NETSTAR-1 GOVERNMENT CONSULTING, INC v. USA

Filing 33

PUBLISHED OPINION AND ORDER. Redacted re: 27 SEALED OPINION AND ORDER. Signed by Judge Francis M. Allegra. (si) Copy to parties.

In the United States Court of Federal Claims
No. 11-294C
(Filed Under Seal: May 27, 2011)
Reissued: June 13, 2011 1
_________
*
*
*
* Post-award bid protest; Motion for
Plaintiff,
* preliminary injunction; Organizational
v.
* conflicts of interest; Likelihood of success
* on the merits; Organizational conflicts of
THE UNITED STATES,
* interest – unequal access; Identification of
* conflicts and mitigation efforts; Irreparable
Defendant,
* harm; Balance of hardships; Public interests;
* Preliminary injunction granted.
and
*
*
ALON, INC.,
*
Defendant-Intervenor.
*
*
_________
NETSTAR-1 GOVERNMENT
CONSULTING, INC.,

OPINION AND ORDER
__________
John J. O’Brien, Cohen Mohr, LLP, Washington, D.C., for plaintiff.
Daniel B. Volk, United States Department of Justice, Washington, D.C., with whom was
Assistant Attorney General Tony West, for defendant.
Douglas L. Patin, Bradley, Arant, Boult, Cummings, LLP, Washington, D.C., for
defendant-intervenor.
1

An unredacted version of this opinion and order was issued under seal on May 27,
2011. The opinion and order issued today incorporates the parties’ only proposed redaction and
corrects some minor typographical errors. The redacted material is represented by brackets [ ].

ALLEGRA, Judge:
Before the court, in this bid protest action, is plaintiff’s motion for a preliminary
injunction. For the reasons that follow, the court GRANTS this motion.
I.

BACKGROUND 2

In this post-award bid protest, NetStar-1 Government Consulting, Inc. (NetStar-1)
challenges the award by the Department of Homeland Security, United States Immigration and
Customs Enforcement (ICE), of a blanket purchase agreement (BPA) to ALON, Inc. (ALON) to
provide program management support services for the ICE Office of the Chief Information
Officer (OCIO). The contract has an estimated value of []. NetStar-1 alleges that the BPA was
inappropriately awarded to ALON despite the existence of an unmitigated organizational conflict
of interest. NetStar-1, which was the incumbent on a prior related contract, is currently
providing the services in question under a bridge contract that is set to expire June 28, 2011.
ALON is to begin transitioning into the new contract on or about May 28, 2011.
On May 11, 2011, NetStar-1 filed its complaint in this court along with, inter alia, an
application for a temporary restraining order and a motion for a preliminary injunction. On May
12, 2011, ALON filed a motion to intervene as defendant-intervenor, which the court granted on
May 13, 2011. On that same day, the court also held a status conference with the parties, during
which the parties agreed to forgo resolution of the application for a temporary restraining order
in favor of an accelerated briefing schedule on the motion for preliminary injunction. On May
26, 2011, the court heard argument on the motion for preliminary injunction (during the recess of
a trial currently being conducted by the undersigned in Boston, Massachusetts).
II.

DISCUSSION

In order to obtain a preliminary injunction, a plaintiff must establish four factors: “‘[1]
that [it] is likely to succeed on the merits, [2] that [it] is likely to suffer irreparable harm in the
absence of preliminary relief, [3] that the balance of equities tips in [its] favor, and [4] that an
injunction is in the public interest.’” Am. Signature, Inc. v. United States, 598 F.3d 816, 823
(Fed. Cir. 2010) (quoting Winter v. NRDC, 129 S. Ct. 365, 374 (2008)). “No one factor is
dispositive to the court’s inquiry as ‘the weakness of the showing regarding one factor may be
overborne by the strength of the others.’” CRAssociates, Inc. v. United States, 95 Fed. Cl. 357,
373 (2010) (quoting FMC Corp. v. United States, 3 F.3d 424, 427 (Fed. Cir. 1993)). However,
the first two factors are the most critical, and “a movant must establish the existence of both of
the first two factors to be entitled to a preliminary injunction.” Altana Pharma AG v. Teva
Pharms. USA, Inc., 566 F.3d 999, 1005 (Fed. Cir. 2009). “[B]ecause injunctive relief is

2

Owing to the urgent need of the parties for a ruling in this matter, the court’s recitation
of the facts and law is necessarily brief.
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relatively drastic in nature, a plaintiff must demonstrate that its right to such relief is clear.”
Reilly’s Wholesale Produce v. United States, 73 Fed. Cl. 705, 709 (2006).
A.

Likelihood of Success

Initially, the court must determine whether it is likely that the court will overturn the
award decision as arbitrary, capricious, an abuse of discretion, or otherwise not in accordance
with law. 28 U.S.C. § 1491(b)(4). The court may overturn a procurement decision where
“(1) the procurement official’s decision lacked a rational basis; or (2) the procurement procedure
involved a violation of regulation or procedure.” Impresa Construzioni Geom. Domenico Garufi
v. United States, 238 F.3d 1324, 1332 (Fed. Cir. 2001); see also Axiom Res. Mgmt., Inc. v.
United States, 564 F.3d 1374, 1381 (Fed. Cir. 2009). NetStar-1 contends that the award in
question was flawed by the existence of an unmitigated organizational conflict of interest that
stems from ALON’s access to information gained from its performance of other ICE contracts.
Among the latter contracts was one in which ALON provided budget support to the OCIO, under
which certain ALON employees developed and had access to databases of proprietary
information that included the labor categories, job categories, and fully-loaded labor rates for
NetStar-1’s employees working on ICE contracts. Under its contracts with the OCIO, ALON’s
employees also had access to the OCIO’s budget execution plan and various other non-public
information concerning OCIO procurements.
The Federal Acquisition Regulations (FAR) tasks contracting officers with the
responsibility to “analyze planned acquisitions in order to (1) [i]dentify and evaluate potential
organizational conflicts of interest as early in the acquisition process as possible; and (2) [a]void,
neutralize, or mitigate significant potential conflicts before contract award.” 48 C.F.R. §
9.504(a). Among the organizational conflicts of interest identified by the FAR are those
involving unequal access to information, which arise when the contractor has access to “[s]ource
selection information . . . that is relevant to the contract but is not available to all competitors,
and such information would assist that contractor in obtaining the contract.” Id. at § 9.505-4; see
also Turner Constr. Co. v. United States, 94 Fed. Cl. 561, 569 (2010). As the FAR provision
quoted above suggests, a contracting officer, in certain circumstances, may avoid, neutralize, or
mitigate the impact of an organizational conflict of interest, allowing a procurement to proceed.
Under the FAR, “the identification of organizational conflicts of interest and the evaluation of
mitigation proposals are fact-specific inquiries that require the exercise of considerable
discretion.” PAI Corp. v. United States, 614 F.3d 1347, 1351-52 (Fed. Cir. 2010).
1.

Organizational Conflicts of Interest – Unequal Access

There are hard facts here that strongly suggest the existence of several organizational
conflicts of interest associated with ALON having had unequal access to information that could
have provided it with a significant competitive advantage in obtaining the BPA. See ARINC
Eng’g Servs., LLC v. United States, 77 Fed. Cl. 196, 202 (2007). Defendant’s arguments to the
contrary – centering on its contention that there was no “unequal” access because both ALON
and NetStar-1 had access to latter’s proprietary information – border on the frivolous. Moreover,
there is little doubt that ALON stood to gain a competitive advantage if it used proprietary
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information regarding, inter alia, its competitor’s labor rates in crafting its own bid. Indeed, the
administrative record reveals that ALON was awarded the contract in question under a bestvalue, technical-cost trade-off decision, based on its having a lower price than that offered by
NetStar-1. See 48 C.F.R. § 15.101-1.
2.

Identification and Mitigation Efforts

Based on its preliminary consideration of the merits, the court has serious questions
regarding the timing and adequacy of the agency’s mitigation efforts. It appears, at this moment,
that the contracting officer did not ascertain the existence of the conflicts of interest on a timely
basis so as to permit effective and timely mitigation. FAR § 9.504(a) requires the contracting
officer to identify and evaluate potential conflicts “as early in the acquisition process as possible”
and to mitigate “significant potential” conflicts before a contract award. 3 Here, there is evidence
that the contracting officer did neither of these things. In particular, she failed, prior to the
award, to identify (or at least consider) that ALON was performing services for the OCIO that
plainly raised serious questions regarding its participation in other procurements by that same
office. This failure occurred even though these other contracts explicitly warned that ALON’s
performance thereunder would cause future organizational conflicts of interests providing that
company with a competitive advantage. And, even more remarkably, it occurred even though
the contracting officer here was also the contracting officer on at least two of the ALON
contracts alleged to give rise to the subject conflicts. Under these circumstances, it does not
seem adequate for the contracting officer to have relied, as she did, upon the offerors to selfidentify any organizational conflicts of interest they thought existed – a conclusion that finds
support in the relevant FAR provisions and the cases construing them. 4

3

Defendant admits that had ALON used the proprietary information to which it had
access to obtain the contract in question that would be a “significant” conflict of interest.
4

See 48 C.F.R. § 9-506(a) (“If information concerning prospective contractors is
necessary to identify and evaluate potential organizational conflicts of interest . . . , contracting
officers should first seek the information from within the Government . . . . Government sources
include the files and the knowledge of personnel within the contracting office, . . .”); see also
The Analysis Group, LLC, 2009 CPD ¶ 237 at 4 (2009) (“agencies must give consideration not
only to information that may have been furnished by a firm, but also must consider, as
appropriate, the scope of products manufactured or services provided by the firm . . . an agency
may not, in effect, delegate to the contractor itself complete responsibility for identifying
potential OCIs”); L-3 Servs. Inc., 2009 CPD ¶ 171 (2009) (“An agency’s reliance on a
contractor’s self-assessment of whether an organizational conflict of interest exists . . . is
inconsistent with the FAR.”); Johnson Controls World Servs., Inc., 2001 CPD ¶ 20 at 6 (2001)
(“[T]he [agency] proceeded as if the clause were self-executing . . . beyond compliance with the
FAR, the agency’s approach of essentially leaving the determination of the existence, as well as
the mitigation, of a potential conflict solely to the contractor – who is not in a position to make
an objective judgment – simply is not a reasonable means of avoiding or mitigating an OCI.”).

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One reason why ALON’s organizational conflicts of interest may have been overlooked
is because the contracting officials for the OCIO failed to comply with FAR § 9.505-4(b). That
provision indicates that “[a] contractor that gains access to proprietary information of other
companies in performing advisory and assistance services for the Government must agree with
the other companies to protect their information from unauthorized use or disclosure for as long
as it remains proprietary and refrain from using the information for any purpose other than that
for which it was furnished.” Id. It adds that: “[t]he contracting officer shall obtain copies of
these agreements and ensure that they are properly executed.” See also 48 C.F.R. § 9.508(h)
(illustrating the proper application of this provision). Defendant admits that these provisions
were not followed by the agency here.
In addition, there is indication that the approach taken by the contracting officer to
mitigate the conflicts of interest was arbitrary and capricious or otherwise contrary to law. The
mitigation plan adopted by the contracting officer has some interesting features. As part of the
plan, the contracting officer obtained declarations from ALON employees working at OCIO who
indicated that they had not obtained NetStar-1’s proprietary information or shared such
information with other ALON officials. But, the individuals from whom these declarations were
obtained proved not to be the right personnel; declarations from the dozen ALON employees
who actually had access to the relevant databases containing NetStar-1’s proprietary information
were never obtained (and thus not considered by the contracting officer). As part of the
mitigation plan, the contracting officer also obtained copies of Department of Homeland Security
non-disclosure agreements signed by ALON employees. But, all but one these agreements were
not dated, leaving open questions as to when they were signed. And none of them were
approved by the companies whose proprietary information was being shared with ALON, as
required by the FAR provision discussed above. Finally, in concluding that the organizational
conflicts of interest here had been mitigated, the contracting officer relied upon certain
“firewalls” that ALON agreed to establish. But, those “firewalls” appear to be little more than
pledges by ALON that its employees who have had access, through the OCIO contracts, to other
companies’ proprietary information will not participate in preparing responses to ICE requests
for proposals. This is a far cry from the sorts of detailed and verifiable firewall provisions that
have been found adequate to mitigate other organizational conflicts of interest. 5
Defendant and defendant-intervenor are largely left to argue that the agency’s regulatory
violations and other errors are not prejudicial because ALON provided the contracting officer
declarations from the four individuals who were involved in preparing ALON’s pricing proposal
on the contract in question. Each of these declarations, in essence, states, under penalty of
5

See LEADS Corp., 2003 CPD ¶ 197 at 3 (2003) (describing firewalls such as:
(i) separating the relevant personnel from other of contractor’s business units electronically,
organizationally, and physically; (ii) requiring continuous educations programs on the topic;
(iii) nondisclosure agreements; (iv) implementing document control policies; (iv) auditing the
firewall measures semi-annually; (v) continually updating the list of ongoing contract with
agency); see also Johnson Controls World Servs., Inc., 2001 CPD ¶ 20 at 2. The court is aware
that the contracting officer’s mitigation plan has other features (e.g., security training), but those
features do not diminish the court’s concerns with the overall efficacy of that plan.
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perjury, that the declarant did not have access to and did not use any of NetStar-1’s proprietary
information. The court has serious doubts regarding the reliance placed on these declarations for
several reasons.
First, at this point, the court is unprepared to accept the proposition that an agency’s
failure to adhere to the FAR’s various requirements regarding organizational conflicts of interest
may be remedied by the simple expediency of obtaining declarations from the winning bidder
averring that it did not take advantage of the unequal access to information that its employees
possessed. Indeed, if the latter were enough, one must wonder why the drafters of the FAR
bothered to develop an extensive set of rules to deal with such conflicts, or why those same
drafters bothered recently to bolster those rules. See 28 C.F.R. §§ 9.501- 9.508; Federal
Acquisition Regulation: Organizational Conflicts of Interest, 76 Fed. Reg. 23236, 23248-50
(proposed Apr. 26, 2011). If defendant is correct, all this effort could be replaced with a simple
requirement that the awardee swear that it did not do anything improper. Second, while
defendant and defendant-intervenor seem to think that these declarations, standing alone, are
adequate to mitigate any conflicts of interest here, the contracting officer apparently believed
otherwise. She relied upon a mitigation plan that had multiple prongs – declarations, nondisclosure agreements, firewalls, etc. – albeit prongs that, at least in part, seem to have been
faultily executed. It is difficult to comprehend why the court should treat these declarations as
independently dispositive when the contracting officer herself did not. And, indeed, the
declarations in question are incomplete. While they contain assurances from ALON’s pricing
team, there are no comparable declarations from other ALON employees who were involved
with the preparation of other aspects of ALON’s offer (e.g., the technical proposal), any of
whom might have benefited from second- or third-hand knowledge of NetStar-1’s proprietary
information.
Finally, in the court’s preliminary view, defendant’s and defendant-intervenor’s vigorous
claim that these declarations foreclose a finding that there was any prejudice here seems to clash
with cases that have held: (i) that the mere appearance of a conflict is enough to preclude an
award, see, e.g., NFK Eng’g, Inc. v. United States, 805 F.2d 372, 376 (Fed. Cir. 1986); Turner,
94 Fed. Cl. at 573; and, relatedly, (ii) that prejudice is presumed where proprietary information is
available to an offeror, see Turner, 94 Fed. Cl. at 576; ARINC Eng’g, 77 Fed. Cl. at 203. These
cases, indeed, raise in the court’s mind whether the declarations of the sort at issue can be
properly viewed as mitigation at all, at least as that concept is employed in the FAR.
Accordingly, at least for the moment, the court believes that the four declarations in question do
not bear the considerable weight that defendant and defendant-intervenor would heap upon them.
Based on these observations, the court finds that plaintiff has demonstrated a likelihood
of prevailing on the merits in this case.
B.

Irreparable Harm

Next the court must determine whether NetStar-1 is likely to suffer irreparable harm in
the absence of preliminary relief. “The relevant inquiry in weighing this factor is whether
plaintiff has an adequate remedy in the absence of an injunction.” Magellan Corp. v. United
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States, 27 Fed. Cl. 446, 447 (1993). NetStar-1 complains that this court’s failure to issue a
preliminary injunction will result in a competitive disadvantage, asserting, inter alia, that ALON
will be competitively advantaged by beginning its transition into the new contract. This court
has acknowledged that a lost opportunity to compete may constitute an irreparable harm, PGBA,
LLC v. United States, 57 Fed. Cl. 655, 664 (2003); Overstreet Elec. Co. v. United States, 47 Fed.
Cl. 728, 744 (2000); Seattle Sec. Servs., Inc. v. United States, 45 Fed. Cl. 560, 571 (2000). In the
court’s view, the injury claimed by plaintiff is in the same vein. See Reilly’s Wholesale Produce,
73 Fed. Cl. at 717. Moreover, there is evidence that if a preliminary injunction is not granted,
NetStar-1 will begin to lose key personnel – ALON, indeed, has already made an offer to
NetStar-1’s current program manager. Accordingly, the court finds that, on balance, plaintiff has
adequately demonstrated that it will suffer irreparable harm if preliminary injunctive relief is not
granted.
C.

Balance of Hardships

Next, the court must consider whether the balance of hardships leans in the plaintiff’s
favor. This requires a consideration of the harm to the government and to the intervening
defendant. On this count, the government essentially asserts that the delay will prevent it from
obtaining the benefits of the new contract. However, defendant, as well as the public at large,
have a long-term interest in ensuring that any new contract for the services in question truly
represents the best overall value to the government – a matter that at this point is in doubt. See
Serco, Inc. v. United States, 81 Fed. Cl. 463, 502 (2008). Given the fact that there is no
indication that issuing a preliminary injunction will impair the agency ability to obtain needed
services – defendant readily admits that the existing bridge contract may be extended to
September 28, 2011 – the court believes that these long-term interests are paramount here and
are best served by issuing the proposed injunction. See PGBA, 57 Fed. Cl. at 663; Metcalf
Constr. Co. v. United States, 53 Fed. Cl. 617, 645 (2002); DTH Mgmt. Group v. Kelso, 844 F.
Supp. 251, 255 (E.D.N.C. 1993). In these circumstances, the balance of hardships tilts in
NetStar-1’s favor.
D.

Public Interest

Plaintiff also contends that the public interest will be served by granting the requested
preliminary injunctive relief. “Clearly, the public interest in honest, open, and fair competition
in the procurement process is compromised whenever an agency abuses its discretion in
evaluating a contractor’s bid.” PGBA, 57 Fed. Cl. at 663; see also Rotech Healthcare, Inc. v.
United States, 71 Fed. Cl. 393, 430 (2006); Cincom Sys., Inc. v. United States, 37 Fed. Cl. 266,
269 (1997); Magellan Corp., 27 Fed. Cl. at 448. In the instant case, the public’s interest likewise
lies in preserving the integrity of the competitive process.
III.

CONCLUSION

The court finds that the prerequisites for issuing a preliminary injunction have been fully
satisfied here. In consideration of the above:

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1.

Plaintiff’s motion for preliminary injunction should be, and is hereby,
GRANTED.

2.

Defendant, acting by and through the Department of Homeland Security
(and any agency thereof), as well as ALON Corp., are hereby ENJOINED
from performing on contract No. HSCEMS-IO-Q-00015. Said parties also
must suspend any related activities that may result in additional
obligations being incurred by the United States under this contract.

3.

Pursuant to RCFC 65(a), plaintiff shall give security in the amount of
$100,000.00 for the payment of such costs and damages as may be
incurred or suffered in the event that future proceedings prove that this
injunction was issued wrongfully. Plaintiff shall file proof of security
with the Clerk of Court. The Clerk shall hold the bond until this case is
closed.

4.

The court is prepared to move promptly to a determination of the
ultimate merits in this matter. Toward that end, on June 1, 2011, the
parties shall file with the court a joint status report proposing a
schedule for final resolution of this matter.

5.

This order shall be published as issued after June 9, 2011, unless the
parties identify, with particularity, protected and/or privileged materials
subject to redaction prior to said date.

IT IS SO ORDERED.

s/ Francis M. Allegra
Francis M. Allegra
Judge

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