System Studies & Simulation v. United States

Case: 21-1469 Document: 67 Page: 1 Filed: 12/30/2021

United States Court of Appeals

for the Federal Circuit

______________________

SYSTEM STUDIES & SIMULATION, INC.,

Plaintiff-Appellant

L3 DOSS AVIATION, INC.,

Plaintiff

v.

UNITED STATES, CAE USA INC.,

Defendants-Appellees

______________________

2021-1469

______________________

Appeal from the United States Court of Federal Claims

in Nos. 1:20-cv-00575-MMS, 1:20-cv-00609-MMS, Senior

Judge Margaret M. Sweeney.

______________________

Decided: December 30, 2021

______________________

WALTER BRAD ENGLISH, Maynard, Cooper & Gale, PC,

Huntsville, AL, argued for System Studies & Simulation,

Inc. Also represented by EMILY J. CHANCEY, JON DAVIDSON

LEVIN; MICHAEL W. RICH, Burr & Forman LLP, Mobile, AL.

EVAN WISSER, Commercial Litigation Branch, Civil Di-

vision, United States Department of Justice, Washington,

DC, argued for United States. Also represented by BRIAN

M. BOYNTON, MARTIN F. HOCKEY, JR., ELIZABETH MARIE

Case: 21-1469 Document: 67 Page: 2 Filed: 12/30/2021

2 SYSTEM STUDIES & SIMULATION v. US

HOSFOR; NICHOLAS ANDREW LUCCHETTI, Contract and Fis-

cal Law Division, United States Army Legal Service

Agency, Fort Belvoir, VA.

ALEXANDER B. GINSBERG, Pillsbury Winthrop Shaw

Pittman LLP, McLean, VA, argued for CAE USA Inc. Also

represented by JAMES MATTHEW CARTER, KEVIN REZA

MASSOUDI, Los Angeles, CA.

______________________

Before NEWMAN, PROST, and TARANTO, Circuit Judges.

Opinion for the court filed by Circuit Judge TARANTO.

Circuit Judge NEWMAN dissents without opinion.

TARANTO, Circuit Judge.

System Studies & Simulation, Inc. (S3), an unsuccess-

ful bidder for a government contract, filed a bid-protest ac-

tion in the Court of Federal Claims (Claims Court). The

Claims Court concluded that the federal contracting

agency had acted arbitrarily and capriciously in one aspect

of its decision. But the court nevertheless denied S3 relief

on the ground that the deficient aspect of the decision did

not prejudice S3, in that the contract award would have

been the same regardless. System Studies & Simulation,

Inc. v. United States, 152 Fed. Cl. 74 (2020) (CFC Opinion);

System Studies & Simulation, Inc. v. United States, 152

Fed. Cl. 20 (2020) (Reconsideration Opinion).

S3 argues on appeal that there is a presumption of prej-

udice whenever the Claims Court determines that the

agency acted irrationally in making an award decision. We

reject that contention. And we see no clear error in the

Claims Court’s determination that there was no prejudice

in this case. We therefore affirm.

Case: 21-1469 Document: 67 Page: 3 Filed: 12/30/2021

SYSTEM STUDIES & SIMULATION v. US 3

I

In 2018, the United States Department of the Army,

Mission and Installation Contracting Command (Agency)

requested bids to provide the Agency with advanced heli-

copter flight training services. In September 2019, the

Agency awarded the contract to L3 Doss Aviation, Inc. But

in a bid-protest action filed by disappointed bidder S3 un-

der 28 U.S.C. § 1491(b), the Claims Court set aside the

award. System Studies & Simulation, Inc. v. United States,

146 Fed. Cl. 186, 204 (2019).

The Agency then reevaluated the bids, and in May

2020 it awarded the contract to CAE USA Inc. A few days

later, S3 filed another bid-protest action in the Claims

Court, arguing on numerous grounds that the decision to

award the contract to CAE was arbitrary and capricious.

The Claims Court rejected most of S3’s arguments, but it

agreed with one of them, concerning the assignment by the

Agency’s source selection authority (SSA) of a certain

“strength” to CAE when evaluating CAE’s bid proposal.

Specifically, S3 argued that the assignment was arbitrary

and capricious because that strength, which purported to

provide a “significant cost savings benefit” to the Agency,

would result in only small and unpredictable savings, if

any. See CFC Opinion, 152 Fed. Cl. at 91–92. The Claims

Court agreed, determining that it was irrational to classify

that aspect of CAE’s proposal as a strength. Id.

Nevertheless, the Claims Court upheld the decision to

award the contract to CAE because there was no prejudice

to S3 from the identified error. Id. at 95–96. The Claims

Court observed that the erroneously found strength had

been treated as falling within a non-price-factor category

for which CAE’s proposal had been “clearly superior,” an

assessment that would not be altered by the loss of a

strength for which the only possible benefit could be mone-

tary. Id. at 95. Moreover, when explicitly comparing the

added benefits of the CAE proposal with its higher price in

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4 SYSTEM STUDIES & SIMULATION v. US

the best-value tradeoff analysis, the SSA had not made any

adjustment to CAE’s price based on a cost saving from the

strength. Id. Thus, the Claims Court found that S3 had

not been prejudiced by the error, and it granted judgment

for the government and CAE. Id. at 96–97. The court sub-

sequently denied reconsideration, reiterating its analysis

and specifically rejecting S3’s argument that it was entitled

to a presumption of prejudice. Reconsideration Opinion,

152 Fed. Cl. at 26–32.

S3 appeals. We have jurisdiction under 28 U.S.C.

§ 1295(a)(3).

II

A

S3’s principal contention is that when the Claims Court

determines in a bid-protest action that an aspect of the

agency’s decision was arbitrary and capricious, the defect

in the agency’s decision must be presumed to be prejudi-

cial. We reject that contention.

The standards of the Administrative Procedure Act

(APA) set forth in 5 U.S.C § 706 govern judicial review of

agency action in bid protests. 28 U.S.C. § 1491(b)(4). The

APA provision mandates that when a court reviews agency

action for being “arbitrary, capricious, an abuse of discre-

tion, or otherwise not in accordance with law,” “due account

shall be taken of the rule of prejudicial error.” 5 U.S.C.

§ 706. The Supreme Court has explained that the prejudi-

cial-error rule applies the harmless-error standard to re-

view of administrative agency action. Shinseki v. Sanders,

556 U.S. 396, 406–07 (2009). In particular, the challenger

of agency action generally bears the burden of showing that

an error was harmful—that is, that it was prejudicial. Id.

at 409–10.

Our precedent accords with the APA mandate. We

have prescribed a two-step process when deciding whether

to set aside a contract award, covering both irrationality

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SYSTEM STUDIES & SIMULATION v. US 5

errors and legal errors. We first ask “whether the agency’s

actions were ‘arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law’”; if so, we ask

whether the error was “prejudicial.” Office Design Group

v. United States, 951 F.3d 1366, 1371 (Fed. Cir. 2020)

(quoting Glenn Defense Marine (ASIA), PTE Ltd. v. United

States, 720 F.3d 901, 907 (Fed. Cir. 2013)); see also Ban-

num, Inc. v. United States, 404 F.3d 1346, 1351 (Fed. Cir.

2005). Recently, we reiterated that the second step is al-

ways required before setting aside a bid award, regardless

of whether the error identified at the first step was arbi-

trary and capricious action or, instead, a violation of law.

See DynCorp Int’l, LLC v. United States, 10 F.4th 1300,

1308 n.6 (Fed. Cir. 2021) (“The APA does not provide an

exception to the prejudicial-error rule for arbitrary and ca-

pricious action.”). And we have specifically ruled that “[t]o

prevail in a bid protest case, the protestor must show that

it was prejudiced by the government’s actions,” so stating

in a case where the alleged error was an irrational (hence

arbitrary and capricious) rating. Glenn Defense Marine,

720 F.3d at 912 (citing Bannum, 404 F.3d at 1351).

The APA and our precedents are therefore inconsistent

with the presumption of prejudice that S3 urges us to

adopt. S3 argues for a contrary conclusion based on our

decision in Impresa Construzioni Geom. Domenico Garufi

v. United States, 238 F.3d 1324 (Fed. Cir. 2001) (Garufi),

where we said:

[A] bid award may be set aside if either: (1) the pro-

curement official’s decision lacked a rational basis;

or (2) the procurement procedure involved a viola-

tion of regulation or procedure. See Kentron Ha-

waii, Ltd. v. Warner, 480 F.2d 1166, 1169 (D.C. Cir.

1973); [other citations omitted]. When a challenge

is brought on the first ground, the courts have rec-

ognized that contracting officers are “entitled to ex-

ercise discretion upon a broad range of issues

confronting them” in the procurement process.

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6 SYSTEM STUDIES & SIMULATION v. US

Latecoere Int’l, Inc. v. U.S. Dep’t of Navy, 19 F.3d

1342, 1356 (11th Cir. 1994). Accordingly, the test

for reviewing courts is to determine whether “the

contracting agency provided a coherent and reason-

able explanation of its exercise of discretion,” id.,

and the “disappointed bidder bears a ‘heavy bur-

den’ of showing that the award decision ‘had no ra-

tional basis.’” Saratoga Dev. Corp. v. United

States, 21 F.3d 445, 456 (D.C. Cir. 1994). When a

challenge is brought on the second ground, the dis-

appointed bidder must show “a clear and prejudi-

cial violation of applicable statutes or regulations.”

Kentron, 480 F.2d at 1169; Latecoere, 19 F.3d at

1356.

Id. at 1332–33. But S3 makes more of that language than

is proper given the APA and our precedents.

All the Garufi passage does is expressly acknowledge

the prejudice-showing requirement where a “violation of a

regulation or procedure” is at issue while omitting refer-

ence to prejudice where the absence of “a rational basis” is

at issue. The passage does not disclaim a prejudice re-

quirement for the latter situation, and the court in Garufi

did not proceed to presume prejudice. We conclude that

Garufi cannot be taken as implicitly establishing a pre-

sumption of prejudice for cases of irrationality given our

contrary precedents and the APA law those precedents fol-

low. To the extent that there has been uncertainty on this

point in the Claims Court, see, e.g., Textron, Inc. v. United

States, 74 Fed. Cl. 277, 327–29 (2006); Caddell Constr. Co.

v. United States, 125 Fed. Cl. 30, 50 (2016); DynCorp Int’l

LLC v. United States, 148 Fed. Cl. 568, 584–85 (2020), we

now reject the interpretation of Garufi on which the uncer-

tainty rests.

We hold that there is no presumption of prejudice when

a protestor demonstrates irrationality in an agency deci-

sion. The protestor must show prejudice under the usual

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SYSTEM STUDIES & SIMULATION v. US 7

standard. The Supreme Court has noted that, at least in

some contexts, prejudice will be easily shown because the

circumstances will make prejudice readily apparent.

Shinseki, 556 U.S. at 410. But even if that may sometimes

be true in particular bid-protest cases, there is no starting

point of presumed prejudice.

B

S3 also challenges the Claims Court’s particular find-

ing of no demonstrated prejudice in this case. To demon-

strate prejudice, S3 needed to show “that there was a

‘substantial chance’ it would have received the contract

award but for” the inclusion of the erroneous strength.

Bannum, 404 F.3d at 1353. While we review the legal

standard for prejudice de novo, we review the Claims

Court’s factual findings underlying the prejudice determi-

nation for clear error. WellPoint Military Care Corp. v.

United States, 953 F.3d 1373, 1377 (Fed. Cir. 2020) (citing

Bannum, 404 F.3d at 1353–54).

We see no departure from the correct legal standard in

the Claims Court’s prejudice analysis. CFC Opinion, 152

Fed. Cl. at 87; Reconsideration Opinion, 152 Fed. Cl. at 26–

28. And we see no clear error in the Claims Court’s factual

determinations. The court appropriately considered how

the elimination of a speculative, price-based strength

would affect a best-value tradeoff analysis that explicitly

compared the full price of the proposal with the non-price

benefits of that proposal, and the court’s finding that “loss

of the [] strength would not have disturbed CAE’s lead” was

not clearly erroneous. CFC Opinion, 152 Fed. Cl. at 95.

The court indicated that the invalidation of one of the qual-

itative strengths might have required a new analysis, see

Reconsideration Opinion, 152 Fed. Cl. at 31, but it reason-

ably explained why what occurred here was importantly

different. The strength at issue here had no non-price ben-

efits, and it could only have affected the cost side of the

SSA’s best-value tradeoff analysis, but the SSA had not in

Case: 21-1469 Document: 67 Page: 8 Filed: 12/30/2021

8 SYSTEM STUDIES & SIMULATION v. US

fact discounted CAE’s proposed price based on this

strength at all. Additionally, the SSA had “repeatedly em-

phasized” other non-price aspects of CAE’s proposal, which

were independent of the irrationally assigned strength.

CFC Opinion, 152 Fed. Cl. at 95. In these circumstances,

we conclude that the Claims Court did not err when it de-

termined that the irrational assignment of the particular

strength at issue to CAE was harmless error.

III

We have considered S3’s remaining arguments and

find them unpersuasive. For the foregoing reasons, we af-

firm the decision of the Claims Court.

AFFIRMED