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Recent Application of “International Agreement” Exception Raises Questions Regarding Bid Protest Challenges to Foreign Military Sales

A recent opinion by the U.S. Court of Federal Claims (the “Court”)—Hyperion, Inc. v. United States, No. 14-870C, — Fed. Cl. — (Mar. 18, 2015)—is noteworthy for two reasons. First, it illustrates the “international agreement” exception to the Competition in Contracting Act (“CICA”). This exception permits the U.S. Government to award a contract to a U.S. contractor without full and open competition, even on a sole-source basis, when procuring items for a foreign government, in accordance with the “written direction[]” of the foreign government—as can occur through foreign military sales (“FMS”). In full, it states:

The head of an agency may use procedures other than competitive procedures [] when . . . . the terms of an international agreement or a treaty between the United States and a foreign government or international organization, or the written directions of a foreign government reimbursing the agency for the cost of the procurement of the property or services for such government, have the effect of requiring the use of such procedures other than competitive procedures.

10 U.S.C. § 2304(c)(4). Second, the opinion and its procedural history raise thorny questions about whether bid protest challenges to FMS solicitations and awards are consistent with the goals of the bid protest process and U.S. foreign policy.

This discussion starts with a brief summary of Hyperion’s factual and procedural history, then addresses both of these points in turn.

Hyperion’s Factual and Procedural History

In January 2013, the U.S. Army released a Request for Proposals (“RFP”) to install fiber optic cable in the Hashemite Kingdom of Jordan (“Jordan”) in support of the Jordanian Armed Forces and Royal Jordanian Air Force. The RFP notice still can be found on FedBizOpps.gov. The procurement was to be competed as a small-business set-aside, with one fixed-price contract to be awarded to the lowest-priced, technically-acceptable proposal. Hyperion, Inc. (“Hyperion”) proposed the highest price of four offerors. On December 16, 2013, the Army awarded the contract to the offeror with the lowest-priced proposal, Technical Communications Solutions Corporation (“TCSC”).

On December 23, 2013, Hyperion filed a post-award bid protest with the Court. Hyperion argued “that it was arbitrary and capricious for the Army to find the three other proposals to be technically acceptable.” The Court agreed. On April 9, 2014, the Court granted Hyperion’s motion for judgment on the administrative record, and it directed the Army to set aside the award to TCSC. However, the Court “decline[d] to provide any more specific instruction to the Army regarding its further actions in [the] procurement.”

After learning of the Court’s decision, Jordan issued written instructions directing the Army to re-award the contract to TCSC on a sole-source basis, as allowed under the “international agreement” exception. The Army prepared a Letter of Offer and Acceptance (“LOA”)—i.e., the contract to be executed by the Army and Jordan—and issued a memorandum to justify the sole-source award, which the “international agreement” exception permits in lieu of a formal justification and approval (“J&A”). (Notably, an LOA can substitute for a formal J&A, as well, pursuant to Defense Federal Acquisition Regulation Supplement 206.302-4.) To pay for the purchase, Jordan will receive U.S.-appropriated, non-repayable financing, through Foreign Military Funds (“FMF”).

The Recent Hyperion Opinion and the “International Agreement” Exception

The Court’s recent opinion considers a new complaint that Hyperion filed on September 18, 2014, after it learned of the Army’s intent to make a sole-source award to TCSC. Notably, Hyperion did not challenge the sole-source award per se. Instead, Hyperion asked the Court to declare the original small-business set-aside a “sham competition,” to award bid preparation and proposal costs incurred for that “sham” competition, and to award any other “just and proper” relief.

On November 24, 2014, the U.S. Government filed a motion to dismiss, making two arguments. The first, which was unsuccessful, alleged that the same claims were adjudicated in Hyperion’s earlier protest, and thus were barred under the “claim preclusion” doctrine. Under claim preclusion, “a judgment on the merits in a prior suit bars a second suit involving the same parties [] based on the same cause of action.” But here, the Court disagreed, noting that “subsequent events that occurred . . . have created new transactional facts requiring reevaluation.” According to the Court, “[t]he government itself recognize[d] that a ‘changed circumstance’ existed after the Kingdom of Jordan elected to designate a particular contractor following the resolution of the initial bid protest.”

The Court converted the U.S. Government’s second argument into a motion for judgment on the administrative record, which the Court granted. The Court agreed that “the Army complied with Department of Defense regulations in awarding the second contract because the Kingdom of Jordan acted to select [TCSC] as the sole-source awardee of a Foreign Military Sale . . . .” The sole-source contract satisfied the “international agreement” exception to CICA.

The Court’s opinion underscores that foreign nations have significant leeway to direct specific contract awards to specific contractors under the “international agreement” exception. As a threshold matter, FMS guidance states that a foreign nation’s request to direct an award “should be to meet the objective requirements of the purchaser and [not] for improper or unethical considerations.” But even then, a foreign nation is not required to provide any rationale for a sole-source request. A foreign nation can even request that a subcontract be placed with a particular contractor. Further, as the Court notes, “Department of Defense contracting agenciesare encouraged to defer to a foreign purchaser’s requests under the International Agreement exception to the extent that they are not aware of any indication that such requests violate U.S. law or ethical business practices.”

Questions Regarding Bid Protests and FMS

For all that, Hyperion also piques an interest in the basic propriety of bid protest challenges to FMS solicitations and awards. One might ask whether such challenges are consistent the goals of the bid protest process and U.S. foreign policy.

Consider the bid protest process, which allows private parties to police the integrity of the procurement system—becoming, in effect, “private attorneys general.” This process can serve important, salutary goals: (a) safeguarding taxpayer dollars; (b) protecting the government from bad procurement decisions; (c) catching and preventing mistakes and misconduct by government officials; and (d) enhancing the legitimacy of the procurement process. In the FMS context, however, these benefits seem attenuated. For example, absent FMF, taxpayer dollars are not used; further, even with non-repayable FMF financing, such funds already are committed to a foreign nation’s trust account, to be used at the foreign nation’s discretion. Likewise, whether a U.S. contractor can and should be protecting the ultimate purchaser, a foreign nation, is an open question. InHyperion, even where TCSC’s technical acceptability was at issue, Jordan still directed the U.S. Army to make a sole-source award to TCSC.

In addition, the FMS program is meant to be a component of U.S. foreign policy. In recent years, we have seen FMS take on increased importance, particularly as the United States has built the capabilities of foreign partners participating in counter-terrorism operations. In recent months, we have discussed U.S. sales of defense articles and services to Middle East allies. Simultaneously, though, there are regular reports of U.S. officials seeking to streamline the FMS process, which foreign allies have described as sclerotic and slow—to the point that it harms U.S. foreign policy. And in that context, it is unclear if bid protest challenges to FMS solicitations and awards are consistent with U.S. foreign policy goals. For the U.S. Government and its foreign allies, bid protest challenges might only frustrate and prolong the FMS process—as happened in Hyperion, where the ultimate award to TCSC appears to have been delayed by approximately ten months.

© 2020 Covington & Burling LLPNational Law Review, Volume V, Number 112

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