CHE Consulting, Inc. v. United States

United States Court of Appeals for the Federal Circuit
2007-5172

CHE CONSULTING, INC.,

Plaintiff-Appellant,

v.

UNITED STATES,

Defendant-Appellee.

Steven E. Kellogg, The Kellogg Law Firm, of Belleville, Illinois, argued for plaintiff-
appellant.

Christopher L. Krafchek, Trial Attorney, Commercial Litigation Branch, Civil Division,
United States Department of Justice, of Washington, DC, argued for defendant-appellee. On
the brief were Jeffrey S. Bucholtz, Acting Assistant Attorney General, Jeanne E. Davidson,
Director, Brian M. Simkin, Assistant Director, and F. Jefferson Hughes, Trial Attorney.

Appealed from: United States Court of Federal Claims

Judge Thomas C. Wheeler
United States Court of Appeals for the Federal Circuit

2007-5172

CHE CONSULTING, INC.

Plaintiff-Appellant,
v.

UNITED STATES,

Defendant-Appellee.

Appeal from the United States Court of Federal Claims in Case No. 07-CV-055, Judge
Thomas C. Wheeler.

___________________________

DECIDED: December 30, 2008
___________________________

Before LOURIE, RADER, and BRYSON, Circuit Judges.

RADER, Circuit Judge.

In this bid protest case, the United States Court of Federal Claims entered

judgment in favor of the United States Naval Oceanographic Office (“NAVO”) and

against the challenger, CHE Consulting (“CHE”). CHE protested NAVO’s decision to

solicit a single provider for the hardware and software maintenance of a complex

computer system. During oral argument, the trial court requested NAVO to supplement

the administrative record with regard to, inter alia, system maintenance practices of

other agencies. Following supplementation, the trial court entered judgment in favor of

NAVO. CHE Consulting, Inc. v. United States, 78 Fed. Cl. 380 (2007). On appeal, CHE

contends both that the trial court violated the Administrative Procedure Act (“APA”) by

relying on NAVO’s post hoc rationalizations and that the trial court allowed NAVO’s
single-provider maintenance contract to violate the Competition in Contracting Act

(“CICA”), 10 U.S.C. § 2304(a)(1)(A) (2006). Because NAVO had articulated a rational

basis for its contracting decision before supplementing the record, this court affirms.

I.

NAVO operates the Defense Department’s Major Shared Resource Center

(“MSRC”), a supercomputing center that acquires and analyzes worldwide oceanic and

shoreline data. The NAVO MSRC supports many weapons programs, and also

provides information to 4,550 civilian scientists, engineers, computer specialists, and

security experts.

The hardware for the procurement at issue in this appeal is a robotic tape library

at the MSRC. The library stores as many as 6,000 digital data tapes. When an offsite

user needs to retrieve data from a particular data tape, a robotic arm within the complex

retrieves the tape, mounts it into a drive, reads the data, dismounts the tape from the

drive, and returns it to its slot within the library complex.

Both the hardware and the software of these systems require maintenance.

Storage Technology Corporation (“STK”) and its licensees alone supply the software

support for this system because that software is its own proprietary intellectual property.

Other vendors, however, may supply hardware maintenance. According to the bid

documents, a maintenance vendor must show its ability to supply services 24 hours a

day, 7 days a week, with a 2-hour response time. MSRC systems also require a 97

percent availability rate for all users.

On August 21, 2006, the General Services Administration (“GSA”) issued a

solicitation seeking a single vendor to provide maintenance of both the hardware and

2007-5172 2
software for NAVO’s robotic tape library systems. On August 23, 2006, CHE, a

computer maintenance contractor, requested NAVO to separate its maintenance

procurements into separate hardware and software contracts to allow full and open

competition. After consulting its technical staff, GSA revised the solicitation to facilitate

that separation.

CHE submitted a hardware maintenance proposal under that revised solicitation.

GSA forwarded that proposal to NAVO’s representative. In an email memorandum,

NAVO’s representative advised that it would not accept de-bundled proposals; NAVO

instead would only consider proposals from single providers. NAVO’s representative

explained that multiple providers could not meet the MSRC’s operational needs

because separate hardware and software maintenance providers could disrupt mission-

critical service and maintenance response time. Following this direction from NAVO’s

representative, the GSA’s contracting officer cancelled the de-bundled solicitation and

issued a new solicitation which demanded a single service provider capable of

performing both software and hardware maintenance.

II.

On December 7, 2006, CHE filed an agency-level protest to contest the new

solicitation. CHE cited seven examples of other federal agencies with separate

hardware and software maintenance requirements. CHE also cited its strong track

record with regard to some 75 hardware maintenance contracts for similar STK robotic

tape library systems around the world. In response, NAVO submitted an affidavit

justifying its decision to bundle software and hardware services because of the

complexity and importance of this library system, the risk of potential disputes between

2007-5172 3
multiple maintenance providers in the event of a failure, and the great cost of system

downtime. In a final decision, the GSA official sided with NAVO, determining that NAVO

had met its burden to provide a reasonable basis for its need to bundle services.

CHE then filed suit in the Court of Federal Claims on January 24, 2007, seeking

to enjoin NAVO from bundling both services. CHE argued that the agency’s action

violated the full and open competition requirements of CICA by restricting competition

for hardware maintenance. CHE further argued that NAVO’s arguments that de-

bundling the contract would result in finger-pointing and unnecessary downtime were

conclusory in nature without any support in the record. Both parties moved for

judgment on the administrative record.

At the hearing on the parties’ motions, the trial judge expressed dismay at the

sparseness of the evidentiary record. He criticized NAVO’s “string of conclusory type

statements . . . in a relatively brief affidavit” and opined that “the Agency ha[d] not done

its homework” in supporting its procurement decision. Hr’g Tr. 49:13-18, Mar. 29, 2007.

The trial judge then suggested that NAVO supplement the record by conducting a cost

analysis and market survey of other federal agencies. The trial judge wished to receive

information about other agencies with the same availability requirements as NAVO and

about other agencies with experience involving finger-pointing disputes over

maintenance obligations. The trial judge also sought information about the effect on

competition and performance in those other agencies and about any cost impacts from

separated solicitations.

On May 21, 2007, the GSA reported results from its cost and market analyses.

Based on the supplemented record, the trial court affirmed the GSA’s action, finding that

2007-5172 4
the market and cost analysis were consistent with NAVO’s original concerns about the

risk and cost of downtime versus cost savings from using two providers. This appeal

followed. This court has jurisdiction under 28 U.S.C. § 1295(a)(3).

III.

In judgments upon the administrative record, this court reviews the trial court’s

legal determinations without deference. Bannum, Inc. v. United States, 404 F.3d 1346,

1351 (Fed. Cir. 2005). “Bid protest actions are subject to the standard of review

established under section 706 of title 5 of the Administrative Procedure Act . . . by which

an agency’s decision is to be set aside if it is arbitrary, capricious, an abuse of

discretion, or otherwise not in accordance with law . . . .” R & W Flammann GmbH v.

United States, 339 F.3d 1320, 1322 (Fed. Cir. 2003) (internal citations and quotations

omitted). In applying the APA to bid protests, this court has held that “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.” PGBA,

LLC v. United States, 389 F.3d 1219, 1225 (Fed. Cir. 2004).

“Procurement officials have substantial discretion to determine which proposal

represents the best value for the government.” E.W. Bliss Co. v. United States, 77 F.3d

445, 449 (Fed. Cir. 1996). CHE’s challenge to NAVO’s procurement decision thus

invokes “highly deferential” rational basis review. Advanced Data Concepts, Inc. v.

United States, 216 F.3d 1054, 1058 (Fed. Cir. 2000) (“This standard requires a

reviewing court to sustain an agency action evincing rational reasoning and

consideration of relevant factors.”).

2007-5172 5
 Upon review of the entire record, this court determines that NAVO had

established a rational basis to combine hardware and software maintenance services

into one contract before the trial court requested supplementation. The additions to the

administrative record were thus not necessary.

NAVO’s contracting officer representative (“COR”) laid a framework for the

agency’s rational basis in his September 28, 2006 memorandum that expressed

concern that segregating the maintenance contracts would present unacceptable risks

to mission-critical equipment. Gruzinskas Mem., Sep. 28, 2006. The memorandum

states that a segregated maintenance contract would be an “unacceptable solution” at

odds with the “tightly integrated collection of hardware, software, and firmware which

operates as a complete system [at the NAVO MSRC].” Id. Further, the record shows

that those systems are “very critical” to NAVO’s operations. Id. “Any disruption in

service can ripple through the center with adverse effects [throughout the agency].” Id.

Moreover, a multi-vendor approach would make it “extremely difficult if not impossible”

to maintain the equipment at the required “24 hour, x 7 day period with a two hour

response time.” Id. As the memo posits, a risk to the NAVO mission could arise

because of “conflicts arising from failures and responsibility for these failures in a very

complex system.” Id.

The COR’s December 18, 2006 affidavit, also part of the unsupplemented record,

further builds on the agency’s rational basis foundation. Gruzinskas Aff., Dec. 18, 2006.

The affidavit provides, in great detail, particulars about the MSRC’s mission critical

operations, which relate to a broad swath of national security interests. Id. at 2-4.

Although a segregated maintenance solution would be “theoretically possible, and could

2007-5172 6
potentially result in a cost savings to the government,” according to the affidavit, such a

solution “would incur a risk to our computing environment that the government is not

willing to accept.” Id. at 1. The ultimate cost of any potential down time would be

“difficult to quantify . . . in financial terms.” Id. Nonetheless, that downtime could

possibly affect “critical environmental modeling support” necessary for “every ship,

aircraft, and submarine in service for the US Navy.” Id. Getting straight at the heart of

the matter, the agency’s legal memorandum, dated the same day as the COR’s

affidavit, states:

For each wall clock hour of downtime incurred, many thousands of
processor hours of downtime are experienced by the MSRC users. The
inability to provide these services on a continual uninterrupted basis will
have a direct negative impact on DoD missions and national defense
operations. . . .

The MSRC requires the benefit of dealing with only one contractor
accountable for all repairs and maintenance which will relieve the
government of the need to analyze the source of equipment problems and
identify the responsible contractor to service the equipment.

Sinn Mem. 6, Dec. 18, 2006.

Contrary to CHE’s arguments, NAVO has no obligation to point to past

experiences substantiating its concerns in order to survive rational basis review.

Moreover CICA imposes no obligation to supply a historical record of failures in order to

substantiate a risk. Indeed NAVO has a responsibility to assess risks and avoid them

before they become a historical fact. In terms of CICA, its policies of “full and open

competition” also recognize that agencies have discretion to use competitive

procedures that are “best suited under the circumstances of the procurement.” 10

U.S.C. § 2304(a)(1). In terms of this procurement, NAVO need not suffer some

maintenance failures in order to substantiate its assessment of risks or other potential

2007-5172 7
“circumstances of the procurement.” Thus, to satisfy its obligation to supply a rational

basis for its decisions, NAVO may supply a reasoned chronicle of its risk assessment,

as it did in this case.

The GAO’s decision in In re National Customer Engineering, No. B-251135, 1993

WL 86835 (Comp. Gen. Mar. 11, 1993) (“National”) informs this decision. In National,

GAO considered a protest against combining software and hardware maintenance

contracts for computer equipment. In that case, the Department of the Interior had also

sought a bundled procurement to avoid the administrative problem of finger-pointing

between different contractors. Id. at *6. In sustaining the protest, GAO found the

government’s concerns regarding administrative convenience to be outweighed by the

agency’s duty under CICA to maximize competition because “[t]here is no evidence

either that such delays occur routinely or that they would cause undue hardship or

expense.” Id. at *5. The agency’s administrative explanation in National was merely an

“unsubstantiated concern about an ill-defined problem of potentially very limited

proportions.” Id. In reaching that decision, however, GAO foresaw situations similar to

this case:

We recognize that in certain circumstances our Office has upheld the
legitimacy of bundling where the agency cited the need to obtain the
benefit of dealing with only one contractor accountable for all repairs and
maintenance, thus relieving the government of the need to analyze the
source of equipment problems and to identify the correct contractor to
service the equipment. In those cases, however, the agency rationale
was based on the paramount need for the availability of the system in
emergency situations. Where time is critical, the agency’s requirement
may render unacceptable any lapse in service, however brief, caused by
the need to coordinate between contractors.

2007-5172 8
Id. at *4 (emphasis added) (citations omitted). In sum, the record in this case differs

from the record in National in a few critical ways, namely the criticality of the mission

and the risk of downtime during emergency situations.

NAVO similarly demonstrated in the pre-supplemented administrative record the

paramount need for system availability at all times in light of the mission of the critical

MSRC equipment. NAVO showed that undivided maintenance service is rationally

related to critical mission needs, especially where the software and hardware aspects of

the system are highly complex and tightly integrated. This court detects nothing

irrational in a contracting officer’s decision to maintain one point of contact, rather than

two, for the maintenance of a complex system whose downtime would jeopardize

national security interests. NAVO articulated a sound reason for its procurement

decision, and this court sees no reason to disturb it. See Honeywell, Inc. v. United

States, 870 F.2d 644, 648 (Fed. Cir. 1989) (“If the court finds a reasonable basis for the

agency’s [procurement decision], the court should stay its hand even though it might, as

an original proposition, have reached a different conclusion . . . . ”) (quotation marks and

citations omitted).

IV.

Without supplementation, the record in this case provides a rational basis for

NAVO’s decision to maintain a bundled maintenance approach. This court thus

declines to opine about the legal consequences of NAVO’s supplementation of the

administrative record in light of APA requirements. This court found no reason to

consult the supplemented portion of the record to sustain the agency’s procurement

decision. Accordingly, this court affirms the judgment of the Court of Federal Claims.

2007-5172 9
 AFFIRMED

NO COSTS

2007-5172 10