Where Air Force Did Homework, Army Dug in Heels, Judge Says

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By Daniel Seiden

The Army and Air Force had high-tech contract needs, and decided that commercially available software and hardware wouldn’t suffice. However, only one decision withstood a protest.

Specifically, the Air Force conducted adequate market research before deciding a commercial item wouldn’t work for its urgently needed space threat data system, but the Army failed to fully consider a commercial approach for a combat data system offered by Palantir USG Inc., said Judge Marian Blank Horn of the U.S. Court of Federal Claims.

Contracting agencies are required by 10 U.S.C. § 2377 to assess whether their needs can be met by a commercial item, a product that is readily available to the general public, as opposed to a potentially more expensive developmental item.

The extent to which contracting agencies genuinely consider commercial item solutions, and the ability of contractors to raise strong protests when agencies reject commercial solutions, are critical given the amount of money at stake. Defense agencies spent nearly $48 billion on commercial items in fiscal 2016.

Attorneys said the rulings in the Air Force and Army cases show that an agency can withstand second-guessing of a decision to pass on a commercial item if the agency:

  •  has fully investigated whether a commercial item can be used or modified to meet needs;
  •  has expressed urgency of need;
  •  has adequately documented its consideration of contract options; and
  •  communicates a desire for data rights that commercial contractors are reluctant to provide — a development an attorney viewed as “troubling.”

Thoughtful Rejection

The Army didn’t fully consider whether Palantir could provide a commercial item for a combat data system, Horn ruled in November 2016.

The government has appealed, contending that appropriate market research showed that the procurement was too complex for a commercial item.

In Palantir, Horn “found that the Army went down the non-commercial/development track early on and didn’t seem to look back,” said Eric Aaserud, senior counsel in the government contracts and energy groups at Perkins Coie LLP, Washington.

“There was little or no ‘development versus commercial’ weighing,” Aaserud said. “The court seemed to say, ‘The Army knew what it wanted, by gum, and that was that.’”

The Air Force, in contrast, reasonably turned down a commercial solution for a space threat data procurement despite a protest from Analytical Graphics Inc., Horn ruled Dec. 12.

The service initially viewed a commercial solution as possible, but extensive market research led it to conclude otherwise, Horn said.

Horn found in Analytical Graphics that the Air Force engaged in proper weighing by considering a commercial item solution at the procurement’s outset, and then providing a thoughtful explanation for rejecting that solution, Aaserud told Bloomberg Government.

Research Realization

The “ Palantir protest presented a much clearer picture of an agency trying to avoid a particular contractor and a commercial items approach to the procurement, as well as a failure on the part of the agency to do a proper investigation and review of available commercial alternatives,” Horn said in Analytical Graphics.

Horn emphasized how the Air Force initially assumed a commercial solution would work but learned through market research that a commercial solution couldn’t be wholly satisfactory, said Philip R. Seckman, a partner at Dentons LLP in Denver.

Performance urgency also led the court to defer to the Air Force’s belief that it wasn’t realistic to use commercial items.

“In the court’s view, that urgency reasonably prevented the agency from being able to separate portions of the acquisition that could have been satisfied with commercial items from those that couldn’t,” Seckman said.

Document Decisions

The Air Force’s approach “cannot be said to have been casual, unthinking, or not deliberate” despite a lack of documentation about the procurement’s urgency, Horn said.

Documentation of a commercial availability decision isn’t required, but it “behooves any agency” to provide it, Horn acknowledged in a footnote.

“Although there is no statutory or regulatory mandate to contemporaneously document the decision of whether to conduct a procurement on a commercial item basis, the contrast between the two decisions demonstrates how much easier life is for an agency with a well-documented decision-making process,” said W. Barron Avery, a partner at BakerHostetler LLP, Washington.

“I would consequently expect to see agencies develop procedures for creating more robust documentation,” he said.

Data Rights

A “potentially troubling development” from Analytical Graphics is that agencies may be able to say viable commercial solutions don’t exist if contractors aren’t sending clear signals about the availability of sweeping data rights for the government, Seckman said.

This might be true even when commercial computer software could satisfy all performance requirements, Seckman said.

Protester Analytical Graphics was willing to negotiate data rights terms, but didn’t offer the desired data rights at the time the Air Force conducted its market research, the court said.

The Appeal

If the government loses its appeal against Palantir, the Defense Department “might have to step up its acquisition workforce efforts, with more hiring and training, because, in all likelihood, companies with commercial solutions will become more active,” Aaserud said.

The government could also lose the appeal but gain a valuable path to defeat future protests, Seckman said.

If the Federal Circuit sides with Palantir while saying the Army failed to engage in meaningful market research, “then agencies going forward are likely to be provided with a ready avenue to avoid the same outcome,” he said.

Potential protesters, on the other hand, may be encouraged if the Federal Circuit sets a high bar for agencies and says they must seek commercial items to the maximum extent practicable and fully investigate those items when performing market research, Seckman said.

The cases are Analytical Graphics Inc. v. United States, Fed. Cl., No. 16-1453C, 12/12/17; Palantir USG Inc. v. U.S., Fed. Cl., No. 16-784C, 11/9/16; Palantir USG Inc. v. United States, Fed. Cir., No. 2017-1465.

To contact the reporter on this story: Daniel Seiden in Washington at dseiden@bgov.comTo contact the editor responsible for this story: Daniel Ennis at dennis@bgov.com

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