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Grant J. Book is an associate in Crowell & Moring's Washington, D.C. office, where he is a member of the firm's Government Contracts Group. Grant advises clients on a wide array of government contracts legal issues, including bid protests, contract claims, compliance counseling, and investigations of potential civil and criminal matters. Prior to joining the firm, Grant clerked at the U.S. Court of Federal Claims, where he worked on bid protests and contract claims cases. Grant graduated from the George Washington University Law School in 2007 with highest honors and as a member of the order of the coif.

A little over two years ago, I wrote a blog post about the D.C. District Court decision in Fisher-Cal Indus., Inc. v. United States, 839 F. Supp. 2d 218, 219 (D.D.C. 2012), which held that district courts lack jurisdiction over in-sourcing matters.  That case was appealed and the D.C. Circuit Court has affirmed the District Court’s decision.  Fisher-Cal Indus., Inc. v. United States, 12-5155, 2014 WL 1362336 (D.C. Cir. Apr. 8, 2014).  The D.C. Circuit is now the third circuit court to hold that Federal district courts lack jurisdiction over in-sourcing claims, which must be brought at the United States Court of Federal 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666 F.3d 336 (5th Cir. 2011); Vero Technical Support v. U.S. Dep’t of Def., 437 F. App’x 766, 770 (11th Cir. 2011) (unpublished decision). 

On appeal, Fisher-Cal argued that the guiding case on the matter, Distributed Solutions, Inc. v. United States, 539 F.3d 1240 (Fed. Cir. 2008), was misapplied by the D.C. District Court and the Fifth and Eleven Circuits because Distributed Solutions looked to the issuance of the request for information as marking the beginning of the process for determining the agency’s needs, and not the internal agency discussions.  The D.C. Circuit rejected this argument, reaching the same conclusion as the District Court and the Fifth and Eleventh, that a procurement begins with the process for determining a need for property or services, which includes the decision to acquire the services by in-sourcing or outsourcing.   Accordingly, D.C. Circuit held that because the Tucker Act bestows exclusive jurisdiction over suits alleging a procurement violation in the Court of Federal Claims, the District Court properly found that it lacked jurisdiction over the matter.

On December 3, 2013, the Department of Defense (“DoD”) published the second part of a trio of promised regulations regarding efforts contractors must take to prevent the entry of counterfeit electronics into the DoD supply chain.  We previously discussed the first proposed rule here, published on May 16, 2013, which was supposed to provide the foundation for detection and avoidance of counterfeit parts.  The third proposed rule has still not been released, but will address reporting requirements for identified counterfeit parts.

The second proposed rule, by its own admission, “does not directly implement any specific aspect of section 818,” the statute requiring DoD to assess its policies and systems for the detection of counterfeit electronic parts (see our previous blog post here for more details).  Instead, it continues DoD’s focus on contractor’s purchasing systems to stem the impact of counterfeit parts by amending the regulations concerning the use of higher-level quality systems (such as ISO, ASQ, and SAE standards).  According to the proposed rule, its purpose is “to ensure that agencies assess the risk of nonconforming items when determining whether higher-level quality standards should be used by the Government and relied on by contractors.”  Continue Reading New Proposed Rule Targeted at Counterfeit Parts

Next Thursday, August 8th, at 1:00 PM Eastern, join me and my colleagues Richard Arnholt and Addie Cliffe as we present a webinar on the sweeping new statutory and regulatory provisions pertaining to avoidance of counterfeit parts. The 2012 National Defense Authorization Act tasked DoD with mitigating the risks posed to its supply chain by counterfeit parts. In response, DoD has issued guidance, instructions, and, most recently, proposed regulations, all of which will impose new requirements on contractors that will increase the cost and risk of participation in the DoD supply chain. Join us as we discuss what led to these statutes and regulations, what the current requirements are, and what the future may hold. Though the proposed regulations claim to only apply to large businesses, we will discuss how the proposed regulations would impact businesses of all sizes and at all levels of the DoD supply chain. We will also provide practical tips on how you can help get your business ahead of the curve on these initiatives.

Register now to join us for this important discussion about this significant compliance shift at: http://l2federalresources.com/2013/new-dod-protections-against-counterfeit-parts-is-your-company-ready/.

Please note, L2 Federal Resources requires a registration fee for its webinars.

On April 26, 2013, the Under Secretary of Defense for Acquisition, Technology, and Logistics issued Department of Defense (“DoD”) Instruction No. 4140.67 to further establish policy to prevent counterfeit materiel at any level of the DoD supply chain. As we have previously blogged about, Section 818 of the National Defense Authorization Act of 2012 required DoD to assess its internal policies for detection and avoidance of counterfeit electronic parts by June 28, 2012 and revise the DoD acquisition regulations to address the detection and avoidance of counterfeit parts by September 26, 2012. However, despite the statutory mandate, DoD has not revised its acquisition regulations and this Instruction appears to be another interim measure.

The instruction serves two main purposes – (1) to establish DoD’s policies regarding counterfeit prevention and (2) assign responsibilities for the prevention, detection, and remediation of counterfeit material. Pursuant to the Instruction, it is DoD’s policy not to procure counterfeit material and DoD will employ a risk-based approach to reduce the frequency and impact of such material by applying prevention and early detection procedures within the supply chain and strengthening the oversight and surveillance procedures for critical material. DoD’s policy under the Instruction is to investigate all cases of suspected counterfeit material and document all occurrences of suspected and confirmed counterfeit material. DoD will make information about counterfeiting available at all levels of the supply chain, seek restitution when cases of counterfeiting are confirmed, and notify at the earliest opportunity criminal investigative organizations or intelligence authorities and those who use such materials. Continue Reading Department of Defense Tightens Counterfeit Prevention Policy

Finding a court in which to argue the merits of an in-sourcing case is a seemingly never-ending source of hurdles for disappointed contractors. When the in-sourcing initiative began a few years ago, the legal landscape lacked clarity as to which courts possessed jurisdiction over such claims. Litigation theories were divided as to whether this was an administrative matter under the Administrative Procedures Act, to be brought in the district courts, or a procurement matter under the Tucker Act to be brought at the Court of Federal Claims. As those cases unfolded, with near uniformity, the courts have held that this is a procurement matter to be brought at the Court of Federal Claims. But the challenges facing disappointed contractors did not end at the court house doors at the National Courts Building. Standing issues at the Court of Federal Claims quickly emerged. 

The first two in-sourcing cases at the Court of Federal Claims were sharply divided on this standing issue. In Hallmark-Phoenix 3, LLC, Judge Allegra dismissed the in-sourcing case finding that plaintiff lacked prudential standing because the statutes at issue envision enforcement by legislative oversight through reports and requests to Congress – not judicial review. Hallmark-Phoenix 3, LLC v. United States, 99 Fed. Cl. 65 (2011). Judge Firestone, on the other hand, concluded that prudential standing did not apply to bid protests because the Tucker Act provided its own standing requirements and, in any event, certain in-sourcing provisions were enacted, at least in part, for the benefit of the contracting community. Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536 (2011).  In Triad Logistics Services Corporation, the next in-sourcing case to emerge from the Court, Judge Horn added a new twist to the standing issues, holding that Triad was not an interested party because its contract had ended and government employees had begun performing the contract functions prior to when the complaint was filed. Triad Logistics Servs. Corp. v. United States, No. 11-43C (Fed. Cl. Apr. 16, 2012). The Triad decision ultimately left observers with more questions than answers, such as what exactly is an interested party and what would happen if a contract ended by its own terms during the litigation.  

 Fortunately, we did not have to wait long for the answer. Readers of this blog know that we have been keeping our eyes on the case of Elmendorf Support Services. In that case, Judge Bruggink held that the Court had jurisdiction over in-sourcing matters and standing was conferred by the Tucker Act and the “rather generous” definition of procurement supplied by the Federal Circuit in Distributed Solutions. Elmendorf Support Services v. United States, No. 12-346C (Fed. Cl. Jun. 22, 2012) (citing Distributed Solutions, Inc. v. United States, 539 F.3d 1340, 1346 (Fed. Cir. 2008)). However, Judge Bruggink denied plaintiff’s motion for a preliminary injunction and, therefore, the contract at issue in the litigation ended by its own terms on June 29, 2012. Shortly thereafter, the Air Force in-sourced the services previously provided by the plaintiff and on July 2, 2012, the United States filed a motion to dismiss the case as moot.

 

Continue Reading In-Sourcing Troubles? Run, don’t walk, to the Court of Federal Claims.

An interesting development regarding the issues surrounding in-sourcing is unfolding at the Court of Federal Claims, courtesy of Elmendorf Support Services v. United States, No. 12-346C (Crt. Fed. Cl. Jun. 22, 2012). The plaintiff in this case had been providing services to the Air Force since October 1, 2005 with options under the contract through 2015. On February 2, 2011, the Air Force notified the plaintiff that it would not be exercising any further option year periods and would instead be in-sourcing the services provided under the contract. The last option year period executed by the parties ended on June 29, 2012.

Plaintiff filed a bid protest at the Court of Federal Claims on June 1, 2012. As is common with bid protests filed at the Court of Federal Claims, plaintiff also filed a motion for preliminary injunction seeking to enjoin the Air Force from in-sourcing the activities during the pendency of the litigation. Also as expected given recent history, the United States filed a motion to dismiss for lack of subject matter jurisdiction and lack of standing. 

On June 22, 2012, the Court of Federal Claims, Judge Bruggink, denied the government’s motion to dismiss. Judge Bruggink found that because the decision to in-source “necessarily included the process for ‘determining the need for . . . services’ that plaintiff currently provides, the in-sourcing decision-making process was ‘in connection with a procurement or proposed procurement’ within the rather generous definition adopted by the Federal Circuit” in Distributed Solutions, Inc. v. United States, 539 F.3d 1240 (Fed. Cir. 2008). Judge Bruggink also found that plaintiff’s case was not barred by prudential standing concerns and, in this regard, found instructive the Court’s holding in Santa Barbara Applied Research, Inc. v. United States, 98 Fed. Cl. 536 (2011). In a direct rebuke to Judge Allegra, Judge Bruggink also cited a recent Supreme Court decision to conclude that prudential standing was not meant to be especially demanding. See Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians v. Patchak, Nos. 11-246, 11-247, 2012 WL 2202936 (U.S. June 18, 2012).

Continue Reading More In-Sourcing News

Developments continue surrounding the issue of in-sourcing. Turning first to the developments at the Court of Federal Claims, Judge Horn, recently dismissed an in-sourcing claim after finding that Plaintiff was not an interested party. Triad Logistics Servs. Corp. v. United States, No. 11-43C (Crt. Fed. Cl. Apr. 16, 2011).  The Court held that while it has subject matter jurisdiction over in-sourcing claims generally, with regards to the particular in-sourcing claim at issue, the Plaintiff was not an interested party because the contract had already been completed. Accordingly, the Court found that Plaintiff lacked standing and dismissed the case.

To understand the scope of the Triad decision, a brief analysis of the procedural posture presented in the case is required. Plaintiff, Triad Logistics Service Corporation provided vehicle operations and maintenance services to the Air Force. During performance under the third option year, the Air Force informed Triad that it would be in-sourcing the services provided under the contract, and therefore not exercising a fourth option year. Instead, the Air Force modified the contract to extend performance for a brief period, at which time the contract ended by its own terms. Triad initially protested at the Government Accountability Office, which was dismissed on November 24, 2010 for failure to set forth a valid basis of protest. 

Triad then filed it’s first protest at the Court of Federal Claims on November 29, 2010, the same day its extended contract ended. At the initial hearing on Triad’s first protest, the Air Force admitted there were errors in the cost calculation comparing the cost of contracting for the services versus performing the services internally. The Court therefore dismissed that complaint to allow the Air Force to perform a recalculation and make a final in-sourcing decision. On December 16, 2010, the Air Force again concluded that it would be less expensive to in-source the services. 

Triad filed its second protest at the Court, the one at issue here, on January 14, 2011. The Court dismissed the case, holding that Triad was not an interested party because its contract had ended and government employees had begun performing the contract functions prior to when the second complaint was filed. Therefore, the Court found that Triad no longer possessed the required direct economic interest in a contract to qualify as an interested party. The Court seems to suggest that Triad’s claim may be more akin to an out-sourcing claim, which the Appropriations Acts strongly discourage. 

Continue Reading In-sourcing Update

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.

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.