Losing bidder claims breach of Procurement Integrity Act in Navy software license award

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A simple competition for software licenses ended in court after the losing bidder alleged a violation of the Integrity in Public Procurement Act. This was a competition organized by the Navy to provide five-year software licenses under a general purchase agreement. Simple, but not insignificant, with an estimated cap of $2.5 billion. Smith Pachter McWhorter’s procurement attorney, Joe Petrillo, filed the Federal Drive with Tom Temin on the details.

Tom Temin: And so often, Joe, these cases of protest stem from what should be the most common thing in the world, which is bidding for a BPA to provide software licenses. But what happened here?

Joseph Petrillo: Well, it’s a high-stakes BPA to provide the Navy and other DoD components with Microsoft software licenses and software maintenance for up to five years. And that culminated in a US Federal Court of Claims decision in a public sector inducement offer protest case against the US and Dell Marketing. As I mentioned, the stakes were high because the assessed value of this deal was $2.5 billion. The BPA had hundreds of CLNs, of which about 19 were high value and accounted for most of the prize.

Tom Temin: And for the uninitiated, we should say CLN its contract line. And just in case anyone doesn’t know that particular phrase, go ahead.

Joseph Petrillo: To the right. You know, the Navy after a few rounds of competition awarded this BPA to Inside Public Sector, and they had underbid Dell Marketing by a few million dollars, but that was only 1% of the total assessed price. There were apparently only two bidders. During the debriefing process, Dell received the base internal public sector award, but not the CLN awards. And he sent an email telling the Navy that Microsoft had changed its prices for four of the CLNs very late in procurement before final proposals were submitted. And therefore, its competitor might have mispriced these four CLNs. So the navy looked at that. And he found that Inside Public Sector hadn’t priced years four and five of these CLNs, but Dell had that pricing was not a direct comparison.

Tom Temin: And by the way, those particular contract line items, even though it was a small number of them, accounted for a lot of the potential value here.

Joseph Petrillo: Of course, two of the four were high value or those 19 high value. So the Navy then suspended the award and informed the bidders that one vendor had set the price for years four and five of those claims, but the other had set the price to zero and told everyone to set the award for all years and resubmit the award.

Tom Temin: So could this be considered some sort of best and last request?

Joseph Petrillo: Yeah, that was actually the second best and last request. There was one earlier. And now here is another one to fix this problem. This time Dell’s price was lower and it received the award. So Inside Public Sector protested to the GAO (Government Accountability Office). And as part of this protest, the agency produces certain documents to the GAO and the protester’s lawyers. Usually it’s under a protective order. And the protest does not see it. But in any case, the lawyers can see it and use the documents in the bid challenge process.

It is not clear whether the next document I will mention was submitted under the protective order or not. But by the time it got to the appeals court, it was on the public record. And it’s an email from Dell, raising the issue. And that was the first time that Inside Public Sector had seen that email. Inside Public Sector or their attorneys have seen this email from Dell and found it suspicious. They wonder why Dell focused on only four of the hundreds of CLNs. So they asked the Navy to look into the matter, as there may have been a violation of the Purchasing Integrity Act with a leak from the Navy to Dell of this sensitive pricing information.

Tom Temin: We speak with Joseph Petrillo, a procurement attorney at Smith Pachter McWhorter. So what looked like Dell to take their side was just priced out due to the price change. They said, well, they couldn’t understand that, it was a hunch. From Insight’s perspective, it seemed the Navy had told Dell something about what Insight had offered.

Joseph Petrillo: That’s right. And they raised this in further protest to the GAO, and pointed out that the Navy apparently did not look into this issue. The Navy responded and had no indication that it was going to address the issue of the Integrity in Government Procurement Act. So at that point the public sector made a tactical decision, they decided not to go ahead with the GAO protest, but instead filed a protest with the Federal Court of Claims. And when that happens, GAO policy is to dismiss their protest, so there aren’t two pending at the same time, and the court protest continued.

So, the question facing the Federal Court of Claims in this decision was when an agency should go ahead and investigate an alleged breach of the Integrity in Public Procurement Act. The Navy, responding in court, argued that Insight had breached the 14-day rule to protest violations of the Integrity in Public Procurement Act. There’s a law that says you can’t protest unless you bring it to the agency’s attention within 14 days. The court, however, held that one additional protest was sufficient to meet this requirement. And it had been filed within the 14-day period. Thus, the Navy also pointed out that it was not clear that a violation of the Purchasing Integrity Act had occurred. There were other reasonable explanations for the events, everyone knew that when Microsoft changed the pricing it might have caused confusion. So the question now comes back to the court as to whether or not that guidance was sufficient with the Navy not to investigate or whether there were enough allegations here.

Tom Temin: And the court decided?

Joseph Petrillo: The Court ruled that the test would be whether or not there was a reasonable possibility that a breach of the Integrity in Public Procurement Act had occurred. What they did was they referenced a previous case in the Federal Claims Court, where the court ruled that you didn’t have to investigate, if he didn’t. there was no possibility, based on the allegations, that a breach had occurred. So they kind of changed that and well, looked at the reverse and decided that a reasonable possibility that the court had decided would be sufficient. The protest was granted. And the deal was turned over to the Navy with instructions to investigate.

Tom Temin: And that’s where he is at this point.

Joseph Petrillo: Well, the investigation had a 45-day deadline, the decision was late December, and in fact the Navy reported to the court on the investigation. The report indicates that the alleged violation did not affect the price. No one from Dell Marketing has obtained or received CLN level pricing information from Inside Public Sector.

Tom Temin: So the Navy is then trying to convince the court that Dell simply had good intuition, but no inside information on the price of Insight?

Joseph Petrillo: To the right. And that was the result of an investigation into whether or not Dell had this information. And they were cleared on this issue. There was an additional briefing, and I guess the court will have to move on and resolve the rest of the issues in the case.

Tom Temin: I mean, to make an extreme analogy here, if you ask two companies to bid to supply an all-new Cadillac Escalade, with all the options in one bid for $72,000.06, the other for $1.98, you could reasonably conclude that the other people didn’t take everything into account, even if you wouldn’t have seen their offer.

Joseph Petrillo: It would certainly increase—

Tom Temin: — Don’t take sides in any way here. But that’s what it all depends on.

Joseph Petrillo: You know, sometimes where there’s smoke there’s fire and sometimes it’s just a smoke machine. So sometimes you have to figure out what you have.

Tom Temin: Okay, Joseph Petrillo is a procurement attorney at Smith Pachter McWhorter. Thank you so much.

Joseph Petrillo: Thanks Tom.