Analytical Graphics, Inc. v. United States

In the United States Court of Federal Claims
No. 16-1453C
Filed: November 17, 2017
Reissued: December 12, 20171

* * * * * * * * * * * * * * *
ANALYTICAL GRAPHICS, INC., *
* Bid Protest; Cross-Motions for
Protestor, * Judgment on the Administrative
v. * Record; Small Business Set-Aside;
* Commercial Availability; 10 U.S.C.
UNITED STATES, * § 2377.
*
Defendant, *
*
v. *
*
APPLIED DEFENSE SOLUTIONS, *
INC., *
*
Defendant-Intervenor. *
*
* * * * * * * * * * * * * * *
Seamus Curley, Stroock & Stroock & Lavan LLP, Washington, D.C., for protestor.
With him was Daniel J. Cook, DLA Piper LLP, Washington, D.C.

James W. Poirier, Senior Trial Counsel, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washington, D.C., for defendant. With him
were Douglas K. Mickle, Assistant Director, Commercial Litigation Branch, Robert E.
Kirschman, Jr., Director, Commercial Litigation Branch, and Chad A, Readler, Acting
Assistant Attorney General, Civil Division, Department of Justice. Of counsel were
Christopher Cole, and Jason Templin, United States Air Force.

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

1 This opinion was issued under seal on November 17, 2017. The parties were given the
opportunity to propose redactions to the court. No redactions were proposed. The opinion,
therefore, is unsealed and issued for publication.
 OPINION
HORN, J.

Analytical Graphics, Inc. (Analytical Graphics) filed a post-award bid protest in this
court challenging Solicitation No. FA2550-16-R-8008 (the solicitation), issued by the
United States Air Force (Air Force) on behalf of the Joint Interagency Combined Space
Operations Center (JICSpOC) for its Space Situational Awareness (SSA) data
requirements, as well as the contract subsequently awarded to defendant-intervenor
Applied Defense Solutions, Inc. (Applied Defense). Analytical Graphics filed suit in the
United States Court of Federal Claims after the United States Government Accountability
Office (GAO) denied protestor’s GAO protest. See generally Analytical Graphics, Inc., B-
413385, 2016 WL 6212299 (Comp. Gen. Oct. 17, 2016). In this court, Analytical Graphics
asserts that the Air Force acted arbitrarily and capriciously when it issued the solicitation
as a non-commercial item solution, because Analytical Graphics alleges that a majority
of the services that the Air Force sought were available commercially, and further argues
that Air Force acted arbitrarily and capriciously when it issued the solicitation as a set-
aside for small businesses.

FINDINGS OF FACT

By way of background to understand the protest currently before the court,
JICSpOC was established by the Department of Defense in October 2015. Even before
JICSpOC was formally established, the Air Force had begun market research “for a new,
firm-fixed price subscription service for commercial space observation and analysis
capabilities.” The Air Force sought a “solution to include hardware, software, training, and
a commercial subscription service to include Space Situational Awareness Suite and
Battle Management Command and Control software licenses.” The parties have jointly
stipulated that “the Air Force took a two-phase approach to determining and obtaining
commercial capabilities that could contribute to the JICSpOC mission: (1) to test products
found in the marketplace, and (2) to contract for operating capabilities.” On August 24,
2015, the contracting officer issued a market research report (the JICSpOC market
research report), recommending a sole source award to Analytical Graphics.2 The
JICSpOC market research report indicated that:

Limited market research was conducted. Given the national security
implications of the requirement, the use of various market research tools is
necessarily constrained. For example, it is not practicable to engage
industry with synopses for sources sought, draft request for proposals,
capability statements/analysis, and other standard market research tools
used for full and open competitions.

Regarding Analytical Graphics, the JICSpOC market research report stated:

2 The parties have stipulated that “[t]he market research report leading to the AGI
[Analytical Graphics] contract stated that the procurement was classified under NAICS
Code 511210, Software Publishers.”
2
 AGI’s ComSpOC [Commercial Space Operations Center] is cutting edge in
the industry. Research confirms potential sources are time away from
providing the tools AGI has developed commercially for application-level
mission needs. The Government has determined that no other commercial
sources currently produce or offer comparable capabilities in terms of the
space situational awareness that AGI publicly offers for sale.

Commercial item: FAR 2.101 defines commercial item, other than real
property, that is of a type customarily used by the general public or by non-
governmental entities for purposes other than governmental purposes, and-
- (i) Has been sold, leased, or licensed to the general public; or, (ii) Has
been offered for sale, lease, or license to the general public. ComSpOC is
available on the Analytical Graphics, Inc website (agi.com) for sale to the
general public. This subscription service new and emerging technology with
limited commercial sales; however, ComSpOC has been bought by the
commercial company, Boeing Inc, to launch two commercial satellites. The
backbone of ComSpOC is based on commercial software known as Space
Situation Awareness (SSA). SSA is available and sold to the general public
via the internet and GSA schedule. Therefore, FAR Part 12, Acquisition of
Commercial Items, applies to the acquisition and has been determined by
the contracting officer to be a commercial item.

The JICSpOC market research report also explained the difference between a
license and subscription service, indicating:

License versus Subscription Service: Market research indicates this is a
commercial software subscription and not a software license or agreement.
In a license, the government gets rights to copy and use a software
application, while in a subscription service; the government gets a
subscription to use the software via the internet. The confusion stems from
the central role of “software” in software as a service. Bottom line, what the
government will do with the software. If the government puts a copy of a
software application on a computer--downloads it, installs it from a disk,
etc.--the contract calls for a license. Copyright law gives the software’s
owner a monopoly over the right to copy it (to “reproduce” it), so the
government needs a copyright license to make a copy and put it on a
computer. In a subscription service, the government does not put software
on a computer, or copy it at all. The software sits on the contractor’s
computer and the government merely accesses it via the Internet. With no
copies, copyright plays no role in the transaction, so the government does
not need a copyright license. During the term of the contract, the contractor
shall provide the application to government via the internet.

Finally, the JICSpOC market research report stated that “AGI provided a capability brief
to the government customer. The customer has determined AGI is capable of providing

3
this capability. At this time, there are no known commercial items with the capabilities
similar to ComSpOC.”

In addition to the JICSpOC market research report, the contracting officer also
issued a streamlined acquisition strategy summary (the JICSpOC streamlined acquisition
strategy summary), again recommending a sole source award to Analytical Graphics.
The JICSpOC streamlined acquisition strategy summary noted that “[t]he Government
will acquire AGI’s commercial products and capabilities collectively known as Commercial
Space Operations Center (ComSpOC). The period of performance is 10 months from
contract award.” (emphasis in original). The JICSpOC streamlined acquisition strategy
summary also indicated that:

A search of General Service Administration, Space Symposium, and
technical publications revealed no commercial product with similar
capabilities other than AGI. In Space News, Lockheed Martin Space
Systems, working with Australia's Electra Optic Systems, announced
August 2014, it is planning a new space object-tracking site in western
Australia and hopes to sell the data commercially and to the Government in
the future. No commercial products are currently available for sale other
than ComSpOC.

AGI has provided a capability brief to the Government customer. At this
time, there are no other known commercial items with the capabilities similar
to ComSpOC.

Similar to the JICSpOC market research report, the JICSpOC streamlined acquisition
strategy summary provided a rationale for proceeding under “FAR 12: Acquisition of a
Commercial Item:”

Commercial Item: FAR 2.101 defines commercial item, other than real
property, that is of a type customarily used by the general public or by non-
governmental entities for purposes other than governmental purposes, and-
- (i) Has been sold, leased, or licensed to the general public; or, (ii) Has
been offered for sale, lease, or license to the general public. ComSpOC is
available on the Analytical Graphics, Inc. website (agi.com) for sale to the
general public. In addition, this subscription service has been bought by
commercial companies such as Boeing Inc to launch two commercial
satellites. The backbone of ComSpOC is based on a commercial software
known as Space Situation Awareness (SSA). SSA is available and sold to
the general public via the internet and GSA schedule. Therefore, FAR Part
12, Acquisition of Commercial Items, applies to the acquisition and has
been determined by the contracting officer to be a commercial item.

This is a sole source requirement; therefore, FAR Part 15 applies. When
contracting in a sole source environment, the request for proposal will be
tailored to remove unnecessary information and requirements.

4
After the JICSpOC market research report and JICSpOC streamlined acquisition strategy
summary, the contracting officer issued Solicitation Number FA2550-15-R-8002 to
Analytical Graphics. The solicitation included CLIN 0001, which stated: “ComSpOC
Subscription Service and Technical Support, including the AGI SSA and BMC2 SW
Prototype/Risk Evaluation License IAW Statement of Objectives, 1 Sep 15,” and CLIN
0002,3 which stated:

Onsite Data Processing Solution to include Hardware, Operating
System/Software and Installation. Provide all necessary hardware for on-
site data processing as well as all remote access log-in capabilities
necessary to view and obtain ComSpOC subscription services and data
from the contractor’s processing center. Install and support initial system
software configuration. Install and support the complete (target) system
hardware configuration.

On September 29, 2015, the Air Force awarded Analytical Graphics, Contract No.
FA2550-15-C-8008, a sole-source, fixed price contract (the JICSpOC contract). The
period of performance was September 29, 2015 to July 30, 2016. 4 The value of the
JICSpOC contract was $8,426,064.00.5 The parties have stipulated that “[d]uring contract
negotiations, the Contracting Officer negotiated a data rights addendum with AGI which
was made part of the contract.” The JICSpOC data rights addendum stated, in its entirety:

DFARS 252.227-7015-Technical Data Commercial Items
DATA RIGHTS ADDENDUM

AGI grants AFSPC a limited, non-exclusive, non-transferable, non-
sublicenseable right to access and use the features and functions of the
ComSpOC Subscription Service for the Period of Performance, in
accordance with the ComSpOC Corporation's Spacebook Subscription
Service Agreement. ComSpOC Corporation is a wholly-owned subsidiary
of AGI.

AGI shall provide to AFSPC a Prototype/Risk Reduction License to AGI’s
SSA Software Suite for the Period of Performance in accordance with AGI’s
SSA Software License Agreement.

3 The remaining CLINs refer to training and a “Commercial Communications Leased
Line.”
4 The Air Force declined to exercise its option to extend the JICSpOC contract, allowing

the JICSpOC contract to expire on July 31, 2016.
5 The JICSpOC contract was broken out by CLINs. The fixed price for CLIN 0001 was
$8,071,580.00, the fixed price for CLIN 0002 was $229,586.00, the fixed price for CLIN
0003 was $38,636.00, the fixed price for CLIN 0004 was $38,636.00, and the fixed price
for CLIN 0005 was $47,626.00.
5
 AGI shall provide to AFSPC a Prototype/Risk Reduction License to AGl’s
BMC2 Software Suite for the Period of Performance in accordance with
AGl's BMC2 Software License Agreement.

The ComSpOC Subscription Service shall only be used for the purpose of
the JICSpOC activities. Usage is limited to those “JICSpOC activity users.”
These users are defined as those JICSpOC, AFSPC HQ, and SMC
personnel engaged in JICSpOC activities.

Furthermore, usage and distribution of any data resulting from the
ComSpOC Subscription Service is limited as follows:

• ComSpOC raw data and products, including ComSpOC output products,
may be used to directly support JICSpOC activities. These raw data and
products will not be used for R&D purposes by other capability providers
and developers, nor will they be used to reverse engineer and improve the
tools of other participating capability providers and developers.

• Live data included in ComSpOC output products will not be transferred
outside of the JICSpOC facility. However, historical data included in
ComSpOC output products may be distributed outside the JICSpOC facility
to be used solely as part of JICSpOC activities.

ComSpOC output products included as part of a JICSpOC operational
report may be made available to all DoD personnel. ComSpOC output
products not included as part of a JICSpOC operational report shall be
limited in availability to JICSpOC, AFSPC HQ, and SMC personnel. Such
availability to personnel beyond these Identified organizations shall require
AGI’s prior consent.

Commercial items are subject to the policies in other parts of the FAR. FAR
Part 12 shall take precedence for the acquisition of commercial items. This
addendum shall take precedence over the attached service and license
agreements.

(capitalization in original).

Approximately one month after the JICSpOC contract was awarded to Analytical
Graphics, the contracting officer began market research for the contract at issue in the
above captioned protest, which was ultimately awarded to Applied Defense on October
21, 2016. The contracting officer first issued a Request for Information (RFI) on November
4, 2015, “to conduct market research, a continuous process for collecting and analyzing
information about capabilities within the market to satisfy agency needs.” The November
4, 2015 RFI continued, “the US Air Force needs processed, commercial Space Situational
Awareness (SSA) data for operational use. SSA data must originate from non-DoD
sensors and be validated on commercial systems outside of the Department of Defense
(DoD) network.” The parties have stipulated that the list of capabilities in the RFI was
6
similar to the “Application Technical Specifications”6 in the JICSpOC contract and further
stipulated that “[a]t the time this RFI was issued, the contracting officer anticipated that
the application ultimately procured for operations would probably be a commercial item.”

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

 Include a mix of optical, radar and passive radio frequency (RF) systems
capable of providing astrometric, radiometric, and/or photometric data.

 Provide high definition ephemeris data on space objects to include
position, status, accuracy/confidence, covariance, and historical
trending data.

 Provide specific meta-data on the source of the observations such as
latitude, longitude, and altitude; time of collection, owner/operator,
and/or country of origin.

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

 Provide realistic SSA sensor collection opportunities considering
feasibility and timing for metric and non-metric data needed to support
SSA courses of actions.

 Be capable of processing metric observations from sensors from any
commercial or US Government, civil, and/or international entity in any
format.

 Be capable of identifying, when technically possible, possible, associate,
characterize, monitor and track observable space objects whose orbits
are not in the Geosynchronous Earth Orbit (GEO) belt, including, but not
limited to, objects in Low Earth Orbit (LEO), Medium Earth Orbit (MEO),
and Highly Elliptical Orbit (HEO).

 Provide a threat analysis for specified high interest US satellites,
depicting time and distance, as well as required time for a specified
threat to maneuver into a threatening position.

 Provide a threat analysis to current and planned operations of space-
based mission capabilities supporting Intelligence, Surveillance and
Reconnaissance (ISR), Communications, Position, Navigation and
Timing (PNT), Missile Warning, and Weather.

 Provide predicted and real time characterization of all launch and early
orbit operations, to include direct ascent Anti-satellite (ASAT) threats, by
7
 Fifteen potential offerors responded to the November 4, 2015 RFI, including
Analytical Graphics, Applied Defense and ExoAnalytic Solutions, Inc. (Exo).
Subsequently, on March 29, 2016, the contracting officer issued the first amended RFI,7
which included a revised statement of the needs, indicating: “The US Air Force needs
commercial SSA data for operational use. SSA data must originate from non-DoD
sensors and be real-time. See attached for minimum salient characteristics.” The parties
have stipulated:

In the amended RFI, The Air Force sought information about collections of
data, software and personal services that could meet certain minimum
requirements. The Air Force included a list of ten “Salient Characteristics”
that the Air Force considered to be “minimum requirements” for the SSA
system:

SALIENT CHARACTERISTICS: The collection of non-governmental SSA
data, processing tools, personnel, and contracted support will be referred
to as the Commercial SSA System.

• Provide metric, non-metric, and Space Object Identification (SOI)
observations from data collected from a minimum of 10 worldwide sensors
outside the control of the USG, at least half of which must not be terrestrial
sensors in North America (e.g. sensors in Europe, on orbit).

• Document whether sensors can be utilized on an on-demand basis or if
their use must be pre-planned and list the additional costs for on-demand
service, if applicable.

• Provide the format and source of the data.

• Ingest authorized DoD data (raw or processed observations) into any
contractor event processing or analysis capability.

determining orbital trajectories, projected conjunctions with projected
launch vehicle path, etc.

 Support the ability to assess feasible courses of action, for deliberate
and/or crisis action planning, to maximize safety of flight, continued
operations, and response options of space assets and missions to
support warfighter needs and commander’s intents.
7 The contracting officer subsequently issued a second amended RFI, on April 1, 2016,
to publicly answer four questions submitted by potential offerors, as well as a third
amended RFI, issued on April 5, 2016, to extend the deadline for submissions by five
hours. Subsequently, the contracting officer issued a fourth amended RFI, dated May 11,
2016, which is discussed further below.
8
 • Ensure they export their data, one-way, to DoD networks of equal or higher
classification for additional processing.

• Provide for threat warning assessment by detecting and notifying
JICSpOC personnel of a space object entering or projected to enter a user-
definable area around specific resident space objects (RSO) within 15
minutes of entering. NOTE: 15 minutes is the unclassified value.

• Process and correlate feature-type data (Visual Magnitude (Vmag), Radar
Cross Section (RCS) changes, RF spectrum, etc.).

• Ability to detect hostile and non-hostile maneuvers and analyze the
change of behavior, to include the revised orbit, within 2 minutes of
maneuver detection.

• Augment DoD persistent monitory capabilities by maintaining custody of
designated objects (e.g. Super High Interest Objects) to the maximum
degree possible.

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

(capitalization in original). On April 6, 2016, fifteen potential offerors again responded to
the first amended RFI, including Analytical Graphics, Applied Defense, and Exo.
Analytical Graphics, Applied Defense, and Exo. Analytical Graphics stated that it could
meet the Air Force’s minimum salient characteristics and explained that “[t]he
Government’s requested product (the Commercial SSA System) requires a private
implementation of AGI’s Commercial Space Operations Center (ComSpOC) consisting
of four AGI products, all of which are available commercially.” In response to the RFI
question: “Describe how your product meets the definition of commercial item in FAR
2.101,” Analytical Graphics explained:

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

1. The product is of a type customarily used by the general public or by non-
governmental entities for purposes other than governmental purposes, and
a. Has been sold, leased, or licensed to the general public; or,
b. Has been offered for sale, lease, or license to the general public;
2. The product evolved from an item described in (1) of this definition
through advances in technology or performance and that is not yet available
in the commercial marketplace, but will be available in the commercial
marketplace in time to satisfy the delivery requirements under a
Government solicitation.
3. The product related services are of a type offered and sold competitively
in substantial quantities in the commercial marketplace based on

9
 established catalog or market prices for specific tasks performed or specific
outcomes to be achieved and under standard commercial terms and
conditions.

Analytical Graphics also suggested that:

Since the Government is procuring a commercial item, AGI recommends
that source selection evaluation be done under FAR Part 12 (12.6,
Streamlined evaluation of offers), which will enable the Government to
select a commercial solution provider who not only meets but exceeds the
majority of the salient characteristics, with recent and relevant past
performance, and with a price that can be justified based on these
contributing inputs.

The parties have stipulated that Applied Defense, in contrast to Analytical
Graphics, indicated in its response that “it would lead a consortium of organizations long
involved in SSA to provide a Commercial SSA System,” and that “the consortium could
meet the minimum salient characteristics set forth in the amended RFI.” In response to
the RFI question: “Describe how your product meets the definition of commercial item in
FAR 2.101,” Applied Defense responded:

The definition of the product in the Salient Characteristics is not available in
the general public and as such would not meet these criteria. Due to the
nature of the published requirements, it is our assessment that any existing
product which meets all of those requirements would only do so with
significant security concerns. This is a topic which could be addressed
further at Industry Day and subsequent direct interactions. With that said
we do believe commercially sourcing of data, processing, and services is
very achievable and that non-US Government sourced products and
services can mature quickly in an open marketplace if security and policy
restrictions are eased.

Regarding the procurement generally, Applied Defense indicated that:

It is our strong belief that No Single Bundle of Commercial Products or
Services will meet the USG needs. The requirements for SSA and the
mission needs are such that a multiple award IDIQ type strategy is the only
workable strategy. Sensor types satisfying the operational needs are so
diverse, covering not only global geography but spanning all orbit regimes
for small or large, bright or faint, and emitting or quiet, that new sensor
phenomenology can only be brought online in a multiple award, non-
monopoly marketplace. If the USG were to select only one provider of
sensors and processing they would artificially restrain competition,
innovation, and bring great long term risk to US commercial and sovereign

10
 interests. A very real fear is that the marketplace would be dominated by a
monopoly or duopoly, much like the launch industry had been dominated by
two providers, to the detriment of the interests of the US Government and
US industry competitiveness worldwide. The US Government should be
concerned that they may evolve the SSA arena into a commercial market
dominated by a monopoly.

In its response to the first amended RFI, Exo indicated that it could meet the
government’s minimum salient characteristics. In response to the RFI question: “Describe
how your product meets the definition of commercial item in FAR 2.101,” Exo stated, in
part, “ExoAnalytic’s commercial data and software packages meet the FAR 2.101
definition of commercial items as they have been sold and/or offered for sale to the
general public, and are used for purposes other than governmental purposes.” Both
Applied Defense and Exo indicated in their April 6, 2016 responses that they were small
businesses “according to the criteria of the relevant NAIC code.” Analytical Graphics
indicated that it was not a small business.

The parties have stipulated that, after the submissions to the first amended RFI,
“[t]he Air Force determined that the responses of AGI and ADS [Applied Defense]
indicated that AGI and ADS could satisfy all 10 of the minimum salient characteristics,
and that the response of Exo indicated that Exo could satisfy 9 of the minimum salient
characteristics.”

After receiving the responses to the first amended RFI, the Air Force held a
classified industry day on April 15, 2016, inviting eight potential offerors to the event,
including Applied Defense, Exo, and Analytical Graphics.8 Regarding protestor’s
participation at the industry day, the parties have stipulated that:

During the Industry Day, AGI had a one-on-one meeting with the Air Force
during which the Agency confirmed that AGI solutions satisfied the
requirements. AGI was asked whether it was willing to negotiate greater
data rights to satisfy unique Government needs. AGI responded
affirmatively. An Industry Day One-on-One summary document later
memorialized this exchange, explaining that “AGI stated they have no
problem with giving the USG [United States Government] full data rights
and ‘it makes sense.’”

(internal references omitted).

8 The court notes that the parties have stipulated that “[t]he portion of the market research
conducted during industry day was not conducted directly by the contracting officer -- who
lacked both technical expertise and the necessary security clearance.” The parties agree
that the agency relied upon the agency’s technical expert, Lieutenant Colonel Anthony
Calabrese.

11
 Subsequent to the industry day, the Air Force generated a draft Performance Work
Statement. The contracting officer, in a limited deposition taken after the protest was filed
in this court, stated that, in her opinion, there were multiple factors that could not be met
by a commercial item.9 She stated:

I determined it to be a noncommercial requirement although some of it could
be met with commercial items, I did not feel that the entire solution could be
network commercial items, due to several factors, which included services,
the data -- services, data rights, the DOD publications and regulations and
the type of contract that I was planning to utilize. The combination of those
led me to believe it was noncommercial.

Regarding data rights, at the deposition, protestor’s counsel asked the contracting officer,
“you just testified that because you had a small business set aside, you didn't approach
AGI to negotiate [the data rights]?” The contracting officer answered:

I already had. There was no reason to have to negotiate. AGI had said in
their market research that they were willing to negotiate. So at that time I
have to take the fact that AGI stated several times you were willing to
negotiate rights. However, at the same time, I was making a decision on the
small business set aside, so based on the fact -- I was making a
noncommercial decisions [sic] and yours was a commercial solution, and I
had two small businesses capable, there was no reason to have to -- you
wouldn't negotiate rights unless you had a proposal and you were going into
discussions.

After generating the draft Performance Work Statement, the contracting officer
issued a fourth amended RFI, dated May 11, 2016, which included the draft Performance
Work Statement, asked potential offerors to comment on the draft Performance Work
Statement and indicated in the section identified as “Scope:” “This is a non-personal
services contract to provide nongovernmental space situational awareness (SSA)
software and services. Nongovernmental SSA solutions are required to augment the
Government’s ability to detect and characterize space threats and improve integration
between DoD, intelligence community, interagency, and nongovernmental space
assets.”10 In addition, the fourth amended RFI stated that the Air Force was considering

9On November 22, 2016, the court issued an Order, which stated, in part, “for the reasons
explained at the hearing, the protestor is permitted to take a deposition of the Contracting
Officer.” The protestor requested the deposition, over the defendant’s and intervenor’s
objections, which the court granted, noting that although “depositions are unusual in
protests,” there were questions about what the contracting officer considered in making
her decision, and how she handled the data rights issue.
10 The parties have stipulated that “[t]he Contracting Officer testified that, prior to the
issuance of the fourth amended RFI, the Contracting Officer began to doubt that the
requirement could be satisfied in full with a commercial item.”
12
issuing the procurement as a small business set-aside. The fourth amended RFI asked
the potential offerors to address a series of questions, including, “[t]he Government is
considering NAICS code 511210, Software Publisher. Do you believe this is an
appropriate NAICS code? If not, please provide the NAICS code you consider to be most
appropriate and why,” and “[d]o you have a Top Secret facility clearance?”

Applied Defense responded to the fourth amended RFI on May 20, 2016. The
parties stipulated that “ADS asserted that it would be eligible for a small business set-
aside, but further asserted that the appropriate NAICS code category was ‘Engineering
Services.’” Exo likewise responded to the fourth amended RFI, and like Applied Defense
indicated it would be eligible for a small business set-aside, but unlike Applied Defense,
Exo stated: “ExoAnalytic is a small business under NAICS code 511210, and considers
this NAICS code appropriate for the subject acquisition.”

Analytical Graphics responded to the fourth amended RFI on May 23, 2016, and
suggested that its commercial solution, consisting of the ComSpOC SSA Subscription
Service, SSA Software Suite, and BMC2 Software, all commercial items, met the
requirements of the draft Performance Work Statement. Regarding the issue of a small
business set-aside, Analytical Graphics indicated that

Although AGI understands the need of the Government to consider small
business, AGI recommends that the Government purchase AGI's
Commercial SSA System as a commercial item under FAR Part 12
(Commercial Item Acquisition). The reasons for this are: 1) the
Government's requirements (from the FBO Announcements, Salient
Characteristics, and PWS) indicate that the Government wants a
Commercial SSA System; 2) 41 USC 3307 and FAR Part 12 requires that
commercial items be purchased when commercial items are available; and
3) a commercial item exists and has uniquely demonstrated that it exceeds
the salient characteristics and provides the best value to the Government
with the lowest risk during the JICSpOC exercises, as well as on other
Government and Commercial contracts.

Given that AGI does not qualify as a small business under any relevant
NAICS code, AGI recommends that the Government not pursue a small
business set-aside because it would preclude the Government from
procuring the best available commercial solution, one that has uniquely
demonstrated it satisfies the requirements and provides the best value at
the lowest risk. Additionally, FAR Part 12 policy (12.102 (c)) states that FAR
Part 12 shall take precedence over other FAR parts (including FAR Part 19
– Small Business Programs), when a policy in another part of the FAR is
inconsistent with FAR Part 12. Furthermore, based upon market research
and experience, AGI believes there are no small businesses with existing
commercial items that can meet the Government's requirements. As a
result, it is not reasonable to expect that the Government will obtain offers
from at least two responsible small businesses, as required by FAR Part

13
 19.502-2 (b)1 [sic], which mandates that the Government has to have a
reasonable expectation that offers will be obtained from at least two
responsible small business concerns and that award will be made at fair
market prices.

Additionally, there is no reason to limit competition to small business due to
security concerns. AGI has uniquely demonstrated under AFSPC Contract
No. FA2550-15-C-8006 that it has satisfied all of the security requirements
at the JICSpOC and can meet the security requirements in the PWS.

Finally, if commercial acquisition is used, there is still significant opportunity
for small business participation. AGI has a commercial products
subcontracting plan in place under its GSA contract (per FAR 19.704(d)),
the preferred type of plan for contractors furnishing commercial items. This
plan has goals for small business participation that are in accordance with
the Small Business Program. For GFYE 2015, small business participation
under AGI’s commercial products subcontracting plan totaled 44%. For this
procurement of AGI's Commercial SSA System, AGI expects 22% will be
provided by small business.

(emphasis in original; footnote omitted).

On May 31, 2016, the contracting officer recommended a small business set-aside,
and on June 1, 2016, the agency’s small business specialist concurred with the
recommendation of a small business set-aside. The same day, June 1, 2016, the
contracting officer wrote a Memorandum for Record with the subject: “Noncommerciality
for Services and Government Purpose Rights.” The memorandum began:

The Government’s requirement is for the contractor to provide government
purpose rights for the raw data identified in the performance work statement
to specified locations at Schriever AFB, Peterson AFB, Vandenberg AFB,
and other locations directed by the Government. Product data shall be
available with government purpose rights and shall be distributed to
operations centers at: Offutt AFB, Vandenberg AFB, Chantilly, five specified
intelligence locations; and other locations as deemed necessary by the
Government. Such data may be shared for government use only, with other
contractors.

The Government’s rights typically would be limited to standard commercial
uses as a “commercial item.” AGI’s license agreements included the
following statement: You may NOT allow the processed data to be viewed
outside the organization or program for which the software is licensed
without the prior written consent of the vendor. The Government must have
government purpose rights to allow the Government to make strategic,
tactical, and course-of-action decisions real-time. The Government will not
be able to obtain written permission prior to providing raw data, processed

14
 data, or end products to another government agency or a contractor
supporting a government requirement. The contracting officer assessed the
data rights required were substantially different than standard commercial
use.

(capitalization in original). Two days later, on June 3, 2016, the contracting officer wrote
a Memorandum for Records with the subject: “Pricing for Analytical Graphics and
ExoAnalytical [sic] Solutions.” The memorandum stated:

The majority of respondents did not provide a price list for their products
during market research. ExoAnalytical's [sic] price list was utilized to
develop the Government's independent cost estimate and historical data
from other contracts.

Analytical Graphics’ prices were high compared to the Government's IGE.
Based on the contracting officer's understanding of the requirement, an
estimate was developed. The estimate utilizing AGI's price list was twice
the estimate of the Government's IGE [Independent Government Estimate].
See attached spreadsheet for details.

The parties have stipulated that “[t]he Contracting Officer testified that, at the time she
prepared this memorandum, she doubted whether a commercial item could satisfy the
Government requirement, but no formal decision had been made.”

As noted in the parties’ joint stipulations of fact, “[b]etween June 7, 2016 and June
15, 2016, various Air Force officials signed the justification and authorization document
to approve limiting competition to ADS and Exo, pursuant to the authority of 10 U.S.C. [§]
2304(c)(6) and 48 C.F.R. [§] 6.302-6.” (internal references omitted). The parties have
stipulated that:

The J&A [justification and authorization] document assumed the possible
award of “one or more negotiated, non-commercial, hybrid-type contracts
space situational awareness (SSA) capabilities to be deployed at the Joint
Interagency Combined Space Operations Center (JICSpOC).” The J&A
document also assumed “the CO determined the acquisition is suited for a
total small business set aside,” and noted that an “extensive market
research report is in draft to support the conclusion that two small
businesses are capable of fulfilling the government’s requirement.”

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

(U)[11] For this acquisition, the government: 1) publicly sought sources for
the opportunity to fulfill its requirements, 2) disclosed the salient features of
the products/services sought, 3) transparently communicated the security

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

15
requirements associated with the acquisition, 4) evaluated thoroughly
capability statements from all respondents, 5) provided an exchange of
information opportunity at an Industry Day event, and 6) re-publicized the
opportunity for industry consideration following the Industry Day event.

(U) As a result of government exchanges with industry as listed above, the
government identified eight firms that demonstrated a rudimentary
understanding of the government’s requirements and possessed sufficient
security clearances to participate in the government’s Industry Day event.

(U) In reviewing the results of informational exchanges and vendor
presentations from the Industry Day, the Contracting Officer (CO) and the
Program Manager (PM) jointly determined that three of the firms
participating in Industry Day were small business concerns that could
potentially provide the products/services as prime contractors.

(U) In follow-on discussions with the three small business concerns, two of
the firms expressed strong interest in submitting proposals as prime
contractors. The PM assesses two of the interested small businesses as
having capability to provide the required products and services for this
requirement as prime contractors. Therefore the CO determined the
acquisition is suited for a total small business set-aside as prescribed at
FAR 19.502-2(a); that is, within the context of the national security
constraints imposed on this acquisition.

(U) The CO finds a reasonable expectation exists for receiving proposals
from two responsible small business concerns, and that award can be made
at fair market prices. For this acquisition, the two small businesses that have
emerged from the Requests for Information (RFI) and Industry Day
processes appear to be uniquely qualified at this time in terms of security
qualifications and possessing the capabilities required, or ability to obtain
them, to facilitate the objectives contemplated in the Performance Work
Statement (PWS). The two small businesses are ExoAnalytics [sic] and
Applied Defense Solutions (ADS).

(U) Both ExoAnalytics [sic] and ADS were determined by the PM to have
responded affirmatively to the questions posed by the government in the
RFI and Industry Day exchanges. Both firms have demonstrated extensive
experience with space observation technologies. Both have ongoing
contractual relationships with the government and have developed, or
helped to develop, capabilities currently in use in both the Defense and
Intelligence communities. Both firms are postured to team as needed with
an extensive network of commercial and non-government sources to
facilitate delivery of the required products/services. Both firms have
requisite facility and personnel security clearance posture to begin
delivery/performance immediately upon contract award. Given these

16
 factors, ExoAnalytics [sic] and ADS are reasonably assessed to have
unique qualifications to provide/perform the SSA work contemplated in the
PWS. Thus through [sic] these elements of market research, the CO and
PM conclude that ExoAnalytics [sic] and ADS are presently the only two
small businesses with demonstrated capabilities necessary to deliver the
non-government, non-developmental SSA requirements for the JICSpOC,
as put forth in the government’s PWS.

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

(U) Market research was conducted, including two RFls posted to the GPE
[Government Point of Entry] and an industry day conducted between the
first and second RFI. The initial RFI provided potential offerors with
notification of security requirements and a list of salient characteristics
offeror products and services would need to demonstrate to receive
consideration for an industry day invitation. Responses from the initial RFI
were assessed to gauge potential technical capabilities as well as security
clearance requirements. Firms that did not demonstrate a rudimentary
understanding of the requirements and those without appropriate clearance
levels were not invited to attend industry day. For the industry day, the
Program Manager (PM) determined disclosure of classified information to
those invited was necessary to sufficiently explain the government's
requirements and allow for a meaningful exchange of information. This led
to the conclusion that eight responding firms possessed requisite security
clearance requirements and demonstrated a rudimentary capability to
potentially participate in the acquisition.

(U) Following industry day presentations, the PM and CO jointly determined
three small business concerns were potential candidates for prime contract
award. The three small businesses were contacted to discuss prime
contract interest. Two of the small business firms (ExoAnalytics [sic] and
ADS) expressed strong desire to participate as a prime contractor for the
requirements. The third firm (Rincon) affirmed their desire to participate, but
only in terms of subcontracting opportunities.

(U) An extensive market research report is in draft to support the conclusion
that two small businesses are capable of fulfilling the government's
requirement.

Regarding the cost, the justification and authorization document stated:

(U) Determination by the Contracting Officer that the anticipated cost
to the Government will be fair and reasonable.

(U) The Contracting Officer (CO) anticipates that cost to the Government
may be determined to be fair and reasonable on the basis of price and/or

17
 cost analysis and by using certified cost or pricing data to analyze elements
of cost. Given the government with solicit for the award of one or more
contracts for the work, the CO further anticipates that proposed costs to the
government will be driven by competitive forces.

(emphasis in original).

On June 21, 2016, the Air Force produced a Market Research Report which
contained the evaluation of the each of the offerors that had responded to the first
amended RFI.12 Of the seventeen offerors who had responded to the Air Force, only two,
Applied Defense and Analytical Graphics, meet all ten of the ten “Salient Characteristics”
identified by the Air Force. Notably, Exo met nine of the ten “Salient Characteristics,”
failing to meet the characteristic: “Process and correlate feature-type data (Visual
Magnitude (Vmag), Radar Cross Section (RCS) changes, RF spectrum, etc.”

The Market Research Report contained a section titled “Commercial
Opportunities,” which stated in full:

The RFI originally sought to obtain SSA data from a commercial solution.
However, it became apparent after market research that the data and
services required could only be met through noncommercial sources
because of the following factors: limited commercial data solutions are
available, the required services to be performed are not found in the
commercial marketplace, the Government requires unique hardware
requirements and the Government’s desire to obtain complete technical
rights. Also, the commercial data solutions that are available focus on safety
of flight and do not meet all of the requirements for SSA as listed in the
PWS. Additionally, some vendor’s responses stated their solution was a
commercial product; however, most vendors were unable to provide a
commercial price list or commercial customers for the software. Lastly, upon
review of the PWS, the DoD and AF regulations governing the execution of
the requirement, the Government’s desire to obtain data rights, and the
integration of the product data into national security operations makes this
requirement noncommercial. It is hereby determined that the requirement is
not offered to the general public in the commercial marketplace and is not
a commercial service as described in FAR Part 12.

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

Although market research determined limited commercial data solutions are
available; the required services to be performed, unique hardware
requirements, the integration of product data into national security

12The parties’ joint stipulations of fact indicate that the Market Research Report was
written “by the contracting officer and program manager.”
18
 operations and the Government’s desire to obtain complete technical rights
of the data are not commonly or readily available in the commercial
marketplace. Additionally, the commercial data solutions that are available
focus on safety of flight and do not meet all the requirements for Space
Situational Awareness as listed in the PWS.

Regarding the small business possibility, the Market Research Report indicated that
“[t]hree of the eight respondents deemed capable through market research as outlined in
section E are small businesses. Two respondents (ADS and ExoAnalytics [sic]) stated
they could perform 50% or more of the work [as the prime contractor].”

Concurrent to the justification and authorization document and the Market
Research Report, the Air Force developed an acquisition plan, and as stipulated to by the
parties: “The acquisition plan was signed on various dates between June 30, 2016 and
July 12, 2016. The commercial item determination from the market research report is
repeated in the acquisition plan.”13 (internal citations omitted). The acquisition plan, in a
section titled “Product or Service Descriptions,” stated:

The majority of this acquisition is commodity based. Approximately 71% of
the estimated contract value is commodity and 29% of the estimated
contract value is embedded non-personal services. The PWS is written IAW
FAR part 37.6 to minimize non-performance aspects. There are, however,
several DOD and AF directives that preclude a completely performance-
based contract. Inclusion of these directives has been limited to the extent
practicable.

The PWS in combination with the service summary (SS) will identify the
minimum contractor performance requirements and associated
performance thresholds. The SS Items are the key measures of success for
contractor operations and are considered by the acquisition team from a
risk management and contract quality assurance perspective.

The sources sought announcement requested comments regarding the
PWS and service summaries. Industry has not recommended any specific
performance thresholds and highly recommends the Government utilize
only measurable and attainable thresholds.

During the deposition taken after the protest was filed in this court, the contracting officer
indicated that “in her view, the ‘commodity’ portion of the contract could be satisfied by
commercial items, but that the services portion could not be satisfied by commercial
items.” On June 30, 2016, the Air Force finalized its decision to move forward with a non-

13The acquisition plan reflects that on June 30, 2016, the Competition Advocate, the Staff
Judge Advocate, and the Approval Authority all signed the acquisition plan, and that on
July 12, 2016, the Director of the AFSPC (Air Force Space Command) Small Business
Programs signed the acquisition plan.

19
commercial item small business set-aside acquisition. The following day, on July 1, 2016,
the Air Force issued Solicitation No. FA2550-16-R-8008,14 and limited the competition to
only two small businesses: Exo and Applied Defense. The solicitation was issued as a
best value and indicated:

The Government will select the best overall offer, based upon an integrated
assessment of Technical/Technical Risk, and Cost/Price. The Government
may only award a contract to an offeror who is deemed responsible in
accordance with the FAR, as supplemented, whose proposal conforms to
the solicitation’s requirements (to include all stated terms, conditions,
representations, certifications and all other information required by Section
L of this solicitation) and is judged, based on the evaluation factors, to
represent the best value to the Government.

The solicitation explained the evaluation process: “Subfactor 1 will be evaluated as a
combined technical/risk. Subfactor 2 as acceptable/unacceptable. Cost/Price will be
evaluated for reasonableness, completeness, affordability and realism.” Subfactor 1
addressed technical products, and Subfactor 2 addressed technical products, and both
subfactors required the offerors to demonstrate an acceptable approach and
understanding of the solicitation’s “Nongovernmental SSA Requirements,” the
Performance Work Statement’s “Nongovernmental Space Situational Awareness
Requirements,” and the Performance Work Statement’s “Nongovernmental Space
Situational Awareness Product Requirements.” Regarding price:15

The price evaluation assesses each offeror’s proposed price for base and
two 12-month option period [sic] for reasonableness and affordability. An
assessment that the proposal is not reasonable or affordable will result in
the offer being considered unacceptable for award. The burden of proof for
price reasonableness rests with the offeror. Price reasonableness and
affordability will be evaluated using techniques described in FAR 15.404-
1(b) as necessary.

The parties have stipulated that, “[a]fter July 1, 2016, AGI learned that the RFP
had been issued and that responses were due on or before July 18, 2016. AGI learned
that the Solicitation was set aside for small businesses and sought a non-commercial
SSA solution. The Air Force further restricted the set-aside competition to only two firms,
Exo and ADS.” (internal reference omitted). The Air Force explained the agency’s
decision to Analytical Graphics in an email, which stated, in part:

14The solicitation was subsequently amended on July 6, 2016, July 20, 2016, August 25,
2016, and September 12, 2016.
15 The solicitation also indicated that “[t]he Government will perform a cost realism
analysis of all offers based on the offeror’s cost/price proposal total estimated contract
price for CLIN X002 only.”
20
 Through market research and evolving requirements, the JICSpOC
software requirements have been determined to be non-commercial for the
Space Situational Awareness integrated solution. The Government’s has a
reasonable expectation of obtaining offers from two or more responsible
small business concerns that are competitive in terms of market prices,
quality, and delivery. Therefore, this acquisition shall be set-aside
exclusively for small business. The RFP will not be posted to FedBizOps
due to the classified nature of the some of the documents.

On July 11, 2016, Analytical Graphics filed a bid protest at the GAO. Analytical
Graphics alleged that the Air Force’s decision to set aside the procurement for small
businesses was unreasonable and an abuse of discretion. Analytical Graphics
additionally alleged that the Air Force’s decision to “disregard the statutorily-mandated
preference for commercial items was unreasonable, arbitrary, capricious, and contrary to
law.”16

On October 17, 2016, the GAO denied Analytical Graphics’ protest. See Analytical
Graphics, Inc., B-413385, 2016 WL 6212299. The GAO indicated that, regarding
Analytical Graphics’ contention that Air Force unreasonably set the procurement aside
for small businesses, “we find no basis to sustain the protest,” and held that “[f]urther,
nothing in the record supports the protester’s argument that the Air Force unreasonably
concluded that ADS could meet the agency’s requirements.” Id. at *4, *8. The GAO
explained that for a small business set-aside determination, the Air Force was not
required to make a responsibility decision, but only an “informed business judgment that
there is a reasonable expectation of receiving acceptably priced offers from small
business concerns that are capable of performing the contract.” Id. at *6. Regarding Exo,
Analytical Graphics had argued that Exo “could meet only 9 of the 10 minimum
requirements,” which “meant that the agency could not reasonably expect this firm to be
a responsible offeror.” The GAO noted that “ExoAnalytic stated that it could perform the
requirements, and there is no allegation of misrepresentation in this regard,” and that
“[n]either FAR § 19.502-2(b) nor the decisions by our Office require an agency to request,
or a prospective small business offeror to provide, a complete technically-acceptable
approach in response to market research.” Id. The GAO, therefore, determined that
“[u]nder the applicable standards for making a set-aside determination, we find no basis
to conclude that the agency’s judgment here regarding ExoAnalytic was unreasonable.”
Id. Specifically regarding Applied Defense, the GAO indicated that although protestor
“AGI argues that the Air Force unreasonably found that ADS would be capable of meeting
the agency's requirement,” “the agency found that ADS could meet all 10 of the minimum
requirements.” Id. at *7. The GAO concluded that, “given the discretion afforded to
agencies in exercising their business judgment to determine whether to set aside a
requirement for small businesses, we conclude that the record here does not show that
the agency's determination regarding ADS was unreasonable.” Id. at *8.

16 At the GAO, Analytical Graphics raised a third issue, which it does not raise in this
court, that the Air Force unreasonably had required that the proposed solutions only
identify up to 200 resident space objects.
21
 Regarding Analytical Graphics’ protest ground that the Air Force improperly
designated the solicitation requirements as non-commercial, the GAO first indicated that
“[d]etermining whether a product or service is a commercial item is largely within the
discretion of the contracting agency, and such a determination will not be disturbed by
our Office unless it is shown to be unreasonable. Palantir USG, Inc., B-412746, May 18,
2016, 2016 CPD ¶ 138 at 4.” Analytical Graphics, Inc., B-413385, 2016 WL 6212299, at
*9.17 Regarding the procurement currently at issue, rather than deciding the merits of the
commerciality protest ground, the GAO referred to its earlier conclusion that that the Air
Force reasonably set the procurement aside for small businesses and stated that
Analytical Graphics “does not demonstrate why the agency’s evaluation of the
commerciality of the services affects the assessment of the capabilities of the two
potential small business offerors.” Id. The GAO concluded:

Thus, even if the requirements were deemed commercial, the protester has
not demonstrated that such a designation would affect the agency’s
conclusion here that the two small business firms are capable of meeting
those requirements. Because AGI, a large business, is ineligible to compete
for the award, we conclude that it is not an interested party to challenge the
terms of the solicitation, and dismiss its remaining arguments.

Id.

The day after the GAO issued its decision, on October 18, 2016, the contracting
officer made the “Determination and Finding Contractor Responsibility,” and the Source
Selection Evaluation Board recommended award to Applied Defense. The same day,
October 18, 2016, the Source Selection Authority determined that Applied Defense and
Exo were both “considered technically good.” (emphasis in original). The Source
Selection Authority explained that for Subfactor 1, products, “SSA software products were
rated based on a combination of technical acceptability and contract performance risk.
Both offerors met all requirements and demonstrated a thorough approach and
understanding to perform the product requirements in the PWS. Both proposals contained
two strengths each,” and for Subfactor 2, services, “[b]oth offerors were rated as

17 There is not much precedent in the Federal Circuit regarding challenges to
commercial/non-commercial standards. As discussed below, however, Palantir USG, Inc.
and Palantir Technologies, Inc., after their GAO protest was unsuccessful, filed a bid
protest in the court which was assigned to the undersigned. In Palantir USG, Inc. v. United
States, 129 Fed. Cl. 218 (2016), in a different procurement from the one referenced
above, which did not present a small business set-aside issue, and with different facts
presented, the undersigned determined that pursuant, to 10 U.S.C. § 2377, the United
States Army had failed to conduct a proper commercial availability evaluation. See
Palantir USG, Inc. v. United States, 129 Fed. Cl. at 289. The Palantir decision is currently
on appeal to the United States Court of Appeals for the Federal Circuit. See Palantir USG,
Inc. v. United States, Case No. 17-1465 (Fed. Cir. Jan. 9, 2017).

22
acceptable.” (emphasis in original). For the comparative analysis, the Source Selection
Authority determined:

Comparing the two offerors’ proposals resulted in an assessment that both
proposals were good and offered equivalent software and services per the
solicitation. The technical differences are in details and not in overall
performance, risk, or acceptability. A point-by-point comparison would show
that the required data would be provided and handled similarly in a secure
fashion; each offeror would be able to access and task a global network of
SSA sensors; each offeror would provide effective and efficient analysis
tools and support to JICSpOC experiments; and each offeror would
adequately staff the effort. There are distinctive strengths, however: the
ExoAnalytic sensor network is twice the size of ADS’s network; ADS will be
able to demonstrate its capability in the JICSpOC earlier than ExoAnalytic.
These distinctions, however, are not enough to select one bidder over
another on a purely technical or risk basis as both are considered
technically good.

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

The final proposal revision cost/price proposals submitted by both offerors
are reasonable, realistic (no probable cost adjustments were necessary),
affordable, and complete. ADS offers the lowest total evaluated price at
$24,252,038, which is $8,102,266 lower than ExoAnalytic’s proposed price
of $32,354,304. Both offerors were responsive to the RFP and met all
requirements; acknowledged and responded to all amendments; conformed
to all required terms and conditions; and included all required certifications.
The Professional Compensation Plan was acceptable for both offerors. In
addition, ADS and ExoAnalytic were deemed to be responsible in
accordance with FAR 9.104, as supplemented.

The Source Selection Authority indicated the Source Selection Evaluation Board
recommended award to Applied Defense, and noted that “[t]echnical performance and
risk are equivalent. While both offerors demonstrated strengths in their approach, the non-
similar ExoAnalytic strengths compared to ADS’s strengths does not justify an $8 million
price difference. The determining factor, therefore, is price. ADS’s price is significantly
lower than that quoted by ExoAnalytic for the similar products and services.” The Source
Selection Authority concluded:

I made no tradeoffs in the evaluation of either the technical or cost/price
factors. I assessed that the offerors’ “good [sic] technical approaches and
understanding and similar strengths are equal. While I acknowledge
ExoAnalytic’s 96-percent average availability rate to track tasked objects is
a strength, ADS’s ability to exceed PWS requirements, matched with a
cost/price $8,102,266 less than ExoAnalytic, represents the best value to
the Government.

23
(emphasis in original). After informing Exo that it would not receive the award, on October
21, 2016, the Air Force awarded a contract to Applied Defense.

As noted above, after the protest Analytical Graphics filed at GAO was
unsuccessful, Analytical Graphics, Inc., B-413385, 2016 WL 6212299, and after the Air
Force made the award to Applied Defense the protestor filed the current post-award bid
protest in this court. The complaint in this court has seven counts. Count one alleges that
the Air Force violated 10 U.S.C. § 2377 (2012) and 48 C.F.R. § 10.002 (2017) and 48
C.F.R. § 11.002 (2017) by ignoring the statutorily mandated preference for commercial or
non-developmental items. Similarly, count two alleges that the Air Force violated 10
U.S.C. § 2377 and 48 C.F.R. § 10.002 and 48 C.F.R. § 11.002 by refusing to tailor the
requirements “in a manner that would allow the agency to take advantage of available
commercial SSA solutions.” Count three alleges that the Air Force’s decision to procure
a non-commercial solution in order to obtain broader data rights violated 10 U.S.C. § 2320
(2012), as well as several provisions of the FAR. Count four alleges that the Air Force’s
failure to negotiate the terms of Analytical Graphics software license violated 10 U.S.C. §
2320 (2012), as well as several provisions of the FAR. Count five alleges that “[t]he Air
Force’s ‘Rule of Two’ determination underlying the set-aside decision was arbitrary,
capricious, and an abuse of discretion and unlawfully restricts competition in violation of
the Competition in Contracting Act, 10 U.S.C. § 2304.” Count six alleges that “[t]he Air
Force’s ‘Rule of Two’ determination underlying the set-aside decision was arbitrary,
capricious, and an abuse of discretion because the Air Force did not analyze price as
required under 48 C.F.R. § 19.502-2(b).” Finally, count seven alleges that “[t]he award of
a contract to ADS was arbitrary, capricious, and an abuse of discretion because the
underlying procurement was conducted in violation of law.”

The complaint also asked this court to enter a temporary restraining order, a
preliminary injunction and a permanent injunction. After a hearing, the court denied the
temporary restraining order and preliminary injunction. After discussion with the parties
at a hearing, and with the agreement of the parties, the court set a schedule for briefing
regarding the protestor’s request for:

A permanent injunction requiring the Air Force to rescind the Solicitation
and to take any and all necessary corrective action needed to remedy its
legal violations, including, at a minimum, by (1) terminating the contract with
ADS; (2) issuing a revised Solicitation that complies with the statutory
mandated preference for commercial items and; (3) conducting the
procurement on an unrestricted basis, consistent with the Air Force’s market
research that demonstrated there are no small businesses with existing
non-developmental solutions that satisfy the Air Force’s SSA requirements.

Without a temporary restraining order in place, the procurement has continued pursuant
to the contract award made to intervenor Applied Defense.

24
 The parties have filed cross-motions for judgment on the Administrative Record.
Protestor argues that “the Air Force has arbitrarily and capriciously violated the statutory
preference for commercial items in the Federal Acquisition Streamlining Act (‘FASA’) and
Federal Acquisition Regulation (‘FAR’) Part 12’s implementation of the preference.”
Analytical Graphics also contends, “[a]dditionally, the Air Force wrongfully set-aside this
procurement for small businesses. . . .” According to the defendant, the “contracting
officer acted reasonably, and well within her discretion, when conducting market
research.” Defendant also argues that the Air Force’s market research, and the
determination based on the market research, were appropriate and that the documents
in the Administrative Record do not support Analytical Graphics’ argument that the Air
Force erred in not issuing the solicitation as a commercial item or nondevelopmental item.
Defendant and intervenor also stress that the procurement was a proper small-business
set-aside, because the Air Force properly concluded that two small businesses could
meet the requirements. According to defendant, Analytical Graphics, which is not a small
business, therefore, does not have standing to challenge the Air Force’s evaluation.

DISCUSION

This protest presents difficult, extremely fact based commercial availability issues,
regarding which little precedent exists, and equally novel small business set-aside issues.
As noted above, the parties have filed cross-motions for judgment on the Administrative
Record on the issues of the Air Force’s compliance with 10 U.S.C. § 2377 and the small
business set-aside. See 48 C.F.R. § 19.502-2 (2017). Rule 52.1(c) of the Rules of the
United States Court of Federal Claims (RCFC) (2017) governs motions for judgment on
the Administrative Record. The court’s inquiry is directed to “‘whether, given all the
disputed and undisputed facts, a party has met its burden of proof based on the evidence
in the record.’” Mgmt. & Training Corp. v. United States, 115 Fed. Cl. 26, 40 (2014)
(quoting A & D Fire Prot., Inc. v. United States, 72 Fed. Cl. 126, 131 (2006) (citing
Bannum, Inc. v. United States, 404 F.3d 1346, 1356–57 (Fed. Cir. 2005))); see also Eco
Tour Adventures, Inc. v. United States, 114 Fed. Cl. 6, 21 (2013); DMS All-Star Joint
Venture v. United States, 90 Fed. Cl. 653, 661 (2010).

The Administrative Dispute Resolution Act of 1996, Pub. L. No. 104-320, §§ 12(a),
12(b), 110 Stat. 3870, 3874 (1996), provides that protests of agency procurement
decisions are to be reviewed under Administrative Procedure Act (APA) standards,
making applicable the standards outlined in Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859
(D.C. Cir. 1970), and the line of cases following that decision. See, e.g., Per Aarsleff A/S
v. United States, 829 F.3d 1303, 1309 (Fed. Cir. 2016) (quoting NVT Techs., Inc. v. United
States, 370 F.3d 1153, 1159 (Fed. Cir. 2004)) (“Protests of agency procurement decisions
are reviewed under the standards set forth in the Administrative Procedure Act (‘APA’),
see 28 U.S.C. § 1491(b)(4) (citing 5 U.S.C. § 706), ‘by which an agency's decision is to
be set aside only if it is arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law[.]’”); Impresa Construzioni Geom. Domenico Garufi v. United States,
238 F.3d 1324, 1332 (Fed. Cir. 2001)); Res. Conservation Grp., LLC v. United States,
597 F.3d 1238, 1242 (Fed. Cir. 2010) (“Following passage of the APA in 1946, the District
of Columbia Circuit in Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859 (D.C. Cir. 1970), held
that challenges to awards of government contracts were reviewable in federal district

25
courts pursuant to the judicial review provisions of the APA.”); Galen Med. Assocs., Inc.
v. United States, 369 F.3d 1324, 1329 (Fed. Cir. 2004) (citing Scanwell Labs., Inc. v.
Shaffer, 424 F.2d at 864, 868, for its “reasoning that suits challenging the award process
are in the public interest and disappointed bidders are the parties with an incentive to
enforce the law”); Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345, 1351
(Fed. Cir. 2004) (“Under the APA standard as applied in the Scanwell line of cases, and
now in ADRA cases, ‘a bid award may be set aside if either (1) the procurement official’s
decision lacked a rational basis; or (2) the procurement procedure involved a violation of
regulation or procedure.’” (quoting Impresa Construzioni Geom. Domenico Garufi v.
United States, 238 F.3d at 1332)); Info. Tech. & Applications Corp. v. United States, 316
F.3d 1312, 1319 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2003).

When discussing the appropriate standard of review for bid protest cases, the
United States Court of Appeals for the Federal Circuit addressed subsections (2)(A) and
(2)(D) of 5 U.S.C. § 706, see Impresa Construzioni Geom. Domenico Garufi v. United
States, 238 F.3d at 1332 n.5, but focused its attention primarily on subsection (2)(A). See
Croman Corp. v. United States, 724 F.3d 1357, 1363 (Fed. Cir. 2013) (“‘[T]he proper
standard to be applied [to the merits of] bid protest cases is provided by 5 U.S.C.
§ 706(2)(A) [(2006)]: a reviewing court shall set aside the agency action if it is “arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.”’” (quoting
Banknote Corp. of Am. v. United States, 365 F.3d at 1350–51 (citing Advanced Data
Concepts, Inc. v. United States, 216 F.3d 1054, 1057–58 (Fed. Cir.), reh’g denied (Fed.
Cir. 2000)), aff’d, 365 F.3d 1345 (Fed. Cir. 2004)))), reh’g and reh’g en banc denied (Fed.
Cir. 2013) (alterations in original). The statute says that agency procurement actions
should be set aside when they are “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law,” or “without observance of procedure required by
law.” 5 U.S.C. § 706(2)(A), (D) (2012);18 see also Tinton Falls Lodging Realty, LLC v.

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

To the extent necessary to decision and when presented, the reviewing
court shall decide all relevant questions of law, interpret constitutional and
statutory provisions, and determine the meaning or applicability of the terms
of an agency action. The reviewing court shall—

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

(2) hold unlawful and set aside agency action, findings, and conclusions
found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law;

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

26
United States, 800 F.3d 1353, 1358 (Fed. Cir. 2015); Orion Tech., Inc. v. United States,
704 F.3d 1344, 1347 (Fed. Cir. 2013); COMINT Sys. Corp. v. United States, 700 F.3d
1377, 1381 (Fed. Cir. 2012) (“We evaluate agency actions according to the standards set
forth in the Administrative Procedure Act; namely, for whether they are ‘arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance with law.’” (quoting 5
U.S.C. § 706(2)(A); Bannum, Inc. v. United States, 404 F.3d at 1351)); Savantage Fin.
Servs. Inc., v. United States, 595 F.3d 1282, 1285–86 (Fed. Cir. 2010); Weeks Marine,
Inc. v. United States, 575 F.3d 1352, 1358 (Fed. Cir. 2009); Axiom Res. Mgmt., Inc. v.
United States, 564 F.3d 1374, 1381 (Fed. Cir. 2009) (noting arbitrary and capricious
standard set forth in 5 U.S.C. § 706(2)(A), and reaffirming the analysis of Impresa
Construzioni Geom. Domenico Garufi v. United States, 238 F.3d at 1332); Blue & Gold
Fleet, L.P. v. United States, 492 F.3d 1308, 1312 (Fed. Cir. 2007) (“‘[T]he inquiry is
whether the [government]’s procurement decision was “arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law.”’” (quoting Bannum, Inc. v. United
States, 404 F.3d at 1351 (quoting 5 U.S.C. § 706(2)(A) (2000))); NVT Techs., Inc. v.
United States, 370 F.3d at 1159 (“Bid protest actions are subject to the standard of review
established under section 706 of title 5 of the Administrative Procedure Act (‘APA’), 28
U.S.C. § 1491(b)(4) (2000), by which an agency’s decision is to be set aside only if it is
‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ 5
U.S.C. § 706(2)(A) (2000).”) (internal citations omitted); Info. Tech. & Applications Corp.
v. United States, 316 F.3d at 1319 (“Consequently, our inquiry is whether the Air Force’s
procurement decision was ‘arbitrary, capricious, an abuse of discretion, or otherwise not
in accordance with law.’ 5 U.S.C. § 706(2)(A) (2000).”); Eco Tour Adventures, Inc. v.
United States, 114 Fed. Cl. at 22; Contracting, Consulting, Eng’g LLC v. United States,
104 Fed. Cl. 334, 340 (2012). “In a bid protest case, the agency’s award must be upheld
unless it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law.’” Turner Constr. Co. v. United States, 645 F.3d 1377, 1383 (Fed. Cir.) (quoting
PAI Corp. v. United States, 614 F.3d 1347, 1351 (Fed. Cir. 2010)), reh’g and reh’g en

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

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections
556 and 557 of this title or otherwise reviewed on the record of
an agency hearing provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject
to trial de novo by the reviewing court.

In making the foregoing determinations, the court shall review the whole
record or those parts of it cited by a party, and due account shall be taken
of the rule of prejudicial error.

5 U.S.C. § 706.

27
banc denied (Fed. Cir. 2011); see also Tinton Falls Lodging Realty, LLC v. United States,
800 F.3d at 1358 (“In applying this [arbitrary and capricious] standard to bid protests, our
task is to determine whether the procurement official's decision lacked a rational basis or
the procurement procedure involved a violation of a regulation or procedure.”) (citing
Savantage Fin. Servs., Inc. v. United States, 595 F.3d at 1285–86); Glenn Def. Marine
(ASIA), PTE Ltd. v. United States, 720 F.3d 901, 907 (Fed. Cir.), reh’g en banc denied
(Fed. Cir. 2013); McVey Co., Inc. v. United States, 111 Fed. Cl. 387, 402 (2013) (“The
first step is to demonstrate error, that is, to show that the agency acted in an arbitrary and
capricious manner, without a rational basis or contrary to law.”); PlanetSpace, Inc. v.
United States, 92 Fed. Cl. 520, 531–32 (2010) (“Stated another way, a plaintiff must show
that the agency’s decision either lacked a rational basis or was contrary to law.” (citing
Weeks Marine, Inc. v. United States, 575 F.3d at 1358)).

The United States Supreme Court has identified sample grounds which can
constitute arbitrary or capricious agency action:

[W]e will not vacate an agency’s decision unless it “has relied on factors
which Congress has not intended it to consider, entirely failed to consider
an important aspect of the problem, offered an explanation for its decision
that runs counter to the evidence before the agency, or is so implausible
that it could not be ascribed to a difference in view or the product of agency
expertise.”

Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 658 (2007) (quoting
Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)); see
also Tinton Falls Lodging Realty, LLC v. United States, 800 F.3d at 1358; F.C.C. v. Fox
Television Stations, Inc., 556 U.S. 502, 552 (2009); Ala. Aircraft Indus., Inc.-Birmingham
v. United States, 586 F.3d 1372, 1375 (Fed. Cir. 2009), reh’g and reh’g en banc denied
(Fed. Cir. 2010); In re Sang Su Lee, 277 F.3d 1338, 1342 (Fed. Cir. 2002) (“[T]he agency
tribunal must present a full and reasoned explanation of its decision. . . . The reviewing
court is thus enabled to perform meaningful review . . . .”); Textron, Inc. v. United States,
74 Fed. Cl. 277, 285–86 (2006), appeal dismissed sub nom. Textron, Inc. v. Ocean
Technical Servs., Inc., 223 F. App’x 974 (Fed. Cir. 2007). The United States Supreme
Court also has cautioned, however, that “courts are not free to impose upon agencies
specific procedural requirements that have no basis in the APA.” Pension Benefit Guar.
Corp. v. LTV Corp., 496 U.S. 633, 654 (1990).

Under an arbitrary or capricious standard, the reviewing court should not substitute
its judgment for that of the agency, but should review the basis for the agency decision to
determine if it was legally permissible, reasonable, and supported by the facts. See Motor
Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (“The scope of
review under the ‘arbitrary and capricious’ standard is narrow and a court is not to
substitute its judgment for that of the agency.”); see also Turner Constr. Co., Inc. v. United
States, 645 F.3d at 1383; R & W Flammann GmbH v. United States, 339 F.3d 1320, 1322
(Fed. Cir. 2003) (citing Ray v. Lehman, 55 F.3d 606, 608 (Fed. Cir.), cert. denied, 516
U.S. 916 (1995)). “‘“If the court finds a reasonable basis for the agency’s action, the court
should stay its hand even though it might, as an original proposition, have reached a

28
different conclusion as to the proper administration and application of the procurement
regulations.”’” Weeks Marine, Inc. v. United States, 575 F.3d at 1371 (quoting Honeywell,
Inc. v. United States, 870 F.2d 644, 648 (Fed. Cir. 1989) (quoting M. Steinthal & Co. v.
Seamans, 455 F.2d 1289, 1301 (D.C. Cir. 1971))); Jordan Pond Co., LLC v. United
States, 115 Fed. Cl. 623, 631 (2014); Davis Boat Works, Inc. v. United States, 111 Fed.
Cl. 342, 349 (2013); Norsat Int’l [America], Inc. v. United States, 111 Fed. Cl. 483, 493
(2013); HP Enter. Servs., LLC v. United States, 104 Fed. Cl. 230, 238 (2012); Vanguard
Recovery Assistance v. United States, 101 Fed. Cl. 765, 780 (2011).

Stated otherwise by the United States Supreme Court:

Section 706(2)(A) requires a finding that the actual choice made was not
“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law.” To make this finding the court must consider whether the decision
was based on a consideration of the relevant factors and whether there has
been a clear error of judgment. Although this inquiry into the facts is to be
searching and careful, the ultimate standard of review is a narrow one. The
court is not empowered to substitute its judgment for that of the agency.

Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), abrogated on
other grounds by Califano v. Sanders, 430 U.S. 99 (1977) (internal citations omitted); see
also U.S. Postal Serv. v. Gregory, 534 U.S. 1, 6–7 (2001); Bowman Transp., Inc. v.
Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974), reh’g denied, 420 U.S. 956
(1975); Co-Steel Raritan, Inc. v. Int’l Trade Comm’n, 357 F.3d 1294, 1309 (Fed. Cir. 2004)
(In discussing the “arbitrary, capricious, and abuse of discretion, or otherwise not in
accordance with the law” standard, the Federal Circuit stated: “the ultimate standard of
review is a narrow one. The court is not empowered to substitute its judgment for that of
the agency.”); In re Sang Su Lee, 277 F.3d at 1342; Advanced Data Concepts, Inc. v.
United States, 216 F.3d at 1058 (“The arbitrary and capricious standard applicable here
is highly deferential. This standard requires a reviewing court to sustain an agency action
evincing rational reasoning and consideration of relevant factors.” (citing Bowman
Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. at 285)); Lockheed Missiles &
Space Co. v. Bentsen, 4 F.3d 955, 959 (Fed. Cir. 1993); BCPeabody Constr. Servs., Inc.
v. United States, 112 Fed. Cl. 502, 508 (2013) (“The court ‘is not empowered to substitute
its judgment for that of the agency,’ and it must uphold an agency’s decision against a
challenge if the ‘contracting agency provided a coherent and reasonable explanation of
its exercise of discretion.’” (quoting Keeton Corrs., Inc. v. United States, 59 Fed. Cl. 753,
755, recons. denied, 60 Fed. Cl. 251 (2004), and Axiom Res. Mgmt., Inc. v. United States,
564 F.3d at 1381)), appeal withdrawn, 559 F. App’x 1033 (Fed. Cir. 2014) (internal
citations omitted); Supreme Foodservice GmbH v. United States, 109 Fed. Cl. 369, 382
(2013); Alamo Travel Grp., LP v. United States, 108 Fed. Cl. 224, 231 (2012); ManTech
Telecomms. & Info. Sys. Corp. v. United States, 49 Fed. Cl. 57, 63 (2001), aff’d, 30 F.
App’x 995 (Fed. Cir. 2002); Ellsworth Assocs., Inc. v. United States, 45 Fed. Cl. 388, 392
(1999) (“Courts must give great deference to agency procurement decisions and will not
lightly overturn them.” (citing Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 743–44
(1985))), appeal dismissed, 6 F. App’x 867 (Fed. Cir. 2001), and superseded by regulation
as recognized in MVS USA, Inc. v. United States, 111 Fed. Cl. 639 (2013).

29
 According to the United States Court of Appeals for the Federal Circuit:

Effective contracting demands broad discretion. Burroughs Corp. v. United
States, 223 Ct. Cl. 53, 617 F.2d 590, 598 (1980); Sperry Flight Sys. Div. v.
United States, 548 F.2d 915, 921, 212 Ct. Cl. 329 (1977); see NKF Eng’g,
Inc. v. United States, 805 F.2d 372, 377 (Fed. Cir. 1986); Tidewater
Management Servs., Inc. v. United States, 573 F.2d 65, 73, 216 Ct. Cl. 69
(1978); RADVA Corp. v. United States, 17 Cl. Ct. 812, 819 (1989), aff’d, 914
F.2d 271 (Fed. Cir. 1990). Accordingly, agencies “are entrusted with a good
deal of discretion in determining which bid is the most advantageous to the
Government.” Tidewater Management Servs., 573 F.2d at 73, 216 Ct. Cl.
69.

Lockheed Missiles & Space Co. v. Bentsen, 4 F.3d at 958–59; see also Res-Care, Inc. v.
United States, 735 F.3d 1384, 1390 (Fed. Cir.) (“DOL [Department of Labor], as a federal
procurement entity, has ‘broad discretion to determine what particular method of
procurement will be in the best interests of the United States in a particular situation.’”
(quoting Tyler Constr. Grp. v. United States, 570 F.3d 1329, 1334 (Fed. Cir. 2009))), reh’g
en banc denied (Fed. Cir. 2014); Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 995
(Fed. Cir. 1996); Geo-Med, LLC v. United States, 126 Fed. Cl. 440, 449 (2016); Cybertech
Grp., Inc. v. United States, 48 Fed. Cl. 638, 646 (2001) (“The court recognizes that the
agency possesses wide discretion in the application of procurement regulations.”);
Furthermore, according to the Federal Circuit:

Contracting officers “are entitled to exercise discretion upon a broad range
of issues confronting them in the procurement process.” Impresa
Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324,
1332 (Fed. Cir. 2001) (internal quotation marks omitted). Accordingly,
procurement decisions are subject to a “highly deferential rational basis
review.” CHE Consulting, Inc. v. United States, 552 F.3d 1351, 1354 (Fed.
Cir. 2008) (internal quotation marks omitted).

PAI Corp. v. United States, 614 F.3d at 1351; see also Weeks Marine, Inc. v. United
States, 575 F.3d at 1368–69 (“We have stated that procurement decisions ‘invoke[ ]
“highly deferential” rational basis review.’ Under that standard, we sustain an agency
action ‘evincing rational reasoning and consideration of relevant factors.’” (quoting CHE
Consulting, Inc. v. United States, 552 F.3d at 1354 (quoting Advanced Data Concepts,
Inc. v. United States, 216 F.3d at 1058))).

On a motion for judgment on the administrative record, a disappointed bidder has
the burden of demonstrating the arbitrary and capricious nature of the agency decision
by a preponderance of the evidence. See Tinton Falls Lodging Realty, LLC v. United
States, 800 F.3d at 1364; see also Grumman Data Sys. Corp. v. Dalton, 88 F.3d at 995–
96; Davis Boat Works, Inc. v. United States, 111 Fed. Cl. at 349; Contracting, Consulting,
Eng’g LLC v. United States, 104 Fed. Cl. at 340. The Federal Circuit has indicated that
“[t]his court will not overturn a contracting officer’s determination unless it is arbitrary,
capricious, or otherwise contrary to law. To demonstrate that such a determination is

30
arbitrary or capricious, a protester must identify ‘hard facts’; a mere inference or suspicion
. . . is not enough.” PAI Corp. v. United States, 614 F.3d at 1352 (citing John C. Grimberg
Co. v. United States, 185 F.3d 1297, 1300 (Fed. Cir. 1999)); see also Turner Constr. Co.,
Inc. v. United States, 645 F.3d at 1387; Sierra Nevada Corp. v. United States, 107 Fed.
Cl. 735, 759 (2012); Filtration Dev. Co., LLC v. United States, 60 Fed. Cl. 371, 380 (2004).

A bid protest proceeds in two steps. First . . . the trial court determines
whether the government acted without rational basis or contrary to law when
evaluating the bids and awarding the contract. Second . . . if the trial court
finds that the government’s conduct fails the APA review under 5 U.S.C.
§ 706(2)(A), then it proceeds to determine, as a factual matter, if the bid
protester was prejudiced by that conduct.

Bannum, Inc. v. United States, 404 F.3d at 1351; FirstLine Transp. Sec., Inc. v. United
States, 119 Fed. Cl. 116, 126 (2014); Eco Tour Adventures, Inc. v. United States, 114
Fed. Cl. at 22; Archura LLC v. United States, 112 Fed. Cl. 487, 496 (2013). To prevail in
a bid protest case, the protestor not only must show that the government’s actions were
arbitrary, capricious, or otherwise not in accordance with the law, but the protestor also
must show that it was prejudiced by the government’s actions. See 5 U.S.C. § 706 (“[D]ue
account shall be taken of the rule of prejudicial error.”); see also Glenn Def. Marine
(ASIA), PTE Ltd. v. United States, 720 F.3d at 907 (“In a bid protest case, the inquiry is
whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law and, if so, whether the error is prejudicial.”) ; Linc Gov’t Servs.,
LLC v. United States, 96 Fed. Cl. 672, 694-96 (2010). In describing the prejudice
requirement, the Federal Circuit also has held that:

To prevail in a bid protest, a protester must show a significant, prejudicial
error in the procurement process. See Statistica, Inc. v. Christopher, 102
F.3d 1577, 1581 (Fed. Cir. 1996); Data Gen. Corp. v. Johnson, 78 F.3d
1556, 1562 (Fed. Cir. 1996). “To establish prejudice, a protester is not
required to show that but for the alleged error, the protester would have
been awarded the contract.” Data General, 78 F.3d at 1562 (citation
omitted). Rather, the protester must show “that there was a substantial
chance it would have received the contract award but for that error.”
Statistica, 102 F.3d at 1582; see CACI, Inc.-Fed. v. United States, 719 F.2d
1567, 1574-75 (Fed. Cir. 1983) (to establish competitive prejudice, protester
must demonstrate that but for the alleged error, “‘there was a substantial
chance that [it] would receive an award--that it was within the zone of active
consideration.’”) (citation omitted).

Alfa Laval Separation, Inc. v. United States, 175 F.3d 1365, 1367 (Fed. Cir.), reh’g denied
(Fed. Cir. 1999); see also Glenn Def. Marine (ASIA), PTE Ltd. v. United States, 720 F.3d
at 912; Allied Tech. Grp., Inc. v. United States, 649 F.3d 1320, 1326 (Fed. Cir.), reh’g en
banc denied (Fed. Cir. 2011); Info. Tech. & Applications Corp. v. United States, 316 F.3d
at 1319; Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d at
1332-33; OMV Med., Inc. v. United States, 219 F.3d 1337, 1342 (Fed. Cir. 2000);
Advanced Data Concepts, Inc. v. United States, 216 F.3d at 1057; Stratos Mobile

31
Networks USA, LLC v. United States, 213 F.3d 1375, 1380 (Fed. Cir. 2000).

In Data General Corp. v. Johnson, the United States Court of Appeals for the
Federal Circuit wrote:

We think that the appropriate standard is that, to establish prejudice, a
protester must show that, had it not been for the alleged error in the
procurement process, there was a reasonable likelihood that the protester
would have been awarded the contract . . . . The standard reflects a
reasonable balance between the importance of (1) averting unwarranted
interruptions of and interferences with the procurement process and (2)
ensuring that protesters who have been adversely affected by allegedly
significant error in the procurement process have a forum available to vent
their grievances. This is a refinement and clarification of the “substantial
chance” language of CACI, Inc.-Fed. [v. United States], 719 F.2d at 1574.

Data Gen. Corp. v. Johnson, 78 F.3d 1556, 1562 (Fed. Cir.), reh’g denied, en banc
suggestion declined (Fed. Cir. 1996); see also Glenn Def. Marine (ASIA), PTE Ltd. v.
United States, 720 F.3d at 912; Bannum, Inc. v. United States, 404 F.3d at 1353, 1358
(“The trial court was required to determine whether these errors in the procurement
process significantly prejudiced Bannum . . . . To establish ‘significant prejudice’ Bannum
must show that there was a ‘substantial chance’ it would have received the contract award
but for the [government’s] errors” in the bid process.) (citing Info. Tech. & Applications
Corp. v. United States, 316 F.3d at 1319; Alfa Laval Separation, Inc. v. United States,
175 F.3d at 1367; Statistica, Inc. v. Christopher, 102 F.3d at 1581; Data Gen. Corp. v.
Johnson, 78 F.3d at 1562); see also Todd Constr., L.P. v. United States, 656 F.3d 1306,
1315 (Fed. Cir. 2011); Advanced Data Concepts, Inc. v. United States, 216 F.3d at 1057
(using a “reasonable likelihood” rule); Stratos Mobile Networks USA, LLC v. United
States, 213 F.3d at 1380 (using a “substantial chance” test); Archura LLC v. United
States, 112 Fed. Cl. at 496 (using a “substantial chance” test); Info. Scis. Corp. v. United
States, 73 Fed. Cl. 70, 96 (2006) (using a “substantial chance” test), recons. in part, 75
Fed. Cl. 406 (2007).

Small Business Set-Aside versus Commercial Availability
Prior to reaching the issue of commercial availability 10 U.S.C. § 2377, both
defendant and intervenor argue that the Air Force’s decision to make the procurement a
small business set-aside must be addressed first. Intervenor states: “The small business
set aside should be analyzed first and it is clear that this decision comported with statute
and regulation and that, therefore, AGI lacks standing to proceed to challenge the
commerciality issues.” Intervenor emphasizes that “[t]he commerciality rule is subject to
the Rule of Two.” Defendant agrees, arguing that “once the small business set-aside is
ruled proper, both of AGI's remaining claims should be dismissed for lack of standing
because AGI is not eligible for award.” By contrast, protestor emphasizes that “[t]he
commerciality determination must come first,” and argues that “[t]he statutorily mandated
preference for commercial items and the Rule of Two are interpreted harmoniously by
AGI, but the defendants’ interpretation extinguishes the commercial item preference.”

32
The only thing all parties properly agree on is that agency market research must precede
both a commercial availability determination and a small business set-aside
determination.
Regarding the small business set-aside determination, the FAR provides that: “The
purpose of small business set-asides is to award certain acquisitions exclusively to small
business concerns.” 48 C.F.R. § 19.501(a) (2017); see also Proxtronics Dosimetry, LLC
v. United States, 128 Fed. Cl. 656, 680 (2016). 48 C.F.R. § 19.502-2(b) indicates that:
The contracting officer shall set aside any acquisition over $150,000 for
small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business
concerns offering the products of different small business concerns (see
paragraph (c) of this section); and
(2) Award will be made at fair market prices. Total small business set-asides
shall not be made unless such a reasonable expectation exists (see
19.502–3 as to partial set-asides). Although past acquisition history of an
item or similar items is always important, it is not the only factor to be
considered in determining whether a reasonable expectation exists. In
making R & D small business set-asides, there must also be a reasonable
expectation of obtaining from small businesses the best scientific and
technological sources consistent with the demands of the proposed
acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b).
The “Preference for acquisition of commercial items” statute, 10 U.S.C. § 2377,
states:
(a) Preference.--The head of an agency shall ensure that, to the maximum
extent practicable--

(1) requirements of the agency with respect to a procurement of supplies or
services are stated in terms of--

(A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent
that commercial items suitable to meet the agency’s needs are not
available, nondevelopmental items other than commercial items, may be
procured to fulfill such requirements; and

33
(3) offerors of commercial items and nondevelopmental items other than
commercial items are provided an opportunity to compete in any
procurement to fill such requirements.

(b) Implementation.--The head of an agency shall ensure that
procurement officials in that agency, to the maximum extent practicable--

(1) acquire commercial items or nondevelopmental items other than
commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the
agency contracts to incorporate commercial items or nondevelopmental
items other than commercial items as components of items supplied to the
agency;

(3) modify requirements in appropriate cases to ensure that the
requirements can be met by commercial items or, to the extent that
commercial items suitable to meet the agency’s needs are not available,
nondevelopmental items other than commercial items;

(4) state specifications in terms that enable and encourage bidders and
offerors to supply commercial items or, to the extent that commercial items
suitable to meet the agency’s needs are not available, nondevelopmental
items other than commercial items in response to the agency solicitations;

(5) revise the agency’s procurement policies, practices, and procedures not
required by law to reduce any impediments in those policies, practices, and
procedures to the acquisition of commercial items; and

(6) require training of appropriate personnel in the acquisition of commercial
items.

(c) Preliminary market research.--(1) The head of an agency shall
conduct market research appropriate to the circumstances--

(A) before developing new specifications for a procurement by that agency;

(B) before soliciting bids or proposals for a contract in excess of the
simplified acquisition threshold; and

(C) before awarding a task order or delivery order in excess of the simplified
acquisition threshold.

(2) The head of an agency shall use the results of market research to
determine whether there are commercial items or, to the extent that

34
 commercial items suitable to meet the agency’s needs are not available,
nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were
modified to a reasonable extent.

(3) In conducting market research, the head of an agency should not require
potential sources to submit more than the minimum information that is
necessary to make the determinations required in paragraph (2).

(4) The head of an agency shall take appropriate steps to ensure that any
prime contractor of a contract (or task order or delivery order) in an amount
in excess of $5,000,000 for the procurement of items other than commercial
items engages in such market research as may be necessary to carry out
the requirements of subsection (b)(2) before making purchases for or on
behalf of the Department of Defense.

10 U.S.C. § 2377 (emphasis in original). The regulation implementing 10 U.S.C. § 2377,
48 C.F.R. § 10.002, states:
(a) Acquisitions begin with a description of the Government’s needs stated
in terms sufficient to allow conduct of market research.

(b) Market research is then conducted to determine if commercial items or
nondevelopmental items are available to meet the Government’s needs or
could be modified to meet the Government’s needs.

(1) The extent of market research will vary, depending on such factors as
urgency, estimated dollar value, complexity, and past experience. The
contracting officer may use market research conducted within 18 months
before the award of any task or delivery order if the information is still
current, accurate, and relevant. Market research involves obtaining
information specific to the item being acquired and should include—

(i) Whether the Government’s needs can be met by—

(A) Items of a type customarily available in the commercial marketplace;

(B) Items of a type customarily available in the commercial marketplace with
modifications; or

(C) Items used exclusively for governmental purposes;

35
(ii) Customary practices regarding customizing, modifying or tailoring of
items to meet customer needs and associated costs;

(iii) Customary practices, including warranty, buyer financing, discounts,
contract type considering the nature and risk associated with the
requirement, etc., under which commercial sales of the products or services
are made;

(iv) The requirements of any laws and regulations unique to the item being
acquired;

(v) The availability of items that contain recovered materials and items that
are energy efficient;

(vi) The distribution and support capabilities of potential suppliers, including
alternative arrangements and cost estimates; and

(vii) Size and status of potential sources (see part 19).

(2) Techniques for conducting market research may include any or all of the
following:

(i) Contacting knowledgeable individuals in Government and industry
regarding market capabilities to meet requirements.

(ii) Reviewing the results of recent market research undertaken to meet
similar or identical requirements.

(iii) Publishing formal requests for information in appropriate technical or
scientific journals or business publications.

(iv) Querying the Governmentwide database of contracts and other
procurement instruments intended for use by multiple agencies available at
https://www.contractdirectory.gov/contractdirectory/ and other Government
and commercial databases that provide information relevant to agency
acquisitions.

(v) Participating in interactive, on-line communication among industry,
acquisition personnel, and customers.

(vi) Obtaining source lists of similar items from other contracting activities
or agencies, trade associations or other sources.

(vii) Reviewing catalogs and other generally available product literature
published by manufacturers, distributors, and dealers or available on-line.

36
 (viii) Conducting interchange meetings or holding presolicitation
conferences to involve potential offerors early in the acquisition process.

(c) If market research indicates commercial or nondevelopmental items
might not be available to satisfy agency needs, agencies shall reevaluate
the need in accordance with 10.001(a)(3)(ii) and determine whether the
need can be restated to permit commercial or nondevelopmental items to
satisfy the agency’s needs.

(d)(1) If market research establishes that the Government’s need may be
met by a type of item or service customarily available in the commercial
marketplace that would meet the definition of a commercial item at subpart
2.1, the contracting officer shall solicit and award any resultant contract
using the policies and procedures in part 12.

(2) If market research establishes that the Government’s need cannot be
met by a type of item or service customarily available in the marketplace,
part 12 shall not be used. When publication of the notice at 5.201 is
required, the contracting officer shall include a notice to prospective offerors
that the Government does not intend to use part 12 for the acquisition.

(e) Agencies should document the results of market research in a manner
appropriate to the size and complexity of the acquisition.

48 C.F.R. § 10.002. The FAR also addresses multiple statutory provisions at 48 C.F.R.
§ 11.002:
(a) In fulfilling requirements of 10 U.S.C. 2305(a)(1), 10 U.S.C. 2377, 41
U.S.C. 3306(a), and 41 U.S.C. 3307, agencies shall—
(1) Specify needs using market research in a manner designed to—
(i) Promote full and open competition (see part 6), or maximum practicable
competition when using simplified acquisition procedures, with due regard
to the nature of the supplies or services to be acquired; and
(ii) Only include restrictive provisions or conditions to the extent necessary
to satisfy the needs of the agency or as authorized by law.
(2) To the maximum extent practicable, ensure that acquisition officials—
(i) State requirements with respect to an acquisition of supplies or services
in terms of—
(A) Functions to be performed;
(B) Performance required; or
(C) Essential physical characteristics;
(ii) Define requirements in terms that enable and encourage offerors to
supply commercial items, or, to the extent that commercial items suitable to
meet the agency's needs are not available, nondevelopmental items, in
response to the agency solicitations;
(iii) Provide offerors of commercial items and nondevelopmental items an
opportunity to compete in any acquisition to fill such requirements;

37
 (iv) Require prime contractors and subcontractors at all tiers under the
agency contracts to incorporate commercial items or nondevelopmental
items as components of items supplied to the agency; and
(v) Modify requirements in appropriate cases to ensure that the
requirements can be met by commercial items or, to the extent that
commercial items suitable to meet the agency's needs are not available,
nondevelopmental items.

48 C.F.R. §11.002(a).
In consideration of the above described framework, defendant argues that “there
is statutory and regulatory support for the contention that small business set-aside
decisions should be made on a priority basis before further consideration of a
procurement.” By contrast, the protestor argues that “the Air Force has arbitrarily and
capriciously violated the statutory preference for commercial items in the Federal
Acquisition Streamlining Act (‘FASA’) and Federal Acquisition Regulation (‘FAR’) Part
12’s implementation of the preference.”

In a statutory construction analysis, the first step is “to determine whether the
language at issue has a plain and unambiguous meaning with regard to the particular
dispute in the case.” Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002) (quoting
Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)); see also Caraco Pharm. Labs., Ltd.
v. Novo Nordisk A/S, 132 S. Ct. 1670, 1680 (2012) (“We begin ‘where all such inquiries
must begin: with the language of the statute itself.’” (quoting United States v. Ron Pair
Enters., Inc., 489 U.S. 235, 241 (1989))); Bettcher Indus., Inc. v. Bunzl USA, Inc., 661
F.3d 629, 644 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2011); Jimenez v.
Quarterman, 555 U.S. 113, 118 (2009) (“As with any question of statutory interpretation,
our analysis begins with the plain language of the statute.”); Strategic Hous. Fin. Corp. of
Travis Cnty. v. United States, 608 F.3d 1317, 1323 (Fed. Cir.) (“When interpreting any
statute, we look first to the statutory language.”), reh'g and reh'g en banc denied (Fed.
Cir. 2010), cert. denied, 562 U.S. 1221 (2011); Mgmt. and Training Corp. v. United States,
115 Fed. Cl. at 42 (“Principles of statutory interpretation dictate that the court begin its
analysis with the text of the regulation at issue because, if the terms of the regulation are
unambiguous, the plain language of a regulation is controlling.”). “The plainness or
ambiguity of statutory language is determined by reference to the language itself, the
specific context in which that language is used, and the broader context of the statute as
a whole.” Robinson v. Shell Oil Co., 519 U.S. at 341 (citing Estate of Cowart v. Nicklos
Drilling Co., 505 U.S. 469, 477 cert. denied 505 U.S. 1218 (1992); McCarthy v. Bronson,
500 U.S. 136, 139 (1991)). “‘Beyond the statute’s text, the traditional tools of statutory
construction include the statute’s structure, canons of statutory construction, and
legislative history.’” Bartels Trust for the Benefit of Cornell Univ. ex rel. Bartels v. United
States, 617 F.3d 1357, 1361 (Fed. Cir.) (quoting Bull v. United States, 479 F.3d 1365,
1376 (2007)), reh’g en banc denied (Fed. Cir. 2010); see also Caraco Pharm. Labs., Ltd.
v. Novo Nordisk A/S, 132 S. Ct. at 1680 (“[W]e consider each question [of statutory
interpretation] in the context of the entire statute.” (citing Robinson v. Shell Oil Co., 519
U.S. at 341)); Roberts v. Sea-Land Servs., Inc., 132 S. Ct. 1350, 1356 (2012); Bush v.

38
United States, 655 F.3d 1323, 1329 (Fed. Cir. 2011), cert. denied, 132 S. Ct. 2681 (2012).

The initial inquiry into the statutory text ceases “if the statutory language is
unambiguous and ‘the statutory scheme is coherent and consistent.’” Barnhart v. Sigmon
Coal Co., 534 U.S. at 450 (quoting Robinson v. Shell Oil Co., 519 U.S. at 340); see also
Bettcher Indus., Inc. v. Bunzl USA, Inc., 661 F.3d at 644. In interpreting the plain meaning
of the statute, it is the court’s duty, if possible, to give meaning to every clause and word
of the statute. See Alaska Dep’t of Envtl. Conservation v. EPA, 540 U.S. 461, 489 n.13
(2004) (“It is, moreover, ‘“a cardinal principle of statutory construction” that “a statute
ought, upon the whole, to be so construed that, if it can be prevented, no clause,
sentence, or word shall be superfluous, void, or otherwise insignificant.”’” (quoting TRW
Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174
(2001)))); Williams v. Taylor, 529 U.S. 362, 404 (2000) (describing as a “cardinal principle
of statutory construction” the rule that every clause and word of a statute must be given
effect if possible); see also Setser v. United States, 132 S. Ct. 1463, 1470 (2012) (“Our
decision today follows the interpretive rule they invoke, that we must ‘give effect . . . to
every clause and word’ of the Act.” (omission in original) (quoting United States v.
Menasche, 348 U.S. 528, 538–39 (1955))); Sharp v. United States, 580 F.3d 1234, 1238
(Fed. Cir. 2009). Similarly, the court must avoid an interpretation of a clause or word
which renders other provisions of the statute inconsistent, meaningless, or superfluous.
See Duncan v. Walker, 533 U.S. at 174 (noting that courts should not treat statutory terms
as “surplusage”). “[W]hen two statutes are capable of co-existence, it is the duty of the
courts . . . to regard each as effective.” Radzanower v. Touche Ross & Co., 426 U.S.
148, 155 (1976); see also Xianli Zhang v. United States, 640 F.3d 1358, 1368 (Fed. Cir.)
(citing Cathedral Candle Co. v. U.S. Int’l Trade Comm’n, 400 F.3d 1352, 1365 (Fed. Cir.
2005)), reh’g and reh’g en banc denied (Fed. Cir. 2011), cert. denied, 132 S. Ct. 2375
(2012); Hanlin v. United States, 214 F.3d 1319, 1321 (Fed. Cir.), reh’g denied (Fed. Cir.
2000).

When the statute provides a clear answer, the court’s analysis is at an end. See
Barnhart v. Sigmon Coal Co., 534 U.S. at 450; see also Arko Foods Int’l, Inc. v. United
States, 654 F.3d 1361, 1364 (Fed. Cir. 2011) (“‘[W]here Congress has clearly stated its
intent in the language of a statute, a court should not inquire further into the meaning of
the statute.’” (quoting Millenium Lumber Distrib., Ltd. v. United States, 558 F.3d 1326,
1328 (Fed. Cir.), reh’g denied (Fed. Cir. 2009)); Am. Airlines, Inc. v. United States, 551
F.3d 1294, 1300 (Fed. Cir. 2008), reh’g granted, 319 F. App’x 914 (Fed. Cir. 2009). Thus,
when the “‘statute’s language is plain, “the sole function of the courts is to enforce it
according to its terms.”’” Johnson v. United States, 529 U.S. 694, 723 (2000) (quoting
United States v. Ron Pair Enters., Inc., 489 U.S. at 241 (quoting Caminetti v. United
States, 242 U.S. 470, 485 (1917))); see also Bartels Trust for the Benefit of Cornell Univ.
ex rel. Bartels v. United States, 617 F.3d at 1361 (citing Sharp v. United States, 580 F.3d
at 1237); Jimenez v. Quarterman, 555 U.S. at 118; Hartford Underwriters Ins. Co. v. Union
Planters Bank, N.A., 530 U.S. 1, 6 (2000)); Candle Corp. of Am. v. U.S. Int’l Trade
Comm’n, 374 F.3d 1087, 1093 (Fed. Cir.), reh’g and reh’g denied (Fed. Cir. 2004).

Indeed, in construing a statute, courts “‘must begin with the language employed by

39
Congress and the assumption that the ordinary meaning of that language accurately
expresses the legislative purpose.’” Schindler Elevator Corp. v. United States, 131 S. Ct.
1885, 1891 (2011) (quoting Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175 (2009)
(internal quotation marks omitted)). Even “‘[w]hen terms used in a statute are undefined,
we give them their ordinary meaning.’” Schindler Elevator Corp. v. United States, 131 S.
Ct. at 1891 (quoting Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995)).
Consequently, if a statute is plain and unequivocal on its face, there is usually no need to
resort to the legislative history underlying the statute. See Whitfield v. United States, 543
U.S. 209, 215 (“Because the meaning of [the statute’s] text is plain and unambiguous, we
need not accept petitioners’ invitation to consider the legislative history . . . .”), reh’g
denied sub nom. Hall v. United States, 544 U.S. 913 (2005). But see Chamberlain Grp.,
Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1196 (Fed. Cir. 2004) (“Though ‘we do not
resort to legislative history to cloud a statutory text that is clear,’ Ratzlaf v. United States,
510 U.S. 135, 147–48 (1994), we nevertheless recognize that ‘words are inexact tools at
best, and hence it is essential that we place the words of a statute in their proper context
by resort to the legislative history.’” (quoting Tidewater Oil Co. v. United States, 409 U.S.
151, 157 (1972))), reh’g and reh’g en banc denied (Fed. Cir. 2004), cert. denied, 544 U.S.
923 (2005).

Legislative history may be helpful in certain instances “to shed light on what
legislators understood an ambiguous statutory text to mean when they voted to enact it
into law.” Bruesewitz v. Wyeth LLC, 131 S. Ct. 1068, 1081–82 (2011) (citing Exxon
Mobile Corp. v. Allapatah Servs., Inc., 545 U.S. 546, 568 (2005); see also Xianli Zhang
v. United States, 640 F.3d at 1373. Legislative history, however, does not “trump[] clear
text.” Bartels Trust for the Benefit of Cornell Univ. ex rel. Bartels v. United States, 617
F.3d at 1361 (citing Sharp v. United States, 580 F.3d at 1238; Glaxo Operations UK Ltd.
v. Quigg, 894 F.2d 392, 396 (Fed. Cir. 1990)). The Supreme Court has noted, however,
that when it appears that the plain language of a statute resolves the issue, a court is to
“look to the legislative history to determine only whether there is [a] ‘clearly expressed
legislative intention’ contrary to that language, which would require us to question the
strong presumption that Congress expresses its intent through the language it chooses.”
INS v. Cardoza-Fonseca, 480 U.S. 421, 432 n.12 (1987) (citing United States v. James,
478 U.S. 597, 606 (1986); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447
U.S. 102, 108 (1980)).

The United States Supreme Court also has held that the specific terms of a statute
supersede general terms within that statute or within another statute that might otherwise
control. See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 228–29 (1957)
(“Specific terms prevail over the general in the same or another statute which otherwise
might be controlling.” (quoting D. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 (1932)));
see also Bloate v. United States, 559 U.S. 196, 207 (2010); Bulova Watch Co. v. United
States, 365 U.S. 753, 761 (1961). In addition, the Supreme Court has endorsed “the
‘normal rule of statutory construction’ that ‘identical words used in different parts of the
same act are intended to have the same meaning.’” Gustafson v. Alloyd Co., 513 U.S.
561, 570 (1995) (quoting Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 342
(1994)); see also Kislev Partners, L.P. ex rel. Bahar v. United States, 84 Fed. Cl. 385,

40
389, recons. denied, 84 Fed. Cl. 378 (2008).

The defendant and intervenor both point to the language of “shall” in 48 C.F.R.
§ 19.502-2(b),19 as evidence of the need to perform the small business set-aside
determination before the commercial availability analysis. Defendant states:
This section [§ 19.502-2(b)] - which includes the mandatory term “shall” -
requires the Government to set-aside acquisitions when the Rule of Two is
satisfied. Accordingly, the Air Force was bound by the mandatory "Rule of
Two" directive to set aside this procurement for a small business, once the
Air Force made the necessary findings.

(emphasis in original). Defendant also argues that “[t]here are many competition statutes
and regulations, but they are structured in such a way to give priority to the application of
the small business set-aside. Other competition regulations may be applied to the
subsequent competition between small businesses.” The government is correct that a
number of the provisions of the FAR, specifically Part 19, addresses the importance of
the small business set-aide, for example, 48 C.F.R. § 19.201(a) states that, “[i]t is the
policy of the Government to provide maximum practicable opportunities in its acquisitions
to small business.” Likewise, 48 C.F.R. § 19.203(e) provides that, “[s]mall business set-
asides have priority over acquisitions using full and open competition,” and 48 C.F.R.
§ 19.501(a) states that, “[t]he purpose of small business set-asides is to award certain
acquisitions exclusively to small business concerns. A ‘set-aside for small business’ is the
reserving of an acquisition exclusively for participation by small business concerns. A
small business set-aside may be open to all small businesses.”

19 As noted above, 48 C.F.R. § 19.502-2(b) states that:

The contracting officer shall set aside any acquisition over $150,000 for
small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business
concerns offering the products of different small business concerns (see
paragraph (c) of this section); and
(2) Award will be made at fair market prices. Total small business set-asides
shall not be made unless such a reasonable expectation exists (see
19.502–3 as to partial set-asides). Although past acquisition history of an
item or similar items is always important, it is not the only factor to be
considered in determining whether a reasonable expectation exists. In
making R & D small business set-asides, there must also be a reasonable
expectation of obtaining from small businesses the best scientific and
technological sources consistent with the demands of the proposed
acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b).

41
 Although the defendant and intervenor are correct that 48 C.F.R. § 19.502-2
provides that “[t]he contracting officer shall set aside any acquisition over $150,000 for
small business participation,” as noted by protestor, 48 C.F.R. § 12.101 also contains the
instruction “shall.” 48 C.F.R. § 12.101, titled “Policy” provides that:
Agencies shall—

(a) Conduct market research to determine whether commercial items or
nondevelopmental items are available that could meet the agency's
requirements;

(b) Acquire commercial items or nondevelopmental items when they are
available to meet the needs of the agency; and

(c) Require prime contractors and subcontractors at all tiers to incorporate,
to the maximum extent practicable, commercial items or nondevelopmental
items as components of items supplied to the agency.

48 C.F.R. § 12.101 (2017).20 Defendant argues that “[o]ne flaw in AGI's position is that
the plain meaning of section 12.101 does not mandate any particular action by a
contracting officer (the general policy goals must be met by ‘the agency’)” 21 and that a
“second flaw is that section 12.101(b) does not mandate the purchase of any commercial
item. Instead, the policy goal is to ‘acquire’ either a ‘commercial item’ or a
‘nondevelopmental item.’” (all emphasis in original).22 The court does not understand as

20 48 C.F.R. § 12.102, titled, “Applicability,” provides, in part:

(a) This part shall be used for the acquisition of supplies or services that
meet the definition of commercial items at section 2.101.
(b) Contracting officers shall use the policies in this part in conjunction with
the policies and procedures for solicitation, evaluation and award
prescribed in part 13, Simplified Acquisition Procedures; part 14, Sealed
Bidding; or part 15, Contracting by Negotiation, as appropriate for the
particular acquisition.
(c) Contracts for the acquisition of commercial items are subject to the
policies in other parts of the FAR. When a policy in another part of the FAR
is inconsistent with a policy in this part, this part 12 shall take precedence
for the acquisition of commercial items.

48 C.F.R. § 12.102 (2017).

The court also notes that 10 U.S.C. § 2377 directs the “head of an agency” to “conduct
21

market research,” not necessarily that it has to be the contracting officer to conduct the
market research or investigate commercial options.
22 Although defendant empathizes “either a ‘commercial item’ or a ‘nondevelopmental
item,’” the intervenor argues that “a commercial item by definition is a nondevelopmental
42
dispositive that the commercial availability is aimed at the agency instead of the
contracting officer. Moreover, as noted above, although the title of 48 C.F.R. § 12.101, is
the word “Policy,” the regulation nevertheless begins:

Agencies shall

(a) Conduct market research to determine whether commercial items or
nondevelopmental items are available that could meet the agency's
requirements;

(b) Acquire commercial items or nondevelopmental items when they are
available to meet the needs of the agency; and

(c) Require prime contractors and subcontractors at all tiers to incorporate,
to the maximum extent practicable, commercial items or nondevelopmental
items as components of items supplied to the agency.

48 C.F.R. § 12.101 (emphasis added).

Despite defendant’s attempt to minimize the importance of the commercial
availability directive, it is not merely a “policy goal,” but a requirement for the agency to
determine if a commercial option is available or can be modified to meet the agency’s
needs. Based on the statutes and regulations at issue, the court believes that an agency
is required to determine both if a procurement can be small business set-aside and if a
commercial item is available for the procurement without specific direction as to the order.

Defendant also states that

section 10.002(d) is a narrow directive to use Part 12 procedures in certain
circumstances. Even assuming that AGI could allege facts demonstrating
that it falls within the section 10.002(d) criteria, the drafters of the regulation
purposefully crafted section 10.002 so that it would not supercede [sic] small
business authorities. Thus, where the Air Force properly set aside the
acquisition for small business, AGI’s allegations would not state a claim
upon which relief might be granted.

Defendant’s basis for claiming that 48 C.F.R. § 10.002 does not supersede the small
business decision, is the language that “Market research involves obtaining information
specific to the item being acquired and should include . . . Size and status of potential
sources (see part 19),” and “[i]f market research establishes that the Government's need
cannot be met by a type of item or service customarily available in the marketplace, part

item and a nondevelopmental item is a commercial item,” and that “[a] commercial item
and nondevelopmental items are synonymous.” (all emphasis in original).
43
12 shall not be used.” 48 C.F.R. § 10.002.23 Although the defendant and intervenor
repeatedly emphasize their belief that the small business set-aside determination could
not be undermined by a commercial availability determination, they agree that market
research must be accomplished before either the small business decision or the
commercial availability decision is made. As intervenor explains, “[t]he purpose of market
research – which is step one in the process, is, inter alia, to consider application of 15
U.S.C. § 644 and the capabilities of small businesses.” (emphasis in original).

As demonstrated above, the agency in this protest performed the market research
prior to making the small business decision. On May 31, 2016, the contracting officer
recommended a small business set-aside, and, on June 1, 2016, the agency’s small
business specialist, concurred with the recommendation of a small business set-aside.
This decision was in response to the potential offerors responses to the fourth amended
RFI, which indicated the Air Force was considering a small business set-aside. This was
the fifth time that the Air Force had sought a request for information about the potential
procurement. It was the culmination of an extensive market research process to attempt
to properly identify the requirements of the procurement. Almost seven months before the
small business set-aside recommendation, the Air Force had initiated the procurement
process with the first RFI issued on November 4, 2015.24 As explained above, the
contracting officer issued a first amended RFI, a second amended RFI, a third amended
RFI, and a fourth amended RFI. Additionally, prior to the small business set-aside
recommendation, the Air Force held an industry day, in response to information generated
from the RFI and the amended RFIs, inviting eight potential offerors to the event. Notably,
it was in response to the market research that the agency even considered a small
business set-aside. The contracting officer testified in her deposition that it was after the
industry day event that she first thought about the possibility of a small business set-
aside. Therefore, the recommendation for a small business set-aside, in late May and
early June 2016, was in response to, and not separate from, the market research.25

As noted by another Judge of the United States Court of Federal Claims,
“[c]ontracting officers are required to ‘review acquisitions to determine if they can be set

23 The defendant also claims that “the drafters [of Section 10.002] purposefully did not
identify Part 19 as a competing contracting approach. The drafters specifically identified
the alternative contracting approaches of Part 13, Part 14 and Part 15 - both in the
regulation and in the preamble. The drafters assumed that small business authorities
would not be diminished by the final rule, and created no conflicting regulation.” (citing 60
Fed. Reg. 48231, 48233 & 48242 (Sept. 18, 1995).
24As noted above, this process began just one month after the Air Force awarded the
JICSpOC contract to Analytical Graphics, and almost nine months before the end of
contract performance of the JICSpOC contract.
25The court notes that the Market Research Report for the procurement at issue in the
above captioned protest was issued on June 21, 2016, after the small business set-aside
recommendation. The market research itself, however, as described above, was
conducted prior to the small business set-aside recommendation.
44
aside for small business,’ and must ‘perform market research’ before concluding that an
acquisition should not be set aside for a small business.” Proxtronics Dosimetry, LLC v.
United States, 128 Fed. Cl. at 680 (citing 48 C.F.R. § 19.501(c)); see also 48 C.F.R.
§ 19.501(c) (2017) (“The contracting officer shall perform market research and document
why a small business set-aside is inappropriate when an acquisition is not set aside for
small business, unless an award is anticipated to a small business under the 8(a),
HUBZone, SDVOSB, or WOSB Programs.”). Likewise, in McKing Consulting Group v.
United States, 78 Fed. Cl. 715, 726 (2007), in finding that the contracting officer did not
act arbitrarily or capriciously when issuing the solicitation at issue in that case, the McKing
court explained that

the record demonstrates that the contracting officer had multiple reasons
for her decision to issue the Solicitation as a small business set-aside. First,
the procurement history shows that the expectation of at least two
responsive small business bidders was reasonable. Second, the
contracting officer conducted sufficient market research and acquisition
planning before issuing the Solicitation as a small business set-aside.

Id. Numerous other decisions by Judges of the United States Court of Federal Claims,
although each factually based, point to the market research conducted by an agency as
evidence that the small business set-aside determination was not made arbitrarily or
capriciously. See, e.g., Geo-Med, LLC v. United States, 126 Fed. Cl. 440, 447 (“The CO
[Contracting Officer] did extensive market research and reasonably concluded that the
agency was not likely to receive at least two offers from qualified small business
manufacturers.”); Raymond Express Int’l, LLC v. United States, 120 Fed. Cl. 413 (2015);
Dynamic Educational Sys., Inc. v. United States, 109 Fed. Cl. 306, 326 (2013). The history
of the market research in the current protest, and the nature of market research generally
demonstrate that market research can guide an agency’s decision making process. It is,
therefore, logical that an agency use the market research for both the small business set-
aside determination and of the commercial availability decision.

Although intervenor frames its arguments in contrast to protestor’s claims that the
commercial availability decision must come first,26 the court notes that intervenor
nevertheless states that the “FAR says that the consideration of small business
capabilities and commercial item possibilities occurs at the same time.” Intervenor also
claims that “[u]nlike FAR’s mandatory Rule of Two, FAR implements the commercial item
rule in a precatory, not mandatory, way because there is no absolute mandate for one
type of solution over the over. Rather, the commercial item preference creates a
continuum of analysis and review.” Intervenor, citing 48 C.F.R. § 10.001, argues that
“FAR provides three steps in the procurement process: Step one is to conduct market
research. Step two is to define the Government’s specific needs. Step 3 is to create

26As noted above, protestor argues that “consideration of FASA’s mandate precedes and
takes priority over consideration of size status.”

45
requirements descriptions.” Intervenor, quoting from 48 C.F.R. § 10.001, argues,
somewhat confusingly, that after conducting market research the
FAR then states that “before developing new requirements,” that is Step
three, the “results of market research” are also used as part of the needs
assessment (Step two) in determining if inter alia “commercial items or, to
the extent commercial items suitable to meet the agency's needs are not
available, nondevelopmental items are available.” 48 C.F.R. §
10.001(a)(3)(ii)(C)). This determination of commercial items availability is
part of the needs analysis in step two, as described in 48 C.F.R. Part 11
(“Describing Agency Needs [sic]) and specifically, 48 C.F.R.§ 11.002. So
too are the “results of the market research” used to consider small business
issues. 48 C.F.R. § 10.001(a)(3)(vi) and (vii).[27] Again, FAR says that the
consideration of small business capabilities and commercial item
possibilities occurs at the same time.
The defendant also argues that “[t]he Rule of Two determination is a simple,
preliminary step, requiring none of the rigorous analysis of proposal review,” citing to
Adams and Associates, Inc. v. United States, 741 F.3d 102, 111 (Fed. Cir. 2014).28 In
attempting to explain how the FAR makes the set-aside determination “an uncomplicated
procedure early in the procurement decision-making,” defendant emphasizes that the
decision not to set-aside a procurement must be documented, but a decision to procure
as a set-aside does not. (citing 48 C.F.R. § 19.501(c)). As the court noted above,

27 Although referenced by intervenor, “48 C.F.R. § 10.001(a)(3)(vi) and (vii)” provide an
agency use the results of market research to “(vi) Determine whether consolidation is
necessary and justified (see 7.107–2) (15 U.S.C. 657q); (vii) Determine whether bundling
is necessary and justified (see 7.107–3) (15 U.S.C. 644(e)(2)(A)). . . .” The court notes
that 48 C.F.R. § 10.001(a)(2)(vi) provides that:

On an ongoing basis, take advantage (to the maximum extent practicable)
of commercially available market research methods in order to effectively
identify the capabilities of small businesses and new entrants into Federal
contracting that are available in the marketplace for meeting the
requirements of the agency in furtherance of—
(A) A contingency operation or defense against or recovery from nuclear,
biological, chemical, or radiological attack; and
(B) Disaster relief to include debris removal, distribution of supplies,
reconstruction, and other disaster or emergency relief activities (see
26.205). . . .

48 C.F.R. § 10.001(a)(2)(vi).
28Intervenor also repeatedly cites to Adams and Associates, Inc. v. United States in its
submissions. The Federal Circuit’s decision in Adams and Associates, Inc. v. United
States is more fully address below in the small business set-aside analysis.

46
however, 10 U.S.C. § 2377, and the implementing regulation at 48 C.F.R. § 10.002(e),
do not require a commercial availability determination be documented in a specific way,
only that the commercial availability review be completed. Nor does 10 U.S.C. § 2377
require a specific type of analysis as the decision is made prior to determining what kind
of procurement is required.

Protestor, however, argues that, based on the order of the subsections of 48
C.F.R. § 10.002, “[c]learly, during market research, consideration of FASA’s mandate
precedes and takes priority over consideration of size status.” Protestor also argues that
that “[t]he statutorily mandated preference for commercial items and the Rule of Two are
interpreted harmoniously by AGI, but the defendants’ interpretation extinguishes the
commercial item preference.” The court notes that defendant, likewise, claims that
interpretation is “harmoniously” done, arguing that “reading the statutes and regulations
together harmoniously, we conclude that Congress intended the small business set-aside
to be considered first.”

Despite the arguments from both sides, the court does not find either interpretation
of the statutes works together “harmoniously.” In the court’s view, there is not a clear
order of precedence in the statutes or implementing regulations for how to approach a
procurement which potentially involves both a small business set-aside analysis and a
commercial availability analysis. The intent of 10 U.S.C. § 2377 is to direct agencies to
investigate whether commercial or non-developmental items exist that can satisfy the
government’s needs, in whole or in part, so as to avoid investing time and taxpayer money
into developing a product that already exists. The agency must weigh the congressional
policy goal of having a procurement be designated one of a percentage of small business
set-asides and the policy goal of reducing the cost to the agency of a developmental
contract, or not pursing a developmental contract, if an available product already exists
in commercial form. Given the ambiguity in the two competing statutory goals and absent
regulatory guidance regarding the choice as to which has precedence, the choice made
by agency generally deserves deference.
The court should not be the entity to make that choice, and should intervene only
when there is an obvious foul. Absent compelling statutory or regulatory guidance, which
is missing here, the court generally defers to the agency’s choice in a procurement in
which the market research was carefully conducted. As the statutes and regulations do
not point to a clear order for an agency to proceed between the small business set-aside
determination and a commercial availability decision, the court does not read a
requirement into the statutes and regulations that requires the agency or this court to first
examine either.
The court notes, that the Air Force, in fact, considered both the small business set-
aside determination and the commercial availability decision essentially
contemporaneously after the market research process. As noted above, on May 31, 2016,
the contracting officer recommended a small business set-aside, and on June 1, 2016,
the agency’s small business specialist, concurred with the recommendation of a small
business set-aside. The same day, June 1, 2016, the contracting officer wrote a
Memorandum for Record on the subject of: “Noncommerciality for Services and

47
Government Purpose Rights.” Two days later, on June 3, 2016, the contracting officer
was still evaluating both protestor and Exo, as evidenced by the June 3, 2016
Memorandum for Records tilted: “Pricing for Analytical Graphics and ExoAnalytical [sic]
Solutions.” Moreover, it was the market research process which led the contracting officer
to consider, and ultimately opt for, the small business set-aside determination.
Small Business Set-Aside

The court therefore, must determine if the small business set-aside was proper.
The defendant argues that the small business set-aside was indeed proper, and
intervenor agrees, arguing that “the application of the Rule of Two here was proper.”
Protestor, by contrast, argues that “the Air Force’s ‘Rule of Two’ determination underlying
the set-aside decision was arbitrary and capricious and unlawfully restricts competition in
violation of the Competition in Contracting Act, 10 U.S.C. § 2304.”

As explained by the United States Supreme Court in Kingdomware Technologies,
Inc. v. United States:

In an effort to encourage small businesses, Congress has mandated that
federal agencies restrict competition for some federal contracts. The Small
Business Act thus requires many federal agencies, including the
Department of Veterans Affairs, to set aside contracts to be awarded to
small businesses. The Act requires each agency to set “an annual goal that
presents, for that agency, the maximum practicable opportunity” for
contracting with small businesses, including those “small business
concerns owned and controlled by service-disabled veterans.” 15 U.S.C. §
644(g)(1)(B). And federal regulations set forth procedures for most
agencies to “set aside” contracts for small businesses. See, e.g., 48 CFR §
19.502–2(b) (2015).

Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969, 1973 (2016). As noted
above, the FAR provides that “[t]he purpose of small business set-asides is to award
certain acquisitions exclusively to small business concerns.” 48 C.F.R. § 19.501(a). The
regulations at 48 C.F.R. § 19.502-2(b) indicates that:

The contracting officer shall set aside any acquisition over $150,000 for
small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business
concerns offering the products of different small business concerns (see
paragraph (c) of this section); and
(2) Award will be made at fair market prices. Total small business set-asides
shall not be made unless such a reasonable expectation exists (see
19.502–3 as to partial set-asides). Although past acquisition history of an
item or similar items is always important, it is not the only factor to be
considered in determining whether a reasonable expectation exists. In
making R & D small business set-asides, there must also be a reasonable

48
 expectation of obtaining from small businesses the best scientific and
technological sources consistent with the demands of the proposed
acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b); see also Adams & Assocs. v. United States, 741 F.3d at 111.
As explained by a Judge of the United States Court of Federal Claims, “the decision to
set aside a solicitation ‘is a matter of business judgment within the contracting officer's
discretion and, as such, must be upheld unless the Court finds the decision to be arbitrary,
capricious, an abuse of discretion or otherwise not in accordance with the law.’” Mgmt.
& Training Corp. v. United States, 115 Fed. Cl. at 44 (quoting Benchmade Knife Co. v.
United States, 79 Fed. Cl. 731, 738 (2007)); see also Adams & Assocs. v. United States,
741 F.3d at 111; Res-Care Inc. v. United States, 735 F.3d 1384, 1390 (Fed. Cir. 2013)
(quoting Weeks Marine, Inc. v. United States, 575 F.3d at 1368–69 (“A contracting
officer's decision to set aside a contract for small businesses invokes ‘highly deferential
rational basis review.’”)). Likewise, as noted by another Judge of this court, “[w]e begin
with the reminder that, whether to set aside a solicitation for small businesses ‘“is a matter
of business judgment within the contracting officer's discretion.”’ Gear Wizzard, Inc. v.
United States, 99 Fed. Cl. 266, 282 (2011) (quoting Benchmade Knife Co. v. United
States, 79 Fed. Cl. 731, 738 (2007)). The ‘law does not require any particular method.’”
Dynamic Educational Sys., Inc. v. United States, 109 Fed. Cl. 306, 326 (2013) (quoting
Gear Wizzard, Inc. v. United States, 99 Fed. Cl. at 282). The determination for the Rule
of Two is based on the information available to the contracting officer at the time the
decision is made, in this case, after the market research review, as “the FAR provides for
set asides based on the contracting officer's ‘reasonable expectation,’ implicitly accepting
the possibility that that expectation may ultimately prove incorrect.” Mgmt. & Training
Corp. v. United States, 118 Fed. Cl. 155, 169 (2013).
The relevant authority for the court to look to regarding the requirements for a small
business set-aside determination is the United States Court of Appeals for the Federal
Circuit’s 2014 decision in Adams & Associates v. United States. In Adams, the protestor
had challenged the United States Department of Labor’s decision to set aside two
contracts, the Gadsden contract and the Shriver contract, as small business set-asides.
See Adams & Assocs. v. United States, 741 F.3d at 105.29 The Federal Circuit explained
regarding the requirements for a small business set-aside determination:
Adams’s reading of the Rule of Two ignores that “a reasonable expectation”
that at least two responsible small businesses will submit bids at fair market
prices is all that is required. Here, through the RFI process, the DOL
performed market research about the level of interest from small businesses
in bidding on the Shriver and Gadsden contracts. It then determined from
the responses that there was a reasonable expectation that at least two

29The protestor in Adams also challenged the decision to use a small business set-aside
as violating the Workforce Investment Act, which is not at issue in the current procurement
under review. See Adams & Assocs. v. United States, 741 F.3d at 107-108.

49
 responsible small businesses would make offers for the operation of each
of the Centers. To Adams, “the issue here is that the market research . . .
must generate the information necessary to address the expressly required
responsibility and price reasonableness legal elements of the Rule of Two.”
According to Adams, the required information is identified in another part of
the Federal Acquisition Regulation pertaining to determining whether a
prospective contractor is “responsible” before awarding a contract to that
contractor. These factors include capability, capacity, and past
performance. 48 C.F.R. § 9.104-1. Adams contends that only by collecting
information related to these factors can the DOL meet the requirements of
the Rule of Two.

Adams conflates a set-aside determination with a responsibility
determination made pursuant to § 9.104-1; the former determines whether
there is a reasonable expectation that at least two responsible small
businesses will make an offer at fair market prices, while the latter
determines whether an individual contractor is responsible in the context of
awarding a contract. As the lower court noted, a seta-side determination
requires only that the contracting officer have a reasonable expectation that
likely small business offerors will survive a future responsibility
determination. The DOL was not required to impose the requirements of the
contractor-selection process onto the small business set-aside
determination, and it properly applied the Rule of Two. Because its decision
was not arbitrary, capricious, an abuse of discretion, or otherwise not in
accordance with law, it will not be disturbed. 5 U.S.C. § 706(2)(A).

Adams & Assocs. v. United States, 741 F.3d at 111 (internal citations omitted).
Despite the Federal Circuit’s clear guidance in Adams not to require a
responsibility determination before making the set-aside determination, the protestor
nonetheless argues that “the Air Force irrationally concluded that ExoAnalytic could meet
the Agency’s minimum requirements,” and also argues that “the Air Force’s ‘Rule of Two’
determination was flawed because, at the time the set-aside decision was made, the Air
Force could not have rationally concluded that ADS could satisfy the requirements of the
PWS without violating the limitation on subcontracting clause.” The court addresses each
of these arguments separately. Regarding the protestor’s argument that “Air Force
irrationally concluded that ExoAnalytic could meet the Agency’s minimum requirements,”
the protestor points to the “Salient Characteristics” identified during the RFI process as
Exo’s inability to meet the Air Force’s requirements. The parties have stipulated:
In the amended RFI, The Air Force sought information about collections of
data, software and personal services that could meet certain minimum
requirements. The Air Force included a list of ten “Salient Characteristics”
that the Air Force considered to be “minimum requirements” for the SSA
system:

50
 SALIENT CHARACTERISTICS: The collection of non-governmental SSA
data, processing tools, personnel, and contracted support will be referred
to as the Commercial SSA System.

• Provide metric, non-metric, and Space Object Identification (SOI)
observations from data collected from a minimum of 10 worldwide sensors
outside the control of the USG, at least half of which must not be terrestrial
sensors in North America (e.g. sensors in Europe, on orbit).

• Document whether sensors can be utilized on an on-demand basis or if
their use must be pre-planned and list the additional costs for on-demand
service, if applicable.

• Provide the format and source of the data.

• Ingest authorized DoD data (raw or processed observations) into any
contractor event processing or analysis capability.

• Ensure they export their data, one-way, to DoD networks of equal or higher
classification for additional processing.

• Provide for threat warning assessment by detecting and notifying
JICSpOC personnel of a space object entering or projected to enter a user-
definable area around specific resident space objects (RSO) within 15
minutes of entering. NOTE: 15 minutes is the unclassified value.

• Process and correlate feature-type data (Visual Magnitude (Vmag), Radar
Cross Section (RCS) changes, RF spectrum, etc.).

• Ability to detect hostile and non-hostile maneuvers and analyze the
change of behavior, to include the revised orbit, within 2 minutes of
maneuver detection.

• Augment DoD persistent monitory capabilities by maintaining custody of
designated objects (e.g. Super High Interest Objects) to the maximum
degree possible.

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

(capitalization in original). As indicated above, although in its response to the first
amended RFI, Exo indicated that it could meet the government’s minimum salient
characteristics, the parties have stipulated that, after the responses to the first amended
RFI, “[t]he Air Force determined that the responses of AGI and ADS [Applied Defense]
indicated that AGI and ADS could satisfy all 10 of the minimum salient characteristics,
and that the response of Exo indicated that Exo could satisfy 9 of the minimum salient
characteristics.” The Air Force concluded that, at the time of the first amended RFI

51
response, Exo did not meet the characteristic: “Process and correlate feature-type data
(Visual Magnitude (Vmag), Radar Cross Section (RCS) changes, RF spectrum, etc).”
Based on this, protestor argues that this failure is clear proof that the Air Force’s
conclusion that there was a reasonable expectation Exo survive a future responsibility
determination was arbitrary and capricious.

Defendant argues that “AGI gives undue weight to a preliminary technical scoring
exercise conducted prior to the classified information exchanges at Industry Day.”
(emphasis in original). Intervenor echoes defendant’s argument noting that:
AGI says that the Air Force irrationally concluded that ExoAnalytic could
meet the Agency’s requirements, because the preliminary stage RFI found
that Exo could not meet one of the ten ‘salient characteristics. [sic] After the
later industry day, further evaluation, and receipt of more information,
however, the Air Force found both Exo and ADS capable of meeting the Air
Force’s requirement certainly with teaming partners.
(emphasis in original). The court agrees that protestor places too much weight on Exo’s
responses to the first amended RFI and does not allow for the possibility that the Air Force
would acquire additional information that would lead them to reasonably believe Exo
could be a responsible small business offeror. As noted above, the parties have jointly
stipulated that “[b]etween June 7, 2016 and June 15, 2016, various Air Force officials
signed the justification and authorization document to approve limiting competition to ADS
and Exo, pursuant to the authority of 10 U.S.C. [§] 2304(c)(6) and 48 C.F.R. [§] 6.302-6.”
(internal references omitted). Regarding the market research conducted by the Air Force,
the justification and authorization document stated:
(U) Market research was conducted, including two RFls posted to the GPE
and an industry day conducted between the first and second RFI. The initial
RFI provided potential offerors with notification of security requirements and
a list of salient characteristics offeror products and services would need to
demonstrate to receive consideration for an industry day invitation.
Responses from the initial RFI were assessed to gauge potential technical
capabilities as well as security clearance requirements. Firms that did not
demonstrate a rudimentary understanding of the requirements and those
without appropriate clearance levels were not invited to attend industry day.
For the industry day, the Program Manager (PM) determined disclosure of
classified information to those invited was necessary to sufficiently explain
the government's requirements and allow for a meaningful exchange of
information. This led to the conclusion that eight responding firms
possessed requisite security clearance requirements and demonstrated a
rudimentary capability to potentially participate in the acquisition.

(U) Following industry day presentations, the PM and CO jointly determined
three small business concerns were potential candidates for prime contract
award. The three small businesses were contacted to discuss prime
contract interest. Two of the small business firms (ExoAnalytics [sic] and

52
 ADS) expressed strong desire to participate as a prime contractor for the
requirements. The third firm (Rincon) affirmed their desire to participate, but
only in terms of subcontracting opportunities.

(U) An extensive market research report is in draft to support the conclusion
that two small businesses are capable of fulfilling the government's
requirement.

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

(U) For this acquisition, the government: 1) publicly sought sources for the
opportunity to fulfill its requirements, 2) disclosed the salient features of the
products/services sought, 3) transparently communicated the security
requirements associated with the acquisition, 4) evaluated thoroughly
capability statements from all respondents, 5) provided an exchange of
information opportunity at an Industry Day event, and 6) re-publicized the
opportunity for industry consideration following the Industry Day event.

(U) As a result of government exchanges with industry as listed above, the
government identified eight firms that demonstrated a rudimentary
understanding of the government’s requirements and possessed sufficient
security clearances to participate in the government’s Industry Day event.

(U) In reviewing the results of informational exchanges and vendor
presentations from the Industry Day, the Contracting Officer (CO) and the
Program Manager (PM) jointly determined that three of the firms
participating in Industry Day were small business concerns that could
potentially provide the products/services as prime contractors.

(U) In follow-on discussions with the three small business concerns, two of
the firms expressed strong interest in submitting proposals as prime
contractors. The PM assesses two of the interested small businesses as
having capability to provide the required products and services for this
requirement as prime contractors. Therefore the CO determined the
acquisition is suited for a total small business set-aside as prescribed at
FAR 19.502-2(a); that is, within the context of the national security
constraints imposed on this acquisition.

(U) The CO finds a reasonable expectation exists for receiving proposals
from two responsible small business concerns, and that award can be made
at fair market prices. For this acquisition, the two small businesses that have
emerged from the Requests for Information (RFI) and Industry Day
processes appear to be uniquely qualified at this time in terms of security
qualifications and possessing the capabilities required, or ability to obtain
them, to facilitate the objectives contemplated in the Performance Work

53
 Statement (PWS). The two small businesses are ExoAnalytics [sic] and
Applied Defense Solutions (ADS).

(U) Both ExoAnalytics [sic] and ADS were determined by the PM to have
responded affirmatively to the questions posed by the government in the
RFI and Industry Day exchanges. Both firms have demonstrated extensive
experience with space observation technologies. Both have ongoing
contractual relationships with the government and have developed, or
helped to develop, capabilities currently in use in both the Defense and
Intelligence communities. Both firms are postured to team as needed with
an extensive network of commercial and non-government sources to
facilitate delivery of the required products/services. Both firms have
requisite facility and personnel security clearance posture to begin
delivery/performance immediately upon contract award. Given these
factors, ExoAnalytics [sic] and ADS are reasonably assessed to have
unique qualifications to provide/perform the SSA work contemplated in the
PWS. Thus through [sic] these elements of market research, the CO and
PM conclude that ExoAnalytics [sic] and ADS are presently the only two
small businesses with demonstrated capabilities necessary to deliver the
non-government, non-developmental SSA requirements for the JICSpOC,
as put forth in the government’s PWS.

The justification and authorization document explains that in addition to the RFI, the Air
Force considered the responses by Exo at the industry day.30 Indeed, in the justification
and authorization document, the Air Force stated:

For the industry day, the Program Manager (PM) determined disclosure of
classified information to those invited was necessary to sufficiently explain
the government's requirements and allow for a meaningful exchange of
information. This led to the conclusion that eight responding firms
possessed requisite security clearance requirements and demonstrated a
rudimentary capability to potentially participate in the acquisition.

Moreover, the Market Research Report, in identifying Exo as capable, noted that not only
did Exo participate in the industry day, but that “the Government held a teleconference
with ExoAnalytic Solutions to ascertain their capability and willingness to serve as a prime
contractor on this effort. During the teleconference, ExoAnalytic Solutions indicated they
would be interested in acting as a prime contractor for this effort[.]” Notably, after the
submissions to the third amended RFI were received and the industry day was held, the
contracting officer issued a fourth RFI, on May 11, 2016. As noted above, the fourth
amended RFI included the draft Performance Work Statement, and a section titled
“Scope,” which stated that, “[t]his is a non-personal services contract to provide
nongovernmental space situational awareness (SSA) software and services.

30Notably, the contracting officer testified in her deposition that it was after the industry
day event that she first thought about the possibility of a small business set-aside.

54
Nongovernmental SSA solutions are required to augment the Government’s ability to
detect and characterize space threats and improve integration between DoD, intelligence
community, interagency, and nongovernmental space assets.” This fourth amended RFI
provided potential offerors, like Exo, a further opportunity to demonstrate to the Air Force
the ability to potentially demonstrate future responsibility to meet the agency’s
requirements.

In addition to Exo being identified as capable, other potential offerors, with lower
scores than Exo on the Salient Characteristics were determined to be capable, indicating
that the Air Force had taken into account more than just the number of Salient
Characteristics to conclude if a potential offeror could be capable. For example, the Harris
Corporation was given a Salient Characteristics score of 5, but deemed capable, and
Rincon Research Corp. was given a Salient Characteristics score of 4, but deemed
capable. Another potential offeror was initially given a Salient Characteristics score of 7,
but was upgraded to a score of 9 after the industry day, and was judged capable. The
court does not believe that the failure to achieve a perfect score of Salient Characteristics,
on the information the potential offerors submitted in response to the first amended RFI,
precludes a finding that a potential offeror could be capable and it appears the Air Force
did not limit the capability determination to simply the number of the Salient
Characteristics a potential offeror received. The court agrees with the defendant and the
intervenor that the Air Force could have had, and acted on, a reasonable expectation that
Exo could survive a future responsibility determination.31

The court notes that although the defendant also argues that “[t]he reasonable
expectation of the contracting officer that Exo could meet the technical requirements was
subsequently confirmed when Exo did, in fact, submit a proposal meeting the technical
requirements,” the court can only look to the information that the contracting officer and
the agency had at the time the Rule of Two determination was made, and not at the time
the Source Selection Authority evaluated Exo’s proposal, even if it was subsequently
validated. See Mgmt. & Training Corp. v. United States, 118 Fed. Cl. at 169.
Regarding protestor’s second argument, in which protestor cites to 48 C.F.R.
§ 9.104-3(d)(2), to argue that “the Air Force could not have rationally concluded that ADS
could satisfy the requirements of the PWS without violating the limitation on

31 The court notes that this conclusion is in line with the GAO decision, referenced above.
See Analytical Graphics, Inc., B-413385, 2016 WL 6212299. Before the GAO, Analytical
Graphics argued that Exo “could meet only 9 of the 10 minimum requirements,” which
“meant that the agency could not reasonably expect this firm to be a responsible offeror.”
Id. at *6. The GAO noted that “ExoAnalytic stated that it could perform the requirements,
and there is no allegation of misrepresentation in this regard,” and that “[n]either FAR
§ 19.502-2(b) nor the decisions by our Office require an agency to request, or a
prospective small business offeror to provide, a complete technically-acceptable
approach in response to market research.” Id. The GAO determined that “[u]nder the
applicable standards for making a set-aside determination, we find no basis to conclude
that the agency’s judgment here regarding ExoAnalytic was unreasonable.” Id.

55
subcontracting clause.” Protestor contends the limitation on subcontracting clause
“makes clear that ‘[a] small business that is unable to comply with the limitations on
subcontracting at 52.219-14 may be considered nonresponsible.’’” (citing 48 C.F.R.
§ 9.104-3(d)(2)). The court notes that protestor’s brief states that “it appears the CO
simply relied on ADS’s RFI response to a question about compliance with FAR 52.219-
14 without ever following up on the issue independently. . . .” Applied Defense points to
the Administrative Record, and explains that “ADS explicitly stated that it could meet the
requirement, and there is nothing in the record indicating the contrary. In fact, the Air
Force awarded a contract to ADS and there still is no evidence that it has not met the
requirement.”32 (internal citation omitted). Intervenor also points to the Small Business
Administration’s (SBA) regulations which indicate that for “[d]etermining compliance with
applicable limitation on subcontracting,” “[c]ompliance will be considered an element of
responsibility and not a component of size eligibility.” 13 C.F.R. § 125.6(e)(2) (2017).33
Moreover, the very FAR provision protestor cites also makes it clear that it relates to
responsibility: “A small business that is unable to comply with the limitations on
subcontracting at 52.219-14 may be considered nonresponsible.” 48 C.F.R. § 9.104-
3(d)(2). To the extent the subcontracting clause was an issue, it would not be one that
the Air Force was required to address when making the Rule of Two determination. See
Adams & Assocs. v. United States, 741 F.3d at 111 (“Adams conflates a set-aside
determination with a responsibility determination. . . .”).

Protestor also points to the second prong of the Rule of Two analysis, that the
award will be made at fair market prices, to argue that the “Air Force’s ‘Rule of Two’
determination was arbitrary and capricious.” In response, intervenor argues that “AGI’s

32Protestor cites a single case, Klinge Corp. v. United States, 82 Fed. Cl. 127, 135 (2008),
for its proposition that “contracting officers cannot simply rely on an offeror’s affirmative
representations when their exists indicia to the contrary,” but as defendant correctly notes,
“AGI cites a case involving the validity of a formal trade certification submitted by the
winning vendor in response to a solicitation (and relied upon by the contracting officer to
determine that the offeror could perform) rather than a case concerning what evidence is
sufficient to support a ‘reasonable expectation’ prior to a set-aside determination.”
33 In a footnote in its reply brief, protestor states:

AGI acknowledges that on May 31, 2016, SBA issued its final rule
implementing the National Defense Authorization Act (NDAA) of 2013 which
changed, among other things, the basis for limitations on subcontracting for
supplies from the cost of the items to the amount paid to the prime
contractor and to subcontractors that are similarly situated. See 81 Fed.
Reg. 34243; 13 C.F.R. § 125.6(a)(2). However, at the time the set-aside
decision was purportedly made, the SBA final rule had not been issued.
Moreover, the current version of FAR 52.219-14 as well as the version of
FAR 52.219-14 incorporated into the RFP and the final ADS contract have
not been updated to reflect the changes in the SBA final rule.

56
challenge to the fair market price determination is baseless,” and defendant argues that
“[b]oth ADS and Exo had been successful in the SSA marketplace for years, indicating
an ability to compete on price. Accordingly, it was reasonable for the Air Force to expect
that the competition between ADS and Exo, two well-established business, would result
in a fair market price.”
Regarding cost, the justification and authorization document stated:

(U) Determination by the Contracting Officer that the anticipated cost
to the Government will be fair and reasonable.

(U) The Contracting Officer (CO) anticipates that cost to the Government
may be determined to be fair and reasonable on the basis of price and/or
cost analysis and by using certified cost or pricing data to analyze elements
of cost. Given the government will solicit for the award of one or more
contracts for the work, the CO further anticipates that proposed costs to the
government will be driven by competitive forces.

(emphasis in original). In addition, the record reflects a Memorandum for Records, dated
June 3, 2016, with the subject, “Pricing for Analytical Graphics and ExoAnalytical [sic]
Solutions.” The memorandum reflected that:

The majority of respondents did not provide a price list for their products
during market research. ExoAnalytical's [sic] price list was utilized to
develop the Government's independent cost estimate and historical data
from other contracts. Analytical Graphics' prices were high compared to the
Government's IGE. Based on the contracting officer's understanding of the
requirement, an estimate was developed. The estimate utilizing AGI's price
list was twice the estimate of the Government's IGE.

Regarding price, protestor argues:

Here, the contemporaneous record lacks any analysis of the small business
offerors’ potential pricing and, indeed, the RFI exercise revealed that one
small business offeror – ExoAnalytic - was unable to provide any meaningful
pricing information. Thus, regardless of whether the Air Force ultimately
received proposals from two offerors capable of providing “fair market
pricing” in response to the final Solicitation, at the time the set-aside
determination was made, the Air Force could not have rationally held such
an expectation.

(emphasis in original; internal citation omitted). Protestor also stated that “ExoAnalytic,
provided pricing information, but only for observation and telescope data, not the
complete SSA solution required by the Air Force.”34

34 Protestor concedes, however, in its reply brief,

57
 Moreover, as the June 3, 2016 Memorandum for Records titled: “Pricing for
Analytical Graphics and ExoAnalytical [sic] Solutions” demonstrates Exo prices were
lower than protestor’s prices, and Exo’s prices were used by the Air Force to develop the
government’s own independent cost estimate for the procurement. In the justification and
authorization document, the Air Force likewise indicated that the “CO further anticipates
that proposed costs to the government will be driven by competitive forces.” It was,
therefore, reasonable for the contracting officer to believe that the small business set-
aside would result in a fair market price.35
In its reply brief, protestor also claims that “there is nothing in the
contemporaneous procurement record indicating the Air Force considered ADS’s and
ExoAnalytic’s previous ‘successes’ in the SSA marketplace as evidence of the firms’
ability to compete on price.” The Market Research Report, however, has a section for
both Exo’s and Applied Defense’s past performance, noting “ExoAnalytic Solutions has
sold more than 50 million observations as well as commercial software to both industry
and government customers,” and “ADS has provided SSA systems, algorithms, and
services to: 1) US Naval Space Operations Center at Point Mugu, California, 2) Defense
Advanced Research Projects Agency (DARPA) Orbit Outlook Program, 3) National
Reconnaissance Office (NRO) 4) US Air Force Research Laboratories (AFRL) 5)
classified customers at various locations.”

[i]n its MJAR [motion for judgment on the Administrative Record] and in
earlier pleadings, AGI mistakenly stated that ExoAnalytic only provided
pricing information for observation and telescope data. Upon further review,
it appears ExoAnalytic also provided pricing information for software
products and enterprise solutions. There is no indication, however, that the
price information submitted by ExoAnalytic addressed the full range of the
Air Force’s SSA requirements and, indeed, because ExoAnalytic did not
satisfy all of the salient characteristics, the pricing information at a minimum
did not cover the costs associated with processing and correlating feature-
type data and radar cross section changes.

(internal citations omitted).
35 Defendant makes a different, but related point, nothing that:

Assuming that AGI's commercial prices were at or near fair market prices,
and recognizing that the contracting officer determined that Exo's prices
were lower than AGI's prices, then there is ample support in the
administrative record for the contracting officer's reasonable expectation
that a competition between Exo (with Exo prices at or below the fair market
value) and ADS would result in an award at fair market value.

(emphasis in original; internal citations omitted).

58
 As noted above, the Federal Circuit in Adams stated, “‘a reasonable expectation’
that at least two responsible small businesses will submit bids at fair market prices is all
that is required.” Adams & Assocs. v. United States, 741 F.3d at 111. The June 3, 2016
Memorandum for Records and the justification and authorization document provide
sufficient evidence that the Air Force had a reasonable expectation that fair market prices
could be met with Exo and Applied Defense. See Res-Care Inc. v. United States, 735
F.3d at 1390 (quoting Weeks Marine, Inc. v. United States, 575 F.3d at 1368–69) (“A
contracting officer's decision to set aside a contract for small businesses invokes ‘highly
deferential rational basis review.’”). Protestor has not met its high burden to show that
there was not a reasonable expectation that fair market prices could be obtained. The
contemporaneous record at the time the solicitation was restricted to Exo and Applied
Defense, as evidenced, in part, by the justification and authorization document,
demonstrates that the agency had the reasonable expectation that both small business
offerors could survive a future responsibility determination and that the award would be
made at fair market prices. Therefore, the Air Force’s Rule of Two analysis was not
arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. See
id.
10 U.S.C. § 2377

Although the court has determined that the agency’s small business set-aside
determination was proper, and Analytical Graphics, as a non-small business, therefore,
would not be qualified for award, because the court has determined that there is no clear
order of precedence as to which of the two issues presented by this case should be
addressed first, the small business set-aside determination or the commercial availability
decision, the court also examines the implications of 10 U.S.C. § 2377 in the instant
protest.

Protestor Analytical Graphics argues that the Air Force violated 10 U.S.C. § 2377
by “ignoring the statutorily mandated preference for commercial items,” and further
refused to “modify, or consider modifying its requirements in a manner that would allow
the Air Force to take advantage of available commercial SSA solutions.” Defendant
responds that “AGI is mistaken. The contracting officer acted reasonably, and well within
her discretion, when conducting market research,” and argues that “[t]he contracting
officer was plainly correct that the Government requirement, as a whole, could not be met
by a product from the commercial marketplace.”

As noted above, the “Preference for acquisition of commercial items” statute, 10
U.S.C. § 2377, states:
(a) Preference.--The head of an agency shall ensure that, to the maximum
extent practicable--

(1) requirements of the agency with respect to a procurement of supplies or
services are stated in terms of--

(A) functions to be performed;

59
(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent
that commercial items suitable to meet the agency’s needs are not
available, nondevelopmental items other than commercial items, may be
procured to fulfill such requirements; and

(3) offerors of commercial items and nondevelopmental items other than
commercial items are provided an opportunity to compete in any
procurement to fill such requirements.

(b) Implementation.--The head of an agency shall ensure that
procurement officials in that agency, to the maximum extent practicable--

(1) acquire commercial items or nondevelopmental items other than
commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the
agency contracts to incorporate commercial items or nondevelopmental
items other than commercial items as components of items supplied to the
agency;

(3) modify requirements in appropriate cases to ensure that the
requirements can be met by commercial items or, to the extent that
commercial items suitable to meet the agency’s needs are not available,
nondevelopmental items other than commercial items;

(4) state specifications in terms that enable and encourage bidders and
offerors to supply commercial items or, to the extent that commercial items
suitable to meet the agency’s needs are not available, nondevelopmental
items other than commercial items in response to the agency solicitations;

(5) revise the agency’s procurement policies, practices, and procedures not
required by law to reduce any impediments in those policies, practices, and
procedures to the acquisition of commercial items; and

(6) require training of appropriate personnel in the acquisition of commercial
items.

(c) Preliminary market research.--(1) The head of an agency shall
conduct market research appropriate to the circumstances--

(A) before developing new specifications for a procurement by that agency;

60
 (B) before soliciting bids or proposals for a contract in excess of the
simplified acquisition threshold; and

(C) before awarding a task order or delivery order in excess of the simplified
acquisition threshold.

(2) The head of an agency shall use the results of market research to
determine whether there are commercial items or, to the extent that
commercial items suitable to meet the agency’s needs are not available,
nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were
modified to a reasonable extent.

(3) In conducting market research, the head of an agency should not require
potential sources to submit more than the minimum information that is
necessary to make the determinations required in paragraph (2).

(4) The head of an agency shall take appropriate steps to ensure that any
prime contractor of a contract (or task order or delivery order) in an amount
in excess of $5,000,000 for the procurement of items other than commercial
items engages in such market research as may be necessary to carry out
the requirements of subsection (b)(2) before making purchases for or on
behalf of the Department of Defense.

10 U.S.C. § 2377 (emphasis in original). The regulation implementing 10 U.S.C. § 2377,
48 C.F.R. § 10.002, states:
(a) Acquisitions begin with a description of the Government’s needs stated
in terms sufficient to allow conduct of market research.

(b) Market research is then conducted to determine if commercial items or
nondevelopmental items are available to meet the Government’s needs or
could be modified to meet the Government’s needs.

(1) The extent of market research will vary, depending on such factors as
urgency, estimated dollar value, complexity, and past experience. The
contracting officer may use market research conducted within 18 months
before the award of any task or delivery order if the information is still
current, accurate, and relevant. Market research involves obtaining
information specific to the item being acquired and should include—

61
(i) Whether the Government’s needs can be met by—

(A) Items of a type customarily available in the commercial marketplace;

(B) Items of a type customarily available in the commercial marketplace with
modifications; or

(C) Items used exclusively for governmental purposes;

(ii) Customary practices regarding customizing, modifying or tailoring of
items to meet customer needs and associated costs;

(iii) Customary practices, including warranty, buyer financing, discounts,
contract type considering the nature and risk associated with the
requirement, etc., under which commercial sales of the products or services
are made;

(iv) The requirements of any laws and regulations unique to the item being
acquired;

(v) The availability of items that contain recovered materials and items that
are energy efficient;

(vi) The distribution and support capabilities of potential suppliers, including
alternative arrangements and cost estimates; and

(vii) Size and status of potential sources (see part 19).

(2) Techniques for conducting market research may include any or all of the
following:

(i) Contacting knowledgeable individuals in Government and industry
regarding market capabilities to meet requirements.

(ii) Reviewing the results of recent market research undertaken to meet
similar or identical requirements.

(iii) Publishing formal requests for information in appropriate technical or
scientific journals or business publications.

(iv) Querying the Governmentwide database of contracts and other
procurement instruments intended for use by multiple agencies available at
https://www.contractdirectory.gov/contractdirectory/ and other Government
and commercial databases that provide information relevant to agency
acquisitions.

62
 (v) Participating in interactive, on-line communication among industry,
acquisition personnel, and customers.

(vi) Obtaining source lists of similar items from other contracting activities
or agencies, trade associations or other sources.

(vii) Reviewing catalogs and other generally available product literature
published by manufacturers, distributors, and dealers or available on-line.

(viii) Conducting interchange meetings or holding presolicitation
conferences to involve potential offerors early in the acquisition process.

(c) If market research indicates commercial or nondevelopmental items
might not be available to satisfy agency needs, agencies shall reevaluate
the need in accordance with 10.001(a)(3)(ii) and determine whether the
need can be restated to permit commercial or nondevelopmental items to
satisfy the agency’s needs.

(d)(1) If market research establishes that the Government’s need may be
met by a type of item or service customarily available in the commercial
marketplace that would meet the definition of a commercial item at subpart
2.1, the contracting officer shall solicit and award any resultant contract
using the policies and procedures in part 12.

(2) If market research establishes that the Government’s need cannot be
met by a type of item or service customarily available in the marketplace,
part 12 shall not be used. When publication of the notice at 5.201 is
required, the contracting officer shall include a notice to prospective offerors
that the Government does not intend to use part 12 for the acquisition.

(e) Agencies should document the results of market research in a manner
appropriate to the size and complexity of the acquisition.

48 C.F.R. § 10.002.
The FAR also addresses multiple statutory provisions at 48 C.F.R. § 11.002:
(a) In fulfilling requirements of 10 U.S.C. 2305(a)(1), 10 U.S.C. 2377, 41
U.S.C. 3306(a), and 41 U.S.C. 3307, agencies shall—
(1) Specify needs using market research in a manner designed to—
(i) Promote full and open competition (see part 6), or maximum practicable
competition when using simplified acquisition procedures, with due regard
to the nature of the supplies or services to be acquired; and
(ii) Only include restrictive provisions or conditions to the extent necessary
to satisfy the needs of the agency or as authorized by law.
(2) To the maximum extent practicable, ensure that acquisition officials—
(i) State requirements with respect to an acquisition of supplies or services

63
 in terms of—
(A) Functions to be performed;
(B) Performance required; or
(C) Essential physical characteristics;
(ii) Define requirements in terms that enable and encourage offerors to
supply commercial items, or, to the extent that commercial items suitable to
meet the agency's needs are not available, nondevelopmental items, in
response to the agency solicitations;
(iii) Provide offerors of commercial items and nondevelopmental items an
opportunity to compete in any acquisition to fill such requirements;
(iv) Require prime contractors and subcontractors at all tiers under the
agency contracts to incorporate commercial items or nondevelopmental
items as components of items supplied to the agency; and
(v) Modify requirements in appropriate cases to ensure that the
requirements can be met by commercial items or, to the extent that
commercial items suitable to meet the agency's needs are not available,
nondevelopmental items.

48 C.F.R. §11.002(a). The FAR further provides a definition of a “commercial item:”
Commercial item means-

(1) Any item, other than real property, that is of a type customarily used by
the general public or by non-governmental entities for purposes other than
governmental purposes, and-

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

(ii) Has been offered for sale, lease, or license to the general public;

(2) Any item that evolved from an item described in paragraph (1) of this
definition through advances in technology or performance and that is not
yet available in the commercial marketplace, but will be available in the
commercial marketplace in item to satisfy the delivery requirements under
a Government solicitation;

(3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2)
of this definition, but for-

(i) Modifications of a type customarily available in the commercial
marketplace; or

(ii) Minor modifications of a type not customarily available in the commercial
marketplace made to meet Federal Government requirements. Minor
modifications means modifications that do not significantly alter the
nongovernmental function or essential physical characteristics of an item,
or component, or change the purpose of a process.

64
48 C.F.R. § 2.101.36
As an initial matter, the court notes as mentioned above, the application of 10
U.S.C. § 2377 has not often been addressed in this court or in this circuit, in the context
of a bid protest.37
In 10 U.S.C. § 2377(a), the statute instructs: “The head of an agency shall ensure
that, to the maximum extent practicable . . . such requirements are defined so that
commercial items or, to the extent that commercial items suitable to meet the agency’s
needs are not available, nondevelopmental items other than commercial items, may be
procured to fulfill such requirements,” and “offerors of commercial items and
nondevelopmental items other than commercial items are provided an opportunity to
compete in any procurement to fill such requirements.” Id. In 10 U.S.C. § 2377(b), the
statute requires that “[t]he head of an agency shall ensure that procurement officials in
that agency, to the maximum extent practicable,” “acquire commercial items or
nondevelopmental items other than commercial items to meet the needs of the agency,”
and “modify requirements in appropriate cases to ensure that the requirements can be
met by commercial items or, to the extent that commercial items suitable to meet the

36The court notes that the United States Code, at 41 U.S.C. § 103, provides a
substantially similar definition of commercial item. See 41 U.S.C. § 103 (2012).
37 The statute, 10 U.S.C. § 2377, has been cited in three prior bid protest decisions before
this court, and never before in a decision by the United States Court of Appeals for the
Federal Circuit. See Alfa Laval Separation, Inc. v. United States, 40 Fed. Cl. 215 (1998),
rev’d, 175 F.3d 1365 (Fed. Cir.), reh’g denied (Fed. Cir. 1999); Hydro Eng’g, Inc. v. United
States, 37 Fed. Cl. 448 (1997); Palantir USG, Inc. v. United States, 129 Fed. Cl. 218. In
Alfa Laval, the United States Court of Federal Claims only cited 10 U.S.C. § 2377 in a
footnote for defendant’s statement that “one factor militating in favor of competitive
bidding” was 10 U.S.C. § 2377. See Alfa Laval Separation, Inc. v. United States, 40 Fed.
Cl. at 217 n.2. In Hydro Engineering, a decision by the undersigned, the protestor argued
that the United States Army's Chemical and Biological Defense Command “violated the
Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103–355, 108 Stat. 3243 (1994)
(FASA), as codified at 10 U.S.C. § 2377, by giving Centech [the awardee] a technical
advantage for its heating coil, which allegedly is a sole source part.” Hydro Eng’g, Inc. v.
United States, 37 Fed. Cl. at 473. In Hydro Engineering, this court noted that “not only is
10 U.S.C. § 2377 introduced by the words ‘to the maximum extent practicable,’ but the
solicitation also contemplated that the offerors could use sole source or proprietary parts”
in the designs. Id. at 474. In Hydro Engineering, the undersigned did not discuss the
degree of discretion afforded by the phrase “to the maximum extent practicable,” or
specifically analyze the phrase. Most recently, the undersigned addressed 10 U.S.C.
§ 2377 in Palantir USG, Inc. v. United States, and concluded that the United States Army
had failed to conduct a proper commercial availability evaluation. See Palantir USG, Inc.
v. United States, 129 Fed. Cl. at 289. As noted above, that decision is currently on appeal
to the Federal Circuit. See Palantir USG, Inc. v. United States, Case No. 17-1465.

65
agency’s needs are not available, nondevelopmental items other than commercial items.”
10 U.S.C. § 2377(b).
As this court previously observed in Palantir, the phrases “to the maximum extent
practicable” and “appropriate to the circumstances” in 10 U.S.C. § 2377 are not further
defined in the statute or in the implementing regulations. See Palantir USG, Inc. v. United
States, 129 Fed. Cl. at 267. Moreover, the same phrases “to the maximum extent
practicable” and “appropriate to the circumstances” in the context of 10 U.S.C. § 2377,
have not been judicially defined with any finality to date and are not easily subject to bright
line tests. See id. Turning to dictionary definitions, “maximum” is defined as “as great,
high or intense as possible as permitted” New Oxford American Dictionary 1082 (3d ed.
2010); “practicable” is defined as “able to be done or put into practice successfully,” id. at
1372; and “appropriate” is defined as “suitable in the circumstance.” Id. at 77. These
dictionary definitions provide little further clarification, the words chosen by Congress
clearly indicate, however, that the agency must conduct a fact based analysis of
commercial availability.

The court also notes that the word “maximum” was a specific choice made by
Congress. In the House Report for the Federal Acquisition Streamlining Act of 1994, the
House of Representatives proposed the following language regarding the acquisition of
commercial items:

SEC. 111. PREFERENCE FOR ACQUISITION OF COMMERCIAL ITEMS

Section 16 of the Office of Federal Procurement Policy Act (41 U.S.C. 414)
is amended by redesignating paragraphs (2), (3), and (4) in order as
paragraphs (3), (4), and (5), respectively, and by inserting after paragraph
(1) the following new paragraph:

(2) implement a preference for the acquisition of commercial items by–

(A) whenever practicable, stating specifications in solicitation for bids and
proposals in terms such that bidders and offerors are enabled and
encouraged to offer to supply commercial items in response to agency
solicitations[.]

H. Rep. 103-545(I), at 41 (1994), 1994 WL 261997 (capitalization in original). By contrast,
the Senate Report first proposed the following language:

PREFERENCE FOR ACQUISITION OF COMMERCIAL ITEMS AND
NONDEVELOPMENTAL ITEMS

SEC. 33. (a) PREFERENCE.—The head of each executive agency shall
ensure that, to the maximum extent practicable—

(1) requirements of the executive agency with respect to a procurement of
supplies are stated in terms of—

66
 (A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent
that commercial items suitable to meet the agency’s needs are not
available, other nondevelopmental items may be procured to fulfill such
requirements; and

(3) offerors of commercial items and other nondevelopmental items are
provided an opportunity to compete in any procurement to fill such
requirements.

(b) IMPLEMENTATION.—The head of each executive agency shall ensure
that procurement officials in that executive agency, to the maximum extent
practicable—

(1) acquire commercial items or other nondevelopmental items to meet the
needs of the executive agency;

(2) require prime contractors and subcontractors at all levels under the
executive agency contracts to incorporate commercial items or other
nondevelopmental items as components of items supplied to the executive
agency;

(3) modify requirements in appropriate cases to ensure that the
requirements can be met by commercial items or, to the extent that
commercial items suitable to meet the agency’s needs are not available,
other nondevelopmental items[.]

S. Rep. 1587, at 282-83 (1994) (capitalization in original). The House Conference Report,
from August 21, 1994, adopted the approach of the Senate Report, and consciously
adopted the phrase “to the maximum extent practicable.” The House Conference Report
stated:

SEC. 8104. PREFERENCE FOR ACQUISITION OF COMMERCIAL
ITEMS.

(a) In General.-Chapter 140 of title 10, United States Code, as amended by
section 8103, is further amended by adding after section 2376 the following
new section:

S 2377. Preference for acquisition of commercial items

67
 (a) Preference.-The head of an agency shall ensure that, to the maximum
extent practicable-

(1) requirements of the agency with respect to a procurement of supplies or
services are stated in terms of-

(A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent
that commercial items suitable to meet the agency's needs are not
available, nondevelopmental items other than commercial items, may be
procured to fulfill such requirements; and

(3) offerors of commercial items and nondevelopmental items other than
commercial items are provided an opportunity to compete in any
procurement to fill such requirements.

(b) Implementation.-The head of an agency shall ensure that procurement
officials in that agency, to the maximum extent practicable-

(1) acquire commercial items or nondevelopmental items other than
commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the
agency contracts to incorporate commercial items or nondevelopmental
items other than commercial items as components of items supplied to the
agency;

(3) modify requirements in appropriate cases to ensure that the
requirements can be met by commercial items or, to the extent that
commercial items suitable to meet the agency's needs are not available,
nondevelopmental items other than commercial items[.]

H.R. Conf. Rep. 103-712, at 154 (1994), reprinted in 1994 U.S.C.C.A.N. 2607
(capitalization in original).

The court notes that the language of the House Conference Report closely tracked
the final language of the Federal Acquisition Streamlining Act of 1994, and tracks the
language at 10 U.S.C. § 2377. The word “maximum” in the phrase “to the maximum extent
practicable,” therefore, should not be ignored and read out of the statute. Given the
congressional choice of the word “maximum,” even when coupled with words like

68
“practicable” and “appropriate,” agencies cannot ignore or superficially comply with the
requirement to review the availability of commercial products to meet agency needs as
the statute instructs agencies to make serious and genuine efforts to review the
availability of commercial products to meet all or some of their needs. In Palantir, the
undersigned specifically explained:

Although the statute grants discretionary authority to the agency, and
agency discretionary authority can be the most difficult kind of action to test
in the courts, government contract law is replete with challenges to the
exercises of agency discretion as alleged to be arbitrary and capricious; the
current challenge to the implementation of 10 U.S.C. § 2377 is in the same
category.

Palantir USG, Inc. v. United States, 129 Fed. Cl. at 269.

In this protest, Analytical Graphics states that “an agency’s determination
regarding the commerciality of an item or services is a matter of discretion,” but points
out, “such discretion is not unfettered,” and argues that the “Air Force’s decision to
conduct the procurement on a non-commercial item basis violates FASA and its
implementing regulations.” The protestor first points to the “Product or Service
Descriptions” section of the Air Force’s acquisition plan. As noted above, the acquisition
plan, stated:

The majority of this acquisition is commodity based. Approximately 71% of
the estimated contract value is commodity and 29% of the estimated
contract value is embedded non-personal services. The PWS is written IAW
FAR part 37.6 to minimize non-performance aspects. There are, however,
several DOD and AF directives that preclude a completely performance-
based contract. Inclusion of these directives has been limited to the extent
practicable.

The PWS in combination with the service summary (SS) will identify the
minimum contractor performance requirements and associated
performance thresholds. The SS Items are the key measures of success for
contractor operations and are considered by the acquisition team from a
risk management and contract quality assurance perspective.

The sources sought announcement requested comments regarding the
PWS and service summaries. Industry has not recommended any specific
performance thresholds and highly recommends the Government utilize
only measurable and attainable thresholds.

Protestor argues that “as a practical matter, all of the service requirements in the PWS
involve manipulating, processing, analyzing, and interpreting commercial SSA date which
originates from commercial data sources and, which the Air Force admits, can be
processed using commercial SSA software.” Protestor also contends that “[t]here is no

69
independent basis for the service requirements outside of the underlying data
subscription service and software, which both require the involvement of analysts and/or
engineers to interpret, analyze, and evaluate the data as it is being processed through
the SSA software. The services are ancillary requirements.” Analytical Graphics,
therefore, alleges that it was arbitrary and capricious for the agency to have concluded
that non-commercial items were ever needed.

The court notes that for the current protest the Air Force embarked on an extensive
process to determine what the requirements of the contract at issue would be, first issuing
the RFI on November 4, 2015, “to conduct market research, a continuous process for
collecting and analyzing information about capabilities within the market to satisfy agency
needs.” The contracting officer subsequently issued a first amended RFI, followed by a
second amended RFI, a third amended RFI, and a fourth amended RFI, which identified,
among other items, the minimum salient characteristics required by the Air Force, and a
fourth amended RFI. The fourth amended RFI, dated May 11, 2016, included the draft
Performance Work Statement, and a section titled “Scope,” which stated that, “[t]his is a
non-personal services contract to provide nongovernmental space situational awareness
(SSA) software and services. Nongovernmental SSA solutions are required to augment
the Government’s ability to detect and characterize space threats and improve integration
between DoD, intelligence community, interagency, and nongovernmental space assets.”
The agency also held an industry day after receiving the responses to the first amended
RFI, and invited eight potential offerors to the event, including Analytical Graphics,
Applied Defense, and Exo.

In addition to the industry day, the RFI and the various revised RFIs, on June 21,
2016, the Air Force produced a Market Research Report which contained the evaluation
of the each of the offerors that had responded to the first amended RFI. For the section
titled: “Government’s Presence/Leverage in the Market,” the Market Research Report
indicated:

Although market research determined limited commercial data solutions are
available; the required services to be performed, unique hardware
requirements, the integration of product data into national security
operations and the Government’s desire to obtain complete technical rights
of the data are not commonly or readily available in the commercial
marketplace. Additionally, the commercial data solutions that are available
focus on safety of flight and do not meet all the requirements for Space
Situational Awareness as listed in the PWS.

The protestor states that “during the RFI stage, the Air Force determined that AGI’s
commercial SSA solution could satisfy its requirements, thereby demonstrating that the
requirements themselves were commercial or, at a minimum ‘of a type’ commercial item
requirements.” The court notes that the parties have stipulated that at the time the initial
RFI was issued, “the contracting officer anticipated that the application ultimately

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procured for operations would probably be a commercial item.”38 Indeed, the Market
Research Report had a section titled “Commercial Opportunities” which stated in full:

38 The court notes that this fact demonstrates a very different approach by the Air Force
in the instant protest compared with the Army’s approach to market research in Palantir.
In Palantir, the undersigned repeatedly observed that the Army’s focus from the beginning
of the procurement process was on a developmental contract, not commercial options.
For example, in Palantir the undersigned explained how the market research was focused
on developmental options:

The initial Request for Information, issued August 13, 2014, was “conducted
to assess the level of relevant competition and capabilities in the market
place and elicit industry feedback to assist the Program Office in developing
the Acquisition Plan.” The August 13, 2014 Request for Information,
however, “request[ed] respondents’ corporate overview information and
basic qualifications in managing software development projects that are
similar in scope and process to the DCGS-A program.” (emphasis added).
Instead of asking about commercial items, or asking more open-ended
questions about the approach to the procurement, potential respondents
only were asked about developmental projects similar to the existing DCGS-
A Increment 1 program.
After the August 13, 2014 Request for Information, the Army issued a
second Request for Information on December 5, 2014, which “[w]as issued
to determine ability of individual companies to act as the prime contractor
for the DCGS-A development effort.” (emphasis added). “In addition, this
RFI requests respondents’ specific answers regarding the basic
qualifications in managing software development projects that are similar in
scope and process to the DCGS-A program.” (emphasis added). As with
the first Request for Information, the Army’s focus in the December 5, 2014
Request for Information was on “the DCGS-A development effort” and not
on the possibility of procuring commercial items. The goal of this second
Request for Information was for the Army to understand the respondent’s
“development projects that are similar in scope and process to the DCGS-
A program.” (emphasis added). The May 6, 2015 Request for Information,
the third issued by the Army, stated, “this RFI requests respondents’
specific answers regarding the basic qualifications in managing software
development projects that are similar in scope and process to the DCGS-A
program.” (emphasis added). The May 6, 2015 Request for Information also
asked respondents: “For this RFI, the Government seeks information
regarding your corporate capabilities and experience related to the delivery
of capabilities as described” earlier in the May 6, 2015 Request for
Information. Like the previous two Requests for Information, the May 6,
2015 Request for Information did not seek information for commercial items
from the respondents, suggesting to the court that the agency likely already
had decided that the DCGS-A Increment 2 was going to be another
developmental project.
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 The RFI originally sought to obtain SSA data from a commercial solution.
However, it became apparent after market research that the data and
services required could only be met through noncommercial sources
because of the following factors: limited commercial data solutions are
available, the required services to be performed are not found in the
commercial marketplace, the Government requires unique hardware
requirements and the Government’s desire to obtain complete technical
rights. Also, the commercial data solutions that are available focus on safety
of flight and do not meet all of the requirements for SSA as listed in the
PWS. Additionally, some vendor’s responses stated their solution was a
commercial product; however, most vendors were unable to provide a
commercial price list or commercial customers for the software. Lastly, upon
review of the PWS, the DoD and AF regulations governing the execution of
the requirement, the Government’s desire to obtain data rights, and the
integration of the product data into national security operations makes this
requirement noncommercial. It is hereby determined that the requirement is
not offered to the general public in the commercial marketplace and is not
a commercial service as described in FAR Part 12.

The protestor takes issue with the conclusions, described in the Market Research
Report, arguing “whether there are ‘limited’ commercial solutions available or many does
not change whether the requirement itself is commercial. Essentially, the Air Force is
suggesting that, if there were more commercial solutions like AGI’s available, it would
concede that its requirement is commercial. This position is illogical and unsupportable.”
Moreover, protestor claims that all of the services that the agency cited as being non-
commercial, protestor could offer on a commercial basis. Protestor tries to explain that:

The service portion of the PWS includes engineering services, operational
and analytical services, and services related to software customization and
integration, which clearly are commercial in nature, are services regularly
performed as part of commercial item acquisitions, including under AGI’s
recently-completed commercial contract with AFSPC/50CONS for the
JICSpOC as well as with AFSPC/SMC for JMS, a related SSA program,
and are services that are available on AGI’s GSA FSS contract.

Protestor also claims that “there are no unique hardware requirements in the RFP.
Rather, all of hardware listed in the PWS is clearly commercial hardware.” Protestor also

Palantir USG, Inc. v. United States, 129 Fed. Cl. at 270-71. The narrow focus on the
developmental approach to the procurement in Palantir was one of the reasons this court
found that the Army had not met the requirements of 10 U.S.C. § 2377. The market
research in the above captioned protest, by contrast, was more thorough than in Palantir,
and, as indicated above, the contracting officer was initially open to considering if the
procurement needs could be met though commercial items.

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dismisses the desire to obtain complete technical rights as “an improper factor to support
a non-commerciality determination.”

Initially, the court notes that some of protestor’s arguments would appear to require
this court to second guess the agency’s process when determining how the agency could
best meet its requirements, which the Federal Circuit has cautioned, “‘is a matter within
the broad discretion of agency officials . . . and is not for [the] court to second guess.’”
Savantage Fin. Servs., Inc. v. United States, 595 F.3d at 1284 (quoting Wit Assocs., Inc.
v. United States, 62 Fed. Cl. 657, 662 (2004)); see also Glenn Def. Marine (ASIA), PTE
Ltd. v. United States, 720 F.3d at 908 (citing E.W. Bliss Co. v. United States, 77 F.3d 445,
449 (Fed. Cir. 1996)); COMINT Sys. Corp. v. United States, 700 F.3d at 1384.; E.W. Bliss
Co. v. United States, 77 F.3d at 449; CHE Consulting, Inc. v. United States, 74 Fed. Cl.
742, 747 (2006). As the Federal Circuit in Res-Care noted, a federal agency “has ‘broad
discretion to determine what particular method of procurement will be in the best interests
of the United States in a particular situation.’” Res-Care, Inc. v. United States, 735 F.3d
at 1390 (quoting Tyler Constr. Grp. v. United States, 570 F.3d at 1334). Indeed, the court
does not wish to be in the position to tell how any agency how they must procure any
item, commercial or otherwise. The court, therefore, does not determine if the entire
procurement could be met by commercial or non-developmental items, although the
acquisition plan initially indicated that it was contemplated that “[t]he majority of this
acquisition is commodity based. Approximately 71% of the estimated contract value is
commodity and 29% of the estimated contract value is embedded non-personal services.”

As noted above, 10 U.S.C. § 2377(c) requires:

(c) Preliminary market research.--(1) The head of an agency shall
conduct market research appropriate to the circumstances--

(2) The head of an agency shall use the results of market research to
determine whether there are commercial items or, to the extent that
commercial items suitable to meet the agency’s needs are not available,
nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were
modified to a reasonable extent.

10 U.S.C. § 2377(c). Therefore, an agency must consider, one, if a commercial item is
available to meet all of the agency’s needs, two, if the commercial item could be modified
to meet the agency’s needs, or three, if the agency’s needs could be modified to use a
commercial item. Even holding aside the 29% of the requirements which the agency
considered non-commercial services, protestor argues that “the Air Force had a legal
obligation to consider modifying its requirements in a manner that would allow the Agency

73
to incorporate available commercial products, which the Air Force admits satisfy the lion’s
share of its requirement.” Analytical Graphics zeroes in on the acquisition plan’s
statement that 71% of the estimated contract value was contemplated to be a commodity
and argues that this demonstrates that the Air Force acknowledged that the procurement
could be satisfied with commercial items. Defendant argues that this argument “should
be summarily dismissed,” and notes that the contracting officer indicated that the
contractor had to understand the software given the urgency of the procurement. The
defendant argues that “[t]he contracting officer's answer was common sense, and
obviously correct! How could another company take COMSpOC [protestor’s software] off
the shelf and quickly and adroitly modify it for crucial military operations?” (footnote
omitted). The court agrees, and, as noted above, does not wish to be in the business of
telling an agency how to best meet its requirements. See Savantage Fin. Servs., Inc. v.
United States, 595 F.3d at 1284. The court believes that the language of 10 U.S.C.
§ 2377 instructing the agency to consider modification of the agency’s requirements or
modifications of the commercial items themselves does not, in every case, force an
agency to have to separate out all potentially commercial items from a procurement. This
could lead to the impractical, inefficient, and unintegrated result of having only a fraction
of a procurement utilizing a commercial item and the balance of a procurement taking the
form of a developmental contract, which could delay procurements and also make the
contract cumbersome to perform and administer, and further, could hinder the mission of
the agency seeking to award the contract, especially for an urgent contract.
In the above captioned protest, during the deposition taken after the protest was
filed in this court,39 the contracting officer was asked to discuss the 71% figure, and had
the following exchange with protestor’s counsel:

Q: So do you agree with this 71 percent figure that's in here? Was that
accurate at the time it was written?

A: To the best of my knowledge, it was accurate at the time it was written.

Q: And what is the 71 percent commodity, “commodity” being the word?
What does commodity refer to?

A: I would have to refer to the IGE [Independent Government Estimate] to
determine how we came up with those numbers originally. But my -- I
would -- based on the fact it would be like the hardware, the software.
There's data lines, I believe. I would have to refer to the independent
government estimate to determine how we came up with that.

The contracting officer also indicated in her deposition that she believed the commodity
portion of the contract could be satisfied by commercial items, however, the services

39The court notes that the deposition of the contracting officer has been made part of the
Administrative Record in the above captioned protest.

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portion could not be satisfied by commercial items. In addition, the contracting officer also
had the following exchange with protestor’s counsel at the deposition:

[Q.] Up until the time the RFP was issued, did you consider modifying the
requirement to allow a commercial item to satisfy part of the overall
requirement?

A. Through the market research, through the sources sought, through the
draft PWS, through the industry day, all of that went into consideration on
how commercial items could be utilized, but in the end it came down to the
final PWS and the government's requirements and the four items that I've
outlined that came down to my decision, that the government's
requirements were not commercial products or were not customarily in the
commercial market.

Q. But could part of the government's requirement have been satisfied by a
commercial item?

A. As I stated previously, there were two companies that offered software,
and that software was a commercial item.

Q. So yes; is that correct? You're saying yes?

A. Yeah, part, but no, the entire requirement could not be met with
commercial items. Only part of it could be.

Q. Did you consider separating the two, the part that can be satisfied by a
commercial item and the part that cannot?

A. We needed -- because of the urgency of the requirement, we needed the
contractor to be able to hit the ground running at the time and I needed the
contractor to know the software and to be able to operate the software. That
was important. So there was no -- that wasn't an option that was available
to the government based on the fact that we wanted the contractor to be in
place and hit the ground running from day one and they needed to know
how to operate the software.
Protestor challenges the urgency argument, by stating, “the CO's argument
against splitting the requirements vastly overstates the urgency of the Air Force
requirement.” The defendant responds that “AGI cites no evidence in the administrative
record” in this protest. Protestor only cites to an online source for its claim that “at least
one Air Force stakeholder has made public statements that the JICSpOC SSA program
will not achieve full operational capability until 2018,” which, the court notes, at this point
is not that far in the future. Defendant argues that “[a]bsent a violation of statute or
regulation, the agency possesses discretion to make procurement decisions unless
evidence in the administrative record demonstrates that a decision is arbitrary.” Protestor
also states that “nothing in the contemporaneous procurement record indicates that the

75
CO ever considered modifying the Air Force’s requirements to accommodate commercial
items.” Protestor refers the court to the Memorandum for Record for “Noncommerciality
for Services and Government Purpose Rights,” the justification and authorization
document, the Market Research Report and the acquisition plan. Those documents,
described in detail above, do not specify the urgency of the procurement,40 however, in
the contracting officer’s deposition, referred to above, the contracting officer testified,
regarding splitting the procurement in multiple parts, that “no -- that wasn't an option that
was available to the government based on the fact that we wanted the contractor to be in
place and hit the ground running from day one.” To be sure, this is a broad statement,
provided after the award, but reflective of the contemporaneous thinking of the contracting
officer, made under oath, as is her statement that an offeror “needed to know how to
operate the software.” In her deposition, the contracting officer indicated that some
elements could be met with commercial items, but in concluding the entire requirement
was noncommercial, she did not specifically elaborate why the procurement as a whole
was so intertwined that it would not be possible to break out some items for commercial
award. The contracting officer also indicated in her deposition:
I determined it to be a noncommercial requirement although some of it could
be met with commercial items, I did not feel that the entire solution could be
network commercial items, due to several factors, which included services,
the data -- services, data rights, the DOD publications and regulations and
the type of contract that I was planning to utilize. The combination of those
led me to believe it was noncommercial.

As noted above, the court believes there are decisions to be made within the agency’s
discretion and that forcing the agency to spilt a potential contract into noncommercial
requirements and commercial item requirements, especially when the agency has
identified an urgent need, would be too broad of a second guess of the needs of the

40 As the court noted in Palantir, there is not an identifiable requirement in the commercial
determination statute or regulations that requires the agency to document its decision
regarding commercial availability. See Palantir USG, Inc. v. United States, 129 Fed. Cl.
at 272. Nor is there any published requirement as to what would constituted sufficient
documentation. The undersigned in Palantir specifically declined to make a court based
rule defining the amount of documentation that would be sufficient. The agency, however,
must still be able to justify its decision. As noted above, in determining what the
requirements would be the contracting officer properly conducted market research and
identified the portions of the requirements that could not be met by commercial items. The
extensive process by the agency of considering commercial and non-commercial
possibilities demonstrated the seriousness with which the agency undertook how to
ultimately undertake the procurement. The court believes, however, it behooves any
agency making a commercial availability determination to document its decision making
process contemporaneously, if only to demonstrate to the GAO or this court the steps the
agency took. In the above captioned protest, documentation regarding the urgency of
procurement would have been helpful, and would not have required the Air Force to rely
on the deposition of the contracting officer taken after the protest was filed in this court,
although the deposition was requested by protestor.
76
agency. Moreover, forcing the Air Force to procure some of the items as a commercial
items would potentially put the awardee of the developmental contract and the agency in
an unfavorable and detrimental position. As noted above, defendant questioned how
another offeror could take protestor’s software and “quickly and adroitly modify it for
crucial military operations?”

Anticipating defendant’s and intervenor’s position, protestor argues that, “the CO’s
position that the requirements could not be split is illogical. As argued, all required
services are commercial. The commercial item requirements for data, software, and
hardware could easily be provided by a single commercial item contractor with a non-
commercial item contractor providing any ancillary non-commercial services.” Analytical
Graphics tries to explain that:

As AGI’s work on the AGI Contract demonstrates, such services, delivered
in conjunction with commercial SSA processing software and a commercial
SSA data subscription, are clearly sufficient to provide the Air Force with a
working SSA system, capable of satisfying all of the requirements of the
PWS. To the extent the Air Force believes additional non-commercial item
services are necessary to satisfy its requirements—a position AGI rejects—
nothing would prohibit the Air Force for [sic] procuring such services under
a separate contract.

The existence of the JICSpOC contract, however, does not alone prove that the
contracting officer must have procured the requirements on a commercial basis, although
there was overlap with the JICSpOC contract and the requirements of the Performance
Work Statement in the instant procurement. Both the current contract and the JICSpOC
contract sought commercial data subscription, SSA processing software, and technical
support. Moreover, the parties also have stipulated that the list of capabilities in the RFI
was similar to the “Application Technical Specifications” in the JICSpOC contract. But the
two were not identical, and the Air Force began the process for procurement at issue only
one month after the JICSpOC contract was awarded. Defendant argues in response to
protestor that “AGI tries to expand the contracting officer's finding that AGI's subscription
service was a commercial item to an additional finding that whatever services AGI may
have subsequently provided were part of that commercial item.” (emphasis in original).
Defendant argues that this is unreasonable, and claims that “the purpose of the
experiments conducted during the AGI contract was to determine what services beyond
the capabilities of the AGI commercial product would be needed to meet the Government
requirement; such additional services were among those services identified in the PWS
for this procurement.” (emphasis in original). In its statement of needs, the first amended
RFI indicated: “The US Air Force needs commercial SSA data for operational use. SSA
data must originate from non-DoD sensors and be real-time. See attached for minimum
salient characteristics.” In addition, the “Salient Characteristics,” discussed at length
above, began by noting: “The collection of non-governmental SSA data, processing tools,
personnel, and contracted support will be referred to as the Commercial SSA System.”

77
 The “maximum extent practicable” language, as well as the requirement to conduct
market research to “determine if commercial items or nondevelopmental items are
available to meet the Government’s needs or could be modified to meet the Government’s
needs,” 48 C.F.R. § 10.002, means the government had an obligation, once it determined
what the requirements were to see if commercial items existed or if it could be modified
to meet all or part of the procurement requirements. See 10 U.S.C. § 2377(c). The Air
Force was aware of Analytical Graphics’ capabilities, both from the performance of the
JICSpOC contract, and in protestor’s submissions in response to the RFIs, and, as noted
repeatedly above, had a statutory requirement determine if the capabilities could be
modified in a way to meet some or all of the agency’s needs. The record reflects, however,
that the contracting officer gave serious consideration to the Analytical Graphics
approach, but determined that the requirement could best be meet by a noncommercial
requirement, although some commercial items could theoretically be included. The
contracting officer indicated, however, “I did not feel that the entire solution could be
network commercial items, due to several factors.” In the absence of a protestor
demonstrating from the record before the court that the agency acted arbitrarily or violated
a statute or regulation, which, in the court’s view, Analytical Graphics has not done, the
court gives deference to the contracting officer’s decision about the best approach for the
agency, to acquire the urgently needed contract.
Each commercial availability decision must be based on the specific facts of the
particular case. 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. In the protest currently before the court, the Air Force
was more deliberate and more candid about its commercial options than the Army in
Palantir. The Air Force’s consideration of how to proceed with the procurement, therefore,
cannot be said to have been casual, unthinking, or not deliberate, despite the absence of
articulated, contemporaneous documentation of the urgency of the procurement. In this
case, the contracting officer selected the intervenor in order to allow one contractor to
move expeditiously due to the urgent nature of the requirement by providing the
capability, rather than separating the procurement. As explained above, the agency
decision is entitled to some deference to determine its own needs and to best judge the
urgency of those needs. The court relies on the sworn testimony of the contracting officer
that the need was urgent and could not be spilt. Moreover, other than to question the
agency actions in this protest, the protestor has not demonstrated that the Air Force
lacked urgency, or that the contracting officer’s basis for her decision was incorrect.
Protestor also argues that the Air Force improperly considered the issue of data
rights before making the commerciality decision and, in any event, the Air Force did not
consider Analytical Graphics willingness to negotiate data rights. Specifically, Analytical
Graphics argues that the decision to pursue the procurement on a non-commercial basis
was motived in part “by the desire to obtain broader intellectual property rights in the
resulting data.” Analytical Graphics contends, “this approach to determining
commerciality allows the tail to wag the dog. The requirement is either commercial in
nature or it is not.” Protestor, therefore, argues that “[t]he data rights associated with the
Air Force’s substantive SSA requirement are incidental to that substantive requirement

78
and the determination regarding whether such is commercial in nature.” Defendant
responds that “AGI's arguments that the contracting officer could have negotiated
unlimited data rights are irrelevant. No one has ever disputed that AGI has the capability
to meet the Government requirement; the market research report identified AGI as one
of eight capable vendors.” Instead, defendant argues, “[t]he point is simply that what was
required (unlimited data rights) was not a feature available in the commercial
marketplace. And on this issue, the contracting officer was clearly correct.”
As noted above, on June 1, 2016, the contracting officer wrote a Memorandum for
Record with the subject: “Noncommerciality for Services and Government Purpose
Rights.” The memorandum stated, in part:

The Government’s requirement is for the contractor to provide government
purpose rights for the raw data identified in the performance work statement
to specified locations at Schriever AFB, Peterson AFB, Vandenberg AFB,
and other locations directed by the Government. Product data shall be
available with government purpose rights and shall be distributed to
operations centers at: Offutt AFB, Vandenberg AFB, Chantilly, five specified
intelligence locations; and other locations as deemed necessary by the
Government. Such data may be shared for government use only, with other
contractors.

The Government’s rights typically would be limited to standard commercial
uses as a “commercial item.” AGI’s license agreements included the
following statement: You may NOT allow the processed data to be viewed
outside the organization or program for which the software is licensed
without the prior written consent of the vendor. The Government must have
government purpose rights to allow the Government to make strategic,
tactical, and course-of-action decisions real-time. The Government will not
be able to obtain written permission prior to providing raw data, processed
data, or end products to another government agency or a contractor
supporting a government requirement. The contracting officer assessed the
data rights required were substantially different than standard commercial
use.

(capitalization in original). Likewise, the Market Research Report indicated:

Although market research determined limited commercial data solutions are
available; the required services to be performed, unique hardware
requirements, the integration of product data into national security
operations and the Government’s desire to obtain complete technical rights
of the data are not commonly or readily available in the commercial
marketplace. Additionally, the commercial data solutions that are available
focus on safety of flight and do not meet all the requirements for Space
Situational Awareness as listed in the PWS.

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The acquisition plan similarly indicated that:

After market research the CO determined that the requirement could only
be met through noncommercial sources because of the following factors:
limited commercial data solutions are available; the required services to be
performed are not found in the commercial marketplace, the government
requires unique hardware requirements and the Government’s desire to
obtain complete technical rights.

Consistent with the statements in the Market Research Report and the acquisition plan,
and as described above, the contracting officer, in a deposition taken after the protest
was filed in this court, testified:

I did not feel that the entire solution could be network commercial items,
due to several factors, which included services, the data -- services, data
rights, the DOD publications and regulations and the type of contract that I
was planning to utilize. The combination of those led me to believe it was
noncommercial.

The Administrative Record reflects Analytical Graphics willingness to negotiate the
terms of the data rights and protestor points to the government’s industry day summaries,
which indicated that, regarding Analytical Graphics’ presentation: “AGI stated they have
no problem with giving the USG full data rights and ‘it makes sense.’ AGI stated they
envisioned the USG paying an annual subscription, that could be fixed price, and that
labor could be available per FAR Part 12. Furthermore, in its response to the question: “If
the Government has a need for rights not conveyed under the license customarily
provided to the public, would you be willing to negotiate acceptable terms for transferring
such rights?” in the RFI, protestor responded that, “[y]es AGI is willing to negotiate
mutually acceptable terms for transferring rights not conveyed under the license
customarily provided to the public.” The court notes, however, despite Analytical
Graphics’ willingness to negotiate the terms of the data rights, protestor’s commercial
item, the subscription service, at the time of the market research did not include the data
rights the government sought, and, therefore, was not a commercial items that typically
available in the marketplace. Given the urgency of the procurement, the contracting
officer’s hesitancy to consider a commercial item for something not then commercially
available, and which would be subject to possible failed negotiations to meet the
procurement’s stated needs is understandable. Furthermore, the government, in its reply
brief stresses that

in this case, the services required are in support of a highly classified and
technical military operation. There is no commercial marketplace for such
services, and no commercial item services (falling within subsections (5) or
(6) of the commercial item definition) available to meet those service
requirements because national defense operations are reserved to the
Department of Defense and intelligence agencies.

80
Given the through and complete market research that the Air Force undertook prior to
issuing the solicitation, the court defers to the government’s view that there was no
commercially available product with the requisite data rights the Air Force needed for their
urgent requirement.

In addition, protestor notes that Defense Federal Acquisition Regulation
Supplement (DFARS) to the FAR requires if greater rights are needed that “the
Government must negotiate with the contractor to determine if there are acceptable terms
for transferring such rights.” DFARS 227.7202-(3)(b) (2017).41 Analytical Graphics argues
that the above demonstrates that protestor was willing to enter into negotiations, and
moreover, points to its experience with Agency during the award of the JICSpOC contract.
Protestor argues “[n]otably, the Air Force required greater rights in data than what was
available through AGI’s standard commercial license agreements at the time that the AGI
contract was formed. Accordingly, during contract negotiations, the CO negotiated a data
rights addendum with AGI, which was made part of the resulting contract.” (internal
reference omitted). Indeed, the parties in this protest have stipulated that “[d]uring

41Protestor additionally argues that the Air Force first should have considered acquiring
the license as commercially offered by Analytical Graphics, pointing to DFARS 227.7202-
1, which states:

(a) Commercial computer software or commercial computer software
documentation shall be acquired under the licenses customarily provided to
the public unless such licenses are inconsistent with Federal procurement
law or do not otherwise satisfy user needs.
(b) Commercial computer software and commercial computer software
documentation shall be obtained competitively, to the maximum extent
practicable, using firm-fixed-price contracts or firm-fixed-price orders under
available pricing schedules.
(c) Offerors and contractors shall not be required to—
(1) Furnish technical information related to commercial computer software
or commercial computer software documentation that is not customarily
provided to the public except for information documenting the specific
modifications made at Government expense to such software or
documentation to meet the requirements of a Government solicitation; or
(2) Relinquish to, or otherwise provide, the Government rights to use,
modify, reproduce, release, perform, display, or disclose commercial
computer software or commercial computer software documentation except
for a transfer of rights mutually agreed upon.

48 C.F.R. 227.7202–1 (2017). The court notes that DFARS 227.7202-1(b) has similar
language to the commercial availability statute of 10 U.S.C. § 2377, by instructing
commercial software “shall be obtained competitively, to the maximum extent
practicable . . . .” DFARS 227.7202-1(b).

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contract negotiations, the Contracting Officer negotiated a data rights addendum with AGI
which was made part of the [JICSpOC] contract.”
The data rights issue was a factor in the contracting officer’s decision not to award
to protestor. Whether or not sufficient data rights in the current procurement and the
government’s needs could have been negotiated prior to award remains unknown, the
urgency of the procurement, however, appears to have made this one of the multiple
considered reasons not to award the contract as a commercial item.42 The DFARS
language instructing the government to negotiate, moreover, does not demonstrate that
protestor was offering a commercial item. As determined above, the Air Force concluded
that protestor’s subscription service, at the time of the market research, did not include
the data rights the government sought, and, therefore, was not a commercial items that
typically available in the marketplace.
CONCLUSION

Accordingly, the agency’s decision to consider Applied Defense and Exo as
reasonably likely to meet the requirements of the procurement was rational, and,
therefore, the small business set-aside determination was proper. Regarding the issue of
10 U.S.C. § 2377, the court finds that the government’s market research was sufficient
and the court will not second guess the agency’s determination that the requirements of
the procurement could not be met by commercial items. Therefore, protestor’s motion for
judgment on the administrative record is DENIED. Defendant and intervenor’s cross-
motions for judgment on the administrative record are GRANTED. Protestor’s request for
injunctive relief is DENIED. The Clerk of the Court shall enter JUDGMENT consistent with
this opinion.

IT IS SO ORDERED.
s/Marian Blank Horn
MARIAN BLANK HORN
Judge

42 The court notes that protestor raised an additional objection to the Air Force’s Rule of
Two determination, that because the “Air Force’s SSA requirement is commercial,” the
Air Force needed a rational basis to conclude that at least two small businesses capable
of providing a commercial SSA solution would submit proposals with fair market prices.”
(emphasis in original). Protestor, reiterating its arguments above, then claims that “under
applicable law, the Air Force was required to determine the commerciality of its
requirements before assessing whether the procurement should be set-aside for small
businesses. Because the Air Force’s SSA requirements are commercial, and because
the Air Force did not identify any small businesses capable of providing a commercial
SSA solution as a prime contractor, the set-aside determination is arbitrary and
capricious.” As the court has found that the Air Force was not required to make the
commerciality determination first, and has, moreover, found that the non-commercial
decision was rational, the protestor’s argument is without merit.
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