Percipient.ai v. United States, CACI, Inc. involved a procurement by the National Geospatial-Intelligence Agency (NGA), which provides intelligence to the US government by analyzing geospatial and other imaging. The procurement was for a system to improve its processes for obtaining and storing visual intelligence data and integrating those capabilities with “computer vision” (CV), a form of artificial intelligence. The solicitation was referred to as SAFFIRE. SAFFIRE sought a single-award indefinite-delivery, indefinite-quantity (IDIQ) contract. IDIQ permits a broad solicitation for a general procurement goal, and subsequent detailed solicitations for individual task orders as specific needs arise. In this case, SAFFIRE required two components: (1) an information repository for storing and managing data, known as “SER,” and (2) the aforementioned user-facing CV system. The solicitation was accompanied by a single task order directing the contractor to develop and deliver the CV suite of systems. The NGA awarded both the SAFFIRE contract and Task Order 1 to CACI, Inc.-Federal (CACI).
Percipient.ai, Inc. (Percipient) offered a commercial product that could meet the CV requirement but could not meet the SER component. Accordingly, it did not bid for the SAFFIRE contract or challenge the SAFFIRE solicitation or award. Instead, it approached CACI to ask it to evaluate Percipient’s Mirage platform for the CV portion of the contract. CACI rejected Mirage and instead developed its own system. Despite Percipient’s argument that NGA was required to use commercially available services whenever possible under 10 U.S.C. § 3453, NGA declined to force CACI’s hand on the point.
Having been rejected as a subcontractor to CACI, Percipient brought an action to the Court of Federal Claims under the “bid protest” portion of the Tucker Act, 28 U.S.C. § 1491(b)(1). The government and CACI moved to dismiss, arguing that (1) the Court of Federal Claims lacked subject matter jurisdiction based on the FASA task order bar given the issuance of Task Order 1 and (2) Percipient lacked standing because it did not respond to the solicitation as a prime contractor, but as a subcontractor. The trial court held that the FASA task order bar applied and granted the motion to dismiss. Percipient appealed.
The Court of Federal Claims reversed, holding that the FASA task order bar did not apply and that Percipient had standing, notwithstanding its status as a disappointed subcontractor. Concerning the task order bar, FASA provides that a “protest is not authorized in connection with the issuance or proposed issuance of a task or delivery order.” 10 U.S.C. § 3406(f)(1). The Federal Circuit has previously interpreted the task order bar to mean that a protest is barred if it challenges the issuance of the task order directly or by challenging a government action (e.g., waiver of an organizational conflict of interest) whose wrongfulness would cause the task order’s issuance to be improper. The court reviewed the counts in Percipient’s complaint and held that none were in connection with the issuance or proposed issuance of the task order. Rather, the court held, the complaint challenged the ongoing SAFFIRE procurement and its alleged failure to incorporate commercial items. It rejected the government’s argument that the task order bar applied to all protests that relate to work performed under a task order as too narrow and unsupported by precedent.
Second, the court held that Percipient, notwithstanding its status as a disappointed subcontractor, had the right to protest. The issue was whether Percipient was an “interested party” within the meaning of 28 U.S.C. § 1491(b)(1) for purposes of challenging an alleged violation of statute or regulation in connection with a procurement or proposed procurement. The court stated, “in the context of this case involving alleged violations of 10 U.S.C. § 3453 (establishing a preference for commercial services) without challenging the contract, an interested party includes an offeror of commercial services, whose direct economic interest would be affected by the alleged violation of the statute.” It held that Percipient met that standard and was therefore an interested party because it offered a commercial product that had a substantial chance of being acquired to meet the needs of the agency had the violations not occurred.
Author’s Note: Percipient will have the effect of significantly broadening the COFC’s jurisdiction under the FASA task order bar, making it a potential forum for more protests than before. Just as importantly, the decision opens the door to protests by indirect suppliers or subcontractors challenging violations of federal procurement statutes and regulations where those alleged violations bear on their opportunities to sell commercial products to the government.
Percipient.ai, Inc. v. United States, CACI, Inc.-Federal, 104 F.4th 839 (2024)
Owner Not Liable for Injury of Independent Contractor’s Employee
The Privette doctrine, recognized in California courts, is a rule that shields entities that hire independent contractors from liability for injuries to the contractor’s employees. It arises out of the recognition that an entity that hires an independent contractor ordinarily delegates to that independent contractor all responsibility for the safety of the contractor’s workers. A recent decision from the California Court of Appeal clarifies the scope of Privette by holding that a written contract is not necessary for the delegation to take place and the doctrine to apply.
CBRE v. Superior Court of San Diego County arose out of injuries suffered by Jake Johnson while working as an electrician in a building owned by Property Reserve, Inc. (PRI) and managed by CBRE. Johnson was employed by PCF Electric, a subcontractor of General Contractor Crew Builders (Crew). CBRE and PRI solicited a bid from Crew to act as the general contractor for the tenant improvement project, and on March 4, Crew submitted its bid. The parties began negotiating a formal service contract; however, they had a standing relationship, and it was common for Crew to begin work for petitioners before finalizing a contract. Crew believed a permit was required for the work, but PRI disagreed and therefore CBRE asked that they be excepted.
On April 26, Johnson was working as foreman on the electrical wiring in the building. While attempting to replace a cover on a junction box, Johnson touched a live wire, fell off a ladder, and sustained serious injuries. Subsequently, on May 13, PRI and CBRE executed a formal service contract with Crew, which required Crew to obtain all necessary permits.
Johnson brought an action against PRI and CBRE, each of which moved for summary judgment based on the Privette doctrine, which protects entities that hire independent contractors from liability for injuries sustained by employees of those contractors. The doctrine arises out of the California Supreme Court’s decision in Privette v. Superior Court, 5 Cal. 4th 689 (1993), in which it recognized the common law principle that a person who hired an independent contractor generally is not liable to third parties for injuries caused by the contractor’s negligence in performing the work. The doctrine establishes a presumption that the hirer of an independent contractor delegates to that independent contractor all responsibility for the safety of the contractor’s workers. This presumption is grounded in two major principles: first, that independent contractors, by definition, control the manner of their own work and, second, that hirers typically hire independent contractors precisely for their greater ability to perform the contracted work safely and successfully. However, the doctrine is subject to two exceptions. First, where the owner fails to disclose a concealed hazard and, second, where the owner retains control over the manner of performance of the work.
The trial court denied the motions, finding a triable issue of fact as to when PRI and CBRE hired Crew for the project. Separately, the court granted Crew’s motion for summary judgment, concluding that the Privette doctrine barred Johnson’s claim against them.
On PRI and CBRE’s petition for writ of mandate, the court of appeals reversed the trial court’s holding that the execution date of the written contract determined Privette’s applicability. First, it held that the written contract was not necessary for Privette to attach, noting that the doctrine is not based on the terms of the contract but in the delegation implicit when a hirer turns control of the job site over to the contractor. Second, it held that there was no triable issue as to when CBRE delegated control over the project to Crew. Because Crew had defined the scope of the project work in its bid and subcontracted all electrical work to PCF before the date of the injury, the delegation to Crew and PCF by CBRE was complete before the date of the injury.
The court also rejected Johnson’s argument that other exceptions to Privette applied. First, it declined to apply the “concealed hazard” exception. That exception applies when (1) the landowner knew, or should have known, of a latent or concealed preexisting hazardous condition on its property; (2) the contractor did not know and could not have reasonably discovered this hazardous condition; and (3) the landowner failed to warn the contractor about this condition. Johnson argued that CBRE failed to disclose a concealed hazard, namely, the condition of the building’s electrical systems. But the court found that, because PCF and Johnson could have reasonably discovered the hazard by inquiring whether a permit, as-built drawings, and engineering plans were obtained or by metering the energized wire, the second prong was not met.
The court also rejected Johnson’s argument that the “retained control” exception applied. Under that exception, a hirer retains control where it retains a sufficient degree of authority over the manner of performance of the work the contractor has agreed to perform”—i.e., the contracted work. A hirer’s authority over the contracted work amounts to retained control only if the hirer’s exercise of that authority would sufficiently limit the contractor’s freedom to perform the contracted work in the contractor’s own manner. A corollary is that a hirer’s authority over noncontract work does not give rise to a retained control duty unless it has the effect of creating authority over the contracted work. Here, Johnson pointed to Crew’s failure to pull permits as a cause of the injury. However, the court found evidence to show that (1) obtaining permits for the project was never part of the work entrusted to Crew or PCF and (2) the removal of the permitting process from the scope of work did not impact the manner in which contractors performed their contracted work or provided for their own safety. Accordingly, no triable issue of fact giving rise to the retained control exception remains.
Author’s Note: CBRE provides helpful clarification to the Privette doctrine and is probably in line with the reasonable expectations of owners and their representatives, who will likely assume that contractors working on their property do, in fact, have responsibility for the safety of their workforce.
CBRE v. Superior Court of San Diego County, 102 Cal. App. 5th 639 (2024)
The End of Chevron Deference
The US Supreme Court recently issued a decision that will likely have wide-ranging repercussions in every heavily regulated industry, including construction. Specifically, in June 2024, the Court overruled the longstanding rule that agency interpretations of ambiguous statutes are entitled to deference from reviewing courts. The doctrine, which arose out of the 1984 decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., and is known as the Chevron doctrine, has been a fixture of administrative law for years, and its rejection will fundamentally reshape court review of future regulations. However, as discussed below, the extent to which its demise will affect existing regulations remains unclear.
Loper Bright Enterprises v. Raimondo arose out of a dispute under the Magnuson-Stevens Fishery Conservation and Management Act (FCMA), which authorizes regional councils to set certain standards for fishing off the coast of the United States. To ensure that those standards are followed, vessels may be required to carry an “observer” who monitors their fishing activity. The statute states three groups may be required to cover the costs of the observers, but it does not address whether Atlantic herring fishermen may be required to bear them. The National Marine Fisheries Service (NMFS), the federal agency that administers the FCMA, adopted a rule that required Atlantic herring fishermen to pay the fees for the observers as well.
Businesses that operate in the Atlantic herring fishery challenged the rule in two federal district courts. The fishermen argued that the FCMA did not authorize the Service to create industry-funded monitoring requirements. They argued that because the statute expressly listed three categories of vessels that must pay for the observers, NMFS did not have statutory authority to add another to the list. However, both district courts upheld the rule as a permissible reading of the FCMA. The Court of Appeals for the First and D.C. Circuits each affirmed, both in reliance on the Chevron doctrine.
The Chevron doctrine, as stated above, takes its name from a 1984 Supreme Court case, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). In that case, the Court articulated and employed a two-step approach broadly applicable to review of agency action. The first step was to discern whether Congress had directly spoken to the precise question at issue. If so, and if the intent of Congress is clear, that was to be the end of the matter, and courts were required to reject administrative constructions that are contrary to clear congressional intent. However, where the statute was silent or ambiguous with respect to the specific issue at hand, a reviewing court could not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Instead, at Chevron’s second step, a court had to defer to the agency if it had offered “a permissible construction of the statute,” even if not the reading the court would have reached of its own accord.
In the Loper case, the majority (Chief Justice Roberts, joined by Justices Thomas, Alito, Gorsuch, Kavanaugh, and Barrett) held that Chevron was inconsistent with the Administrative Procedure Act. Specifically, it held Chevron was inconsistent with the APA’s requirement that the reviewing court, and not administrative agencies, were to decide all relevant questions of law and interpret statutory provisions. 5 U.S.C. § 706. Chevron, it held, required courts to ignore, not follow, “the reading the court would have reached” had it exercised its independent judgment as required by the APA. Though acknowledging that courts did historically accord “respect” to executive branch interpretations, it held that Chevron went further, demanding that courts afford binding deference to agency interpretations.
The majority rejected the government’s argument that Chevron and the APA could be reconciled by presuming that statutory ambiguities were implicit delegations to agencies. It noted that ambiguities may result from an inability on the part of Congress to squarely answer the question at hand, or from a failure to even “consider the question,” in neither case reflecting a congressional intent that an agency, as opposed to a court, resolve the resulting interpretive question. It also observed that “many or perhaps most” statutory ambiguities may be unintentional.
The majority also rejected Chevron’s presumption that agencies were best placed to resolve statutory ambiguities in legislation respecting them. That presumption, it held, was misguided because courts, not agencies, are presumed to have special competence in resolving statutory ambiguities. It also rejected arguments that (1) agencies are best placed to resolve statutory ambiguities due to their subject matter expertise regarding the statutes they administer, (2) deferring to agencies promotes the uniform construction of federal law, and (3) resolving statutory ambiguities can involve policymaking best left to political actors rather than courts. Concerning the first, it pointed out that courts deciding an agency case would go about its task with the agency’s body of experience and informed judgment at its disposal and that an agency interpretation would be especially informative to the extent it rests on factual premises within the agency’s expertise. Concerning the second, the majority stated that Chevron’s contribution to uniformity was questionable and was not in any case to be preferred over the correct interpretation of the law. Third, it rejected the argument that resolving statutory ambiguities involved policymaking, holding that courts were to interpret statutes based on traditional tools of statutory interpretation, and not policy. It also held that stare decisis did not justify keeping Chevron in place.
Finally, the majority addressed the effect of its ruling on existing regulations and cases validating them. It also stated that, by overruling Chevron, the Court did not call into question prior cases that relied on the Chevron framework and stated that the holdings of those cases in which specific agency actions are lawful—including the Clean Air Act holding of Chevron itself—were still subject to statutory stare decisis, despite the change in interpretive methodology. Accordingly, it clarified that “[m]ere reliance on Chevron cannot constitute a ‘special justification’ for overruling such a holding, because to say a precedent relied on Chevron is, at best, ‘just an argument that the precedent was wrongly decided.’” That, the majority held, was not enough to justify overruling a statutory precedent.
Justice Kagan, in dissent, claimed that the majority had deprived federal regulators of the ability to make complex decisions, reversing the long-standing presumption under Chevron that Congress desired agencies, not courts, to fill gaps that necessarily arise in legislation. She noted several technically complex examples of statutory gaps and ambiguities that had been resolved through agency action and stated: “In one fell swoop, the majority today gives itself exclusive power over every open issue—no matter how expertise-driven or policy-laden—involving the meaning of regulatory law. As if it did not have enough on its plate, the majority turns itself into the country’s administrative czar.” She noted that, in 40 years, Congress had done nothing to overrule Chevron, and had instead relied on it during that time. She also expressed skepticism that the majority’s decision would not call into question prior cases, as the author’s note below discusses. Justice Kagan was joined in dissent by Justices Sotomayor and Jackson.
Author’s note: It is beyond the scope of this column to evaluate the decision in Loper. However, it is clear that its effect on construction law could be significant. To begin with, it is likely that the decision will curtail, to one degree or another, the future latitude that agencies have in crafting regulations to suit their policy preferences. What is less clear is the effect of Loper on existing regulations. The majority concluded its decision by minimizing the effect of its decision for existing regulations that have been upheld in reliance on Chevron, noting that such reliance could not alone constitute special circumstances sufficient to justify overruling them. However, Justice Kagan’s dissent makes a point on this score. Justice Kagan noted first that prior decisions not challenged under Chevron now would be upending reasonable reliance despite the absence of a prior judicial decision. Second, Justice Kagan pointed out that courts motivated to overrule an old Chevron-based decision would not have much difficulty coming up with something to label a “special justification.” Whether this characterization is fair or not, it is easy to see how existing regulations may now be more open to challenge than the majority opinion acknowledges.
In the arena of construction law, this may open large areas to reevaluation, as the following examples show:
- Contract Terms and Interpretation: The provisions of the FAR themselves have been accorded Chevron deference. Brownlee v. DynCorp., 349 F.3d 1343, 1354 (Fed. Cir. 2003). Although the Federal Circuit interprets contracts according to ordinary principles of contract interpretation, certain circuits provide Chevron deference to an agency’s interpretation of ambiguous contract terms. Scenic America, Inc. v. Department of Transportation, 583 U.S. 936 (2017).
- Contract Disputes Act (CDA) Claims: Under Chevron, the Court of Federal Claims (COFC) and Boards of Contract Appeals were required to apply an agency’s reasonable interpretation of federal statutes. See Bell v. United States, 169 Fed. Cl. 466, 477 (2024) (citing Chevron and asserting that “a court shall sustain the agency’s approach so long as it is based on a permissible construction of the statute.”); Appeal of Boeing Co., ASBCA No. 60373, 18-1 B.C.A. (CCH) ¶ 37,112 (July 17, 2018) (“Chevron requires that we defer to an agency’s reasonable interpretation of a statute . . . .”). Procurement regulations may receive a significant (if gradual) overhaul as a result of Chevron’s overruling.
- Bid Protests: COFC and GAO were previously bound to follow an agency’s reasonable interpretation of a statute during a bid protest. See SH Synergy, LLC v. United States, 165 Fed. Cl. 745, 777 (2023) (recognizing in a bid protest matter that COFC must determine whether the agency’s position “is based on a permissible construction of the statute”); Asrc Fed. Data Network Techs., LLC, No. B-418028, 2019 CPD ¶ 432 (Dec. 26, 2019) (“our Office is required to give great deference to an agency’s reasonable interpretation”).
- OSHA: In some circumstances, rules on which enforcement actions are premised may be challenged. See Kiewit Power Constructors Co. v. Secretary of Labor, 959 F.3d 381 (D.C. Cir. 2020). After Loper, those rules may receive less or no deference, opening a wider array of defense in enforcement actions.
- Labor: The Department of Labor has recently issued rules related to overtime eligibility, Davis-Bacon prevailing wages, and worker exposure to extreme heat. All will be subject to increased scrutiny following Loper.
Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024)