“Award Limit Clause” Violates Full & Open Competition; Protest Sustained

In National Government Services, Inc.  v. United States,  923 F.3d 977 (Fed. Cir. 2019) the Federal Circuit sustained a pre-award protest, holding that an agency solicitation containing an “Award Limit clause” (ALC) violated full and open competition under the Competition in Contracting Act (CICA), and the agency failed to follow the appropriate procedures that would support an exception.

Background Facts

The Centers for Medicare and Medicaid Services (CMS), an agency of HHS, uses contractors, known as “MACs”, to administer claims and benefits under the Medicare program. For an upcoming round of solicitations, CMS included an ALC providing that CMS would not award more than 26% of the national workload to any single contractor, or more than 40% of the national workload to any one set of affiliates.  According to CMS, the purpose of this clause was twofold: (1) business continuity concerns, i.e., avoid the award of an overly large share of business to any one entity and (2) the need to maintain a dynamic competitive marketplace.

After the solicitation was issued, National Government Services (NGS) filed a protest with the Federal Claims court.  NGS was a MAC that already held contracts amounting to 19.8% of the national workload. Given the ALC in this solicitation, NGC would be excluded from the award of the contract, since the contract represented 13.5% of the national workload and the award would put it over the 26% workload cap. Given its automatic exclusion from the competition, NGC contended that the solicitation did not allow for full and open competition under CICA.

The lower court rejected the protest, but on appeal the Federal Circuit reversed.  In brief, the Court ruled that (1) that this solicitation effectively excluded certain offerors from the competition, and thus failed to provide full and open competition under CICA; (2) that the workload caps were not “procurement procedures otherwise expressly authorized by statute,” that would otherwise provide an exception to the competition requirement, see CICA section 3301(a); and (3) that CMS failed to follow the appropriate statutory/regulatory procedures to support an exception to full and open competition.  The Court held that CMS’ award limitation policy was effectively an exclusion of a source under CICA, section 3303(a).  Such an exclusion required a “determination and findings” from the head of the agency or designee.  See FAR 6.202(b)(1). This was not done here.

Lessons Learned

The Court took pains to explain that it did not question the purpose or the wisdom of CMS’ award limitation policy. According to the Court, the agency’s error was that it failed to follow the appropriate procedures required by law to support NGS’ exclusion.  Another reminder that the government must turn “square corners” when it comes to following the FAR and the procurement statutes it implements.