AVKARE, INC v. USA
Reissuance of Opinion and Order Filed Under Seal 2/12/16. Signed by Judge Elaine D. Kaplan. (bl) Copy to parties.
In the United States Court of Federal Claims
(Filed Under Seal: February 12, 2016 | Reissued: February 25, 2016)*
THE UNITED STATES OF AMERICA, )
Keywords: Bid Protest; Contract
Disputes Act; Requests for
Modification; Federal Supply
Schedule; 48 C.F.R. § 515.408;
Commercial Sales Practices;
Interpretation of Regulations; Plain
Meaning; Lack of Good Faith; De
James S. Phillips, Argus Legal, LLC, McLean, VA, for Plaintiff, with whom were James
S. DelSordo, Of Counsel, and Julie M. Nichols, Of Counsel.
James W. Poirier, Trial Attorney, with whom were Benjamin C. Mizer, Principal Deputy
Assistant Attorney General, Robert E. Kirschman, Jr., Director, and Martin F. Hockey,
Jr., Assistant Director, Commercial Litigation Branch, United States Department of
Justice, Washington, DC, for Defendant.
OPINION AND ORDER
This hybrid pre-award bid protest and breach of contract action is before the
Court on the parties’ cross-motions for judgment on the administrative record. The
plaintiff in the case, AvKARE, Inc., is in the business of purchasing pharmaceutical
products in bulk from their manufacturers for purposes of repackaging and selling them
under the “AvKARE” label. AvKARE currently holds a Federal Supply Schedule (FSS)
contract with the Department of Veterans Affairs (VA) for the sale of such
pharmaceuticals. It brought this action to challenge: 1) the VA’s refusal to grant requests
for modification of its existing FSS contract that would permit AvKARE to add certain
This Opinion was originally issued under seal, and the parties were given the
opportunity to request redactions. Neither party requested redactions, and the opinion is
now being reissued in full.
drugs to the FSS; and 2) its refusal to take further action on AvKARE’s proposal to
renew its contract.
The VA has refused to process the RFMs or give further consideration to
AvKARE’s renewal offer because AvKARE has declined to provide the VA certain
commercial sales practice (CSP) information about the suppliers of the pharmaceuticals
that AvKARE sells. According to the government, pursuant to 48 C.F.R. § 515.408(b),
which is incorporated into the Schedule 65 I B solicitation, AvKARE must provide CSP
information about its suppliers because AvKARE is a “dealer/reseller” of the
pharmaceuticals. AvKARE contends, however, that it is not a “dealer/reseller.” Rather,
according to AvKARE, it is the “manufacturer” of the pharmaceuticals and, in any event,
it was not required to provide its suppliers’ CSP data because its own sales of its
pharmaceutical products to the public are significant.
For the reasons set forth below, the Court concludes that it lacks jurisdiction over
AvKARE’s claims concerning the denial of its requests for modification because
AvKARE failed to file a claim with the contracting officer as is required to invoke this
Court’s jurisdiction under the Contract Disputes Act. Those claims, accordingly, are
With respect to AvKARE’s bid protest, the Court concludes that under the
applicable regulations AvKARE is not a “manufacturer” of the pharmaceutical products
it is offering for sale. Rather, it is a “dealer/reseller.” As such, the VA’s decision to give
no further consideration to AvKARE’s offer in the face of AvKARE’s flat refusal to
provide manufacturers’ CSP data was neither arbitrary, capricious, nor contrary to law. It
further concludes that the VA acted well within its discretion when it concluded that
AvKARE’s sales of its products to the public were not significant. Finally, it concludes
that the VA did not exhibit bad faith in considering AvKARE’s proposal and did not
effect a de facto debarment of AvKARE from future VA contracts. Therefore, the
government’s motion for judgment on the administrative record is GRANTED and
AvKARE’s cross-motion is DENIED.1
The VA’s Pharmaceutical Procurement Process
As the operator of the nation’s largest integrated health care system, the VA is a
major purchaser of pharmaceuticals. See U.S. Gov’t Accountability Office, GAO 13-358,
Prescription Drugs[:] Comparison of DOD and VA Direct Purchase Prices, at 4 (Apr.
2013) (stating that “[i]n fiscal year 2012, VA’s prescription drug spending totaled about
$4.2 billion”). To meet its needs and achieve economies of scale, the VA, under a
delegation from the General Services Administration (GSA), administers an FSS contract
vehicle—Schedule 65 I B—through which it establishes firm-fixed prices with
AvKARE’s second motion to supplement the administrative record is likewise
DENIED for the reasons set forth below.
pharmaceutical suppliers. See VA Schedule Program Overview, U.S. Department of
Veterans Affairs (2014), www.va.gov/oal/docs/business/nac/fss
ContractorOverviewLibrary.zip; Schedule 65 I B Drugs, Pharmaceuticals, & Hematology
Related Products, U.S. Department of Veterans Affairs, http://www.va.gov/oal/business/
fss/pharmaceuticals.asp (last visited February 11, 2016). Individual VA customers (such
as VA hospitals) and other federal purchasers can then place orders directly with the
supplier to meet their particular needs. See VA Schedule Program Overview, supra, at 4.
Several offices within the VA play a role in the pharmaceutical acquisition
program. See Doing Business with VA, U.S. Dep’t of Veterans Affairs, at 17 (Dec.
At the top level, the VA’s Office of Acquisition and Logistics (OAL) oversees the
contracting process and “provides comprehensive acquisition support” for all of the VA’s
healthcare services and products. Id.; see also Office of Acquisition and Logistics (OAL),
U.S. Dep’t of Veterans Affairs, http://www.va.gov/oal/ (last visited February 11, 2016).
Within OAL, the VA’s National Acquisition Center (NAC) “supports [the] health care
requirements of VA and other government agencies” by awarding and managing the
variety of acquisition and delivery contracts that connect suppliers with government
purchasers. Doing Business with VA, supra, at 17; see also National Acquisition Center,
U.S. Dep’t of Veterans Affairs, http://www.va.gov/oal/about/nac.asp (last visited
February 11, 2016).2 The VA’s Federal Supply Schedule Service, in turn, manages the
NAC’s multiple award schedule (or FSS) contracts, including the schedule contract for
pharmaceuticals. Doing Business with VA, supra, at 17; see also VA Federal Supply
Schedule Service, U.S. Dep’t of Veterans Affairs, http://www.fss.va.gov/ (last visited
February 11, 2016). Finally, the VA’s Office of the Inspector General (OIG) has a
dedicated Office of Contract Review that “provide[s] preaward, postaward, and other
requested reviews of vendors’ proposals and contracts.” See About the Office of Contract
Review, U.S. Dep’t of Veterans Affairs, http://www.va.gov/oig/about/contractreview.asp (last visited February 11, 2016).
The Schedule 65 I B Solicitation
The VA maintains its Schedule 65 I B solicitation on a perpetually-open basis.
See Administrative Record (AR) Tab 1 at 5–8 (“Read Me First” document describing the
process for obtaining a contract); id. Tab 2 at 84 (describing the “Consideration of Offers
Under [the] Standing Solicitation”); see also Getting on Schedule, U.S. Dep’t of Veterans
Affairs, http://www.va.gov/oal/business/fss/gettingOnSchedule.asp (last visited February
Other government agencies (such as the Department of Defense) may also place orders
on contracts administered by the NAC. See National Acquisition Center, supra; VA
Schedule Program Overview, supra, at 4.
The Schedule 65 I B solicitation is periodically updated, with the most recent update
released on February 19, 2014. See AR Tab 2 at 13. The solicitation has also since been
amended twice (on September 30, 2014, and December 31, 2014), but neither amendment
Pursuant to the solicitation, after receiving an offer, the VA conducts an initial
review and, if necessary, “asks for clarifying or additional information.” AR Tab 1 at 8.
Once it has received any additional information, the VA “conducts a price analysis and
fully evaluates the proposal” before beginning price negotiations. See id. Through this
process, the VA aims to “ensure the vendor is responsible” and that “the Government is
receiving a fair and reasonable price.”4 Id.
According to the solicitation, “Contracting Officers determine whether prices are
fair and reasonable by comparing the prices/discounts that a company offers the
government with the prices/discounts offered to commercial customers.” AR Tab 1 at 3.
To make this comparison, in accordance with GSA regulations that apply governmentwide, see 48 C.F.R. § 501.101, the VA “requires offerors to furnish commercial pricelists
and disclose information regarding their commercial pricing/discounting practices.” AR
Tab 1 at 3. This information is known as the offeror’s Commercial Sales Practice (CSP)
Pursuant to 48 C.F.R. § 515.408, the solicitation requires offerors to disclose
several types of CSP information. See AR Tab 5 at 197–204. First, the offeror must
provide information about the prices it charges certain commercial customers for the
same products it wishes to sell to the government.5 Id. at 198. Second, the offeror must
disclose the amount of its sales to the general public for the previous year and its
projected annual sales to the federal government during the life of the contract. AR Tab 4
Further, as provided by 48 C.F.R. § 515.408(b)(5), the solicitation requires
additional CSP information from any offeror who is a “dealer/reseller without significant
sales to the general public”—i.e., any offeror who is not a “manufacturer” and lacks
significant commercial sales. Id. at 202. Such dealer/resellers must provide
is relevant to this case. See 65IB Drugs, Pharms. & Hematology Related Prods.
Solicitation Refreshment - M5-Q50A-03-R7, Federal Business Opportunities,
42186758e&tab=core&_cview=1 (last visited February 11, 2016).
Although the firm-fixed prices agreed upon in these negotiations are considered “fair
and reasonable,” government purchasers may (and, in many cases, must) conduct a
second round of independent price negotiations when placing orders off the schedule. See
FAR 8.404(d) (“Although GSA has already negotiated fair and reasonable pricing,
[purchasers] may seek additional discounts before placing an order.”); id. 8.405-4
(“[Purchasers] may request a price reduction at any time before placing an order . . . .
However, the [purchaser] shall seek a price reduction when the order . . . exceeds the
simplified acquisition threshold.”).
Specifically, for each item the offeror wishes to sell, it must disclose the prices it
charges to both the offeror’s Most Favored Customer and also to a so-called “tracking
customer.” See AR Tab 5 at 198.
“manufacturers’ [CSP] information . . . for each item/SIN offered, if the manufacturers’
sales under any resulting contract are expected to exceed $500,000.” Id. According to the
solicitation, “[t]he information is required in order to enable the Government to make a
determination that the offered price is fair and reasonable.” Id.
In a separate section, the solicitation provides more guidance for dealer/resellers
on providing manufacturers’ CSP information. See AR Tab 12 at 491–505. These
additional instructions explain that:
[O]fferors who are dealers or resellers must provide the [manufacturers’
CSP] information . . . when both of the following two criteria are met:
(1) When the offeror does not have “significant sales” to the general
(2) When the total value of the manufacturer’s [sic] sales by the offeror
for the proposed products is expected to exceed $500,000 for the
Id. at 503 (emphasis in original). Moreover, the instructions continue, “[t]he reference to
‘significant sales’ is not defined as it is examined on a case by case basis.” Id.
In addition, and as pertinent to this case, the solicitation includes clauses
governing modifications to the contract. AR Tab 2 at 53–56. These clauses set forth
procedures for adding and deleting products from the schedule and for requesting price
increases or offering price decreases. See id.; see also Modifying Your VA FSS Contract,
U.S. Department of Veterans Affairs, http://www.va.gov/oal/business/fss/rfmProcess.asp
(last visited February 11, 2016). The clauses specify that all requests for modification
(RFM) must be submitted to the contracting officer (CO) for review, and that vendors
requesting modifications must provide CSP information for the affected products—
including, if the vendor is a dealer/reseller, manufacturers’ CSP information. AR Tab 2 at
53. The VA’s goal is “to review all modification requests and make an award/no award
decision within 60 calendar days from receipt.” Modifying Your VA FSS Contract,
AvKARE’s Existing Schedule 65 I B Contract
AvKARE’s business consists of selling a “variety of bottled and unit dose
pharmaceutical products” that are “packaged and sold under the ‘AvKARE’ label.”
Compl. at 1. Specifically, AvKARE obtains “bulk” pharmaceutical products from
suppliers and then “repackage[s] and re-label[s]” them for sale “under its own private
label . . . . . utilizing National Drug Codes (NDCs) assigned by the FDA to AvKARE and
only AvKARE.” Compl. ¶¶ 55–56; see also Transcript of Hearing at 19:18–20:10 (Sept.
17, 2015) (counsel for AvKARE explaining AvKARE’s business model).6
AvKARE was first awarded a Schedule 65 I B contract in April 2010. Compl.
¶ 49; AR Tab 171 at 20950. At that time, according to AvKARE, the company lacked
significant commercial sales of its products. Compl. ¶ 49. The contract was originally
slated to expire on March 31, 2015, and AvKARE submitted an offer to renew the
contract on October 31, 2014. Id. ¶ 44; see also AR Tabs 13–24. The parties have since
agreed to extend AvKARE’s existing contract, first through January 31, 2016 and then
again through the end of February 2016. Pl.’s Mem. in Supp. of its Mot. for J. on the
Admin. R. (“Pl.’s Mem.”) at 10, ECF No. 29.
The OIG’s Post-Award Review of AvKARE’s Contract and the VA's Denial
of AvKARE’s RFMs
Between 2010 and 2014, AvKARE submitted numerous RFMs to add new drugs
to its contract. Compl. ¶ 50. According to AvKARE, these RFMs were routinely granted.
Id. Sometime in early 2014, however, the OIG began a post-award review of AvKARE’s
contract.7 See AR Tab 171 at 20950. On August 27, 2014, the OIG updated the CO on
the status of its investigation. Id. The OIG’s “preliminary findings” included concerns
that AvKARE “misrepresented that they had commercial sales in order to obtain their
FSS contract” and “misrepresented that they are a pharmaceutical manufacturer” Id. In
light of the ongoing investigation, the OIG recommended that “any request(s) to add
product(s) to the contract, between now and March 31, 2015, be submitted to our office
for a preaward review” and that “no extension [of the contract] be exercised prior to our
office conducting a preaward review.” Id. (emphasis in original). At this time, according
to AvKARE, it had at least three outstanding RFMs. Compl. ¶ 65.
In mid-September 2014, the OIG conducted an on-site review at AvKARE’s
purported production facilities. Compl. ¶¶ 63–64; see AR Tab 173 at 20954. Afterwards,
on October 6, 2014, the OIG informed the CO that it had completed a review of one of
AvKARE’s outstanding RFMs. AR Tab 173 at 20954–55. First, the OIG reported,
AvKARE was considered a “distributor of the offered products, not the manufacturer”
because “[t]he offered products are never in the possession of AvKARE throughout the
process.” Id. at 20954. Instead, the products were “shipped in bulk containers from the
According to AvKARE, “[o]nce an NDC is assigned by the FDA to AvKARE for a
specific product, AvKARE and only AvKARE is entitled to [sell] products . . . on the
basis of that NDC.” Compl. ¶ 28.
This investigation was apparently sparked in part by an anonymous tip describing
alleged violations of the contract’s CSP provisions. See AR Tab 188 at 21058.
manufacturer of the product” to a non-AvKARE packager, packaged, and then shipped to
another non-AvKARE entity for distribution. Id.
In addition, the OIG determined that AvKARE did not have relevant commercial
sales, and thus the “manufacturer’s [sic] full CSP data is required.” Id. According to the
OIG, AvKARE “expressed their disagreement with the requirement” because “there
would be no way to get CSP data that is relevant,” as “they package the product in
different quantities than are commercially available from the manufacturer.” Id. The OIG
“totally disagree[d] with AvKARE’s opinion,” believing that “CSP data should be
required from the manufacturer which represents the nearest commercially available
package size of the products offered.” Id.
AvKARE’s Contract Renewal Offer
All told, AvKARE alleges that it submitted at least six more RFMs between
October 2014 and September 2015. See Compl. ¶¶ 67, 69–70. AvKARE claims that all
these RFMs either remain under review or have been rejected by the VA. See id.
As mentioned above, AvKARE submitted a contract renewal offer on October 31,
2014. Id. ¶ 44; see AR Tabs 13–24. In response to the solicitation’s “Company
Information” questionnaire, AvKARE identified its “Type of Business” as
“Manufacturer” and stated that its facilities included 57,000 square feet of manufacturing
floor space. AR Tab 13 at 510.
In response to Clause AS8005 of the solicitation, which requests information
about the “manufacturing facilities/place of performance” for each of the offeror’s
products, see AR Tab 4 at 175–80, AvKARE also represented that it was “the
manufacturer . . . of the products offered on this solicitation.”8 Id. at 526. On the other
hand, AvKARE included a purported “Letter of Supply” with its offer, AR Tab 18 at 585,
apparently in response to Clause I-FSS-644 of the solicitation, which requires offerors
who are “dealers and suppliers”—i.e., offerors “other than the manufacturer”—to
produce “letter[s] of supply/commitment” from the products’ manufacturers upon the
CO’s request. AR Tab 4 at 181. These letters must “assure the offeror of a source of
supply sufficient to satisfy the Government’s requirements for the contract period.” Id.
The substantive purpose of Clause AS8005 is to ensure compliance with the FDA’s
Current Good Manufacturing Practice (CGMP) regulations. See AR Tab 4 at 175–80.
These regulations describe the acceptable “methods to be used in, and the facilities or
controls to be used for, the manufacture, processing, packing, or holding of a drug to
assure that such drug meets the requirements of the act as to safety, and has the identity
and strength and meets the quality and purity characteristics that it purports or is
represented to possess.” 21 C.F.R. § 210.1(a). Clause AS8005 specifically requests
information about the “location and owner of [the] facility where [the] ingredients are
measured, weighed, mixed and compounded;” the “location of facilities where
intermediate containers will be fixed and labeled;” and the “location of facilities where
products will be packed and prepared for shipment.” AR Tab 4 at 178–80.
The letter AvKARE submitted, addressed to “AvKARE,” and from “AvKARE, Inc.,”
represented that “[i]n the event AvKARE is awarded a . . . contract . . . AvKARE, Inc.
can assure an uninterrupted source of supply, with sufficient quantities of product, for the
duration of the . . . contract period.” AR Tab 18 at 585.
Most relevant to this case, in responding to the solicitation’s pricing and price
evaluation provisions, AvKARE did not include CSP information about the
manufacturers who supply AvKARE with the pills that it repackages and sells to the VA
as would be required of a dealer/reseller without significant sales to the general public.
See AR Tab 22; see also id. Tab 23 at 601 (beginning a description of AvKARE’s sales
process with the phrase “As a drug manufacturer . . . ”).
VA Requests for Additional Information
On December 24, 2014, the CO contacted AvKARE to request additional
information. AR Tabs 341–48. This request primarily took the form of a “Missing
Information Checklist.” AR Tab 344 at 21600–10. “Upon receipt of all requested items
identified on the Missing Information Checklist,” the CO explained, “we can move
forward with a continued review of your offer.” AR Tab 341 at 21595.
First, the CO requested that AvKARE “[p]lease clarify what is produced on the
premises” of AvKARE’s manufacturing facility and that it clarify its basis for claiming
that it had an estimated 57,000 square feet of manufacturing space. AR Tab 344 at 21600
(quotation omitted). Further, the CO asked AvKARE to “specifically delineate what
AvKARE does with [its] drugs after receipt” and to “[p]rovide documentation that
explains which entities obtain title to and possession of the product” and “outline what
each entity does to the drug.” Id. at 21602.
The CO also requested that, in response to Clause I-FSS-644, AvKARE “[p]lease
provide requisite Letters of Supply” in accordance with that clause’s requirements for
dealers and resellers. Id. The CO noted that AvKARE’s letter “to itself . . . from (itself)”
was “not accepted.” Id.
Next, the CO informed AvKARE that the CSP information it provided was not
fully responsive to the solicitation’s requirements. See id. at 21606–09. In response to the
solicitation’s request for information regarding “sales to the general public,” the CO
noted that “[s]ales to federal entities via a wholesaler are not considered commercial
sales.” AR Tab 344 at 21606. Rather, “[t]hose sales are indirect sales to federal entities.”
Id. Accordingly, the CO requested that AvKARE revise its submission so that “only sales
to commercial end users [are] reflected.” Id.
Further (and as most relevant here), the CO informed AvKARE that
“[m]anufacturer information for each item/SIN offered is required” under the CSP
provision for dealer/resellers because “AvKARE commercial sales as a percent of
government sales are considered insignificant” and “expected sales under any resulting
contract are expected to exceed $500,000.” Id. at 21608.
AvKARE’s Response to VA Requests for Additional Information
On January 16, 2015, AvKARE responded to the CO’s request for additional
information. See AR Tab 360. AvKARE continued to maintain that it was the
“manufacturer” of the products it wished to sell because it “produces and manufactures
its own private label generic pharmaceuticals.” Id. at 21671; see also id. at 21672
(“AvKARE reaffirms its selection as manufacturer . . . . . We are the manufacturer.”). To
bolster this contention, AvKARE listed several definitions of “manufacturer” found in
various statutes and agency regulations applicable to the pharmaceutical industry. See AR
Despite its assertion about its status as a manufacturer, however, AvKARE also
defended its inclusion of the letter of supply from itself to itself, representing that the
letter was “the very same letter that has been provided for 5 years for Modifications and
has been accepted by the VA NAC under this very same procurement” and that
“AvKARE is the only source of supply that can provide letters of commitment for [its
products].” Id. at 21672.
AvKARE also took issue with the CO’s determination that it lacked significant
sales to the general public, stating that it “disagree[d] entirely” with the VA’s
characterization of its sales to federal end users via wholesalers as “indirect” sales to the
government. See id. at 21677. AvKARE posited that “the VA does not have the
discretion to disregard millions of dollars of commercial sales as ‘insignificant,’” and
that, in any event, “there is no requirement for any commercial sales in order to be
eligible for an FSS contract.” Id. at 21678.
Lastly, AvKARE reiterated its belief that it did not need to comply with the CSP
requirements applicable to dealer/resellers because “we are not a dealer or reseller.” Id. at
21679. Instead, AvKARE contended, “[w]e are distributing and selling AvKARE’s
finished end product” and “[the dealer/reseller] provision is not applicable to our offer.”
VIII. VA Warns AvKARE that its Renewal Offer Remains Unacceptable
On February 12, 2015, the CO informed AvKARE by letter that its renewal offer
“remain[ed] unacceptable” because of “several deficiencies” in its response. AR Tab 367
at 21695. The CO made clear that the VA “does not consider AvKARE to be a
manufacturer” and stated that the definitions of “manufacturer” that AvKARE attached to
its response were “not applicable” to the solicitation. Id. at 21696. After reminding
AvKARE that “[the] CO is required to make a determination that . . . prices are fair and
reasonable before an award can be made,” the CO provided AvKARE with a new
“Missing Information Open Item Spreadsheet,” warning that “[a]bsent a current,
complete, and accurate response . . . no further action w[ould] be taken” and AvKARE’s
offer would be returned. Id.
AvKARE responded to the VA’s letter on February 18, 2015. AR Tab 370. It
explained that while “[n]o production operations take place” at the location it had listed
on its offer, it had “entered into a production and quality control agreement” with a
different company under which that company “serves as the contract manufacturer for
AvKARE.” Id. at 21706. AvKARE also wished to “put aside the manufacturer vs nonmanufacturer debate” and suggested that the CO could use multiple techniques to assess
price reasonableness rather than solely relying on manufacturers’ CSP information. Id. at
Shortly afterwards, the CO again followed up with AvKARE. AR Tab 372. He
clarified the VA’s position that AvKARE’s letter of supply did not “satisfy the
requirements” applicable to a “contractor who is other than the manufacturer” set forth in
Clause I-FSS-644. Id. at 21712. Further, he explained that “[t]he [CO] is given wide
latitude when determining if commercial sales are insignificant.” Id. at 21713–14.
Finally, he explained that while AvKARE was “welcome to provide market research and
other pricing information to supplement the requisite CSP information,” the CSP
information was still required. Id. at 21714.
AvKARE’s First Bid Protest and the VA’s Extension of the Existing Contact
After receiving the CO’s letter reiterating the VA’s demand for manufacturers’
CSP data, AvKARE filed a bid protest action in this Court. See Compl., AvKARE, Inc. v.
United States (AvKARE I), No. 15-cv-216, ECF No. 1 (March 3, 2015). The next day,
AvKARE sent additional responses to the CO. AR Tab 380. Once again, AvKARE
reaffirmed its self-designation as a “manufacturer,” stating that it “directs all faucets [sic]
of the production side of the product” in the same manner as “many companies within the
pharmaceutical industry.” Id. at 21732. At the same time, though, AvKARE agreed to
provide copies of its agreements with its “bulk medication suppliers,” which it believed
would “satisfy the requirement [of Clause I-FSS-644] as evidence that AvKARE will
have the component supplied for the contract period.” Id. at 21733. In terms of updating
its CSP information, AvKARE attached newly-received “sales tracings” from its
wholesalers, which it claimed “should prove that any wholesaler should be considered a
commercial customer based on the fact they are selling these products to their OWN
customer base.” Id. at 21734–35 (emphasis in original).
After AvKARE filed its first bid protest, the government agreed to extend
AvKARE’s contract through September 31, 2015, and AvKARE voluntarily dismissed
that case. See Notice of Voluntary Dismissal, AvKARE I, ECF No. 17. To move the
renewal process forward, AvKARE indicated it would “submit requests to its suppliers
to ascertain their willingness to supply their CSP information,” even though AvKARE
continued to believe that:
[T]his information is neither required (as AvKARE is the manufacturer of
its private label products and has significant commercial sales of those
products) nor relevant (we fail to see how the prices paid for bulk
pharmaceuticals is useful for assessing price reasonableness for a different
deliverable – individually packaged and labelled bottles . . . of product).
AR Tab 382 at 21740. In addition, AvKARE “urge[d] the VA to formally state whether it
[was] requiring AvKARE’s competitors to submit supplier CSP information as a prerequisite for either renewing their contracts or approving RFMs to add products to their
contracts.” Id. If not, AvKARE hoped that “we can agree that imposing such a
requirement on AvKARE is not appropriate.” Id.
VA Concludes AvKARE Lacks Significant Commercial Sales and Declines to
Proceed Without Manufacturers’ CSP Information
On April 1, 2015, the CO updated AvKARE on its deliberations, reiterating that
the VA’s position on AvKARE’s status as a dealer/reseller “has not changed.” AR Tab
386 at 22315. Moreover, the CO asserted that “we do not and cannot adapt a different or
varied definition and/or version of manufacturer to individually suit a vendor” and that
“any offer submitted by any company with the current deficiencies identified in AvKare’s
offer would have been no-awarded.” Id. at 22316. The next day, the CO sent AvKARE
explaining that the VA “require[d] assistance from [OIG] in the analysis of [AvKARE’s
sales] data to identify those sales that can be attributed to commercial customers.” AR
Tab 387 at 22318. Once that analysis was complete, the CO would “then consider
whether CSP data will be required from the manufacturers.” Id.
The OIG completed its review August 26, 2015. AR Tab 191. At bottom, it
determined that AvKARE had “insufficient commercial sales from which to determine
fair and reasonable pricing.” Id. at 21069. In the OIG’s view, AvKARE’s sales to
wholesalers were “indirect sales” rather than “commercial sales” because “all units sold
to wholesalers were in turn sold to AvKARE’s customers” instead of on the open market.
Id. at 21070–72. Further, of these indirect sales, “only 0.51 percent were sold to
customers classified as commercial in AvKARE’s accounting system”—a percentage that
was “not deemed significant.”9 Id. at 21072.
After receiving the OIG’s report, the CO informed AvKARE by letter on
September 3, 2015, that she had “reviewed all pertinent information” and “determined
that AvKARE does not have sufficient commercial sales to make a fair and reasonable
price determination.” AR Tab 417 at 22496. Therefore, “[i]n order to proceed with
evaluation of your offer, you must provide manufacturer CSP data.” Id.
On September 11, 2015, AvKARE filed its complaint in this Court, along with a
motion for a preliminary injunction. ECF Nos. 1, 5. Following a status conference, the
government agreed to extend AvKARE’s existing contract through January 31, 2016, and
In addition, the OIG noted that the prices in AvKARE’s commercial price list would be
revised effective as of the date the VA approved AvKARE’s renewal offer. AR Tab 191
at 21072. According to the OIG, “[c]ommercial entities, who sell primarily to
commercial customers, would never have a catalog price that is dependent upon an
awarded FSS contract.” Id.
the Court denied AvKARE’s preliminary injunction motion as moot. See Order, ECF No.
11. The government compiled the administrative record, which AvKARE then moved to
supplement. ECF No. 21. After hearing oral argument, the Court denied AvKARE’s
motion in its entirety. See Opinion and Order, ECF No. 32.
The parties then filed cross-motions for judgment on the administrative record.
ECF Nos. 28, 37. The Court held oral argument on the cross-motions on January 13,
2016, after which the government agreed to further extend AvKARE’s existing contract
through the end of February. On January 28, AvKARE filed a second motion to
supplement the administrative record. These motions are now ripe for decision.
The Court of Federal Claims’ Bid Protest Jurisdiction
The Court of Federal Claims’ bid protest jurisdiction is defined by 28 U.S.C.
§ 1491(b)(1). That provision grants the court jurisdiction to “render judgment on an
action by an interested party objecting to . . . a proposed award or the award of a contract
or any alleged violation of statute or regulation in connection with a procurement or a
In keeping with this statutory grant, only an “interested party” has standing to
invoke the Court of Federal Claims’ bid protest jurisdiction. CGI Fed. Inc. v. United
States, 779 F.3d 1346, 1348 (Fed. Cir. 2015); Myers Investigative and Sec. Servs., Inc. v.
United States, 275 F.3d 1366, 1369 (Fed. Cir. 2002). As the Federal Circuit has
explained, an “interested party” is “an actual or prospective bidder . . . whose direct
economic interest would be affected by the award of the contract.” CGI Fed., 779 F.3d at
1348 (quoting Am. Fed’n of Gov’t Employees, AFL-CIO v. United States, 258 F.3d
1294, 1299 (Fed. Cir. 2001); see also Info. Tech. & Applications Corp. v. United States,
316 F.3d 1312, 1319 (Fed. Cir. 2003).
In a pre-award protest challenging an agency’s evaluation of a proposal, a
plaintiff has a direct economic interest if it has a “substantial chance” of winning the
contract but for the alleged error in the evaluation. Orion Tech., Inc. v. United States, 704
F.3d 1344, 1348–49 (Fed. Cir. 2013); see also Tinton Falls Lodging Realty, LLC v.
United States, 800 F.3d 1353, 1358 (Fed. Cir. 2015); Bannum, Inc. v. United States, 404
F.3d 1346, 1358 (Fed. Cir. 2005). That is, the protestor’s chance of securing the award
“must not [be] insubstantial.” Info. Tech., 316 F.3d at 1319. Put differently, the protester
must have been “prejudiced” by the alleged error. Tinton Falls, 800 F.3d at 1358.
The Court of Federal Claims’ Jurisdiction Over Contract Claims
This Court’s jurisdiction over contract claims is set forth in 28 U.S.C. § 1491(a).
That provision grants the court jurisdiction over claims “founded . . . upon . . . any
express or implied contract with the United States,” including “any claim by or against,
or dispute with, a contractor arising under [the Contract Disputes Act], including a
dispute concerning termination of a contract, rights in tangible or intangible property,
compliance with cost accounting standards, and other nonmonetary disputes on which a
decision of the contracting officer has been issued under . . . that Act.” Id. § 1491(a)(1)–
Claims “arising under” the CDA include claims based on “any express or implied
contract . . . made by an executive agency for . . . the procurement of property, other than
real property in being.” 41 U.S.C. § 7102(a). Under the CDA, “procurement” means “the
acquisition by purchase, lease or barter, of property or services for the direct benefit or
use of the Federal Government.” New Era Constr. v. United States, 890 F.2d 1152, 1157
(Fed. Cir. 1989) (quotation and emphasis omitted). Importantly, a contractor may not
bring an action governed by the CDA in federal court before the “receipt of a contracting
officer’s decision” on its claim. 41 U.S.C. § 7104(b)(3); see M. Maropakis Carpentry,
Inc. v. United States, 609 F.3d 1323, 1327–28 (Fed. Cir. 2010). Thus, the Court of
Federal Claims does not possess jurisdiction over claims arising under the CDA unless
the contractor has submitted a valid claim to the contracting officer and received the
contracting officer’s final decision on that claim. M. Maropakis Carpentry, 609 F.3d at
1327–28; see also Dalton v. Sherwood Van Lines, Inc. v. United States, 50 F.3d 1014,
1017 (Fed. Cir. 1995) (“When the Contract Disputes Act applies, it provides the
exclusive mechanism for dispute resolution; the Contract Disputes Act was not designed
to serve as an alternative administrative remedy, available at the contractor’s option.”).
The definition of “claim” for purposes of the CDA derives from the Federal
Acquisition Regulations (FAR). See M. Maropakis Carpentry, 609 F.3d at 1327–28. As
pertinent here, FAR 2.101 defines “claim” as “a written demand or written assertion by
one of the contracting parties seeking, as a matter of right, the payment of money in a
sum certain, the adjustment or interpretation of contract terms, or other relief arising
under or relating to the contract.” Id.; see also FAR 52.233-1 (setting forth, in a standard
contract clause, the same definition of “claim” as in FAR 2.101).
Application of Jurisdictional Provisions to AvKARE’s Claims in this
AvKARE’s first claim is that the VA misinterpreted and misapplied the
solicitation’s CSP provision when it characterized AvKARE as a “dealer/reseller” rather
than a “manufacturer,” and, as a consequence, refused to further evaluate its renewal
offer unless it provided its suppliers’ CSP information. AvKARE further contends that
the VA was motivated by animus toward AvKARE when it demanded this CSP
information, and that it did so in bad faith to prevent AvKARE from obtaining a new
These claims fall within the Court’s bid protest jurisdiction under
section 1491(b)(1) because they concern alleged errors or violations of law in the
evaluation of AvKARE’s proposal. Further, AvKARE has standing as an “interested
party” to press its challenges to the VA’s actions. It is an incumbent contractor, it
submitted an actual offer, and it has alleged that its offered prices are lower than the
prices for similar items already on the schedule. Thus, AvKARE has a substantial chance
of securing the contract if its offer in fact conforms to the solicitation’s requirements.
Accordingly, the Court has jurisdiction over AvKARE’s first claim.
AvKARE’s second claim relates to the VA’s refusal to grant RFMs on its existing
contract. AvKARE contends that this refusal was based on a misinterpretation of the
contract and applicable regulations, and on the VA’s animus toward AvKARE. The
government argues that the Court lacks jurisdiction over AvKARE’s RFM claims
because those claims are subject to the CDA and AvKARE has not submitted “claims”
within the meaning of the CDA to the CO. Def.’s Cross-Mot. for J. on the Admin. R.
(Def.’s Cross-Mot) at 25, EFC No. 37; Def.’s Reply at 1–4, ECF No. 40. AvKARE
disagrees. In its view, its RFM claims properly fall under the Court’s bid protest
jurisdiction, rather than its contract jurisdiction, because “the RFM process is akin to a
new offer for [an] award of items within the scope of the FSS solicitation.” Pl.’s Reply at
5–6, ECF No. 38.
AvKARE’s position lacks merit. The Federal Circuit has made clear that contract
modifications within the scope of an existing contract do not constitute “procurements”
under section 1491(b)(1). See Distrib. Sols., Inc. v. United States, 539 F.3d 1340, 1346
(Fed. Cir. 2008); see also AT&T Comms., Inc. v. Wiltel, Inc., 1 F.3d 1201, 1204–05
(Fed. Cir. 1993). AvKARE’s RFMs were clearly within the scope of the contract; indeed
(as discussed above) the solicitation includes a contract modification provision, which
AvKARE followed in submitting its RFMs. And the CDA’s broad definition of “claim”
clearly encompasses non-monetary relief of the type AvKARE seeks. See FAR 2.101
(defining “claim” to include “a written demand . . . seeking . . . the payment of money in
a sum certain, the adjustment or interpretation of contract terms, or other relief arising
under or relating to the contract”) (emphasis added). It follows that AvKARE’s claims
related to its RFMs are governed by section 1491(a) and, by extension, the CDA.
Accordingly, because AvKARE has not alleged that it submitted claims under the CDA
to the CO or received any final determinations, the Court lacks jurisdiction over
AvKARE’s RFM-related claims in this case.
The Merits of AvKARE’s Bid Protest
The Meaning of “Manufacturer” Under the Solicitation’s CSP
The Text of the Provision
The primary issue raised by AvKARE’s bid protest claim is a legal one: whether
AvKARE is a “manufacturer” or is instead a “dealer/reseller” within the meaning of the
CSP clause, which was included in the solicitation pursuant to the requirements of the
GSA regulation codified at 48 C.F.R § 515.408. The Court begins its analysis by
reviewing the “plain meaning” of the regulatory language. Lengerich v. Dep’t of Interior,
454 F.3d 1367, 1370 (Fed. Cir. 2013) (“We construe a regulation . . . by ascertaining its
plain meaning.” (citing Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414–15
(1945))); Lockheed Corp. v. Widnall, 113 F.3d 1225, 1227 (Fed. Cir. 1997) (“To
interpret a regulation we must look at its plain language and consider the terms in
accordance with their common meaning.”); see also Chase Bank USA, N.A. v. McCoy,
562 U.S. 195, 204 (2011) (analysis of regulation’s meaning begins with its text).
The dictionary definition of the word “manufacture” is “[t]o make or process (a
raw material) into a finished product.”10 Am. Heritage Dict. of the English Language
1067 (4th ed. 2000). By contrast, a “dealer” is “[o]ne that is engaged in buying and
selling,” id. at 467; and a “reseller” is one who “sell[s] again,” id. at 1483.
Guidance that the VA has provided to prospective offerors on its website is
consistent with the dictionary definition of “reseller.” Information for Resellers, U.S.
Dep’t of Veterans Affairs, http://www.va.gov/oal/business/fss/resellers.asp (last visited
February 11, 2016). It defines a “reseller” as “a company or individual that purchases
commercial goods or services with the intention of reselling them rather than consuming
or using them.” Id.
In this case, the products that federal agencies purchase through the FSS are pills
and other pharmaceuticals. And it is AvKARE’s suppliers, not AvKARE, that assemble
the raw materials needed to make the pills and other pharmaceuticals into finished
products for the consumption of patients in VA and other government medical facilities.
AvKARE’s suppliers, therefore, clearly fall within the plain meaning of the term
“manufacturer” as set forth above.
AvKARE, by contrast, purchases the pills and pharmaceuticals from the
manufacturers in bulk with the intent to resell them to buyers through the FSS. It thus
falls under the dictionary definition of “reseller.” To be sure, AvKARE repackages the
pills in order to resell them under its own label. Nonetheless, it is the pills and other
pharmaceuticals that the schedule’s users are buying, not their packaging. AvKARE,
accordingly is a “dealer/reseller” of the pills and pharmaceuticals. It is not their
The Court notes that this common sense construction of the regulatory terms is
also consistent with the way that the term “manufacturer” is used elsewhere in the
solicitation. For example, the solicitation’s “Offeror Representations and Certification”
section defines “place of manufacture” as “the place where an end product is assembled
out of components, or otherwise made or processed from raw materials into the finished
product that is to be provided to the Government.” AR Tab 2 at 86. In this context, the act
of “process[ing] from raw materials” most readily describes the functions of a pill-maker,
rather than a repackager.
Similarly, Clause I-FSS-644 of the solicitation requires any offeror “if other than
the manufacturer” to submit assurances from its suppliers confirming the offeror’s ability
The Federal Circuit has observed that a court “may consult dictionaries” to determine
the “ordinary, established meaning” of a word or phrase. Hymas v. United States, No
2014-5150, 2016 WL 158470, at *6 (Fed. Cir. Jan. 14, 2016) (quoting Info. Tech., 316
F.3d at 1320).
to meet the government’s purchasing needs. See AR Tab 4 at 181. Offerors who are
manufacturers are not required to provide such additional “assurances” because they
themselves have control over the production of the pills. On the other hand, an entity like
AvKARE, which does not make the pills, but merely repackages them, is most logically
characterized as “other than a manufacturer” for purposes of this provision because it
must rely on its suppliers to enable it to satisfy the purchasers’ needs for pharmaceutical
AvKARE argues, nonetheless, that it should be considered a manufacturer
because the products it is offering to provide on the FSS are not simply pills, but pills that
are properly packaged and labelled, and assigned a unique National Drug Code (NDC)
that belongs exclusively to AvKARE. Pl.’s Mem. at 25–26; Pl.’s Reply at 10; see also
Compl. ¶ 28. According to AvKARE, it is the only entity that can claim to be the
“manufacturer” of the products sold under its labels.
Contrary to AvKARE’s contentions, however, unique NDCs are assigned to any
entity engaged in the “manufacturing or processing” of drugs, including any entity that
“repackage[es] or otherwise chang[es] the container, wrapper, or labeling of any drug
package to further the distribution of the drug from the original place of manufacture to
the person who makes final delivery or sale to the ultimate consumer.” 21 C.F.R.
§ 207.3(a)(8); see also id. §§ 207.20, 207.35. The assignment of a unique NDC to
AvKARE does not, therefore, reveal anything one way or the other about whether it is the
“manufacturer” of the products it wishes to offer either for purposes of the GSA
regulation or for purposes of the statute and regulations governing the assignment of
Accordingly, because pills and other pharmaceuticals are the relevant products,
only a pill or pharmaceutical maker fits the plain meaning of “manufacturer” as used in
the solicitation. And because AvKARE does not make pills or other pharmaceuticals, but
rather buys them in bulk and sells them after repackaging them, it is not a manufacturer
under the solicitation, but rather a dealer/reseller.
As described above, notwithstanding its insistence that it is a “manufacturer,”
AvKARE’s renewal proposal included what it characterizes as a letter of supply in
response to Clause I-FSS-644. AR Tab 18 at 585. In the letter (as described above), the
President of “AvKARE, Inc.” purported to provide assurances to the contracting officer
at “AvKARE” that AvKARE Inc. would ensure a sufficient quantity of pharmaceutical
products to meet the needs of government purchasers. Of course, because AvKARE was,
in fact, not the manufacturer of the pills, its promise to itself to ensure an adequate supply
of the product could hardly serve as the type of assurance that Clause I-FSS-644
contemplates. For that reason, the VA required AvKARE to go back and get letters from
the manufacturers who sell their pills and other pharmaceuticals to AvKARE.
Definitions of “Manufacturer” Found in Other Statutory and
Regulatory Regimes that Apply to the Pharmaceutical Industry
Notwithstanding the plain meaning of the regulatory language, AvKARE
emphasizes that repackagers like itself are considered “manufacturers” under other
statutory and regulatory regimes that apply to the pharmaceutical industry. See Pl.’s
Mem. at 24–27; Pl.’s Reply at 7–11. Therefore, it contends, the VA’s conclusion that
AvKARE is not a “manufacturer” for purposes of the GSA regulations was necessarily
GSA has not provided any guidance concerning the interpretation of the terms
“manufacturer” or “dealer/reseller.” But it is worth remembering that the GSA regulation
distinguishing between “manufacturers” and “dealer/resellers” governs with respect to all
products sold on the FSS. It seems incongruous, therefore, to apply to the GSA
regulations an industry-specific understanding of the term “manufacturer,” particularly
one drawn from other regulatory regimes.
In the Court’s view, the meanings ascribed to the term “manufacturer” in the
statutory and regulatory regimes that AvKARE cites are not relevant to the interpretation
and application of the term “manufacturer” as it appears in the GSA regulation. To the
contrary, the import of the cited statutes and regulations is that when legislators and
regulators wish to subject entities like AvKARE that repackage and re-label
pharmaceuticals to the same restrictions as entities that fall within the plain meaning of
the term “manufacturer” set forth above, they do so explicitly.
For instance, AvKARE cites 38 U.S.C. § 8126. Pl.’s Mem. at 27. That statute
requires all “manufacturers” of covered drugs to enter agreements with the Secretary of
the VA to make those drugs available for procurement on the FSS at capped prices. The
drugs subject to the requirement are single-source drugs—i.e., drugs that remain under
patent protection. See 38 U.S.C. § 8126(a). For purposes of section 8126, Congress
specified that the term “manufacturer” would include not only those entities that most
naturally fall within the plain meaning of that term (such as those engaged in “the
production, preparation, propagation, compounding, conversion, or processing of
prescription drug products”), but also those entities engaged “in the packaging,
repackaging, labeling, relabeling, or distribution of prescription drug products.” 38
U.S.C. § 8126(h)(4).
The fact that Congress found it necessary to explicitly define the term
“manufacturer” to include repackagers, relabelers, and distributors in section 8126(h)(4)
suggests to the Court that such entities would not otherwise be considered
“manufacturers” of drug products in light of that term’s ordinary meaning. Further, there
are unique policies underlying section 8126(h)(4) that justify including entities other than
the pharmaceutical makers themselves within the definition of “manufacturer.” By
defining “manufacturer” to include repackagers in section 8126, Congress advanced the
statute’s underlying policies by ensuring that the government would have an adequate
supply of the covered drugs at capped prices regardless of whether the pharmaceuticals
are purchased directly from their makers or from other entities like AvKARE that
repackage and relabel them.
Similarly, when statutes and regulations enforced by the FDA make repackagers
subject to the same rules as pill manufacturers, they do so by explicitly defining
“manufacture” or “manufacturer” to include repackagers. See, e.g., 21 U.S.C. § 802(15)
(specifying that, for purposes of the Controlled Substances Act, “[t]he term
‘manufacture’ means the production, preparation, propagation, compounding, or
processing of a drug or other substance, either directly or indirectly . . . and includes any
packaging or repackaging of such substance or labeling or relabeling of its container”);
21 U.S.C. § 360 (specifying that, for purposes of the FDA’s registration requirements,
“the term ‘manufacture, preparation, propagation, compounding, or processing’ shall
include repackaging or otherwise changing the container, wrapper, or labeling of any
drug package or device package in furtherance of the distribution of the drug or device”).
As was the case with the expanded definition of “manufacturer” contained in
section 8126(h)(4), there are specific policy reasons underlying these statutes and
regulations that justify extending the restrictions that apply to manufacturers to entities
like AvKARE that repackage and relabel drugs. For example, the Controlled Substances
Act is designed to, among other things, avoid the diversion of certain pharmaceutical
products to illegal markets. See 21 U.S.C. § 823. In that context, it requires the
“manufacturers” of such products to register with the Attorney General, and defines
manufacturer broadly to include entities like AvKARE that are also in the chain of
distribution. Id. Similarly, under 21 U.S.C. § 360, AvKARE is subject to registration
requirements that are part of a statutory and regulatory scheme intended to prevent the
adulteration or misbranding of drugs; in that context, there exists a policy reason for
subjecting repackagers and relabelers to the same restrictions as manufacturers.
Further, as AvKARE acknowledges, other FDA regulations define manufacturer
more narrowly. See 21 C.F.R. § 201.1(b) (defining “manufacturer” for purposes of
certain FDA labeling requirements as “the person who performs all of the following
operations that are required to produce the product: (1) Mixing, (2) granulating, (3)
milling, (4) molding, (5) lyophilizing, (6) tableting, (7) encapsulating, (8) coating, (9)
sterilizing, and (10) filling sterile, aerosol, or gaseous drugs into dispensing containers”);
Pl.’s Mem. at 25 n.8. This variance shows that even within the regulatory regime
applicable to the pharmaceutical industry, the term “manufacturer” does not always
include repackagers like AvKARE.
In short, the Court is not persuaded by AvKARE’s reliance upon other statutory
and regulatory applications of the term “manufacturer.” For that reason, and the others
discussed above, the Court holds that AvKARE is not a manufacturer under the
solicitation’s CSP provision; it is a dealer/reseller.
The CO’s Determination that AvKARE Lacked Significant
Under the solicitation, a dealer/reseller like AvKARE must produce
manufacturers’ CSP information only if it also lacks significant commercial sales. See
AR Tab 5 at 202; id. Tab 12 at 503. And, as the solicitation makes clear, whether a
dealer/reseller has significant commercial sales is “examined on a case by case basis.” Id.
Tab 12 at 503.
It is axiomatic that the Court will not interfere with an agency’s procurement
decision unless the decision was “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” E.g., Bannum, Inc., 404 F.3d at 1351 (citing 5
U.S.C. § 706(2)(A)). Under this “highly deferential” standard, 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)), the Court will not disturb
the agency’s decision unless it “lacked a rational basis” or “involved a violation of
regulation or procedure,” Impresa Construzioni Geom. Domenico Garufi v. United
States, 238 F.3d 1324, 1332–33 (Fed. Cir. 2001). The plaintiff thus “bears a heavy
burden” in attempting to show that a procuring agency’s decision lacked a rational basis.
Id. (quoting Saratoga Dev. Corp. v. United States, 21 F.3d 445, 456 (D.C. Cir. 1994)).
Indeed, such a challenge may succeed only if the agency “entirely failed to consider an
important aspect of the problem, offered an explanation for its decision that runs counter
to the evidence before the agency, or [if] the decision is so implausible that it could not
be ascribed to a difference in view or the product of agency expertise.” 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 quotations omitted).
Here, in determining that AvKARE lacked significant commercial sales, the CO
relied on an analysis conducted by the OIG. See AR Tab 191 at 21070–73; AR Tab 417
at 22496. The OIG assessed AvKARE’s sales data and determined that nearly all of
AvKARE’s sales were indirect sales to government entities via commercial wholesalers.
AR Tab 191 at 20170–71. The OIG also explained why it did not consider these sales to
be commercial sales. Id. at 21070. The CO’s reliance on the OIG’s analysis thus was not
unreasonable. Therefore, the CO’s ultimate determination that AvKARE lacked
significant commercial sales also had a rational basis.
AvKARE challenges the CO’s decision on several other grounds, but these
attacks also fail. Its first argument—that the VA refuses to award contracts to any offeror
without significant commercial sales—knocks down a straw man, for the VA has not
taken that position. See Pl.’s Mem. at 29; Pl.’s Reply at 15–16. Rather, the VA requires
that dealer/resellers without significant commercial sales provide manufacturers’ CSP
information before conducting a price reasonableness analysis, after which it may award
AvKARE next argues that it “possesses significant commercial sales by virtue of
the $9 million in such sales disclosed in its renewal offer.” Pl.’s Mem. 30. But despite
this bald assertion, AvKARE offers no basis to question the OIG’s analysis of these sales,
which ultimately determined that the $9 million in sales did not, in fact, constitute
significant commercial sales. Finally (and as discussed in more detail below), AvKARE
contends that by relying on the OIG’s analysis, the CO abdicated her responsibility to
apply independent judgment. Pl.’s Mem. at 38; Pl.’s Reply at 15 n.6, 18–19. But because
AvKARE has offered no concrete reason to question the OIG’s analysis, it is difficult for
the Court to discern how the CO’s reliance on it could be cause for concern; and the
record does not otherwise bear out this accusation.
Accordingly, the Court concludes that the CO’s determination that AvKARE
lacked significant commercial sales was not arbitrary, capricious, or contrary to law.
AvKARE’s Claim that the VA Acted in Bad Faith
More broadly, AvKARE contends that the VA failed to evaluate its renewal offer
and conduct negotiations in good faith. See Pl.’s Mem. At 38–39; Pl.’s Reply at 19. In
AvKARE’s view, the OIG developed “animus” toward AvKARE, and the CO then
colluded with the OIG in rejecting AvKARE’s proposal, thereby abdicating her
responsibility to apply independent judgment. Pl.’s Mem. at 38; Pl.’s Reply at 19.
Agency decisionmaking, however, is entitled to the presumption of regularity. See
Info. Tech., 316 F.3d at 1323 n.2. And the record here offers no basis for finding that
presumption rebutted. Instead, it shows that the VA communicated regularly with
AvKARE about AvKARE’s proposal, and that the VA repeatedly explained to AvKARE
why the proposal remained deficient. See AR Tab 344 at 21600–10; AR Tab 367 at
21695–97; AR Tab 386 at 22315–17. Moreover, the VA’s internal communications
exhibit no predisposition to spurn AvKARE’s offer; rather, they reflect a consistent
position that AvKARE’s proposal was not complete because AvKARE was not a
manufacturer, lacked significant commercial sales, and had not supplied manufacturers’
CSP information. See AR Tab 174 at 20957; AR Tab 188 at 21059–61; AR Tab 191 at
21069, 21073; AR Tab 436 at 22534.
AvKARE also appears to assert that the government acted in bad faith by
declining to use an alternate method of price analysis—i.e., one that did not depend on
securing and reviewing its suppliers’ CSP information. See Pl.’s Reply at 16 & n.7. At
oral argument, for example, AvKARE claimed that the VA should have employed
alternative methods because the pill suppliers (i.e., the manufacturers) do not sell what
AvKARE sells (i.e., pills packaged in bottles for individual consumption) so that there
was no relevant manufacturers’ CSP information to be obtained from AvKARE suppliers.
Tr. of Oral Arg. at 10:10–11:11, ECF No. 42.
Counsel for the government was not able to specify at oral argument the precise
nature of the manufacturers’ CSP information that the VA is seeking. Id. at 48:6–51:16.
But it is certainly conceivable that the VA may wish to consider, for example,
information about the prices AvKARE’s suppliers charge repackagers or other entities for
pills purchased in bulk that will ultimately be sold to the general public.
In any event, it is premature on the present record to address AvKARE’s
apparent contention that the VA has no use for any CSP information that AvKARE might
be able to secure from its suppliers. The government has confirmed that if relevant
manufacturers’ CSP information was demonstrably unobtainable by AvKARE, through
no fault of its own, then the VA was willing (and, the Court assumes, remains willing) to
employ a different method of price analysis to evaluate AvKARE’s proposal. See Def’s
Opp’n to Pl.’s 2d Mot. to Suppl. the Admin. R. at 4, ECF No. 45.12
But AvKARE made no attempt before the VA to substantiate the position it is
taking before the Court that relevant information about its suppliers’ commercial sales
practices cannot be obtained. Rather, it consistently took the position that it was not
legally obligated to provide any such information at all, even if it did exist, because
AVKARE is not a dealer/reseller and/or because its suppliers’ commercial sales
practices could not possibly be relevant to a determination of whether AvKARE’s prices
were fair and reasonable. See AR Tab 360 at 21679 (asserting that AvKARE need not
provide manufacturers’ CSP information because “we are not a dealer or reseller” and
“[the dealer/reseller] provision is not applicable to our offer”); AR Tab 382 at 21740
(asserting AvKARE’s belief that manufacturers’ CSP information “is neither required (as
AvKARE is the manufacturer of its private label products and has significant commercial
sales of those products) nor relevant”). Thus, the record provides no basis to conclude
that the VA has in bad faith requested information that it knows does not exist as
Indeed, at least one document in the record contemplates just this outcome. See AR
Tab 436 at 22534 (email from the VA’s FSS director stating that “[i]f CSP data is not
received, AvKare must prove that CSP data is not available from their manufacturers,”
and that “[if] CO verified CSP data is not available from manufacturer, then proceed to
reliance solely on price analysis”).
AvKARE’s second motion to supplement the administrative record relates to this
portion of its claim. In it, AvKARE seeks to supplement the AR with a transcript of a
deposition of the GSA’s current director of FSS programs, which was taken in connection
with a parallel proceeding before the Civilian Board of Contract Appeals. See Pl.’s Mem.
in Supp. of its 2d Mot. to Suppl. the Admin. R. (“Pl.’s 2d Mot. to Suppl.”) at 2–4, ECF
No. 44. In the transcript, the director describes the GSA’s policies and practices for
obtaining CSP information and for assessing price reasonableness, and he recalls
discussions he had about those policies and procedures with the VA’s FSS program
director. Id. at 4–9.
According to AvKARE, this testimony shows that the GSA told the VA that CSP
information was “not an absolute necessity” and “could [not] be required when [it] w[as]
not available from downstream suppliers.” Id. at 12. As discussed above, the existing
record reflects that this is the VA’s understanding. See AR Tab 436 at 22534 (email
outlining how to handle AvKARE proposal if “verified CSP data is not available from
AvKARE’s De Facto Debarment Claim
Finally, AvKARE claims that the VA’s refusal to further evaluate its renewal
proposal amounts to a de facto debarment without due process of law. A de facto
debarment occurs when there is “a systematic effort by the procuring agency to reject all
of the bidder’s contract bids.” TLT Const. Corp. v. United States, 50 Fed. Cl. 212, 215–
16 (2001) (quoting Stapp Towing, Inc. v. United States, 34 Fed. Cl. 300, 312 (1995)). To
establish a de facto debarment, a contractor must show that the agency has either stated or
engaged in conduct demonstrating that it will not award the contractor future contracts.
Id. (citing CRC Marine Serv., Inc. v. United States, 41 Fed. Cl. 66, 84 (1998)).
AvKARE’s de facto debarment claim fails for largely the same reasons as its bad
faith treatment claim—namely, that the record reflects no systematic intent to refuse to
award AvKARE future contracts. In fact, just the opposite is true: documents in the
record show that the VA has consistently told AvKARE that it would move forward with
reviewing AvKARE’s proposal if AvKARE supplied the required manufacturers’ CSP
information. In contrapose, AvKARE has consistently maintained that the solicitation
does not require it to provide the information the VA seeks. This disagreement about a
legal issue is at the root of all of the controversies in this case, and its existence (without
more) does not demonstrate any “systematic effort” to deny awards to AvKARE. See
TLT Const. Corp., 50 Fed. Cl. at 215–16. Accordingly, AvKARE’s de facto debarment
claim must fail.
For the reasons discussed above, AvKARE’s motion for judgment on the
administrative record is DENIED and the government’s motion is GRANTED.
Accordingly, AvKARE’s claims related to its RFMs are hereby DISMISSED without
prejudice, and its bid protest claims are hereby DISMISSED with prejudice. AvKARE’s
second motion to supplement the administrative record is also hereby DENIED. The
Clerk is directed to enter judgment accordingly. The parties shall bear their own costs.
[the] manufacturer[s]”). It also reflects that AvKARE has maintained that it is not legally
obligated to provide the VA with manufacturers’ CSP information, even if it does exist
and is obtainable. The deposition testimony thus is not necessary to “permit meaningful
review” in this case. See Axiom Res. Mgmt., Inc. v. United States, 564 F.3d 1374, 1380
(Fed. Cir. 2009). Accordingly, AvKARE’s second motion to supplement the record is
IT IS SO ORDERED.
/s/ Elaine D. Kaplan
ELAINE D. KAPLAN
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