On April 20, 2015, the Supreme Court declined to review a March 2014 Federal Circuit decision holding that the Department of Housing and Urban Development (“HUD”) cannot use cooperative agreements—and instead must use procurement contracts—to administer funds under Section 8 of the United States Housing Act of 1937.  The case is CMS Contract Management Services v. United States, 745 F.3d 1379 (Fed. Cir. 2014).  We reported on the Solicitor General’s petition for a writ of certiorari, which advocated that the Court reverse the Federal Circuit and revive the use of cooperative agreements in this context.

The Court’s cert denial came without comment or dissent, and functions to leave in place the ruling below.  The potential reach of the Federal Circuit’s decision is unclear.

As an initial matter, the Federal Circuit hinged its decision on considerations specific to the Section 8 program.  For instance, it determined that “the primary purpose of” Section 8 contracts is “to procure the services of the [local public housing authorities] to support HUD’s staff and provide assistance to HUD with the oversight and monitoring of Section 8 housing assistance,” which was consistent with the purpose of a procurement contract, not a cooperative agreement.  The Federal Circuit also found “that the housing assistance payments” that HUD makes to local public housing authorities are not “a ‘thing of [] value,’” since the local public housing authorities must pass those funds along to housing project owners.  By contrast, the statutory “principal purpose of” a cooperative agreement “is to transfer a thing of value to the State[ or] local government . . . to carry out a public purpose of support.”

Despite this Section 8-specific reasoning, however, the Federal Circuit concluded more broadly that, “[i]n the case of an intermediary relationship,” such as between HUD and local public housing authorities, “the proper instrument is a procurement contract.”  Indeed, the Court of Federal Claims already has picked up this thread to strike down an entirely unrelated use of cooperative agreements—this time by the Department of the Interior to administer the National Wildlife Refuge System.  The Court of Federal Claims found informative the Federal Circuit’s rationale that, in the Section 8 context, local public housing authorities were simply “intermediaries” of the funds, whereas low-income families were “the intended beneficiaries.”  The court applied that reasoning to the National Wildlife Refuge System, concluding that “the intended beneficiaries” of federal assistance “are the migratory birds and wildlife on the refuges,” while “[t]he farmer-cooperators are intermediaries.”  (The Department of the Interior has appealed this decision, and briefing is ongoing in the Federal Circuit.)

In short, courts may well continue to use the Federal Circuit’s reasoning in CMS Contract Management Services to circumscribe agencies’ use of cooperative agreements, thus necessitating an ever-expanding use of procurement contracts subject to the Competition in Contracting Act of 1984 (“CICA”) and the Federal Acquisition Regulation (“FAR”).  Agencies, too, may proactively limit their use of cooperative agreements in an effort to avoid litigation challenging that use.