Last month, in National Government Services, Inc. (“NGS”) v. United States—a pre-award bid protest handled by Crowell & Moring—the Federal Circuit ruled that “workload caps” imposed by the Centers for Medicare & Medicaid Services (“CMS”) in its administration of the Medicare Program violated the Competition in Contracting Act’s (“CICA”) “full-and-open competition” requirement. In so doing, the Federal Circuit reversed a Court of Federal Claims (“COFC”) decision that upheld the caps (a prior GAO decision had done the same), clarified the meaning of “full and open,” and clarified the scope of agency authority pursuant to the Federal Acquisition Regulation (“FAR”) to address concerns about competitive balance in the marketplace.
In 2003, as part of the Medicare Modernization Act, Congress established the Medicare Administrative Contractor (“MAC”) program, through which CMS contracts with third-parties to administer Medicare claims and benefits. Under the MAC program, the United States is divided into twelve regions representing different percentages of the total MAC workload depending on the region’s size; CMS awards individual contracts for each.
In 2010, pursuant to its authority to administer the MAC program, CMS implemented the workload caps at issue. Pursuant to the caps, an individual MAC contractor could not hold more than 26% of the national Medicare workload. CMS identified two overarching concerns animating the caps: (1) business continuity issues for the Medicare program should a single entity holding too much of the workload suffer a “disaster event” such that it was unable to continue performance; and (2) the need to maintain a dynamic, competitive marketplace of available MAC contractors. Although CMS placed no limitation on the number of contracts for which for a contractor could bid, the caps precluded a contractor from winning an award that would result in it exceeding the 26% threshold, even where CMS deemed its proposal to represent the best value in a particular procurement.
In 2017, CMS issued an RFP for the MAC contract in Jurisdiction 8, the award of which would put NGS, a current MAC contractor, over the 26% threshold. In November 2017, NGS filed a pre-award protest at GAO challenging the caps as incorporated into the Jurisdiction 8 procurement, arguing that they violated CICA’s the FAR’s full-and-open competition requirements, and that CMS lacked authority to implement them. GAO denied the protest. So too, did the COFC after NGS filed a follow-on protest in February 2018. NGS ultimately found success when the Federal Circuit reversed the COFC decision, and accepted NGS’ arguments nearly in their entirety.
The Federal Circuit’s Decision
In reversing the COFC’s decision, the Federal Circuit considered two questions. First, did CMS’ workload caps violate CICA and the FAR’s full-and-open competition requirements? Second, if yes, was CMS nonetheless authorized to implement them?
The Federal Circuit answered the first question affirmatively, rejecting the Government’s argument that because the caps did not prevent NGS from submitting a proposal, the MAC procurements were full and open (the COFC accepted this argument). The Court explained that simply being able to submit a bid was insufficient where “a responsible offeror that would exceed the workload caps is not given the same opportunity to win an award as other offerors that submitted awardable proposals.” The Court also rejected the Government’s efforts to characterize the caps as evaluation criteria, explaining that they were “not requirements tailored to meet CMS’ needs for a particular procurement” or “based on some capability or experience requirement.” Instead, the caps were CMS’ “attempt to divvy up the MAC contracts in a way that ensures business continuity and helps maintain a competitive MAC market.”
In answering the second question—whether CMS was authorized to implement the caps—the Court noted that CMS’ concerns about “business continuity” and maintaining a competitive marketplace were neither improper nor lacked a rational basis. But absent express authority allowing CMS to limit competition—which the Court concluded the Medicare statute does not grant—CMS was required to utilize specific mechanisms included in CICA and FAR Part 6 to address such concerns. Those mechanisms do not include the broad, program-encompassing caps CMS attempted to impose.
Instead, CICA (at 41 U.S.C. § 3303) and the FAR (at Subpart 6.2) allow agencies, on a procurement-specific basis, to exclude a particular offeror from a procurement in order to promote business continuity and market competition. But CICA and the FAR require that any such exclusion be accompanied by a written Determination and Findings signed by the head of an agency or its designee detailing the justification for the exclusion. While this is, on its face, an onerous requirement, the Court rejected the Government’s argument that CMS need not utilize FAR Part 6 because doing so would be too difficult:
As the Government’s brief tellingly notes, during the time period when CMS used a case-by-case approach to analyze business continuity and competition concerns . . . “CMS had been unable to identify factors that would ‘tip the scales’ for an offeror to lose an award and found it difficult to justify a decision to deny an award based upon business continuity and competition concerns under those circumstances.” But regardless of how difficult it may or may not be to justify excluding a source from competition, this justification is what the FAR requires.
Because it held that CMS had failed to implement the caps properly, the Court did not consider the rationality of the caps themselves, explaining that it would “leave those issues to be addressed in a case in which CMS has followed the proper procedures to address its overarching market concerns.”
While agencies have are afforded substantial discretion to administer their procurements in the manner they best see fit, the Federal Circuit’s decision in NGS is a reminder that such discretion is not unfettered. Absent express authorities stating otherwise, bidders are entitled to full and open competition in federal procurements, subject only to the constraints specifically delineated in CICA and the FAR.
 At the Court of Federal Claims, NGS amended its complaint to include a pre-award challenge to CMS’ inclusion of the caps in the procurement of a new MAC services in Jurisdiction H.