A SETBACK - - US GOVERNMENT CONTRACT LAW - - “OTHER TRANSACTIONS”

The US Government is slowly moving to cloud-based computing systems with the Department of Defense (DoD) leading the way. The DoD recently awarded a $1 billion dollar procurement for cloud computing services to REAN Cloud of Virginia in the form of an Other Transaction Agreement (OTA). A timely filed bid protest by Oracle Corporation followed.

The Bid Protest

A US Government contractor has the right to file a bid protest with the General Accounting Office (GAO) and other parts of the US Government if the protestor believes that there has been a flaw in the procurement process or on the face of the solicitation document resulting in an improper award to a party/company other than itself. Protests are difficult to win and OTA’s are usually written in a way to make a successful bid protest even more difficult. In any event, Oracle protested this billion dollar cloud services procurement.

Based on Oracle’s protest, the GAO set the procurement aside against the awardee, REAN Cloud. Oracle successfully argued that normal, usual, and required competitive bidding procedures for this procurement were not followed by the DoD and that the DoD did not satisfy mandatory preconditions to use an OTA. Competitive bidding was not part of this procurement process.

The GAO instructed that the DoD should have:

1. Used normal and usual competitive procurement methods consistent with the Competition in Contracting Act (CICA) as opposed to, in effect, sole sourcing this procurement to REAN Cloud;

2. Indicated why this contract could be awarded without competition;

3. Complied with necessary preconditions to satisfy criteria to use an OTA for a production contract.

Context

For most procurements, a US Government agency, in this case, the DoD, must comply with the CICA when purchasing goods or services. Though not the focus of this article, under specific circumstances, an agency can award a US Government contract without soliciting competition, that is, it can “sole source” the procurement.

Generally, sole source criteria are as follows:

1. The item or service is available from only one source;

2. The procurement is in response to a public emergency so following normal CICA competition requirements would exacerbate the situation putting the public at risk; or

3. Competition is inadequate for the procurement (no responsible, responsive bidders).

In other words, certain procedures ensuring that there is no adequate competition must be followed to sole source a purchase by a US Government agency. Those procedures are embodied in the CICA. Each sole source procurement must be competed if, after adequate search by the procuring agency, there is more than one responsible contractor that can perform the service or provide the item required by the Government unless the procurement is an emergency putting the public at risk.

The DoD decided to use an OTA for this billion dollar procurement as the contracting vehicle and to sole source it. The DoD did not satisfy sole source criteria as found in the CICA. The GAO indicated that normal and usual competitive bidding was required for this procurement and that further due diligence to satisfy sole source criteria was required by the DoD.

Unfortunately, this is a tangential setback to the use a viable contracting vehicle, the OTA. This protest turned on the competition requirement not the use of an OTA.

An OTA

An OTA is technically not a US Government contract and sidesteps many of the burdensome and costly compliance regulations found in the Federal Acquisition Regulation (FAR) and, in the above case, the Department of Defense Federal Acquisition Regulation Supplement (DFARS), a supplement to the FAR.

Since about 2013, the US Government has made a big push to use OTA’s as a contracting vehicle of choice if appropriate and justifiable under applicable law. In REAN, the issue raised by Oracle as the bid protestor was not the use of an OTA but, in effect, sole sourcing this billion dollar procurement for cloud services by DoD in violation of CICA. The DoD might have been able to use an OTA as the contracting vehicle for this procurement if it satisfied competitive procurement procedures, but it did not.

The DoD

OTA’s are not used to thwart the US procurement competitive process but to make it easier, cheaper, and more efficient to buy goods and services resulting in better products and services at better prices for the US Government. Unfortunately, this procurement got caught up in the CICA web requiring mandatory competition for most US Government purchases.

Because OTA’s avoid many normal US Government compliance regulations, it is usually difficult to satisfy bid protest criteria for an OTA unless a protestor looks beyond the terms and conditions of the OTA and targets the heart of the US Government procurement process, that is, competition requirements embodied in the CICA. That is exactly how Oracle attacked this award and won by bid protest.

Hopefully, use of the OTA will not diminish or be tarnished because of this GAO decision. This will be the case so long as US Government agencies realize that this bid protest turned on competition requirements, not on the use of an OTA as the contracting vehicle of choice.