant also argues that “[t]here are many competition statutes

and regulations, but they are structured in such a way to give priority to the application of

the small business set-aside. Other competition regulations may be applied to the

subsequent competition between small businesses.” The government is correct that a

number of the provisions of the FAR, specifically Part 19, addresses the importance of

the small business set-aide, for example, 48 C.F.R. § 19.201(a) states that, “[i]t is the

policy of the Government to provide maximum practicable opportunities in its acquisitions

to small business.” Likewise, 48 C.F.R. § 19.203(e) provides that, “[s]mall business set-

asides have priority over acquisitions using full and open competition,” and 48 C.F.R.

§ 19.501(a) states that, “[t]he purpose of small business set-asides is to award certain

acquisitions exclusively to small business concerns. A ‘set-aside for small business’ is the

reserving of an acquisition exclusively for participation by small business concerns. A

small business set-aside may be open to all small businesses.”

19 As noted above, 48 C.F.R. § 19.502-2(b) states that:

The contracting officer shall set aside any acquisition over $150,000 for

small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business

concerns offering the products of different small business concerns (see

paragraph (c) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides

shall not be made unless such a reasonable expectation exists (see

19.502–3 as to partial set-asides). Although past acquisition history of an

item or similar items is always important, it is not the only factor to be

considered in determining whether a reasonable expectation exists. In

making R & D small business set-asides, there must also be a reasonable

expectation of obtaining from small businesses the best scientific and

technological sources consistent with the demands of the proposed

acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b).

41

Although the defendant and intervenor are correct that 48 C.F.R. § 19.502-2

provides that “[t]he contracting officer shall set aside any acquisition over $150,000 for

small business participation,” as noted by protestor, 48 C.F.R. § 12.101 also contains the

instruction “shall.” 48 C.F.R. § 12.101, titled “Policy” provides that:

Agencies shall—

(a) Conduct market research to determine whether commercial items or

nondevelopmental items are available that could meet the agency's

requirements;

(b) Acquire commercial items or nondevelopmental items when they are

available to meet the needs of the agency; and

(c) Require prime contractors and subcontractors at all tiers to incorporate,

to the maximum extent practicable, commercial items or nondevelopmental

items as components of items supplied to the agency.

48 C.F.R. § 12.101 (2017).20 Defendant argues that “[o]ne flaw in AGI's position is that

the plain meaning of section 12.101 does not mandate any particular action by a

contracting officer (the general policy goals must be met by ‘the agency’)” 21 and that a

“second flaw is that section 12.101(b) does not mandate the purchase of any commercial

item. Instead, the policy goal is to ‘acquire’ either a ‘commercial item’ or a

‘nondevelopmental item.’” (all emphasis in original).22 The court does not understand as

20 48 C.F.R. § 12.102, titled, “Applicability,” provides, in part:

(a) This part shall be used for the acquisition of supplies or services that

meet the definition of commercial items at section 2.101.

(b) Contracting officers shall use the policies in this part in conjunction with

the policies and procedures for solicitation, evaluation and award

prescribed in part 13, Simplified Acquisition Procedures; part 14, Sealed

Bidding; or part 15, Contracting by Negotiation, as appropriate for the

particular acquisition.

(c) Contracts for the acquisition of commercial items are subject to the

policies in other parts of the FAR. When a policy in another part of the FAR

is inconsistent with a policy in this part, this part 12 shall take precedence

for the acquisition of commercial items.

48 C.F.R. § 12.102 (2017).

The court also notes that 10 U.S.C. § 2377 directs the “head of an agency” to “conduct

21

market research,” not necessarily that it has to be the contracting officer to conduct the

market research or investigate commercial options.

22 Although defendant empathizes “either a ‘commercial item’ or a ‘nondevelopmental

item,’” the intervenor argues that “a commercial item by definition is a nondevelopmental

42

dispositive that the commercial availability is aimed at the agency instead of the

contracting officer. Moreover, as noted above, although the title of 48 C.F.R. § 12.101, is

the word “Policy,” the regulation nevertheless begins:

Agencies shall

(a) Conduct market research to determine whether commercial items or

nondevelopmental items are available that could meet the agency's

requirements;

(b) Acquire commercial items or nondevelopmental items when they are

available to meet the needs of the agency; and

(c) Require prime contractors and subcontractors at all tiers to incorporate,

to the maximum extent practicable, commercial items or nondevelopmental

items as components of items supplied to the agency.

48 C.F.R. § 12.101 (emphasis added).

Despite defendant’s attempt to minimize the importance of the commercial

availability directive, it is not merely a “policy goal,” but a requirement for the agency to

determine if a commercial option is available or can be modified to meet the agency’s

needs. Based on the statutes and regulations at issue, the court believes that an agency

is required to determine both if a procurement can be small business set-aside and if a

commercial item is available for the procurement without specific direction as to the order.

Defendant also states that

section 10.002(d) is a narrow directive to use Part 12 procedures in certain

circumstances. Even assuming that AGI could allege facts demonstrating

that it falls within the section 10.002(d) criteria, the drafters of the regulation

purposefully crafted section 10.002 so that it would not supercede [sic] small

business authorities. Thus, where the Air Force properly set aside the

acquisition for small business, AGI’s allegations would not state a claim

upon which relief might be granted.

Defendant’s basis for claiming that 48 C.F.R. § 10.002 does not supersede the small

business decision, is the language that “Market research involves obtaining information

specific to the item being acquired and should include . . . Size and status of potential

sources (see part 19),” and “[i]f market research establishes that the Government's need

cannot be met by a type of item or service customarily available in the marketplace, part

item and a nondevelopmental item is a commercial item,” and that “[a] commercial item

and nondevelopmental items are synonymous.” (all emphasis in original).

43

12 shall not be used.” 48 C.F.R. § 10.002.23 Although the defendant and intervenor

repeatedly emphasize their belief that the small business set-aside determination could

not be undermined by a commercial availability determination, they agree that market

research must be accomplished before either the small business decision or the

commercial availability decision is made. As intervenor explains, “[t]he purpose of market

research – which is step one in the process, is, inter alia, to consider application of 15

U.S.C. § 644 and the capabilities of small businesses.” (emphasis in original).

As demonstrated above, the agency in this protest performed the market research

prior to making the small business decision. On May 31, 2016, the contracting officer

recommended a small business set-aside, and, on June 1, 2016, the agency’s small

business specialist, concurred with the recommendation of a small business set-aside.

This decision was in response to the potential offerors responses to the fourth amended

RFI, which indicated the Air Force was considering a small business set-aside. This was

the fifth time that the Air Force had sought a request for information about the potential

procurement. It was the culmination of an extensive market research process to attempt

to properly identify the requirements of the procurement. Almost seven months before the

small business set-aside recommendation, the Air Force had initiated the procurement

process with the first RFI issued on November 4, 2015.24 As explained above, the

contracting officer issued a first amended RFI, a second amended RFI, a third amended

RFI, and a fourth amended RFI. Additionally, prior to the small business set-aside

recommendation, the Air Force held an industry day, in response to information generated

from the RFI and the amended RFIs, inviting eight potential offerors to the event. Notably,

it was in response to the market research that the agency even considered a small

business set-aside. The contracting officer testified in her deposition that it was after the

industry day event that she first thought about the possibility of a small business set-

aside. Therefore, the recommendation for a small business set-aside, in late May and

early June 2016, was in response to, and not separate from, the market research.25

As noted by another Judge of the United States Court of Federal Claims,

“[c]ontracting officers are required to ‘review acquisitions to determine if they can be set

23 The defendant also claims that “the drafters [of Section 10.002] purposefully did not

identify Part 19 as a competing contracting approach. The drafters specifically identified

the alternative contracting approaches of Part 13, Part 14 and Part 15 - both in the

regulation and in the preamble. The drafters assumed that small business authorities

would not be diminished by the final rule, and created no conflicting regulation.” (citing 60

Fed. Reg. 48231, 48233 & 48242 (Sept. 18, 1995).

24As noted above, this process began just one month after the Air Force awarded the

JICSpOC contract to Analytical Graphics, and almost nine months before the end of

contract performance of the JICSpOC contract.

25The court notes that the Market Research Report for the procurement at issue in the

above captioned protest was issued on June 21, 2016, after the small business set-aside

recommendation. The market research itself, however, as described above, was

conducted prior to the small business set-aside recommendation.

44

aside for small business,’ and must ‘perform market research’ before concluding that an

acquisition should not be set aside for a small business.” Proxtronics Dosimetry, LLC v.

United States, 128 Fed. Cl. at 680 (citing 48 C.F.R. § 19.501(c)); see also 48 C.F.R.

§ 19.501(c) (2017) (“The contracting officer shall perform market research and document

why a small business set-aside is inappropriate when an acquisition is not set aside for

small business, unless an award is anticipated to a small business under the 8(a),

HUBZone, SDVOSB, or WOSB Programs.”). Likewise, in McKing Consulting Group v.

United States, 78 Fed. Cl. 715, 726 (2007), in finding that the contracting officer did not

act arbitrarily or capriciously when issuing the solicitation at issue in that case, the McKing

court explained that

the record demonstrates that the contracting officer had multiple reasons

for her decision to issue the Solicitation as a small business set-aside. First,

the procurement history shows that the expectation of at least two

responsive small business bidders was reasonable. Second, the

contracting officer conducted sufficient market research and acquisition

planning before issuing the Solicitation as a small business set-aside.

Id. Numerous other decisions by Judges of the United States Court of Federal Claims,

although each factually based, point to the market research conducted by an agency as

evidence that the small business set-aside determination was not made arbitrarily or

capriciously. See, e.g., Geo-Med, LLC v. United States, 126 Fed. Cl. 440, 447 (“The CO

[Contracting Officer] did extensive market research and reasonably concluded that the

agency was not likely to receive at least two offers from qualified small business

manufacturers.”); Raymond Express Int’l, LLC v. United States, 120 Fed. Cl. 413 (2015);

Dynamic Educational Sys., Inc. v. United States, 109 Fed. Cl. 306, 326 (2013). The history

of the market research in the current protest, and the nature of market research generally

demonstrate that market research can guide an agency’s decision making process. It is,

therefore, logical that an agency use the market research for both the small business set-

aside determination and of the commercial availability decision.

Although intervenor frames its arguments in contrast to protestor’s claims that the

commercial availability decision must come first,26 the court notes that intervenor

nevertheless states that the “FAR says that the consideration of small business

capabilities and commercial item possibilities occurs at the same time.” Intervenor also

claims that “[u]nlike FAR’s mandatory Rule of Two, FAR implements the commercial item

rule in a precatory, not mandatory, way because there is no absolute mandate for one

type of solution over the over. Rather, the commercial item preference creates a

continuum of analysis and review.” Intervenor, citing 48 C.F.R. § 10.001, argues that

“FAR provides three steps in the procurement process: Step one is to conduct market

research. Step two is to define the Government’s specific needs. Step 3 is to create

26As noted above, protestor argues that “consideration of FASA’s mandate precedes and

takes priority over consideration of size status.”

45

requirements descriptions.” Intervenor, quoting from 48 C.F.R. § 10.001, argues,

somewhat confusingly, that after conducting market research the

FAR then states that “before developing new requirements,” that is Step

three, the “results of market research” are also used as part of the needs

assessment (Step two) in determining if inter alia “commercial items or, to

the extent commercial items suitable to meet the agency's needs are not

available, nondevelopmental items are available.” 48 C.F.R. §

10.001(a)(3)(ii)(C)). This determination of commercial items availability is

part of the needs analysis in step two, as described in 48 C.F.R. Part 11

(“Describing Agency Needs [sic]) and specifically, 48 C.F.R.§ 11.002. So

too are the “results of the market research” used to consider small business

issues. 48 C.F.R. § 10.001(a)(3)(vi) and (vii).[27] Again, FAR says that the

consideration of small business capabilities and commercial item

possibilities occurs at the same time.

The defendant also argues that “[t]he Rule of Two determination is a simple,

preliminary step, requiring none of the rigorous analysis of proposal review,” citing to

Adams and Associates, Inc. v. United States, 741 F.3d 102, 111 (Fed. Cir. 2014).28 In

attempting to explain how the FAR makes the set-aside determination “an uncomplicated

procedure early in the procurement decision-making,” defendant emphasizes that the

decision not to set-aside a procurement must be documented, but a decision to procure

as a set-aside does not. (citing 48 C.F.R. § 19.501(c)). As the court noted above,

27 Although referenced by intervenor, “48 C.F.R. § 10.001(a)(3)(vi) and (vii)” provide an

agency use the results of market research to “(vi) Determine whether consolidation is

necessary and justified (see 7.107–2) (15 U.S.C. 657q); (vii) Determine whether bundling

is necessary and justified (see 7.107–3) (15 U.S.C. 644(e)(2)(A)). . . .” The court notes

that 48 C.F.R. § 10.001(a)(2)(vi) provides that:

On an ongoing basis, take advantage (to the maximum extent practicable)

of commercially available market research methods in order to effectively

identify the capabilities of small businesses and new entrants into Federal

contracting that are available in the marketplace for meeting the

requirements of the agency in furtherance of—

(A) A contingency operation or defense against or recovery from nuclear,

biological, chemical, or radiological attack; and

(B) Disaster relief to include debris removal, distribution of supplies,

reconstruction, and other disaster or emergency relief activities (see

26.205). . . .

48 C.F.R. § 10.001(a)(2)(vi).

28Intervenor also repeatedly cites to Adams and Associates, Inc. v. United States in its

submissions. The Federal Circuit’s decision in Adams and Associates, Inc. v. United

States is more fully address below in the small business set-aside analysis.

46

however, 10 U.S.C. § 2377, and the implementing regulation at 48 C.F.R. § 10.002(e),

do not require a commercial availability determination be documented in a specific way,

only that the commercial availability review be completed. Nor does 10 U.S.C. § 2377

require a specific type of analysis as the decision is made prior to determining what kind

of procurement is required.

Protestor, however, argues that, based on the order of the subsections of 48

C.F.R. § 10.002, “[c]learly, during market research, consideration of FASA’s mandate

precedes and takes priority over consideration of size status.” Protestor also argues that

that “[t]he statutorily mandated preference for commercial items and the Rule of Two are

interpreted harmoniously by AGI, but the defendants’ interpretation extinguishes the

commercial item preference.” The court notes that defendant, likewise, claims that

interpretation is “harmoniously” done, arguing that “reading the statutes and regulations

together harmoniously, we conclude that Congress intended the small business set-aside

to be considered first.”

Despite the arguments from both sides, the court does not find either interpretation

of the statutes works together “harmoniously.” In the court’s view, there is not a clear

order of precedence in the statutes or implementing regulations for how to approach a

procurement which potentially involves both a small business set-aside analysis and a

commercial availability analysis. The intent of 10 U.S.C. § 2377 is to direct agencies to

investigate whether commercial or non-developmental items exist that can satisfy the

government’s needs, in whole or in part, so as to avoid investing time and taxpayer money

into developing a product that already exists. The agency must weigh the congressional

policy goal of having a procurement be designated one of a percentage of small business

set-asides and the policy goal of reducing the cost to the agency of a developmental

contract, or not pursing a developmental contract, if an available product already exists

in commercial form. Given the ambiguity in the two competing statutory goals and absent

regulatory guidance regarding the choice as to which has precedence, the choice made

by agency generally deserves deference.

The court should not be the entity to make that choice, and should intervene only

when there is an obvious foul. Absent compelling statutory or regulatory guidance, which

is missing here, the court generally defers to the agency’s choice in a procurement in

which the market research was carefully conducted. As the statutes and regulations do

not point to a clear order for an agency to proceed between the small business set-aside

determination and a commercial availability decision, the court does not read a

requirement into the statutes and regulations that requires the agency or this court to first

examine either.

The court notes, that the Air Force, in fact, considered both the small business set-

aside determination and the commercial availability decision essentially

contemporaneously after the market research process. As noted above, on May 31, 2016,

the contracting officer recommended a small business set-aside, and on June 1, 2016,

the agency’s small business specialist, concurred with the recommendation of a small

business set-aside. The same day, June 1, 2016, the contracting officer wrote a

Memorandum for Record on the subject of: “Noncommerciality for Services and

47

Government Purpose Rights.” Two days later, on June 3, 2016, the contracting officer

was still evaluating both protestor and Exo, as evidenced by the June 3, 2016

Memorandum for Records tilted: “Pricing for Analytical Graphics and ExoAnalytical [sic]

Solutions.” Moreover, it was the market research process which led the contracting officer

to consider, and ultimately opt for, the small business set-aside determination.

Small Business Set-Aside

The court therefore, must determine if the small business set-aside was proper.

The defendant argues that the small business set-aside was indeed proper, and

intervenor agrees, arguing that “the application of the Rule of Two here was proper.”

Protestor, by contrast, argues that “the Air Force’s ‘Rule of Two’ determination underlying

the set-aside decision was arbitrary and capricious and unlawfully restricts competition in

violation of the Competition in Contracting Act, 10 U.S.C. § 2304.”

As explained by the United States Supreme Court in Kingdomware Technologies,

Inc. v. United States:

In an effort to encourage small businesses, Congress has mandated that

federal agencies restrict competition for some federal contracts. The Small

Business Act thus requires many federal agencies, including the

Department of Veterans Affairs, to set aside contracts to be awarded to

small businesses. The Act requires each agency to set “an annual goal that

presents, for that agency, the maximum practicable opportunity” for

contracting with small businesses, including those “small business

concerns owned and controlled by service-disabled veterans.” 15 U.S.C. §

644(g)(1)(B). And federal regulations set forth procedures for most

agencies to “set aside” contracts for small businesses. See, e.g., 48 CFR §

19.502–2(b) (2015).

Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969, 1973 (2016). As noted

above, the FAR provides that “[t]he purpose of small business set-asides is to award

certain acquisitions exclusively to small business concerns.” 48 C.F.R. § 19.501(a). The

regulations at 48 C.F.R. § 19.502-2(b) indicates that:

The contracting officer shall set aside any acquisition over $150,000 for

small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business

concerns offering the products of different small business concerns (see

paragraph (c) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides

shall not be made unless such a reasonable expectation exists (see

19.502–3 as to partial set-asides). Although past acquisition history of an

item or similar items is always important, it is not the only factor to be

considered in determining whether a reasonable expectation exists. In

making R & D small business set-asides, there must also be a reasonable

48

expectation of obtaining from small businesses the best scientific and

technological sources consistent with the demands of the proposed

acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b); see also Adams & Assocs. v. United States, 741 F.3d at 111.

As explained by a Judge of the United States Court of Federal Claims, “the decision to

set aside a solicitation ‘is a matter of business judgment within the contracting officer's

discretion and, as such, must be upheld unless the Court finds the decision to be arbitrary,

capricious, an abuse of discretion or otherwise not in accordance with the law.’” Mgmt.

& Training Corp. v. United States, 115 Fed. Cl. at 44 (quoting Benchmade Knife Co. v.

United States, 79 Fed. Cl. 731, 738 (2007)); see also Adams & Assocs. v. United States,

741 F.3d at 111; Res-Care Inc. v. United States, 735 F.3d 1384, 1390 (Fed. Cir. 2013)

(quoting Weeks Marine, Inc. v. United States, 575 F.3d at 1368–69 (“A contracting

officer's decision to set aside a contract for small businesses invokes ‘highly deferential

rational basis review.’”)). Likewise, as noted by another Judge of this court, “[w]e begin

with the reminder that, whether to set aside a solicitation for small businesses ‘“is a matter

of business judgment within the contracting officer's discretion.”’ Gear Wizzard, Inc. v.

United States, 99 Fed. Cl. 266, 282 (2011) (quoting Benchmade Knife Co. v. United

States, 79 Fed. Cl. 731, 738 (2007)). The ‘law does not require any particular method.’”

Dynamic Educational Sys., Inc. v. United States, 109 Fed. Cl. 306, 326 (2013) (quoting

Gear Wizzard, Inc. v. United States, 99 Fed. Cl. at 282). The determination for the Rule

of Two is based on the information available to the contracting officer at the time the

decision is made, in this case, after the market research review, as “the FAR provides for

set asides based on the contracting officer's ‘reasonable expectation,’ implicitly accepting

the possibility that that expectation may ultimately prove incorrect.” Mgmt. & Training

Corp. v. United States, 118 Fed. Cl. 155, 169 (2013).

The relevant authority for the court to look to regarding the requirements for a small

business set-aside determination is the United States Court of Appeals for the Federal

Circuit’s 2014 decision in Adams & Associates v. United States. In Adams, the protestor

had challenged the United States Department of Labor’s decision to set aside two

contracts, the Gadsden contract and the Shriver contract, as small business set-asides.

See Adams & Assocs. v. United States, 741 F.3d at 105.29 The Federal Circuit explained

regarding the requirements for a small business set-aside determination:

Adams’s reading of the Rule of Two ignores that “a reasonable expectation”

that at least two responsible small businesses will submit bids at fair market

prices is all that is required. Here, through the RFI process, the DOL

performed market research about the level of interest from small businesses

in bidding on the Shriver and Gadsden contracts. It then determined from

the responses that there was a reasonable expectation that at least two

29The protestor in Adams also challenged the decision to use a small business set-aside

as violating the Workforce Investment Act, which is not at issue in the current procurement

under review. See Adams & Assocs. v. United States, 741 F.3d at 107-108.

49

responsible small businesses would make offers for the operation of each

of the Centers. To Adams, “the issue here is that the market research . . .

must generate the information necessary to address the expressly required

responsibility and price reasonableness legal elements of the Rule of Two.”

According to Adams, the required information is identified in another part of

the Federal Acquisition Regulation pertaining to determining whether a

prospective contractor is “responsible” before awarding a contract to that

contractor. These factors include capability, capacity, and past

performance. 48 C.F.R. § 9.104-1. Adams contends that only by collecting

information related to these factors can the DOL meet the requirements of

the Rule of Two.

Adams conflates a set-aside determination with a responsibility

determination made pursuant to § 9.104-1; the former determines whether

there is a reasonable expectation that at least two responsible small

businesses will make an offer at fair market prices, while the latter

determines whether an individual contractor is responsible in the context of

awarding a contract. As the lower court noted, a seta-side determination

requires only that the contracting officer have a reasonable expectation that

likely small business offerors will survive a future responsibility

determination. The DOL was not required to impose the requirements of the

contractor-selection process onto the small business set-aside

determination, and it properly applied the Rule of Two. Because its decision

was not arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law, it will not be disturbed. 5 U.S.C. § 706(2)(A).

Adams & Assocs. v. United States, 741 F.3d at 111 (internal citations omitted).

Despite the Federal Circuit’s clear guidance in Adams not to require a

responsibility determination before making the set-aside determination, the protestor

nonetheless argues that “the Air Force irrationally concluded that ExoAnalytic could meet

the Agency’s minimum requirements,” and also argues that “the Air Force’s ‘Rule of Two’

determination was flawed because, at the time the set-aside decision was made, the Air

Force could not have rationally concluded that ADS could satisfy the requirements of the

PWS without violating the limitation on subcontracting clause.” The court addresses each

of these arguments separately. Regarding the protestor’s argument that “Air Force

irrationally concluded that ExoAnalytic could meet the Agency’s minimum requirements,”

the protestor points to the “Salient Characteristics” identified during the RFI process as

Exo’s inability to meet the Air Force’s requirements. The parties have stipulated:

In the amended RFI, The Air Force sought information about collections of

data, software and personal services that could meet certain minimum

requirements. The Air Force included a list of ten “Salient Characteristics”

that the Air Force considered to be “minimum requirements” for the SSA

system:

50

SALIENT CHARACTERISTICS: The collection of non-governmental SSA

data, processing tools, personnel, and contracted support will be referred

to as the Commercial SSA System.

• Provide metric, non-metric, and Space Object Identification (SOI)

observations from data collected from a minimum of 10 worldwide sensors

outside the control of the USG, at least half of which must not be terrestrial

sensors in North America (e.g. sensors in Europe, on orbit).

• Document whether sensors can be utilized on an on-demand basis or if

their use must be pre-planned and list the additional costs for on-demand

service, if applicable.

• Provide the format and source of the data.

• Ingest authorized DoD data (raw or processed observations) into any

contractor event processing or analysis capability.

• Ensure they export their data, one-way, to DoD networks of equal or higher

classification for additional processing.

• Provide for threat warning assessment by detecting and notifying

JICSpOC personnel of a space object entering or projected to enter a user-

definable area around specific resident space objects (RSO) within 15

minutes of entering. NOTE: 15 minutes is the unclassified value.

• Process and correlate feature-type data (Visual Magnitude (Vmag), Radar

Cross Section (RCS) changes, RF spectrum, etc.).

• Ability to detect hostile and non-hostile maneuvers and analyze the

change of behavior, to include the revised orbit, within 2 minutes of

maneuver detection.

• Augment DoD persistent monitory capabilities by maintaining custody of

designated objects (e.g. Super High Interest Objects) to the maximum

degree possible.

• Provide telemetry data on the orbits of all detectable objects.

(capitalization in original). As indicated above, although in its response to the first

amended RFI, Exo indicated that it could meet the government’s minimum salient

characteristics, the parties have stipulated that, after the responses to the first amended

RFI, “[t]he Air Force determined that the responses of AGI and ADS [Applied Defense]

indicated that AGI and ADS could satisfy all 10 of the minimum salient characteristics,

and that the response of Exo indicated that Exo could satisfy 9 of the minimum salient

characteristics.” The Air Force concluded that, at the time of the first amended RFI

51

response, Exo did not meet the characteristic: “Process and correlate feature-type data

(Visual Magnitude (Vmag), Radar Cross Section (RCS) changes, RF spectrum, etc).”

Based on this, protestor argues that this failure is clear proof that the Air Force’s

conclusion that there was a reasonable expectation Exo survive a future responsibility

determination was arbitrary and capricious.

Defendant argues that “AGI gives undue weight to a preliminary technical scoring

exercise conducted prior to the classified information exchanges at Industry Day.”

(emphasis in original). Intervenor echoes defendant’s argument noting that:

AGI says that the Air Force irrationally concluded that ExoAnalytic could

meet the Agency’s requirements, because the preliminary stage RFI found

that Exo could not meet one of the ten ‘salient characteristics. [sic] After the

later industry day, further evaluation, and receipt of more information,

however, the Air Force found both Exo and ADS capable of meeting the Air

Force’s requirement certainly with teaming partners.

(emphasis in original). The court agrees that protestor places too much weight on Exo’s

responses to the first amended RFI and does not allow for the possibility that the Air Force

would acquire additional information that would lead them to reasonably believe Exo

could be a responsible small business offeror. As noted above, the parties have jointly

stipulated that “[b]etween June 7, 2016 and June 15, 2016, various Air Force officials

signed the justification and authorization document to approve limiting competition to ADS

and Exo, pursuant to the authority of 10 U.S.C. [§] 2304(c)(6) and 48 C.F.R. [§] 6.302-6.”

(internal references omitted). Regarding the market research conducted by the Air Force,

the justification and authorization document stated:

(U) Market research was conducted, including two RFls posted to the GPE

and an industry day conducted between the first and second RFI. The initial

RFI provided potential offerors with notification of security requirements and

a list of salient characteristics offeror products and services would need to

demonstrate to receive consideration for an industry day invitation.

Responses from the initial RFI were assessed to gauge potential technical

capabilities as well as security clearance requirements. Firms that did not

demonstrate a rudimentary understanding of the requirements and those

without appropriate clearance levels were not invited to attend industry day.

For the industry day, the Program Manager (PM) determined disclosure of

classified information to those invited was necessary to sufficiently explain

the government's requirements and allow for a meaningful exchange of

information. This led to the conclusion that eight responding firms

possessed requisite security clearance requirements and demonstrated a

rudimentary capability to potentially participate in the acquisition.

(U) Following industry day presentations, the PM and CO jointly determined

three small business concerns were potential candidates for prime contract

award. The three small businesses were contacted to discuss prime

contract interest. Two of the small business firms (ExoAnalytics [sic] and

52

ADS) expressed strong desire to participate as a prime contractor for the

requirements. The third firm (Rincon) affirmed their desire to participate

This text is long and has been trimmed here. Open the source document for the complete record.