Government Contracts Legal Forum : Government Contracts Lawyers & Attorneys for Litigation & Counseling

Just a quick in-sourcing update for today. On March 19, 2011, in Fisher-Cal Industries, Inc. v. United States, et. al, the United States District Court for the District of Columbia issued an opinion dismissing plaintiff’s in-sourcing claim. No 11-791 (D.D.C. Mar. 19, 2012). As I discussed in my blog post about the Fifth Circuit’s decision in Rothe Development, Inc., various courts have been attempting to interpret the Tucker Act to determine whether that Act provides standing for contractors to pursue in-sourcing claims and which court would have jurisdiction. Consistent with the Fifth and Eleventh Circuits, the D.C. District Court held that district courts lack subject-matter jurisdiction over in-sourcing claims. See Rothe Development, Inc. v. United States Department of Defense, 666 F.3d 336 (5th Cir. 2011); Vero Technical Support v. U.S. Dep’t of Def., 437 F. App’x 766, 770 (11th Cir. 2011) (unpublished decision). Although plaintiff argued that its claim solely challenged the government’s compliance with its own guidelines and procedures and therefore fell under the Administrative Procedure Act (“APA”), the court held that a decision to in-source is a decision in connection with a procurement under the Tucker Act and therefore the court was without jurisdiction. The court noted that although “the APA waives sovereign immunity, it does so only to the extent that no other statute ‘expressly or impliedly forbids the relief which is sought.’” Because the Tucker Act allows plaintiffs to challenge in-sourcing decisions at the Court of Federal Claims, the APA can not provide concurrent jurisdiction in the district courts. Finally, and most interestingly, the Court addressed plaintiff’s argument that it was not an interested party as required by the Tucker Act, and held that it need not resolve that issue because it is the Court of Federal Claims that must address the merits of plaintiff’s claims and whether plaintiff has the ability to pursue them at all.

Stay tuned though, as it looks like there have been exciting developments on the issue at the Court of Federal Claims and the decision on another in-sourcing case should be unsealed very soon.

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On December 29, 2011, the Fifth Circuit issued its opinion in Rothe Development, Inc. v. United States Department of Defense, No. 11-50101 (5th Cir. Dec. 29, 2011), affirming the district court’s dismissal of an in-sourcing claim for lack of subject-matter jurisdiction. Under the Tucker Act, the Court of Federal Claims is vested with exclusive jurisdiction over actions by interested parties “objecting to . . . any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1). The jurisdictional issue raised in in-sourcing cases such as Rothe is whether an agency’s decision to in-source is a decision “in connection with a procurement or a proposed procurement.” The Fifth Circuit concluded that “it clearly is.”

In an attempt to avoid falling under the purview of the Tucker Act, Rothe argued that it was not an interested party as required by that statute. The Fifth Circuit rejected this argument because Rothe’s complaint specifically stated that it was seeking to keep its scope of work as the low cost provider, demonstrating that it has an economic interest as a prospective bidder. The court also held that in-sourcing falls within the broad definition of “procurement” as that term has been defined by the Federal Circuit. In Distributed Solutions, Inc. v. United States, the Federal Circuit held that “the term ‘procurement’ includes all stages of the process of acquiring property or services, beginning with the process for determining a need for property or services and ending with contract completion and closeout.” 539 F.3d 1340, 1345 (Fed. Cir. 2008). Accordingly, the Fifth Circuit held that the process for determining a need necessarily includes “the choice to refrain from obtaining outside services.” Therefore a complaint challenging an in-sourcing decision is an action alleging a violation of statute or regulation in connection with a procurement, for which jurisdiction is exclusively vested in the Court of Federal Claims.

With the Fifth Circuit decision in Rothe, the body of case law continues to develop regarding the proper jurisdiction for in-sourcing claims. The Eleventh Circuit, the only other circuit court to address the issue, also has held that the district courts lack subject-matter jurisdiction over in-sourcing claims. See Vero Technical Support v. U.S. Dep’t of Def., 437 F. App’x 766, 770 (11th Cir. 2011) (unpublished decision). Importantly, both circuit opinions opined on the proper jurisdiction for in-sourcing claims, holding that the claims fall within the scope of the Tucker Act and the exclusive jurisdiction of the Court of Federal Claims.  However, the jurisdictional question still lingers, as the Court of Federal Claims is currently divided on the issue, with one case holding that the Court has jurisdiction, see Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536 (2011), and one case holding that the Court does not have jurisdiction over such claims because a disappointed contractor lacks prudential standing, see Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65 (2011). As well, one district court in the Western District of Oklahoma found that it had jurisdiction over an in-sourcing claim, see K-Mar Indus., Inc. v. U.S. Dep’t of Def., 752 F. Supp. 2d 1207 (W.D. Okla. 2010). We will continue to monitor developments in this area as new cases provide guidance on this jurisdictional enigma. 

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On October 19, 2011, the Department of Defense (“DoD”) proposed a new rule to amend DFARS § 252.211-7007 to remove the $5000 threshold from reporting requirements for Government-furnished property.  The proposed rule would require contractors to report Government-furnished property to the DoD Item Unique Identification (“IUID”) registry regardless of value.  DoD states that the intent of the rule is to standardize and simplify reporting.  DoD’s goal is to move away from strict reporting by dollar value alone and toward reporting designed to increase traceability.  Non-serially managed material will be required to be reported to the IUID registry in the same unit of pack as acquired (e.g., box, container).

DoD does not intend to incorporate the proposed property management rule into existing contracts.  Therefore, the Government does not believe there will be any need for equitable adjustments in association with the rule.  Because the rule will not apply to existing programs, the rule should not require duplicate records either.  Reporting requirements under the proposed rule will not apply to: (1) contractor-acquired property that has not been delivered to, and accepted by the Government; (2) property under a statutory leasing authority; (3) property to which the Government has acquired a lien or title solely because of partial, advance, progress, or performance-based payments; (4) intellectual property or software; (5) real property; or (6) material released for work in process.

Some contractors have expressed concern that the rule could be burdensome as hundreds of thousands of new items are subjected to DoD reporting requirements.  If the rule is adopted, contractors will need to ensure that their employees are diligent in accounting for small, every-day items, that previously may have simply been discarded if broken or worn-out.  However, DoD states that it hopes that the rule will simplify overall reporting and result in greater efficiency and considerable cost savings to both government and industry.  A public meeting will be held on November 17, 2011, and comments are due on or before December 19, 2011.

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