There is a new and significant trend in federal contracting: the government’s increased use of agreements issued under its statutory “other transaction authority” (OTA). These agreements are binding federal contracts more commonly referred to as “OT agreements,” and the scope of their reach varies depending on the specific agency’s statutorily defined OTA. Over the past five years, the government’s spending for OT agreements has exploded, with obligations increasing from $1.7 billion in fiscal year 2016 to $16.5 billion in fiscal year 2020. Additionally, Congress has granted authority to an increasing number of federal agencies to enter into OT agreements.
Recently, four trial courts came to varying conclusions concerning a novel jurisdictional issue involving a specific type of OT agreement—an OT agreement for prototype projects issued under the Department of Defense’s (DoD) OTA under 10 U.S.C. § 4022. The novel jurisdictional issue is whether the United States Court of Federal Claims (COFC) has jurisdiction under the Tucker Act to hear a bid protest involving a DoD prototype OT agreement or whether the protest belongs in federal district court under the Administrative Procedure Act (APA). First, in 2019, the COFC in SpaceX v. United States decided that the protest did not fall within Tucker Act jurisdiction and transferred the case to federal district court. In 2020, the United States District Court for the District of Arizona in MD Helicopters v. United States decided that it too lacked jurisdiction over the protest and noted that the protest belonged before the COFC under the Tucker Act. In 2021, the COFC in Kinemetrics v. United States decided that the competition at issue fell within its jurisdiction and proceeded to the merits of the case. Finally, in 2022, the COFC in Hydraulics International v. United States determined that the protest fell within its jurisdiction. The government appealed, challenging the COFC’s determination that it had jurisdiction over the bid protest. The parties, however, voluntarily dismissed the appeal, delaying the Federal Circuit’s clarification of this issue.
These trial decisions are problematic but not just because they came to disparate conclusions. They are also problematic because the courts limited their holdings to the prototype OT agreement at hand, leaving future litigants with no clear framework for determining the proper judicial forum to file a bid protest. Aggrieved bidders are therefore likely to waste time and money in litigating this basic threshold question. A risk also exists that the COFC and districts courts could ping-pong protests of prototype OT agreements, claiming that the other is the proper forum, wasting taxpayer money and Department of Justice (DOJ) resources, the agency who defends the United States in these cases. Thus, until a federal appeals court(s) or Congress provides clarity as to this issue, the question remains.
The answer to this jurisdictional question turns on the interpretation and application of § 1491(b)(1) of the Tucker Act. This section provides that if an award of a prototype OT agreement is “in connection with a procurement or proposed procurement,” then the protest falls within the COFC’s exclusive jurisdiction. If not, then a contractor can likely file the protest in federal district court under the APA. Without a standard for applying the “in connection with” requirement, litigants’ best course for making a jurisdictional argument under § 1491(b)(1) is to analogize or distinguish their prototype OT agreement from those at issue in SpaceX, MD Helicopters, Kinemetrics,and Hydraulics. But this is only a band-aid. With no formal standard in place, the case law surrounding this jurisdictional inquiry will continue to develop piecemeal, with insufficient clarity on how to determine whether a prototype OT agreement is sufficiently connected to a procurement or proposed procurement.
One thing is clear: unnecessary jurisdictional uncertainty serves no one. This article argues that, when this issue is inevitably appealed again, the Federal Circuit should consider clarifying this jurisdictional issue. This article presents the Court with three options for doing so. First, the Federal Circuit can decide this jurisdictional issue en banc. By sitting en banc, the Court can correct its reading of § 1491(b)(1) it previously announced in Resource Conservation Group to more broadly construe § 1491(b)(1) bid protest jurisdiction. Under a broad construction, protests of prototype OT agreements would fall within § 1491(b)(1)’s bid protest jurisdiction, providing clarity to lower courts and litigants that these protests belong in the COFC. Second, the Federal Circuit can follow the more tailored approach taken by the COFC in Hydraulics, which broadly read the term “procurement” contained in § 1491(b)(1) as encompassing prototype OT agreements. This construction of § 1491(b)(1) would also result in protests of prototype OT agreements falling within COFC’s bid protest jurisdiction. Finally, the Federal Circuit can articulate a jurisdictional standard for the “in connection with” requirement under § 1491(b)(1) and one in line with the plain language of the statute and case law. Not only will a standard provide clarity to those considering filing a protest of a prototype OT agreement, but it will also provide clarity more broadly to any party considering filing a protest of government action that is somehow related to a procurement or proposed procurement.
This article also argues that if the Federal Circuit adopts the third option, it considers a jurisdictional standard that would allow most, if not all, protests of prototype OT agreements to fall within § 1491(b)(1)’s bid protest jurisdiction. With protests of prototype OT agreements being filed in the COFC, as opposed to federal district courts around the country, the case law surrounding these types of agreements will be more uniform. Additionally, litigants will benefit from the COFC’s streamlined process for adjudicating protests and from the COFC judges’ experience and expertise in government contract law.
This article proceeds as follows. Part II provides background on the government’s use of its OTA and in the DoD’s prototype OTA. Part III provides a history of bid protest forums, makes the case that judicial review of protests of prototype OT agreements is appropriate and significant, and provides a summary of the four trial-court decisions concerning a protest of prototype OT agreement. Part IV discusses three paths for clarifying this jurisdictional issue: decide this jurisdictional issue en banc to more broadly construe § 1491(b)(1)’s bid protest jurisdictional grant, adopt the COFC’s approach in Hydraulics to read “procurement” in § 1491(b)(1) as encompassing prototype OT agreements, or announce a jurisdictional standard for § 1491(b)(1)’s “in connection with” requirement. Part IV also presents three possible jurisdictional standards and argues that the preferrable standard is one that is relatively broad and flexible in scope, and which would allow most, if not all, prototype OT protests to fall within the COFC’s § 1491(b)(1) bid protest jurisdiction. Part V concludes.
Other Transaction Authority (OTA) refers to federal executive agencies’ statutory authority to enter a transaction other than “a [procurement] contract, grant, or cooperative agreement.” Specifically, statutes define such authority by simply delineating what these transactions are not (i.e., not a contract, not a cooperative, and not a grant). Despite this broad categorization, these transactions are, in a very practical and legal sense, binding federal contracts between a federal agency and a private party.
The federal government’s use of OTA began in the late 1950s, when Congress granted OTA to the National Aeronautics and Space Administration (NASA) to develop technology to participate in the “space race.” For several decades, NASA was the only agency with such authority. Congress has since granted more agencies with OTA. Within the last several years, the government’s use of OTA has increased drastically. Since 2016, the government’s spending for OT agreements has exploded, with obligations increasing from $1.7 billion in 2016 to $16.5 billion in 2020.
The government’s use of OTA is not likely to decrease soon. OTA provides the government with a streamlined and flexible approach to contracting. OTs are not subject to procurement statutes and regulations that befall traditional FAR-based procurement contracts. With a more streamlined contracting process, OTs tend to be more appealing than traditional FAR-based procurements to small businesses and non-traditional contractors, such as those involved in technology.
Prototyping is a critical component of military advancement and has been used by the military for decades. A prototype is a “model (e.g., physical, digital, conceptual, and analytical) built to evaluate and inform its feasibility or usefulness,” the purpose of which is to “generate information that supports a decision.” Through prototyping, the government can develop and deliver evolving technology to the warfighter. The military can evaluate new technologies and refine project requirements before committing to a major program, thereby driving down costs and mitigating risk. These benefits align with the DoD’s “Fail Fast, Fail Cheap” philosophy, which seeks to “use the simplest and least expensive” model to determine viability of a project. The faster a prototype “fails,” the quicker the military can adjust and move to the next appropriate step of development.
The DoD can obtain prototypes through several different routes. The DoD can seek prototyping solutions from organizations within the federal government, such as defense laboratories and centers of excellence. The DoD can also contract with private contractors for prototypes. For example, if a prototype project fits within the scope of a pre-existing indefinite delivery, indefinite quantity (IDIQ) contract between the government and the contractor, the DoD can add and award a task order under the IDIQ contract to that contractor.
An increasingly popular method used by the DoD to obtain prototypes is through its OTA contained at 10 U.S.C. §§ 4021–4022 (hereinafter the prototype OTA statutes). Section 4022 provides that the DoD
may, under the authority of section 4021 of this title, carry out prototype projects that are directly relevant to enhancing the mission effectiveness of [military] personnel . . . [and the supporting] platforms, systems, components, or materials proposed to be acquired or developed by the Department of Defense, or to improvement of platforms, systems, components, or materials in use by the armed forces.
The DoD has read this “directly relevant” provision to mean that prototype OT agreements awarded pursuant to this statute “are acquisition instruments since the Government is acquiring something for its direct benefit.” Section 4021 provides that the DoD “may enter into transactions (other than contracts, cooperative agreements, and grants) under the authority of this subsection in carrying out basic, applied, and advanced research projects.”
The prototype OT statutes limit the government’s authority, explaining that the DoD can enter into a prototype OT agreement when at least one of the following four circumstances is present:
(A) There is at least one nontraditional defense contractor or nonprofit research institution participating to a significant extent in the prototype project.
(B) All significant participants in the transaction other than the Federal Government are small businesses (including small businesses participating in a program described under section 9 of the Small Business Act (15 U.S.C. 638)) or nontraditional defense contractors.
(C) At least one third of the total cost of the prototype project is to be paid out of funds provided by sources other than the Federal Government.
(D) The senior procurement executive for the agency determines in writing that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a contract, or would provide an opportunity to expand the defense supply base in a manner that would not be practical or feasible under a contract.
The prototype OT statutes also require the DoD to competitively award prototype OT agreements. Section 4022 provides that “competitive procedures shall be used when entering” prototype OT agreements to “the maximum extent practicable.”
Additionally, although the prototype OT statutes primarily authorize the development of prototypes, it also authorizes the DoD to transition to production of the final product through issuance of a “follow-on” production contract. Notably, the DoD can issue a follow-on production contract directly to the winner(s) of the prototype OT agreement(s) without any competition when the DoD competitively solicited the initial prototype OT agreements.
The government’s use of prototype OT agreements has increased significantly in recent years. In a recent three-year period, the DoD’s obligation for prototype OT agreements went from $1.4 billion to $3.7 billion. Within that same three-year period, the DoD experienced an increase in new awards of protype OT agreements, from 34 issued prototype OT agreements in the first year, to 87 issued prototype OT agreements in the second year, and 173 issued prototype OT agreements in the final year.
In the U.S. federal procurement system, unsuccessful bidders for procurement contracts can challenge the government’s evaluation of their proposals and the government’s contract award decision. This legal challenge is generally referred to as a “bid protest” and can be filed in one of three forums:(1) the contracting agency; (2) the Government Accountability Office (GAO), an agency within the legislative branch; or (3) the United States Court of Federal Claims (COFC), an Article I court. In this country, losing bidders have been lodging protests for nearly a century.
Adjudicators of bid protests filed at the COFC or the GAO review these challenges for arbitrary and capricious action, a highly deferential standard. Given this deference to agencies, bid protests are not an opportunity for the judiciary or the GAO to second-guess and interject into agencies’ procurement decisions or to unduly slow down the critical delivery of services and goods to the government.
Bid protests serve two important functions in our procurement system. They provide a path for disappointed bidders to vindicate their right to a fair evaluation during the bidding process. Bid protests also increase the efficiency, integrity, and transparency of the federal acquisition system by allowing a neutral arbitrator to keep a check on arbitrary and capricious agency action during the competition of government contracts. In particular, bid protests hold the government publicly accountable for the expenditure of taxpayer funds.
For a time, it was unclear whether any of the three traditional bid protest forums would assert jurisdiction over a protest of prototype OT agreement, an agreement generally understood not to be a procurement contract. It is now becoming clear that losing bidders can file protests in federal court. It is also clear that agency level review is limited. GAO review is also similarly limited. The GAO will only review whether an agency is improperly using its OTA, not whether the agency committed an error during the evaluation or award of an OT agreement.
At a minimum, losing bidders for prototype OT agreements should have one avenue to lodge a protest. Given that agency-level review and GAO review of protests of prototype OT agreements is limited, judicial review of such protests becomes even more appropriate and significant because an award can be worth millions of taxpayer dollars and there is uncertainty as to how taxpayer funds are handled throughout contract performance. Specifically, for OT agreements awarded to consortiums, the DoD Inspector General recently determined:
DoD officials do not have access to important information associated with OTs awarded through consortiums, such as which contractor received the OT award and the specific costs associated with funded OT projects. Without this information, the DoD does not have the necessary oversight of the projects it is funding, which may hinder its ability to make important realtime decisions that enhance mission effectiveness.
Moreover, contrary to the government’s suggestion in Hydraulics, there is a strong presumption of judicial review of protests of prototype OT agreements. In Hydraulics, discussed further below, the government suggested that it was “conceivable” that Congress did not intend that protests of prototype OT agreements be subject to judicial review by any court. The government argued that given that the prototype OTA statutes do not discuss or explicitly provide for jurisdiction of protests of prototype OT agreements, Congress did not intend for these challenges to be subject to judicial review.
It is well established that challenges to final agency action are subject to judicial review absent (1) a clear congressional indication to the contrary or (2) a statute committing such action to agency discretion. Agency action is subject to the agency’s unreviewable discretion when the statute “authorizing ‘it is drawn in such broad terms that in a given case there is no law to apply.’” Additionally, when statutes withhold judicial review, they generally do so clearly and unequivocally.
Here, the prototype OTA statutes (10 U.S.C. §§ 4021–4022) do not explicitly withhold judicial review of an agency’s competition and award of a prototype OT agreement. This alone indicates that Congress did not exempt protests of prototype OT agreements from judicial review. Furthermore, no provision in the prototype OT statutes commits the award of prototype OT agreements to agency discretion. To the contrary, the statutes limit the agency’s ability to award prototype OT agreements to one of four circumstances. The statutes also require the DoD to competitively award prototype OT agreements. Section 4022 states: “To the maximum extent practicable, competitive procedures shall be used when entering into agreements to carry out the prototype projects under subsection (a).” The prefatory phrase “[t]o the maximum extent practicable,” does not alter the substance of the statute’s mandate that the DoD “shall” use competitive procedures. Although the phrase “competitive procedures” is not defined by statute, this concept is neither amorphous nor foreign to courts so as to subject the awards of prototype OT agreements to agency discretion. Courts can and often look to other areas of the law for guidance when construing statutory text. Thus, a claim that Congress intended to withhold judicial review of the DoD’s award of prototype OT agreements is unsupported by precedent and the text of the prototype OT statutes. It cannot be the case that Congress’s decision to exempt prototype OT agreements from traditional procurement statutes and regulations gives agencies a blank check to conduct prototype OT competitions arbitrarily and capriciously. For if this were the case, what incentive would bidders have to conduct business with the government?
The more critical question is not whether judicial review of bid protests of prototype OT agreements is appropriate but rather is in which judicial forum do these types of protest belong. Trial courts are divided on this question, with some holding that such protests belong in the COFC, while others holding that such protests belong in federal district court. To better understand this jurisdictional issue, one must look to the two statutes that each provide separate but albeit related paths for suing the federal government: the Tucker Act and the Administrative Procedure Act.
The Tucker Act, codified at 28 U.S.C. § 1491, both waives the federal government’s sovereign immunity and provides the COFC with subject matter jurisdiction for certain monetary claims against the federal government. Under § 1491(a), parties can bring general breach of contract claims. Under § 1491(b), parties can file bid protests. Section 1491(b)(1) provides that the COFC
shall have jurisdiction to render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.
A contractor must satisfy certain threshold requirements to bring a bid protest. First, a contractor must be an “interested party,” meaning the party has met the prudential standing requirements for filing a bid protest. Second, the contractor must make an objection to a specific type of agency action, such as the agency’s (1) solicitation for bid or proposals for a proposed contract, (2) proposed award, (3) award of a contract, or (4) alleged violation of a statute or regulation. Recently, in Safeguard Base Operations, the Federal Circuit recognized that a party can make a fifth type of objection under § 1491(b)(1) based on a right of action not stated in the statute: that the agency breached an implied-in-fact contract to consider a bidder’s proposal honestly and fairly. Lastly, the agency action at issue must be “in connection with a procurement or a proposed procurement.”
For a bid protest, a successful contractor may recover bid and proposals costs or any other injunctive relief the court deems proper. The latter remedy typically involves a restart of the competition or a reevaluation of the contractor’s proposal. The COFC’s authority to issue injunctive relief for bid protests is one of the few narrowly prescribed statutory instances in which the court provides injunctive relief.
The APA, codified at 5 U.S.C. § 551 et seq., waives the federal government’s sovereign immunity for claims alleging arbitrary and capricious executive action, providing litigants a path for suing the federal government in federal district court. More specifically, the APA waives sovereign immunity for such claims only if (1) they are not for money damages, (2) an adequate remedy is not available elsewhere, and (3) they do not seek relief expressly or impliedly forbidden by another statute.
Unlike under the Tucker Act, in which a party may file a claim only before the COFC, a party may file an APA claim in any federal district court that satisfies the traditional filing requirements, such as venue, personal jurisdiction, and subject matter jurisdiction. Also, unlike the Tucker Act, monetary remedies are generally not available under the APA. Rather, a party is limited to equitable relief. Put simply, in the context of bid protests, the APA acts like a backstop for claims that do not meet Tucker Act requirements.
Recently, four trial courts came to varying conclusions as to which judicial forum has jurisdiction over a protest of a prototype OT agreement.
In 2019, the COFC became the first trial court to examine whether any court had jurisdiction over a prototype OT agreement protest in Space Exploration Technologies Corp. v. United States. There, Space Exploration Technologies Corp. (SpaceX), a losing bidder, protested the Air Force’s award of three prototype OT agreements at the COFC under § 1491(b)(1) of the Tucker Act. The COFC determined that it lacked jurisdiction over the protest and transferred the case to the United States District Court for the Central District of California to be heard under the APA. Once at the district court, the parties briefed the merits of the protest. The district court, without addressing jurisdiction, determined that the government did not act arbitrarily or capriciously during the prototype OT competition and dismissed the protest.
The prototype OT agreements at issue were related to the Air Force’s competition of two procurement contracts. The prototype OT agreements were part of the Air Force’s National Security Space Launch program, a multi-phase strategy to occur between FY 2013 and FY 2027. The Air Force competed the prototype OT agreements and shortly thereafter competed procurement contracts in a separate competition, referred to as “Phase 2” of the Space Launch Program. The Air Force intended that the prototype OT agreements would result in fully developed launch systems that the Air Force would acquire during Phase 2 procurements. The Air Force also provided each of the prototype OT agreement winners with substantial investment funding to help develop these systems, ranging from $500 million to $967 million in taxpayer funds.
The COFC concluded that even though the prototype OT agreements were functionally “related to” the procurement contracts to be competed in Phase 2, they were not “in connection” with such procurements for jurisdictional purposes. The court decided this, despite Federal Circuit precedent that the “in connection with” requirement in § 1491(b)(1) is “sweeping in scope.” The court also did not present any legal support or reasoned analysis as to why a functionally related protest is not “in connection with” a procurement.
The COFC’s decision is problematic because it did not announce a standard for the “in connection with” requirement under § 1491(b)(1) but rather, with little explanation, made three points as to why the prototype OT agreements were not in connection with the Phase 2 procurements. With each point made, the COFC unduly restricted the Tucker Act’s § 1491(b)(1) bid protest jurisdiction.
First, the court noted that prototype OT agreements were not in connection with the procurement contracts to be issued in Phase 2 because each involved “separate and distinct solicitations.” This point, however, boils down the “in connection with” inquiry to an unduly formalistic rule without any support in the statutory text or precedent. The solicitation for the prototype OT competition was indeed a separate document from the solicitations issued under Phase 2. But it does not necessarily follow that the prototype OT competition could not affect Phase 2 procurements. As previously noted, all parties and the court agreed that the funding provided to the prototype OT winners would directly impact the launch services to be bid in Phase 2.
Second, the court noted that prototype OT agreements were not in connection with the Phase 2 procurement contracts because each involved “different acquisition strategies.” This point suffers from the same weaknesses as the court’s first point, however. That two separate competitions had different acquisition strategies does not fully address whether the competitions were “in connection with” each other. The facts of the case seem to suggest otherwise. As the court explained, the prototype OT competition was part of a multi-phase acquisition process, immediately preceding and precipitating the award of Phase 2 procurement contracts.
Lastly, the court noted that the Phase 2 procurement competition would be an open competition, such that losing bidders in the prototype OT agreement competition could nonetheless compete in Phase 2. This point, however, sidesteps the jurisdictional inquiry and overlooks the practical impact that the prototype OT competition would have on the later Phase 2 procurements. All parties involved agreed that the prototype OT competition would have some effect on the Phase 2 procurement, regardless of who any future potential Phase 2 bidders may be.
In 2020, the United States District Court for the District of Arizona addressed whether it could hear a protest of prototype OT agreement in MD Helicopters v. United States. There, MD Helicopters, a losing bidder, protested the Army’s award of a prototype OT agreement in district court. Both MD Helicopters and the government, the plaintiff and defendant respectively, argued that jurisdiction was proper before the district court. The intervenors, however, argued that § 1491(b)(1) of the Tucker Act precluded the district court from hearing the case. The court agreed with the intervenors.
The prototype OT agreement at issue here was part of the Army’s Future Attack Reconnaissance Aircraft Competitive Prototype program (FARA CP). The Army identified a need to update its helicopter fleet and thus structured the FARA CP program as a phrased approach in which the Army would “down-select among candidates.” During Phase 1, the Army would award several prototype OT agreements, with each winner receiving approximately $15 million to develop a prototype. Then, the Army would down select to around two candidates during Phase 2. The final phase contemplated the Army awarding a follow-on production contract to the remaining candidate under 10 U.S.C. § 2371b(f), currently codified at 10 U.S.C. § 4022(f). The Army did not select MD Helicopters as a Phase 1 candidate, prompting MD Helicopters to file a complaint in the district court, claiming the Army acted arbitrarily and capriciously when evaluating its proposal. The district court reasoned that § 1491(b)(1) precluded jurisdiction because the prototype OT agreement was sufficiently connected to a procurement.
The district court’s decision is problematic for the same reasons as the decision in SpaceX. Like in SpaceX, the district court did not announce a jurisdictional standard but rather listed several reasons why the prototype OT agreement was connected to a procurement. Its ad-hoc analysis does not provide litigants with a framework for deciding this jurisdictional issue. The district court also unduly narrowed § 1491(b)(1)’s “in connection with” requirement. The district court suggested that to fall within § 1491(b)(1)’s jurisdiction, a protest had to be more than functionally and temporally related to a procurement. It had to be “outcome-determinative” on the procurement. The district court explained that in SpaceX, the contractor’s elimination from the prototype OT competition was not outcome determinative on the Phase 2 procurement because the contractor could still compete in the Phase 2 procurement competition. As such, the protest fell outside of § 1491(b)(1)’s jurisdiction. In contrast, the district court noted that MD Helicopters’ elimination from the prototype OT competition precluded its participation in the procurement competition and was outcome-determinative and thus within § 1491(b)(1)’s jurisdiction.
In 2021, the COFC discussed the “in connection with” inquiry in Kinemetrics v. United States. No prototype OT agreement was at issue but rather a traditional procurement contract. In addition, both the protestor and the government agreed that the COFC had jurisdiction over the protest given the procurement at issue.
Kinemetrics protested the Air Force’s award of funding under a novel procurement instrument, a “Commercial Solutions Opening” (CSO) for “technologically advanced seismic monitoring equipment for detecting and monitoring nuclear weapons testing conducted around the world by other nations.” Under the CSO, the Air Force could issue a procurement contract or a prototype OT agreement to the winning bidder. The Air Force ultimately awarded a standard procurement contract.
Unsurprisingly, the court determined that it had jurisdiction over Kinemetrics’ protest given the procurement contract at issue. The court noted that a protest of a federal contract award falls within § 1491(b)(1)’s domain if it has a “direct effect” on the procurement or proposed procurement. The court also noted that if a protest of a competition has no connection to a procurement or proposed procurement then it does not fall within the Tucker Act’s jurisdiction.
The utility of Kinemetrics is limited. Like in MD Helicopters, the court relied on SpaceX’s unduly narrow and unsupported construction of the “in connection with” requirement in § 1491(b)(1), suggesting that only prototype OT agreements that are outcome-determinative on a procurement fall within Tucker Act jurisdiction. Additionally, this case confirms what is already clear from the text of § 1491(b)(1): protests that are directly connected to procurement fall within the Tucker Act and those that have no connection do not. Kinemetrics provides little clarity as to circumstances in which a protest has some less-than-direct connection with a procurement or proposed procurement. In these circumstances, litigants still face the unknown.
In 2022, the COFC determined that it had jurisdiction over a protest concerning a prototype OT agreement for aviation ground power units (AGPUs), devices that service U.S. Army helicopters when not in flight. The solicitation at issue noted that the project “may result in the award of a follow-on production contract for over 150 AGPUs without the use of competitive procedures.”
In this case, the government used a two-tiered award process involving a consortium. The Army first awarded a prototype OT agreement to the Aviation and Missile Technology Consortium (AMTC). AMTC, in partnership with the government, solicited “whitepaper proposals” for development of the AGPUs. The government reviewed the whitepaper proposals and selected two awardees, documenting its selection decision in a memorandum.
Before the COFC, the government moved to dismiss the protest for lack of subject matter jurisdiction, claiming that the protest was not “in connection with a procurement or proposed procurement” because the prototype project at issue was not a procurement contract. The government also argued that the prototype project was not in connection with a procurement or proposed procurement because any follow-on production contract was not certain and “may never occur.”
The court determined that the prototype project was “in connection with a procurement or proposed procurement” for purposes of § 1491(b)(1). In so holding, the court relied on precedent broadly interpreting “procurement” under § 1491(b)(1) to mean a process for “determining a need for property or services.” The court reasoned that if the prototype projects for AGPU are part of the Army’s process for determining a need for acquisition, then the prototype projects are in connection with a proposed procurement and within the court’s jurisdiction.
The court dismissed the government’s argument that the prototype projects fell outside of the court’s jurisdiction because they do not guarantee follow-on production contracts. According to the court, § 1491(b)(1) does not require an actual procurement for a protest to fall within its jurisdictional ambit. As the court explained, § 1491(b)(1) broadly refers to “proposed procurements,” which encompasses pre-procurement decisions aimed at determining the parameters of an eventual procurement.
The court also rejected the government’s argument that Congress intended to strip the COFC of jurisdiction over protests of prototype OT agreements. The court noted that the prototype OT statutes at issue are silent as to jurisdiction, with no prohibition of COFC review. The court also noted that the OTs’ exemption from traditional procurement statutes and regulations does not mean that OTs are exempt from Tucker Act jurisdiction.
After asserting jurisdiction, the court proceeded to the merits, determining that the agency acted properly during its evaluation of proposals. Despite winning on the merits, the government appealed to the Federal Circuit, challenging the court’s jurisdictional determination. After various months, the parties jointly moved to dismiss the appeal, which the Court granted on March 31, 2023.
There are various ways the Federal Circuit can clarify this jurisdictional issue. To start, the Federal Circuit may want to consider deciding this issue as a purely legal one, mooting the necessity for announcing a standard for § 1491(b)(1)’s “in connection with” inquiry as a mixed question of law and fact. By deciding this issue as a purely legal one, the Federal Circuit can provide lower courts and litigants with a bright-line rule as to where one must file a bid protest of a prototype OT protest. As the law stands, there seems to be two ways for the Federal Circuit to do so.
First, the Federal Circuit can hear any future appeal of this jurisdictional issue en banc to correct its reading of § 1491(b)(1) announced in Resource Conservation Group and subsequently called into question by intervening Supreme Court precedent. By doing so, the Federal Circuit can construe § 1491(b)(1) more broadly, providing COFC with exclusive jurisdiction over bid protests of all government contracts. This broad reading would encompass all types of OT agreements, including prototype OT agreements.
In Resource Conservation Group, the Federal Circuit held that a bidder’s protest of a government lease fell outside of § 1491(b)(1)’s ambit. The Federal Circuit rejected the rule of the last antecedent, which provides that “referential and qualifying words and phrases, where no contrary intention appears, refer solely to the last antecedent.”
Section 1491(b)(1) provides that the Court of Federal Claims has jurisdiction to
render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.
According to the Federal Circuit, § 1491(b)(1)’s phrase “in connection with a procurement or proposed procurement” modified all antecedents in the statute, meaning that a government solicitation, award, proposed award, and any alleged violation of statute or regulation must all be “in connection with a procurement or proposed procurement.” The government, however, argued that based on the rule of the last antecedent, only an alleged violation of a statute or regulation must be in connection with a procurement or proposed procurement. According to the government, protests to any government solicitation or award, not just those connected to a procurement, fell within § 1491(b)(1) jurisdiction.
After Resource Conservation Group, the Supreme Court in Lockhart emphasized the rule of the last antecedent, explaining that this rule
reflects the basic intuition that when a modifier appears at the end of a list, it is easier to apply that modifier only to the item directly before it. That is particularly true where it takes more than a little mental energy to process the individual entries in the list, making it a heavy lift to carry the modifier across them all.
In that case, the Court construed the limiting phrase “involving a minor or ward” as modifying only the last of three crimes preceding it in the list thus bolstering the rule of the last antecedent. Considering Lockhart, the Federal Circuit could hear any future appeal of this jurisdictional issue en banc, revive the rule of the last antecedent, and effectively adopt the position the government argued in Resource Conservation Group. Under the rule of the last antecedent, the phrase “in connection with” would only modify the last clause contained in § 1491(b)(1), meaning that protests of “any alleged violation of statute or regulation” would be the only form of protest that would need a connection to a procurement or proposed procurement to fall within § 1491(b)(1)’sjurisdictional purview. Protests of all government solicitations, proposed awards of government contracts, or awards of government contracts would fall within § 1491(b)(1)’s jurisdictional scope, regardless of their connection to a procurement or proposed procurement. Under this construction, protests of an award of a prototype OT agreement would clearly fall within § 1491(b)(1) jurisdiction since a prototype OT agreement is a government contract.
If Resource Conservation Group remains good law, however, the Federal Circuit should at least consider providing clarification. In Resource Conservation Group, the Federal Circuit noted in passing that § 1491(b)(1) is “exclusively concerned with procurement solicitations and contracts.” As subsequent cases show, this stand-alone statement can be read to mean that § 1491(b)(1) jurisdiction categorically excludes protests of non-procurement solicitations and non-procurement contracts, regardless of their connection to a procurement or proposed procurement.
Such a narrow reading of Resource Conservation Group does not align with the plain text of § 1491(b)(1) and frustrates Congress’s intent. Congress specifically provided the language “in connection with” in § 1491(b)(1), meaning that protests of a government solicitation or a government contract need only be connected to a procurement or proposed procurement to fall within § 1491(b)(1). The text of § 1491(b)(1) does not require that a government solicitation or the contract itself be a procurement solicitation or procurement contract to fall within § 1491(b)(1)’s bid protest jurisdiction. Thus, even if a prototype OT agreement cannot be classified as procurement contract, a protest of prototype OT agreement may nonetheless be “in connection with” one, and thus, within § 1491(b)(1)’s jurisdictional grant. To limit the Tucker Act’s bid protest jurisdiction to protests of procurement contracts would read out the phrase “in connection with” from the statute, violating the long-standing tenant that all words in a statute be given meaning. If Congress intended Tucker Act bid protest jurisdiction to only encompass protests of procurement contracts, it did not need to include the connective phrase “in connection with” in § 1491(b)(1).
When properly read, Resource Conservation Group should stand for the proposition that protests brought under § 1491(b)(1) must be tied to a procurement or proposed procurement in some fashion. Without any connection to a procurement or proposed procurement, such as the contractor’s protest of a government lease in Resource Conservation Group, a protest would not fall within § 1491(b)(1)’s bid protest jurisdiction.
The Federal Circuit could also clarify jurisdiction for protests of prototype OT agreements by adopting the COFC’s approach in Hydraulics. This approach would not significantly expand the COFC’s bid protest jurisdiction to encompass protests of all government contracts but rather extend jurisdiction just enough to encompass protests of prototype OT agreements only.
In Hydraulics, the COFC determined the jurisdictional issue as a matter of statutory interpretation. The COFC broadly read the term “procurement” within § 1491(b)(1) to encompass prototype OT agreements. The COFC looked to Federal Circuit precedent broadly, interpreting “procurement” to “include all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” Under this definition, as the COFC held, a prototype OT agreement could be considered an initial step of the procurement process, namely, gathering information as to whether a product or service is viable for acquisition. The government may even produce en masse the finalized product through a follow-on production contract or through a separate procurement competition.
As the COFC aptly highlighted, the key inquiry for whether a government action is a “procurement” for purposes of § 1491(b)(1) jurisdiction is whether such action helps determine a need for goods or services. Thus, even prototype projects that fail or simply do not move forward are still connected to a procurement or proposed procurement because they help the government further refine its project requirements. The goal of prototyping, as the DoD acknowledges, is to provide the DoD with a “direct benefit,” and thus “are acquisition instruments.”
If the Federal Circuit declines either approach, the Federal Circuit can still provide clarity concerning this jurisdictional issue by announcing a standard for the “in connection with” inquiry under § 1491(b)(1). This approach involves a mixed question of law and fact and thus does not provide a bright-line rule as the first two approaches, which are purely legal inquiries. Nonetheless, this approach can provide lower courts and litigants with a uniform framework for assessing whether a protest of a prototype OT agreement falls within the COFC’s bid protest jurisdiction. The below section assumes that Resource Conservation Group remains good law.
Relatedness requirements, such as § 1491(b)(1)’s “in connection with” requirement, appear in various jurisdictional contexts, such as the “related to” requirement in specific personal jurisdiction, a similar “in connection with” requirement in securities fraud litigation, and a “maritime connection” requirement in admiralty tort jurisdiction. Courts have adopted various tests for applying these relatedness requirements, each requiring a different degree of relatedness between two events.
In general, tests for relatedness requirements can be grouped into one of three buckets. The first bucket includes tests that require a stringent connection between two events (i.e., a “stringent nexus”), such as those that require one event to proximately cause, or be a necessary condition of, the other. These types of standards are narrow in scope. In the second bucket are tests that provide a middle ground, such as those that do not require a causal connection but rather a material or substantial one (i.e., a “material nexus”). These types of standards are relatively broad and flexible in scope. In the last bucket are tests that permit a tenuous connection between two events (i.e., “tenuous nexus”), such as those requiring one event to merely “touch upon” the other. These types of standards are broadest in scope.
For purposes of § 1491(b)(1)’s “in connection with” requirement, a stringent nexus standard should be disregarded from the outset. Under this type of standard, a court would require a strict connection between a prototype OT agreement and a procurement or proposed procurement for the protest to fall within § 1491(b)(1)’s jurisdictional sphere. To be strictly connected, the prototype OT agreement would have to be outcome determinative on a subsequent procurement, much like what the courts required in SpaceX and MD Helicopters. For example, a prototype OT agreement that explicitly or implicitly guarantees a future contract with the government, such as a traditional FAR-based procurement contract or a § 4022(f) follow-on production contract, would be strictly connected to a procurement or proposed procurement for purposes of § 1491(b)(1). A prototype OT agreement that merely noted the possibility of a follow-on production contract or some future dealings with the government would not be strictly connected.
While a stringent nexus standard provides clarity and foreseeability to litigants and courts, effectively funneling most, if not all, protests of prototype OT agreements to federal district courts under the APA, this standard is not appropriate for applying § 1491(b)(1)’s “in connection with” inquiry. A stringent nexus standard runs contrary to both § 1491(b)(1)’s plain meaning and the large body of case law explaining that “in connection with” is broad in scope. “In connection with” refers to a broad relationship or association between two events. In line with this plain meaning, the Federal Circuit has, on numerous occasions, explained that the scope of “in connection with” under § 1491(b)(1) is “very sweeping.” Other circuits have noted that the statutory phrase “in connection with” is broad in scope. Together, these sources indicate that “in connection with” under § 1491(b)(1) should be applied broadly. A stringent nexus standard, which is narrow in scope, cuts against this point.
A stringent nexus standard should also be rejected because it cuts against the purpose of the Tucker Act, which is to consolidate procurement-related protests in the COFC to increase the efficiency of the procurement process. Under a stringent nexus standard, the COFC will hear only protests of prototype OT agreements that have a strict connection to a procurement or proposed procurement, leaving the district courts to hear all other protests of such agreements, even those that are materially or substantially connected to a procurement or proposed procurement.
There should be little doubt that this split in jurisdiction cuts against the efficiency of the federal government procurement system. By having protests of prototype OT agreements split between the COFC and the district court, the case law surrounding these protests could develop differently. Additionally, contractors sent to the district court will miss out on the COFC’s streamlined protest process, including pre-filing protest notices, mandatory initial status conferences, review by judges experienced in procurement law and protests, and review by a court with a significantly less busy docket. Finally, depending on the timing of the competitions, the parties may have to litigate two related protests in two separate forums at the same time: the protest of the prototype OT agreement in district court and the protest of the subsequent procurement contract in the COFC. Traditionally, related protests are assigned to the same COFC judge, who could consolidate the cases.
SpaceX v. United States underscores these inefficiencies. In that case, the COFC effectively employed a heightened nexus standard and determined it lacked jurisdiction over the prototype OT agreement protest. The COFC then transferred the protest to district court even though it was temporally and functionally related to a procurement contract. After spending three months litigating the jurisdictional issue at the COFC, SpaceX spent additional time and resources transferring the case to the United States District Court for the Central District of California, which is very busy. Once at the district court, SpaceX waited one year before receiving a decision in its case.
A one-year waiting period for a bid protest decision is an outlier for the COFC and the GAO, two independent bodies that review bid protests of procurement contracts. These types of cases should be decided in a timely fashion to ensure minimal interruption to government contracting activity and to provide the contractor with an opportunity of meaningful relief. Here, no temporary injunctive relief was granted. So, the prototype OT agreements were being performed during the protest, lessening SpaceX’s chances of restarting the competition.
Additionally, the competition for the Phase 2 procurement contracts began during SpaceX’s protest of the prototype OT agreement. If SpaceX had decided to file a protest concerning the Phase 2 procurement, SpaceX would have had to litigate two substantively related cases in two different forums: its prototype OT agreement protest in district court and its Phase 2 procurement protest in the COFC. However, if the COFC would have applied a construction of “in connection with” more aligned with the plain meaning of this phrase and precedent, then SpaceX’s protest would have remained in the COFC and would have likely been consolidated with any protests made during the Phase 2 procurement (or at a minimum assigned to the same COFC judge overseeing the Phase 2 procurement protest as an indirectly related case), conserving the parties’ and judicial system’s resources.
On balance, the preferable standard for applying § 1491(b)(1)’s “in connection with” inquiry is a material nexus standard, with a tenuous nexus standard in close second. Under a material nexus standard, a prototype OT agreement must be materially connected to a procurement or proposed procurement to fall with § 1491(b)(1)’s bid protest jurisdiction. This standard is much broader in scope than the stringent nexus standard and would allow many more protests of prototype OT agreements to be brought before the COFC. Under this standard, a prototype OT agreement is materially connected to a procurement or proposed procurement when the government intends to procure the finalized prototype at some future point, either through a follow-on production contract or a separate procurement. Whether the government actually procures the finalized prototype is irrelevant. Rather, the focus of the inquiry is the government’s objective intention at the time it issued the prototype OT agreement. For example, under a material nexus standard, the prototype OT agreements at issue in SpaceX, MD Helicopters, and Hydraulics would fall under the COFC’s jurisdiction given that all provided for a follow-on production contract or noted a future procurement process was to follow. A prototype OT agreement that would not be materially connected to a procurement or proposed procurement would be one in which the government gives no objective indication at the time that it issued the prototype OT agreement that a procurement or follow-on production contract could follow. For example, prototype OT projects that resemble research and development projects would likely not be materially related to a procurement.
Under a tenuous nexus standard, a prototype OT agreement need only touch upon or set in motion a procurement at some future point to fall with § 1491(b)(1)’s bid protest jurisdiction. This standard is the broadest in scope of all three standards and would effectively allow the COFC to assert jurisdiction over all protests of prototype OT agreements. In other words, under this standard, all prototype OT agreements would be connected to a procurement or proposed procurement. This is because, as mentioned earlier, prototypes assist the government in refining its project requirements. Thus, a prototype project that is simply exploring a new technology, with no set procurement in mind, would still provide the government with useful information that could potentially affect a future procurement at some point.
Both the material nexus and tenuous nexus standards would be appropriate for purposes of § 1491(b)(1)’s “in connection with” inquiry. Both are broad in scope, with the tenuous nexus being the broader of the two, and thus align with precedent stating that “in connection with” be sweeping in scope. Also, given their breadth, which would allow many, if not all, protests of prototype OT agreements to be brought before the COFC, both standards would provide clarity to litigants and courts. The broader in scope a standard is, the easier it is for litigants to meet this standard.
The material nexus standard, however, is more attractive than the tenuous nexus standard in one important respect. The material nexus standard provides judges with more flexibility to account for the factual diversity of prototype OT agreements, which will likely lead to decisions better aligned with the purpose of the Tucker Act. The tenuous nexus standard runs the risk of being over-encompassing, potentially allowing protests with no reasoned impact or effect on a procurement to fall within the COFC’s jurisdiction. A judge should be able to account for these instances and will be better able to do so under a material nexus standard.
One disadvantage to a material nexus standard, however, is that the term “material” can be vague, injecting uncertainty in a jurisdictional analysis. The Federal Circuit can correct for this concern by requiring a showing of factors, such as the following: (1) that at the time the agency competed the prototype OT agreement, the agency was considering a subsequent procurement or follow-on production contract (i.e., temporal relation); and (2) that the award of a prototype OT agreement provides the awardee with a technical and/or financial advantage in any subsequent procurement or follow-on production (i.e., logical relation). These two factors speak to the materiality of a prototype OT agreement. Thus, if the protestor makes this showing, then its protest is per se materially connected to a procurement or proposed procurement, falling within § 1491(b)(1)’s jurisdiction. These factors will also increase the foreseeability of whether a protest falls within the COFC’s bid protest jurisdiction. By looking at basic competition documents, such as the solicitation for the prototype OT agreement and contract award decision, parties and courts should be able to determine the answer to these questions with relative ease.
Even with factors, however, there may be uncertainty in borderline cases under a material nexus standard. Yet, these should be the exception, not the norm. And when such cases arise, COFC judges are more than capable of handling them. They have expertise in procurement protests, which are procedurally and substantively like protests of prototype OT agreements. Competitions of both types of contracts involve solicitations, bids, awards, and performance. Also, protests of both types of contracts turn on allegedly problematic agency action during the evaluation and award process of the contract. COFC judges should therefore be able to determine which protests fall within the court’s boundaries with relative ease, and even more so with a binding, workable framework in place.
In sum, the current jurisdictional landscape for protests of prototype OT agreements is unclear. Four trial courts reviewed this issue, and none articulated a clear jurisdictional standard for deciding this issue. Litigants are left questioning whether their protest should be filed in the COFC under the Tucker Act’s § 1491(b)(1) bid protest jurisdiction or in a federal district court under the APA. Fortunately, the Federal Circuit can consider several approaches to clarify this issue, each of which will help litigants and lower courts understand where losing bidders should file protests of prototype OT agreements.
First, the Federal Circuit can clarify this issue by hearing any future appeal of an OT bid protest en banc. By doing so, the Federal Circuit can broadly construe § 1491(b)(1) in light of the rule of the last antecedent, resulting in§ 1491(b)(1) bid protest jurisdiction encompassing protests of all government solicitations and contracts, regardless of their connection to a procurement or proposed procurement. Under this approach, the COFC would have exclusive jurisdiction over all protests of prototype OT agreements. Second, the Federal Circuit can adopt the COFC’s reasoning in Hydraulics and broadly interpret “procurement” within § 1491(b)(1) to encompass prototype OT agreements. This approach would also result in the COFC having exclusive jurisdiction over all protests of prototype OT agreements.
If the Federal Circuit declines either approach, it can still clarify this issue by announcing a workable jurisdictional standard for applying § 1491(b)(1)’s “in connection with” inquiry. This article argues that the Goldilocks approach is the best way forward. Specifically, of the three general types of standards for relatedness inquiries—stringent, material, and tenuous—the stringent nexus standard should not apply here. It conflicts with the plain meaning of § 1491(b)(1) and Federal Circuit precedent requiring a broad application of “in connection with.” Of the remaining two types, material vs. tenuous, the Federal Circuit should consider adopting a material nexus standard because it provides sufficient clarity while empowering judges to account for the facts of a particular case.
It is important to recognize that the case law concerning protests of prototype OT agreements is still developing. Parties and the courts will likely face other inquiries that need clarification. This article does not attempt to address these but recognizes that such an undertaking is worthwhile, particularly given the DoD’s increasing use of prototype OT agreements.
