LawFlash

Court of Federal Claims Clarifies Bid Protest Jurisdiction for OTA Agreements

September 15, 2022

In a recent dispute, the United States argued that the Court of Federal Claims lacked jurisdiction to review any disputes concerning Other Transaction Authority (OTA) agreements, and that it is “conceivable” that no court had authority to review such arrangements. However, the Court of Federal Claims rejected the government’s sweeping argument in an opinion that clarifies the developing area of law surrounding OTAs and bid protest jurisdiction.

Other Transaction Authority Agreements

OTA agreements, once rare, have become an increasingly common way for Department of Defense (“DoD”) agencies to avoid formal procurement procedures and obtain access to technological innovations from the commercial world. Unsurprisingly, as OTA agreements have become more common, disputes have arisen between contractors and the United States, which can become tricky regarding jurisdiction.

DoD may use OTA agreements “in certain circumstances for prototype projects that are directly relevant to enhancing the mission effectiveness of military personnel and the supporting platforms, systems, components, or materials proposed to be acquired or developed by the DoD, or to improve platforms, systems, components, or materials in use by the Armed Forces.”[1]

Importantly, although agencies are directed to use competitive procedures “to the maximum extent practicable” when entering OTAs,[2] those agreements are not subject to the Federal Acquisition Regulations (FAR).[3] As OTAs exist outside of the FAR, there are often fewer restrictions and more flexibility, which allows the DoD to source from nontraditional government contractors more easily. This feature also makes OTAs more attractive to contractors who have resisted becoming traditional government contractors but have innovative technologies attractive to DoD agencies.

OTA agreements traditionally have been used to enable the government to commission or streamline research and development for mission-critical technologies. During the COVID-19 pandemic, however, OTA agreements were also used to spearhead the government’s efforts to, among other things, expand testing for the virus. DoD’s use of OTA agreements has dramatically increased in recent years. Between FY 2015 and FY 2019 alone, DoD OTA obligations increased by 712%,[4] bolstered by the 2016 National Defense Authorization Act codifying DoD agencies’ authority to award OTA agreements and, importantly, follow-on production contracts or transactions without the use of competitive procedures in certain circumstances.[5]

OTA agreements valued between $100 million and $500 million may be entered only after a written determination that procedural requirements will be met, and that use of OTA is essential to promoting the success of the prototype project. That determination may be made by a senior procurement executive of a federal agency, or, when that agency is the Defense Advanced Research Projects Defense Agency or the Missile Defense Agency, only by the director of that agency. OTA agreements valued above $500 million may only be entered if the Under Secretary for Research and Engineering, or the Under Secretary of Defense for Acquisition and Sustainment determine in writing that procedural requirements will be met, the use of OTA is essential to meet critical national security objectives, and the congressional defense committees are notified in writing at least 30 days before OTA is exercised.

Bid Protest Jurisdiction & OTA Agreements

The Court of Federal Claims has jurisdiction to render judgements on disputes regarding solicitations, proposed awards, contract awards, and alleged violations of law in connection with procurements or proposed procurements.[6] This jurisdiction, however, is limited by the Tucker Act, which grants the Court of Federal Claims jurisdiction in disputes relating to contracts and “in connection with a procurement or a proposed procurement.”[7]

The Court of Federal Claims has previously held that OTA agreements are not procurements.[8] For that reason, bid protest jurisdiction at the Court of Federal Claims will only lie if an OTA is “in connection with a procurement or a proposed procurement.” In 2019, the Court of Federal Claims deferred on “whether other transactions generally fall beyond the court’s bid protest jurisdiction under the Tucker Act.”[9] Since then, the court has held that it might have jurisdiction over an OTA dispute so long as that dispute is “in connection with a procurement or proposed procurement,” depending on the facts and circumstances.[10] There have been few cases at the Court of Federal Claims that test the Tucker Act’s jurisdiction over OTAs.

Similarly, GAO has jurisdiction to hear protests about alleged violations of procurement laws during the award or proposed award of a contract. Because OTAs are not procurements, GAO has found that it lacks jurisdiction to review substantive protests related to awards or solicitations of OTA agreements.[11] The GAO will, however, review a timely protest that an agency is improperly using its “other transaction” authority as that relates to the procurement laws more generally.[12] Under GAO precedent, “[w]here a protester is aware that the agency has issued a competitive solicitation seeking to enter into an OTA pursuant to its statutory authority, any protest regarding the use of that authority must be filed prior to the time for receipt of initial proposals.”

Hydraulics International, Inc. v. United States

On August 8, 2022, that Court of Federal Claims exercised jurisdiction over an OTA dispute in Hydraulics.[13]The court reasoned that, even though OTAs are exempt from some procurement laws, congressional silence on OTA jurisdiction was insufficient to entirely remove OTAs from the Tucker Act’s umbrella. While the court declined to hold that all disputes regarding OTAs are within its jurisdiction, it resisted the government’s urging to hold that OTAs always fall beyond its reach.

In Hydraulics, the Army had awarded an OTA to the Aviation and Missile Technology Consortium in order to support research efforts to upgrade the Army’s military helicopter Aviation Ground Power Units (AGPUs).[14] The Aviation and Missile Technology Consortium is managed by Advanced Technology International, which manages several of the OTA’s prototype projects.[15] To meet those projects’ technological needs, Advanced Technology International issued a Request for Enhanced Whitepapers to invite submissions to compete for award of certain projects supporting the AGPU effort.[16] That Request for Enhanced Whitepapers authorized a conditional follow-on production contract for over 150 AGPUs without the use of competitive procedures. Submitted whitepapers were reviewed by the Army to assess their risks.[17]

The plaintiff, Hydraulics International, Inc., submitted a whitepaper proposal but was not selected for OTA award because the Army identified what it considered undesirable risks in Hydraulics’ proposal.[18] Hydraulics disagreed with the Army’s assessment and filed suit to challenge it as arbitrary, capricious, or an abuse of discretion.[19]

The government criticized Hydraulics’ case by arguing that because the dispute stemmed from an OTA, there was no jurisdiction. The government argued that it was “conceivable” that no court could ever review an agency’s OTA, and that position was consistent with congressional intent.[20] This position has been received critically and appears to contradict the Other Transactions Guide published by the Office of the Under Secretary of Defense for Acquisition and Sustainment in 2018, which recognizes that disputes involving OTAs may potentially be the subject of a bid protest to the Court of Federal Claims.[21] However, the Court of Federal Claims disagreed. It held that although OTAs are exempt from some traditional procurement laws, the term “procurement,” as used by the Tucker Act, spans the entire procurement process. In Hydraulic, the OTA contemplated a future follow-on production contract that could be awarded without competition.

While the court did not stray from its prior holdings, it notably held that when an OTA award is made in order to inform a process for determining a future acquisition need, that OTA award is still considered to be “in connection with a procurement or a proposed procurement.”

Takeaways

For the growing number of OTA contractors, Hydaulics is a welcome step toward clarifying the risks should a dispute arise. While this holding does not represent a substantial deviation from precedent, it does place contractors on firmer jurisdictional grounds whenever the OTA contemplates future award of a follow-on production contract without competition. That said, Contractors should critically review any potential OTAs for language designed to prevent judicial review.

Because this holding comes from the Court of Federal Claims, it is not precedential. It is still possible for the pendulum to swing in a different direction in future decisions and there is still time for the contractor to appeal in Hydraulic. In the meantime, Hydraulic reinforces the argument that contractors have a forum for at least some of their OTA disputes and likely foreshadows the Court of Federal Claims’ willingness to more consistently entertain what were once considered to be peculiar disputes.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following:

Authors
W. Barron A. Avery (Washington, DC)
Sheila A. Armstrong (Dallas / Washington, DC)
Clara Kollm (Washington, DC)
Sarah-Jane Lorenzo (Houston)

[1]10 U.S.C. § 4022(a)(2)(A).

[2] 10 U.S.C. § 4022(b)(2).

[3]32 C.F.R. § 3.2.

[5]10 U.S.C. § 4022(f)(2).

[6]28 U.S.C. § 1491(b)(1).

[7]28 U.S.C. § 1491(b)(1).

[8]Space Expl. Techs. Corp. v. United States, 144 Fed. Cl. 433, 435 (2019); In re MorphoTrust USA, LLC, B-412711 (May 16, 2016) (quoting Rocketplane Kistler, B-310741, Jan. 28, 2008, 2008 CPD § 22 at 3).

[9]Space Expl. Techs. Corp. v. United States, 144 Fed. Cl. 433, 442 (2019).

[10]See Kinemetrics, Inc. v. United States, 155 Fed. Cl. 777 (2021), MD Helicopters Inc. v. United States, 435 F. Supp. 3d 1003 (D. Ariz. 2020).

[11]In re MorphoTrust USA, LLC, B-412711 (May 16, 2016).

[12]In re Spartan Med., Inc., B-419503 (Feb. 26, 2021)

[13]Hydraulics Int'l, Inc. v. United States, No. 22-364, 2022 WL 3150517, at *7 (Fed. Cl. Aug. 8, 2022).

[14]Hydraulics Int’l, 2022 WL 3150517 at *1–2.

[15]Id. at *2.

[16]Id.

[17]Id.

[18]Id.

[19]Id. at *10.

[20]2022 WL 3150517 at *7

[21]Office of the Under Secretary of Defense for Acquisition and Sustainment, Other Transactions Guide 37 (Nov. 2018).