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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 See Vero Technical Support v. U.S. Dep’t of Def., 437 F. App’x 766, 770 (11th Cir. 2011) (unpublished decision).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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In September, I wrote about the Court of Federal Claims’ decision in MED Trends, Inc. v. United States, No. 11-420 (Fed. Cl. Sept. 13, 2011), where the Court concluded that it now enjoys jurisdiction over civilian task and delivery order procurements of any dollar value. Prior to this ruling, pursuant to 41 U.S.C. § 4106(f), protests of civilian task and delivery order procurements could be brought in the Court of Federal Claims only where the protest was based “on the ground that the order increases the scope, period or maximum value of the contract under which the order is issued.” § 4106(f)(1)(A). Under 41 U.S.C. § 4106(f), exclusive jurisdiction of all other task order protests rested with the U.S. Government Accountability Office (“GAO”). With the sunset of the task order jurisdictional provision of § 4106(f)(3), the Court confronted the question of whether their jurisdiction would regress to its pre-2008 Federal Acquisition Streamlining Act of 1994 (“FASA”) jurisdiction or whether it would follow the GAO’s conclusion that the sunset effectively reverted jurisdiction to the pre-FASA, Competition in Contracting Act of 1984 (“CICA”) jurisdiction, which made no distinction between contracts versus task or delivery orders.

Judge Bruggink concluded that the court’s jurisdiction defaulted to its general jurisdiction over bid protests under the Tucker Act (28 U.S.C, § 1491(b)(1)), which does not distinguish between protests of task order procurements and contract awards, and contains no language precluding the adjudication of protests of task order procurements. This meant that the Court of Federal Claims now enjoys jurisdiction over civilian task and delivery orders of any dollar amount, and under any otherwise cognizable basis of protest.  However, the Court denied MED Trends’ protest.

On August 24, 2011, MED Trends filed an appeal to the Federal Circuit of Judge Bruggink’s decision, which ultimately found for the Government on the merits. On October 24, 2011, the U.S. Department of Justice filed a cross-appeal in the case (No. 2011-5128). Although the documents are sealed, it seemly likely that the basis of the Government’s appeal is the determination by the Court of Federal Claims that the Court entertained jurisdiction over this procurement. As Judge Bruggink stated in his opinion, “There is no question that, had this protest been brought one month earlier, [prior to the sunset,] the court would not have been able to exercise jurisdiction.”  Notably, having won on the merits, the Department of Justice could not have appealed this decision had MED Trends not opted to file its own appeal first.

It will be interesting to see in the coming months whether the Federal Circuit accepts the Court of Federal Claims (and the GAO’s) reading of § 4106(f)(3). Because Congress has still not amended Title 41 to extend the 2008 NDAA grant of jurisdiction (as it has for Department of Defense task and delivery order procurements), the possibility exists that, if the Federal Circuit disagrees with the Court’s reading of its jurisdiction, the Federal Circuit and GAO could be operating under different interpretations of the same statute. It is likely though that, should the Federal Circuit interpret the sunset clause differently, GAO will modify its practice to conform to the Federal Circuit’s reading of the statute.

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On June 17, 2010, the Federal Circuit majority ruled in M. Maropakis Carpentry, Inc. v. U.S. that it had no jurisdiction over the contractor's defense, based on excusable delay, to the Navy's liquidated damages claim for late completion, because the contractor had not filed a fully compliant "claim" under the Contract Disputes Act "CDA" (41 U.S.C. §§ 601-613.) Contractors have thus been warned. They should consider carefully all anticipated defenses (and those already asserted?) to government claims (e.g., breach or other government actions that might excuse a default termination) to determine whether they must be recast, formalized, and properly submitted under CDA procedures -- with attendant cost and, likely, delay in dispute resolution.

In Maropakis, the contractor failed to complete a Navy facility renovation project in accordance with the contract schedule and alleged that the government caused much of the delay. During more than two years of correspondence, the Navy announced its intention to collect liquidated damages under the terms of the contract. The contractor initially filed a complaint for, among other things, time extensions to compensate for alleged Navy delays on the project, and the Navy counterclaimed for liquidated damages. The Federal Circuit affirmed a Court of Federal Claims decision that the plaintiff-contractor could not be heard on the government's ensuing counterclaim for liquidated damages for breach of the contract schedule, because the Court lacked jurisdiction until the contractor met CDA requirements for properly drafting and submitting a claim to the contracting officer: i.e. clear statement of basis for claim, request for CO final decision, certification.

The Maropakis majority relied on Sun Eagle Corp. v. United States, 23 Cl. Ct. 465 (1991) to characterize the plaintiff's position as a "claim for contract modification" instead of a "defense" against a government claim for liquidated damages. While the Maropakis court declined to provide much detail on its conclusion that the plaintiff was "claiming" and not "defending," the Sun Eagle case sheds some light possible ways to make the distinction. The Sun Eagle court stated that contractors could likely defend themselves against government liquidated damages claims without having to first submit for CDA-complaint claims, so long as the contractor did not claim for itself the liquidated damages sum assessed or any interest thereon. 23 Cl. Ct. at 482. The Maropakis plaintiff may have been more readily viewed as a "claimant" than a "defender," considering the claim for rescission of liquidated damages and interest in its initial complaint.

The Maropakis majority also relied, however, on Elgin Builders, Inc. v. United States, 10 Cl. Ct. 40 (1986), where the contractor was permitted to defend against a government liquidated damages claim without filing a CDA-complaint claim of its own, but only to the extent of denying any delay in completion: "However, if plaintiff intends -- in connection with its contest of the assessment -- to raise any issue of relief to which it might be entitled, such as the contractor's claim of entitlement to time extensions, such claims must first be presented to the CO for his decision and this court will not consider such claims until that has been accomplished." Id. at 44. In short, Maropakis apparently confirms strict procedural requirements on contractor defenses that could be asserted as claims, probably even if not advanced as claims for money.

The Maropakis opinion was delivered over a spirited dissent, which steadfastly refused to view a contractor's objection to a government claim for liquidated damages as a "claim" subject to a jurisdictional bar. And, more basically, the dissent expressed grave concern---even quoting President Lincoln in the process---that the majority's decision to grant the government's motion for summary judgment on its liquidated damages claim, denied the contractor the basic right to defend itself.

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