AMAZON WEB SERVICES, INC. v. USA
Filing
62
PUBLISHED OPINION with redactions. Signed by Judge Thomas C. Wheeler. (ss) Copy to parties.
In the United States Court of Federal Claims
No. 13-506C
(Filed Under Seal: October 31, 2013)
(Reissued for Publication: November 8, 2013) 1
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AMAZON WEB SERVICES, INC.,
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Plaintiff,
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v.
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THE UNITED STATES,
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Defendant,
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and
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IBM U.S. FEDERAL,
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Defendant-Intervenor. *
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Post-Award Bid Protest; Cloud
Computing
Services
Contract;
Agency Corrective Action Following
GAO Decision; No Prejudice to Party
Lacking Any Chance of Contract
Award; Reopening of Competition
Unnecessary.
Craig A. Holman, with whom were Kara L. Daniels, Lauren J. Schlanger, and Steffen
Jacobsen, Arnold & Porter LLP, Washington, D.C., for Plaintiff Amazon Web Services,
Inc.
Steven M. Mager, Senior Trial Counsel, with whom were Stuart F. Delery, Assistant
Attorney General, Jeanne E. Davidson, Director, and Kirk T. Manhardt, Assistant
Director, Commercial Litigation Branch, Civil Division, U.S. Department of Justice,
Washington, D.C., Edwin G. Doster, Avi M. Baldinger, and Arthur L. Passar, Office of
General Counsel, Central Intelligence Agency, Of Counsel, for Defendant.
Jason A. Carey, with whom were Thomas C. Papson, Luke W. Meier, John W. Sorrenti,
and Katherine M. John, McKenna Long & Aldridge LLP, Washington, D.C., for
Defendant-Intervenor IBM U.S. Federal.
1
The Court issued this opinion under seal on October 31, 2013, and gave the parties until November 7,
2013, to submit any proposed redactions of competition-sensitive, proprietary, confidential, or other
protected information. The parties submitted their proposed redactions, which have been accepted by the
Court. Redactions are indicated by [. . .].
OPINION AND ORDER
WHEELER, Judge.
Introduction
This post-award bid protest arises from a competitive acquisition by the Central
Intelligence Agency (“the agency”) for cloud computing services (“C2S”). At issue is the
agency’s decision to take corrective action by inviting a new round of final proposal
revisions from Plaintiff Amazon Web Services, Inc. (“AWS,” or “Amazon”) and
Defendant-Intervenor IBM U.S. Federal (“IBM”). Previously, in its original evaluation
of proposals, the agency had found AWS’s proposal to be far superior to IBM’s proposal,
even though AWS had proposed a higher price. In a “best value” award decision, the
agency determined that the higher price it would pay to AWS was justified. The agency
awarded the C2S contract to AWS on February 14, 2013.
After an agency debriefing, IBM filed a bid protest at the Government
Accountability Office (“GAO”) on February 26, 2013 challenging various aspects of the
agency’s procurement including the evaluation process. The agency initially stopped
AWS’s contract performance pursuant to the automatic stay provisions of the
Competition in Contracting Act, 31 U.S.C. § 3553(d)(3) (“CICA”), but later issued an
override of the stay on March 15, 2003 to allow AWS’s performance to proceed. The
GAO bid protest was sharply contested. After its initial protest, IBM filed three
supplemental bid protests, and the parties submitted multiple legal briefs and comments
during April and May 2013. The GAO conducted a lengthy evidentiary hearing on May
14, 2013 (505 transcript pages).
On June 6, 2013, the GAO sustained IBM’s protest in part, and recommended that
the agency take corrective action by reopening negotiations with offerors, amending the
solicitation if necessary, and making a new award decision. IBM U.S. Federal, B407073.3 et al., 2013 CPD ¶ 142 (Comp. Gen. June 6, 2013). When the agency decided
to follow the GAO’s decision and take the recommended corrective action, AWS filed
suit in this Court on July 24, 2013. AWS asserted that the agency’s corrective action was
overbroad, unreasonable, and in violation of federal law and regulation, and it asked the
Court to grant declaratory and injunctive relief preventing the agency from considering
revised final proposals. AWS also challenged the rationality of the underlying GAO
decision. AWS contends that it handily won the competition with IBM, and that IBM
suffered no prejudice and lacks standing because it has no substantial chance of receiving
the contract award. Absent a legitimate, prejudicial procurement violation, AWS objects
to competing again with IBM to win the same C2S contract, especially where so much
information has been released to IBM during the debriefing process.
2
Defendant filed an extensive administrative record with the Court on August 7,
2013 (supplemented on September 9, 2013), consisting of 14 volumes and 13,048 pages.
The administrative record contains the agency’s initial and second market survey
documents, the solicitation documents including amendments, proposals, and agency
evaluation records, the post-award bid protest documents, the contract implementation
documents, the corrective action documents, and miscellaneous correspondence.
Thereafter, the Court received the parties’ cross-motions for judgment on the
administrative record, as well as response briefs and reply briefs. The Court heard oral
argument on October 7, 2013. At the conclusion of the oral argument, due to the urgency
and importance of the C2S contract, the Court issued a bench ruling in AWS’s favor that
would allow the agency to go forward with the contract originally awarded to AWS on
February 14, 2013. The Court outlined the reasons for its bench ruling, but stated that it
would issue this formal opinion as promptly as possible.
In assessing the reasonableness of the agency’s corrective action, the Court’s task
is “to evaluate the rationality of the GAO’s decision.” Turner Constr. Co., Inc. v. United
States, 645 F.3d 1377, 1383 (Fed. Cir. 2011). The Federal Circuit has observed that “an
agency’s decision lacks a rational basis if it implements a GAO recommendation that is
itself irrational.” Id. Central to the Court’s analysis here are fundamental principles of
timeliness, standing, and prejudice. While the Court disagrees with the GAO’s
substantive treatment of the discrete procurement issues presented, the essential finding
underlying this decision is that the GAO completely overlooked the question of whether
IBM suffered any prejudice and had standing to bring the protest in the first place. As a
threshold matter, IBM lacked any chance of winning a competition with AWS for this
C2S contract, and therefore IBM could not show any prejudice from either of the two
grounds on which the GAO sustained IBM’s protest. The GAO’s decision does not even
mention the existence of any “prejudice” to IBM, thus indicating that the GAO did not
apply any “prejudice” requirement to IBM’s protest. Similarly, the GAO did not
consider whether IBM had standing to bring the protest. If IBM did not have a chance of
being awarded the contract, it did not have the necessary standing as an interested party
to pursue its bid protest. See Labatt Food Serv., Inc. v. United States, 577 F.3d 1375,
1379-80 (Fed. Cir. 2009).
Moreover, as the Court will explain, the GAO failed to address the way in which
IBM manipulated its pricing to create a bid protest issue. IBM appears to have
intentionally manufactured a protest argument relating to the Scenario 5 pricing
requirement, which it hoped to pursue if it lost the C2S competition with AWS.
Knowing full well from its pre-proposal questions what the Scenario 5 requirements
were, IBM drastically departed from the approach followed in its initial proposal when it
came to submitting its final proposal revision. If it did not win the award, IBM could
argue that the agency did not evaluate Scenario 5 prices on a common basis. IBM was
the only offeror who appeared to “misunderstand” the Scenario 5 pricing requirements, as
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the other offerors all interpreted Scenario 5 in the same way. IBM strongly disagrees that
it manipulated the procurement in this manner, but the Court does not see any other
explanation for IBM’s final pricing strategy. The GAO made no mention of IBM’s
manipulation of the procurement process, but instead sustained the protest allegedly for
lack of a common basis to evaluate the offerors’ Scenario 5 prices. Even if the proposals
from AWS and IBM presented a closer “best value” award decision, the Court could not
justify rewarding IBM with another chance of competing for the C2S contract under
these circumstances.
The second ground for sustaining IBM’s protest relates to an alleged relaxation of
requirements for AWS in waiving a clause certifying the absence of any virus in the
software provided by subcontractors. The agency considered this clause redundant, and
the Court agrees. As in the case of the Scenario 5 pricing issue, the Court sees no sound
reason to afford corrective action through a new round of proposals where IBM suffered
no prejudice and lacks standing. The agency conducted a proper procurement, and
should be permitted to go forward with the contract previously awarded to AWS eight
months ago.
As a remedy, since the agency and AWS reportedly are now proceeding with the
performance of the C2S contract, and have been complying with the Court’s October 7,
2013 bench ruling, declaratory relief should suffice here. Although Defendant asked for
the entry of an injunctive relief order, the Court does not see a need for entry of an
injunction. See generally PGBA, LLC v. United States, 389 F.3d 1219, 1224-27 (Fed.
Cir. 2004) (discussing the discretion to issue declaratory or injunctive relief upon finding
arbitrary and capricious agency action). The Court finds that the GAO’s decision
recommending corrective action lacks a rational basis, and therefore that the agency’s
decision to follow the GAO’s recommendation also lacks a rational basis. A full
explanation of the Court’s decision is set forth below.
A. Factual Background
The agency issued a request for proposals (“RFP”) on June 15, 2012 in
contemplation of awarding a single indefinite delivery, indefinite quantity (“IDIQ”) cloud
computing contract. Administrative Record (“AR”) 1332, 1392, 1398. The agency
issued the RFP after an extensive market survey involving communications with industry,
and the circulation of a draft solicitation. In general, the RFP called for an established
cloud service provider to build a custom clone of its public cloud for the agency. AR
1337-38. Although a number of companies expressed an interest in competing for this
contract, and some of them submitted proposals, the agency’s evaluation ultimately came
down to the proposals of two offerors, AWS and IBM. The agency found AWS to be the
clear winner in this evaluation, and awarded a contract to AWS on February 14, 2013.
AR 5090. The potential period of contract performance was ten years, with an initial
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five-year ordering period, a three-year option, and a two-year option. AR 1332, 1392,
1400.
The RFP provided that award would be made on a “best value” basis. AR 1458.
Initially, the agency performed a pass/fail mandatory qualification evaluation to verify
that an offeror was an established commercial cloud service provider with an existing,
large-scale public offering. AR 1458-59. Following pass/fail evaluation, the agency
applied four evaluation factors: (1) technical/management, including subfactors for
technical approach (evaluated under a demonstration/oral presentation element and a
written element), service level agreements, and management; (2) past performance; (3)
security; and (4) price. AR 1459-63. Of these factors, price was “slightly less important
than the other areas combined.” AR 1462. However, “as the relative difference in nonprice discriminators decreases,” price would become “more of a discriminator.” Id. The
RFP also provided for an overall risk assessment rating to be assigned to each proposal.
AR 1458; see also AR 1795 (amending the RFP on July 13, 2012 to formally add “risk”
as a fifth evaluation factor to “be considered as part of the best value trade off
determination”).
The agency intended to evaluate price for completeness and reasonableness. Id.
Offerors were required to submit a fixed price for task order 1 for program management
to achieve initial operating capability, and a guaranteed minimum price for task order 2
for the provision of cloud services for the first year after initial operating capability. Id.
Offerors also were required to provide a Cloud Services Catalog Price List containing
fixed prices for various services. Id. The RFP contained six representative service-type
ordering scenarios. AR 1793. Offerors were required to calculate the total costs of
orders for each of these scenarios using their proposed catalog prices, on a yearly basis,
for the base performance period. AR 1793-94. The total evaluated price was to be
comprised of the sum of the task order 1 pricing and the prices for the six ordering
scenarios for the base period. AR 1792.
In the evaluation of the non-price evaluation factors, the agency deemed
Amazon’s proposal superior to IBM’s proposal in every category except management,
and except for “security” where each proposal received a “pass” rating. AR 5061. A
summary of the agency’s evaluation of the Amazon and IBM proposals is contained in
the following chart:
5
Evaluation Factor
Technical/Management
Technical Approach (Demo)
Technical Approach (Written)
Service Level Agreements
Management Approach
Past Performance (Confidence)
Security
Proposed Price
Evaluated Price
Guaranteed Minimum
Overall Proposal Risk
Amazon
IBM
Very Good
Exceptional
Very Good
Satisfactory
High
Pass
$149.06 million
$148.06 million
$25 million
Low
Marginal
Very Good
Satisfactory
Very Good
Moderate
Pass
$64.8 million
$93.9 million
$39 million
High
In the price evaluation, Amazon had a higher price, but the agency determined that
Amazon’s technical proposal was sufficiently superior to IBM’s proposal to warrant a
significant price premium. AR 5068. In the Source Selection Authority’s trade-off
analysis, the SSA reached the conclusion that Amazon offered the best value to the
Government, noting Amazon’s “superior overall approach, which will lower barriers to
entry for [cloud computing] users and increase the likelihood of adoption.” Id. In the
category of overall proposal risk, the agency rated Amazon as “low” and IBM as “high.”
AR 5061.
B. The Scenario 5 Pricing Issue
Much of the controversy in this protest centers on the pricing of Scenario 5, one of
the six hypothetical scenarios described in the price template. The RFP’s Scenario 5
requirement stated in part:
This scenario centers around providing a hosting environment
for applications which process vast amounts of information in
parallel on large clusters (1000s of nodes) of commodity
hardware in a reliable, fault-tolerant manner (MapReduce).
The solution to this scenario should automatically provision
clusters of compute for the segmentation and parallel
processing of input datasets via the MapReduce framework
(3.4.1) where the vendor is responsible for the management of
the OS [operating system] and MapReduce implementation.
Assume a cluster large enough to process 100TB [terabytes]
of raw input data entirely on direct attached storage. Assume
input data set was loaded from available object-based storage
that realizes 6 reads/second and 2 writes/second. Assume
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100% duty cycle on all virtual machines associated with this
scenario.
AR 1943.
Prior to initial proposal submission, IBM had internal discussions regarding the
meaning of the Scenario 5 requirements. AR 10513, GAO Hearing, Rhoades Test.
(“[T]here were many [IBM] opinions of what scenario 5 meant.”). One IBM
representative interpreted the 100% duty cycle instruction as requiring the data analytics
tools to process continuously for a full year. AR 6300, IBM 6/26/12 email (“I don’t
believe these can possibly be orders to run jobs . . . esp. with the requirement for 100%
duty cycle.”). Another IBM representative disagreed, calling Scenario 5 “ambiguous.”
Id., IBM 6/26/12 email (“The table is entitled ‘Cloud Services Prices’ so I think it is
ambiguous.”). Due to the perceived uncertainty of the Scenario 5 requirements, IBM
submitted questions to the agency prior to submitting its initial proposal. AR 1715-16.
IBM inquired whether “orders” as used in the instructions meant “the number of new
images of that scenario type” or the “number of instantiations/runs of the scenario type in
the year.” AR 1715 (Question 49). The agency responded: “As outlined in the scenario,
the servers should be treated as operating on 100% duty cycle and should be priced out as
simultaneous orders.” Id.
IBM also requested Scenario 5 specifications, including the data size and
“anticipated average number of instantiations/runs of each scenario type (daily, monthly,
etc.?).” AR 1716 (Question 50). The agency declined this request, reiterating its 100%
duty cycle instruction, identifying the orders as simultaneous, and soliciting “commercial
best practices.” Id. Although IBM was not satisfied with the agency’s answers, it did not
seek further clarification or file a bid protest. Instead, IBM submitted its initial proposal
with a Scenario 5 data analytics solution that processed 100 TB of data continuously
throughout the year, at a price of approximately $[. . .]. AR 2310. The other offerors,
including Amazon, interpreted Scenario 5 in the same way, as requiring continual data
analytics deployment for a full year, or 8,760 hours. AR 2076-77, 2363, 2413.
On October 24, 2012, the SSA established a competitive range of AWS, IBM, and
one other offeror. AR 2991. Thereafter, the agency conducted written and oral
discussions with these three offerors. AR Tabs 36-38, 41-43. During discussions with
IBM, the agency identified each instance in which IBM failed to follow the pricing
scenario directions. However, the evaluators did not identify any issue regarding IBM’s
approach to Scenario 5, because IBM had offered a solution operating at a 100% duty
cycle for 12 months, and IBM’s proposed price was consistent with the prices of the other
offerors. AR 10388, Holloway Test.; AR 3120 (noting issues with IBM scenario pricing
assumptions, but not Scenario 5). The agency thus effectively conveyed to IBM that it
had correctly followed the Scenario 5 instructions.
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On November 20, 2012, the agency issued RFP Amendment 4, calling for the
submittal of final proposal revisions (“FPRs”). AR 1899. The agency permitted offerors
to submit further questions prior to the FPR deadline, and while IBM did submit six
questions, it did not raise any questions regarding Scenario 5. AR 1948-49. The agency
then received FPRs on December 20, 2012 from the offerors within the competitive
range.
In the pricing portion of the FPRs, AWS and the third offeror consistently
interpreted Scenario 5’s 100% duty cycle instruction as requiring continuous data
analytic operations for the full year. AR 3817, 4532. IBM continued to price Scenarios 1
through 4, which also specified a 100% duty cycle, based on the continuous operation of
the called-for servers for the year. AR 4443, 4445-47. However, IBM adopted a
dramatically different interpretation for Scenario 5. In its FPR, IBM interpreted Scenario
5 as soliciting data analytics tools to perform a single 100 TB processing run, thereby
slashing its Scenario 5 price from approximately $[. . .] to $[. . .]. AR 4449. There is no
explanation in the record for this drastic IBM pricing change.
The agency’s Price Evaluation Team (“PET”) evaluated the offerors’ FPRs for
reasonableness, completeness, and risk in accordance with the RFP. AR 4594-4614.
With regard to IBM’s Scenario 5 solution, the evaluators noted:
Scenario was mis-priced. . . . Instead of following the
directions which stated “Assume 100% duty cycle on all
virtual machines associated with this scenario,” IBM
calculated and proposed a cost for a single run through of a
single 100TB data set. This resulted in a grossly under-priced
dollar figure for scenario 5 of IBM’s proposal ($[. . .]/order).
Once the Sponsor adjusted the price for 100% duty cycle over
the entire year, using IBM’s optimal settings for completing
each individual 100TB data set resulted in requiring 243 runs
over the course of the year. Applying the catalog pricing to
this adjustment results in a normalized cost of $[. . .] per
order—which is consistent with [IBM’s] original proposal.
AR 5014. The agency’s calculation using IBM’s catalog pricing and Scenario 5 technical
solution yielded a price of approximately $[. . .], nearly the same as IBM’s Scenario 5
price in its initial proposal.
AWS’s total evaluated price was $148,061,628 and IBM’s total evaluated price
was $93,917,785. AR 5067. However, there were two pricing nuances that the agency
thought were significant. First, IBM proposed a guaranteed minimum of $39 million, as
compared to AWS’s guaranteed minimum of $25 million. AR 5061. IBM’s guaranteed
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minimum was nearly double the anticipated Year 1 amount for IBM’s services, meaning
that the agency likely would need to make a large year-end payment to IBM. AR 5069.
Second, the agency noted that IBM’s proposed contract terms would allow IBM to
request restructuring of the entire agreement after Year 2 if the service price in that year
did not exceed the guaranteed minimum. AR 4827-28, 5069. These terms allowed IBM
to propose a low price for the agency’s proposal evaluation purposes, but then to argue
for negotiation of a higher price in the later years of performance.
The agency’s SSA performed a best value trade-off analysis and selected AWS for
award of the contract. The agency and AWS executed the contract document on
February 14, 2013.
Analysis
A. Standard of Review
In bid protest cases, courts review agency actions under the “arbitrary and
capricious” standard. See 28 U.S.C. § 1491(b)(4) (adopting the standard of review “set
forth in [5 U.S.C. § 706]”). This standard “is highly deferential” and “requires a
reviewing court to sustain an agency action evincing rational reasoning and consideration
of relevant factors.” Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054,
1058 (Fed. Cir. 2000) (citing Bowman Transp., Inc. v. Arkansas-Best Freight Sys., Inc.,
419 U.S. 281, 285 (1974)). Thus, as long as there is “a reasonable basis for the agency’s
action, the court should stay its hand even though it might, as an original proposition,
have reached a different conclusion.” Honeywell, Inc. v. United States, 870 F.2d 644,
648 (Fed. Cir. 1989). If, however, “the agency entirely fail[s] to consider an important
aspect of the problem[ or] offer[s] an explanation for its decision that runs counter to the
evidence before the agency,” then the resulting action lacks a rational basis and,
therefore, is defined as “arbitrary and capricious.” Ala. Aircraft Indus., Inc.-Birmingham
v. United States, 586 F.3d 1372, 1375 (Fed. Cir. 2009) (quoting Motor Vehicle Mfrs.
Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)) (internal quotation
marks omitted).
Where the issue is “an agency’s decision to follow a GAO recommendation, . . .
[the] agency’s decision lacks a rational basis if it implements a GAO recommendation
that is itself irrational.” Turner, 645 F.3d at 1383 (citing Centech Grp., Inc. v. United
States, 554 F.3d 1029, 1039 (Fed. Cir. 2009); Honeywell, 870 F.2d at 648). Thus, “the
controlling inquiry is whether the GAO’s decision was a rational one.” Id. at 1384
(alteration and internal quotation marks omitted).
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B. IBM’s Lack of Standing and Failure to Show Prejudice
“[B]ecause the question of prejudice goes directly to the question of standing, the
prejudice issue must be reached before addressing the merits.” Labatt, 577 F.3d at 1378
(internal quotation marks omitted). A bid protestor has been prejudiced when it can show
that, “but for [a significant error in the procurement process], it would have had a
substantial chance of securing the contract.” Id.
In deciding whether a protestor would have had a substantial chance of securing
the contract, it is necessary to show proper deference to the views of the procuring
agency, for “[i]t is well settled that COs are given broad discretion in their evaluation of
bids. When an officer’s decision is reasonable, neither a court nor the GAO may
substitute its judgment for that of the agency.” Turner, 645 F.3d at 1383 (citation
omitted). “De minimis errors in the procurement process do not justify relief,” and “[t]he
protestor bears the burden of proving that a significant error marred the procurement in
question.” Glenn Def. Marine (Asia), Pte Ltd. v. United States, 720 F.3d 901, 907 (Fed.
Cir. 2013). This burden “is greater in negotiated procurement, as here, than in other
types of bid protests because ‘the contracting officer is entrusted with a relatively high
degree of discretion.’” Id. (quoting Galen Med. Assocs., Inc. v. United States, 369 F.3d
1324, 1330 (Fed. Cir. 2004)). Contracting officers are afforded “an even greater degree
of discretion when the award is determined based on the best value to the agency.” Id. at
908. This is just such a case.
Here, based on the Source Selection Evaluation Team’s ratings, the Source
Selection Authority determined that AWS “clearly” offered the best value:
Amazon’s proposal contained a number of unique,
differentiating capabilities that are considered highly
advantageous to the Government. In several areas they
exceeded the government’s requirements, providing enhanced
capabilities and an overall superior technical solution. . . .
Taking the significant technical advantages of Amazon’s
proposal, a tradeoff analysis was performed. Amazon’s price
is $148,061,628, while IBM’s is $93,917,785 . . . . I do not
believe that the $54 million difference, over five years,
outweighs Amazon’s strengths—specifically their superior
technical solution. The additional cost to the Government of
awarding to Amazon is justified by their proposed superior
overall approach, which will lower barriers to entry for C2S
users and increase the likelihood of customer adoption. . . .
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Although not a basis for my best value tradeoff decision . . . ,
I note for the record that the price risk in IBM’s proposal
likely overstates the overall price difference between Amazon
and IBM. IBM’s price proposal has two factors that
contribute to additional price risk, and may result in
additional costs to the Sponsor:
• The proposed ‘guaranteed minimum’ is more than double
their expected year 1 prices and as a result the
Government is unlikely to see the benefits of the proposed
low catalog prices.
• The contract terms and conditions indicate that IBM will
seek to restructure the contractual agreement in Years 2+
if the service price in that year does not exceed the
guaranteed minimum.
....
Being mindful of the fact that non-price factors are only
slightly more important than price factors, I found the above
described advantages of Amazon’s proposal to be well worth
the price premium over IBM’s proposal and clearly the best
value.
AR 5068-69. In sum, AWS’s offer was superior in virtually every way but price, and
IBM’s advantage in that area was likely not as great as IBM attempted to make it appear.
Nevertheless, the GAO sustained IBM’s protest on two grounds: (1) the agency’s
Scenario 5 price evaluation lacked a common basis and was therefore unreasonable; and
(2) the agency materially relaxed a solicitation requirement for AWS, but not for the
other offerors. See AR 10706. Regarding the first ground, the GAO makes no mention
of prejudice whatsoever, despite its being raised and argued by both AWS and the
agency. Regarding the second, the GAO notes—without any explanation—that “[i]n [its]
view, IBM’s assertion that the level of risk to the contractor was reduced by this
modification is sufficient to establish prejudice.” AR 10712 n.4, IBM U.S. Federal, 2013
CPD ¶ 142. In neither instance is there any consideration of the proper legal standard for
prejudice, nor is there any evidence that IBM met its burden of proof for establishing
such prejudice. Consequently, there is no justification for even reaching the merits of
IBM’s protest.
Regarding the Scenario 5 price evaluation, the GAO found that, unlike IBM’s
solution, “there was no way” to ascertain the speed of AWS’s solution, and therefore
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“there [was] no basis for concluding that Amazon was evaluated for scenario 5 using the
same or otherwise comparable level of performance as included in IBM’s adjusted price.”
AR 10709-10. However, at the GAO hearing, the agency’s C2S experts testified that
speed was purposely not specified as a performance metric in Scenario 5 because
performance depended on a wide variety of factors. M. Jason Holloway, the chair of the
agency’s Technical/Management Evaluation Team and advisor to its Price Evaluation
Team, explained that “Scenario 5 is a platform service that is very specific to each
offeror’s individual capabilities,” and many variables could influence the approach any
one offeror might take. AR 10430-31, Holloway Test. Because the agency was
“interested in taking advantage of the expertise that [the offerors] could provide,” it
intentionally left performance characteristics, such as speed, unspecified. AR 10372-74.
Instead, the agency stated only the function to be performed and allowed each offeror the
flexibility to propose and price its best commercial practice. Mr. Holloway explained:
We have to validate that [the offerors] followed commercial
best practices, but we did not confine them with how they did
that. . . . That’s just one characteristic of what would affect
performance . . . , just one of many characteristics. We
can’t—there’s no way that we could potentially list all the
technical specifications in order to have the best solution
capable, specifically with a different technical functionalities
of each of the diverse set of platform services . . . the offerors
provided.
AR 10437, Holloway Test. Thus, once the agency validated each of the proposed
Scenario 5 solutions for reasonableness—“[a]nd each of the offerors met that
requirement,” AR 10436, Holloway Test.—it compared those solutions based on the
same duty cycle (100%) and duration (one year). Given the agency’s emphasis on
commercial best practices and recognition of a variety of performance metrics, it is
impossible to see how the agency’s decision not to reduce the Scenario 5 comparison to a
simple price-to-speed calculation prejudiced IBM.
Regarding the material relaxation of a solicitation requirement, the GAO accepted
IBM’s assertion that the result of this relaxation was “sufficient to establish prejudice.”
AR 10712 n.4, IBM U.S. Federal, 2013 CPD ¶ 142.
In rejecting AWS’s
counterargument, the GAO stated, “Our conclusion is not changed by Amazon’s
assertion that IBM also sought numerous proposed changes to provisions in the RFP,
including a proposal that it would not provide warranties with respect to third party
software.” Id. The problem with the GAO’s conclusion is it ignores the relevant rule that
if an agency’s “improper deviation from the solicitation” equally affects all offerors, then
it causes prejudice to none. Labatt, 577 F.3d at 1380. Naturally, because AWS was
awarded the contract, it was the only offeror to engage in post-solicitation negotiations,
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but prior to the contract award, IBM had proposed negotiating the very same
modification. See, e.g., AR 9336 (“Sponsor . . . receives no warranties, indemnities or
express or implied patent or other license from IBM with respect to any third party
software.”). In other words, AWS’s successful post-solicitation modification had no
effect on IBM’s ability to pursue the same result, and therefore no effect on IBM’s
proposal or the evaluation of that proposal. Moreover, the agency’s later removal of the
requirement at issue because “it [was] redundant to other RFP requirements,” AR 12689,
further emphasizes that even if an error was made, its effect was not prejudicial.
The bottom line is that IBM did not lose the competition because of the Scenario 5
price evaluation or AWS’s post-solicitation negotiations, but because of the overall
inferiority of its proposal. This proposal contained numerous weaknesses, including
some “significant” weaknesses, a technical deficiency, and an overall high risk rating.
AR 4638-69; AR 5065-67 (describing “multiple weaknesses,” a technical “deficiency,”
and “multiple concerns” creating a high price risk).
For example, the
Technical/Management Evaluation Team determined that IBM “[did] not demonstrate the
capability to auto-scale all required services” and therefore “fail[ed] to meet the [autoscaling] requirement.” AR 4644-45. This inability was “in direct conflict with the
[agency’s] C2S goal ‘to deliver scalable, balanced, and fault tolerant solutions,’” and thus
was deemed “unacceptable.” AR 4645. Although IBM protested that rating, the GAO
denied this part of IBM’s protest, stating, “We see no basis to question the reasonableness
of the agency’s concerns (expressed as a deficiency and a significant weakness under the
technical approach subfactor) . . . .” AR 10715. The GAO also affirmed the agency’s
consideration of IBM’s guaranteed minimum price, which contributed to the overall high
risk rating. See AR 10717.
“[S]tanding is a threshold jurisdictional issue,” and “prejudice (or injury) is a
necessary element of standing.” Myers Investigative & Sec. Servs., Inc. v. United States,
275 F.3d 1366, 1369 (Fed. Cir. 2002). To establish prejudice, IBM had to “show that
there was a ‘substantial chance’ it would have received the contract award but for the
alleged error in the procurement process.” Info. Tech. & Applications Corp. v. United
States, 316 F.3d 1312, 1319 (Fed. Cir. 2003) (quoting Alfa Laval Separation, Inc. v.
United States, 175 F.3d 1365, 1367 (Fed. Cir. 1999)). IBM failed to make such a
showing, and the GAO failed to make relevant findings or apply the proper legal
standards. In fact, other than the GAO’s unexplained acceptance of IBM’s speculation
that it had suffered prejudice, see AR 10712 n.4, IBM U.S. Federal, 2013 CPD ¶ 142, the
GAO made no mention of prejudice to IBM at all. Such a “fail[ure] to consider an
important aspect of the problem” is, by itself, sufficient to render the GAO’s decision
arbitrary and capricious. Ala. Aircraft, 586 F.3d at 1375 (quoting Motor Vehicle Mfrs.
Ass’n., 463 U.S. at 43).
13
C. Timeliness Issues in IBM’s Protest
Timeliness, like prejudice, is a threshold issue that must be addressed prior to
reaching the merits of a bid protest. See, e.g., Goel Services, Inc., B-310822.2, 2008
CPD ¶ 99 (Comp. Gen. May 23, 2008) (“Our timeliness rules reflect the dual
requirements of giving parties a fair opportunity to present their cases and resolving
protests expeditiously without unduly disrupting or delaying the procurement process. In
order to prevent these rules from becoming meaningless, exceptions are strictly construed
and rarely used.” (citation omitted)). Where, as here, an offeror misses its opportunity to
fairly challenge the terms of a solicitation, it cannot then be allowed to avoid the
timeliness bar by mischaracterizing its case as an evaluation challenge. See Blue & Gold
Fleet, L.P. v. United States, 492 F.3d 1308, 1313 (Fed. Cir. 2007).
1. Scenario 5
“As an initial matter, [the GAO found] untimely IBM’s challenge to the agency’s
interpretation that scenario 5 called for repeated 100 TB data runs throughout the year,
rather than a single run under each order.” AR 10707. The GAO explained:
Under our Bid Protest Regulations, a solicitation defect
apparent on the face of the solicitation must be protested prior
to the time set for receipt of initial proposals or quotations,
when it is most practicable to take effective action against
such defects. Furthermore an offeror who chooses to
compete under a patently ambiguous solicitation does so at its
own peril, and cannot later complain when the agency
proceeds in a way inconsistent with one of the possible
interpretations.
Here, by its own actions, IBM evidenced its recognition that
the scenario 5 instructions were ambiguous as to the
frequency of the expected 100 TB data runs. IBM requested
clarification of the requirements in this regard and then, not
having received meaningful clarification, first adopted one
interpretation (that is, continual runs) in its initial proposal
and then a different interpretation (a single run per order) in
its FPR. Having chosen to compete despite its recognition of
the patently ambiguous nature of the solicitation in this area,
IBM cannot now complain when the agency proceeds in a
manner inconsistent with one of the possible interpretations
and adjusts IBM’s price to match the government’s (and
Amazon’s apparent) interpretation of the requirement.
14
AR 10708 (citations omitted). This portion of the GAO’s analysis was correct, and the
analysis should have ended there. As the Federal Circuit has explained:
In the absence of a waiver rule, a contractor with knowledge
of a solicitation defect could choose to stay silent when
submitting its first proposal. If its first proposal loses to
another bidder, the contractor could then come forward with
the defect to restart the bidding process, perhaps with
increased knowledge of its competitors. A waiver rule thus
prevents contractors from taking advantage of the government
and other bidders, and avoids costly after-the-fact litigation.
Blue & Gold Fleet, 492 F.3d at 1314 (applying the patent ambiguity doctrine to postaward bid protests). This timeliness rule aptly describes what IBM attempted to do.
Nevertheless, the GAO concluded that the agency’s “price evaluation” method was
unreasonable and sustained IBM’s protest on that ground. AR 10707-10. This
conclusion, however, completely ignored the blatant manner in which IBM manipulated
the situation to its advantage.
Prior to the submission of its initial proposal, IBM had an internal disagreement
regarding the meaning of Scenario 5. See, e.g., AR 10513, Rhoades Test. (stating that
“there were many [IBM] opinions of what scenario 5 meant because of the flexibility of
the directions”). One IBM architect understood the 100% duty cycle instruction to mean
continuous processing for a full year, while another disagreed, calling Scenario 5
“ambiguous.” AR 6300. Consequently, IBM asked the agency several questions about
Scenario 5 before submitting its initial proposal. AR 1715-16. The agency’s answer was
simply that “the servers should be treated as operating on 100% duty cycle and should be
priced out as simultaneous orders” and that “the contractor should propose commercial
best practices.” AR 1715-16. Thereafter, IBM submitted its initial proposal with a data
analytics solution based on processing 100 TB of data continuously throughout the year.
AR 2310-11. The other three offerors submitted proposals that interpreted Scenario 5
precisely the same way. See AR 2076-77, 2363, 2413.
After reducing the competitive range to AWS, IBM, and a third offeror, the
agency conducted written and oral discussions. AR Tabs 36-38, 41-43. During these
discussions, the agency identified questions and concerns about the offerors’ initial
proposals. AR 10381-82. The agency did not identify any concerns with IBM’s initial
approach to Scenario 5, which the agency found “consistent” with the other proposals,
AR 10388, Holloway Test., thereby effectively conveying to IBM that it had correctly
followed the Scenario 5 instructions.
15
Then, in its FPR, IBM suddenly deviated from its initial Scenario 5 proposal.
IBM changed its solution from one that processed 100 TB of data continuously
throughout the year to one that performed a single 100 TB processing run in a 36-hour
period, thereby reducing its price from approximately $[. . .] to $[. . .]. AR 4449.
Because IBM was the only offeror that deviated from its initial proposal in such a
manner, the agency extended IBM’s FPR Scenario 5 solution from a single run to a full
year. See AR 5066 (stating that “[n]ormalization was required because the Offerors did
not uniformly follow the instructions”). The result was a corrected Scenario 5 price of
approximately $[. . .], which was “consistent with [IBM’s] original proposal.” AR 5014.
Given the absence of a rational alternative explanation, it is obvious that when
IBM deviated from its initial approach, it did so as a way to manipulate the situation in its
favor. If the agency accepted IBM’s “gross[ly] under-priced dollar figure for Scenario
5,” AR 5014, then IBM would gain almost a $[. . .] advantage over its properly priced
solution. If, however, the agency normalized IBM’s price (and IBM lost the
competition), then it could protest such normalization by arguing the lack of a common
basis, whether it be speed or some other intentionally unspecified performance metric.
When the agency made the latter choice, IBM filed its protest and feigned ignorance of
the reasons for the agency’s actions, pretending not to understand why “the agency
determined that the solution should be available throughout the year.” AR 5961-62. In
reality, IBM was well aware that the agency had made this determination long before its
final price evaluation. Such gamesmanship undermines the integrity of the procurement
process and should not be rewarded with circumvention of the timeliness requirement.
2. Post-Selection Negotiation
IBM’s post-selection challenge to AWS’s revision of RFP Commercial Clause
§ 152.204-706(a) was also untimely. This clause provided for each offeror to “certif[y]
that it will undertake to ensure that any software to be provided . . . under [the] contract
will be provided . . . free from computer virus.” AR 1409. During post-selection
negotiations, AWS proposed, and the agency accepted, a revision stating that “[u]nder
AWS Terms and Conditions, only software developed and provided by AWS would be
subject to this requirement.” AR 5074. IBM protested, arguing that “[a]voiding the
requirement to certify third party software and returned government software reduces the
burden of compliance, and the risk of non-compliance,” AR 9606, and the GAO agreed,
AR 10713.
The challenged actions, however, were clearly contemplated by the RFP, which
provided:
[T]he offeror’s solution may include commercial
license/terms and conditions that are customarily included
16
within their commercial transactions. The offeror shall
propose any such language within this section for the
Government to review for potential inclusion within this
acquisition.
AR 1787; see also AR 1778 (stating the Government’s intent to “select an offeror for
final negotiations”). The agency then specified five types of clauses that it excluded from
this negotiation provision, leaving § 152.204-706(a) among the terms and conditions that
could be revised. AR 1787; see also AR 10562, Ross K. Test. (stating that the agency
permitted offerors to propose their own commercial terms and conditions). Finally,
during discussions, the agency specifically advised IBM that the agency “reserve[d] the
right to negotiate all commercial terms and conditions, if selected for award, under the
select to negotiate process.” AR 3121.
These rules were made explicitly clear to IBM, but IBM did not challenge them
prior to the award. On the contrary, IBM itself took advantage of the opportunity to
propose revised terms and conditions, even proposing terms limiting its own
responsibility for third-party software, see AR 9336, 9343, 9345-46, then challenging this
approach after the fact. This tactic of “rolling the dice” to see if it could receive the
award “and then, if unsuccessful, claim[ing] the solicitation was infirm,” is simply not
allowed. Blue & Gold Fleet, 492 F.3d at 1314 (quoting Argencord Mach. & Equip., Inc.
v. United States, 68 Fed. Cl. 167, 175 (2005)). “[W]here there is a ‘deficiency or
problem in a solicitation . . . the proper procedure for the offeror to follow is not to wait
to see if it is the successful offeror before deciding whether to challenge the procurement,
but rather to raise the objection in a timely fashion.’” Id. (quoting N.C. Div. of Servs. for
the Blind v. United States, 53 Fed. Cl. 147, 165 (2002)). If an offeror fails to do so, it
cannot then circumvent the timeliness requirement by recasting its challenge to the terms
of the solicitation as a challenge to the evaluation of the proposals. Id. at 1313. IBM’s
objection was not raised in a timely fashion and therefore should have been barred. As
with the timeliness of the Scenario 5 challenge, the GAO’s failure to consider this
threshold matter renders its decision irrational. See Ala. Aircraft, 586 F.3d at 1375.
D. Overbreadth of Corrective Action
Although contracting officers are given “broad discretion to take corrective action
where the agency determines that such action is necessary to ensure fair and impartial
competition,” DGS Contract Serv., Inc. v. United States, 43 Fed. Cl. 227, 238 (1999)
(quoting Rockville Mailing Serv., Inc., B-270161, 96-1 CPD ¶ 184 at 3 (Comp. Gen.
Apr. 10, 1996)) (internal quotation marks omitted), such corrective action must be
“reasonable under the circumstances and appropriate to remedy the impropriety,” Reema
Consulting Servs., Inc. v. United States, 107 Fed. Cl. 519, 527 (2012) (internal quotation
marks omitted). Therefore, even where a protest is justified, any corrective action must
17
narrowly target the defects it is intended to remedy. Sheridan Corp. v. United States, 95
Fed. Cl. 141, 153 (2010).
In this case, the GAO “recommend[ed] that the agency reopen the competition and
amend the RFP as necessary” based on its identification of two discrete defects, AR
10717, and the agency followed that recommendation, AR 12679. Neither defect,
however, warranted reopening the entire competitive process. With respect to the first
defect, the GAO identified a price evaluation error affecting only Scenario 5: “the
agency’s uncertainty regarding just what performance (e.g., number of 100 TB data runs)
was included in each evaluated price.” AR 10710. Given the narrowness of this finding,
reopening the competition to include unaffected scenarios and proposal areas would be
overbroad. See Sheridan, 95 Fed. Cl. at 153 (“[T]his Court has rejected corrective action
to resolicit proposals because of a perceived evaluation error.” (citing Delaney Constr.
Corp. v. United States, 56 Fed. Cl. 470, 476 (2003); MCII Generator & Elec., Inc. v.
United States, No. 1:02-CV-85, 2002 WL 32126244 (Fed. Cl. Mar. 18, 2002))). Instead,
appropriate corrective action would be limited to a revised Scenario 5 price evaluation.
Second, the GAO found that “waiving a material term of the solicitation for one of
[the offerors], after the selection decision was made, was improper.” AR 10712 n.4. As
above, targeted correction of this defect would not require reopening the entire
competition, but only addressing the affected aspects of the offerors’ proposals.
Nonetheless, the agency did not stop with merely reopening the competition. On the
contrary, in soliciting new offers from AWS and IBM, the agency “elected to use this as
an opportunity to amend other aspects of the solicitation,” AR 12686, despite the fact that
no “other aspects” were at issue. Such corrective action is inherently overbroad.
When flaws occur during the evaluation of properly submitted proposals, “a
reevaluation of the proposals may be warranted, but a resolicitation of the proposals
compromises the integrity of the procurement system, especially where the winning price
has been disclosed.” Sheridan, 95 Fed. Cl. at 154. In this case, considerable information
regarding the competition and the agency’s evaluation of AWS has been disclosed to
IBM, including a 45-page debriefing (AR Tab 62) and a lengthy question and answer
session (AR Tab 63). Reopening the entire competition under these circumstances would
lack a rational basis and undermine the integrity of the procurement process. In short, the
GAO’s recommendation was irrational because it was not narrowly tailored to address
discrete procurement defects, and, as a result, the agency’s decision to follow that
recommendation was likewise irrational.
E. Appropriate Relief to Amazon
The Tucker Act grants the Court broad discretion to “award any relief that the
court considers proper, including declaratory and injunctive relief.” 28 U.S.C.
18
§ 1491(b)(2); see also PGBA, 389 F.3d at 1223 (“We give deference to the Court of
Federal Claims’ decision to grant or deny injunctive relief, only disturbing the court’s
decision if it abused its discretion.”). In deciding whether a permanent injunction is
proper, a court considers “(1) whether, as it must, the plaintiff has succeeded on the
merits of the case; (2) whether the plaintiff will suffer irreparable harm if the court
withholds injunctive relief; (3) whether the balance of hardships to the respective parties
favors the grant of injunctive relief; and (4) whether it is in the public interest to grant
injunctive relief.” Id. at 1228-29.
Because the Court issued a bench ruling on October 7, 2013, allowing the agency
and AWS to continue performance of the C2S contract, it is unnecessary to grant
injunctive relief in this instance. Specifically, regarding the second factor, it is clear that
an absence of injunctive relief will not cause AWS to suffer irreparable harm. AWS has
received the contract award and is now performing under that contract. Consequently,
the Court finds that declaratory relief is sufficient and proper.
Conclusion
There is no such thing as a perfect procurement. Thus, a bid protestor must show
prejudice, not mere error, for “[n]ot every error compels the rejection of an award.”
Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 1000 (Fed. Cir. 1996). Rather, it is
“the significance of errors in the procurement process [that determines] whether the
overturning of an award is appropriate,” and it is the protestor who “bears the burden of
proving error in the procurement process sufficient to justify relief.” Id. IBM never met
that burden, and the GAO neglected to address it. Even if IBM’s arguments regarding
the price evaluation and modified solicitation requirement were persuasive, it remains
implausible that there would be any effect on the outcome of the procurement. AWS’s
offer was superior, and the outcome of the competition was not even close.
Indeed, if there has been any prejudice in this process, it has been to AWS, for
improper corrective action in the form of reopening competition is not harmless. The
unfairness inherent in such an action is that the winner must resubmit a new proposal
with the information from its original offer already disclosed. In effect, AWS would
have to bid against its own winning proposal. This Court will not allow such an unjust
result.
For the reasons set forth above, Plaintiff’s motion for judgment on the
administrative record is GRANTED. Defendant’s motion for judgment on the
administrative record is DENIED, and Defendant-Intervenor’s motion for judgment on
the administrative record is DENIED.
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IT IS SO ORDERED.
s/ Thomas C. Wheeler
THOMAS C. WHEELER
Judge
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