Federal Court of Claims Clarifies Bid Challenge Jurisdiction for OTA Agreements – Publications


September 15, 2022

In a recent dispute, the United States argued that the Federal Claims Court lacks jurisdiction to hear disputes over other transaction authority (OTA) agreements and that it is “conceivable” that no court has the power to review such agreements. However, the Federal Claims Court rejected the government’s sweeping argument in an opinion that clarifies the developing area of ​​law surrounding OTAs and bid challenge jurisdiction.

Other Transaction Authorization Agreements

OTA agreements, once rare, have become an increasingly common way for Department of Defense (“DoD”) agencies to avoid formal procurement procedures and gain access to technological innovations from the commercial world. Not surprisingly, as OTA agreements have become more common, disputes have arisen between contractors and the United States, which can get tricky when it comes to jurisdiction.

The DoD may use OTA agreements “under certain circumstances for prototype projects that are directly related to improving the mission effectiveness of military personnel and supporting platforms, systems, components, or materials proposed for acquisition. or developed by the DoD, or to improve platforms, systems, components, or materials used by the armed forces”.[1]

It is important to note that while agencies are urged to use competitive procedures “where possible” when entering OTAs,[2] these agreements are not subject to the Federal Acquisition Regulations (FAR).[3] Because OTAs exist outside of FARs, there are often fewer restrictions and more flexibility, making it easier for the DoD to source from non-traditional government contractors. This characteristic also makes OTAs more attractive to contractors who have resisted becoming traditional government contractors but have innovative technologies that are attractive to DoD agencies.

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

OTA agreements valued between $100 million and $500 million can only be entered into after a written determination that procedural requirements will be met and that the use of OTA is essential to promote the success of the prototype project. This decision may be made by a senior procurement officer of a federal agency or, where that agency is the Defense Advanced Research Projects Defense Agency or the Missile Defense Agency, solely by the director of that agency. OTA agreements with a value greater than $500 million may only be entered into if the Under Secretary for Research and Engineering or the Under Secretary of Defense for Acquisition and Sustainment determines by writing that procedural requirements will be met, use of the OTA is essential to meet critical national security objectives, and congressional defense committees are notified in writing at least 30 days prior to the exercise of the OTA.

Jurisdiction to challenge OTA offers and agreements

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

The Federal Court of Claims has previously ruled that OTA agreements are not government procurement.[8] For this reason, bid challenge jurisdiction in the Court of Federal Claims will only extend if an OTA is “in connection with a government procurement or proposed procurement”. In 2019, the Federal Claims Court differed on “whether other transactions generally fall outside the court’s bid challenge jurisdiction under the Tucker Act.”[9] Since then, the court has ruled that it may have jurisdiction over an OTA dispute as long as that dispute is “relating to a market or a proposed market”, depending on the facts and circumstances.[10] There have been few cases in the Court of Federal Claims that test the Tucker Act’s jurisdiction over OTAs.

Similarly, the GAO has jurisdiction to hear protests regarding alleged violations of public procurement laws in the award or proposed award of a contract. Because OTAs are not public procurement, the GAO found that it had no jurisdiction to review substantive protests related to awards or solicitations of OTA agreements.[11] The GAO will, however, consider a timely protest that an agency is improperly using its “other transaction” authority with respect to government procurement laws more generally.[12] Under GAO precedent, “[w]here, a protester is aware that the agency has issued a competitive solicitation to enter into an OTA pursuant to its statutory authority, any protests regarding the use of such authority must be filed prior to the time of receipt of initial proposals.

Hydraulics International, Inc. c. United States

On August 8, 2022, this Federal Claims Court exercised jurisdiction over an OTA dispute in Hydraulic.[13]The court found that while OTAs are exempt from certain government procurement laws, Congressional silence on OTA jurisdiction was insufficient to remove OTAs entirely from the scope of the Tucker Act. Although the court declined to find that everything OTA disputes fall within its purview, he resisted the government’s insistence that OTAs are still out of its reach.

In Hydraulicthe Army had awarded an OTA to the Aviation and Missile Technology Consortium to support research efforts to modernize ground power units (AGPUs) of Army military helicopters.[14] The Aviation and Missile Technology Consortium is managed by Advanced Technology International, which manages many of the OTA’s prototype projects.[15] To address the technology needs of these projects, Advanced Technology International has issued a Request for Enhanced White Papers to invite submissions to compete for the award of certain projects supporting the AGPU effort.[16] This request for enhanced white papers authorized a conditional follow-up production contract for more than 150 AGPUs without recourse to competitive procedures. The white papers submitted were reviewed by the military to assess their risks.[17]

The applicant, Hydraulics International, Inc., submitted a white paper proposal but was not shortlisted for the OTA award because the military identified what it considered to be undesirable risks in Hydraulics’ proposal.[18] Hydraulics disagreed with the Army’s assessment and filed suit challenging it as arbitrary, capricious or abuse of power.[19]

The government criticized Hydraulics’ case arguing that because the dispute arose out of an OTA, there was no jurisdiction. The government argued that it was “conceivable” that no court could ever review an agency’s OTA, and that position was consistent with Congressional intent.[20] This position has been critically received and seems to contradict the Guide to other transactions released by the Office of the Undersecretary of Defense for Acquisition and Sustainment in 2018, which recognizes that disputes involving OTAs may potentially be the subject of a bid challenge in the Federal Court of complaints.[21] However, the Federal Court of Claims disagreed. He opined that while OTAs are exempt from some traditional government procurement laws, the term “government procurement” as used by the Tucker Act covers the entire procurement process. In hydraulics, OTA considered a future follow-on production contract that could be awarded without competition.

Although the Court did not deviate from its previous decisions, it notably ruled that where an OTA award is rendered in order to inform a process of determining a future need for acquisition, that OTA award is still considered to be being “in connection with a public contract or a proposed contract.

Take away food

For the growing number of OTA contractors, Hydraulic is a welcome step towards clarifying the risks in the event of a dispute. While this decision does not represent a substantial departure from the previous one, it does put contractors on stronger jurisdictional footing whenever the OTA considers the future award of a subsequent non-competitive production contract. That said, entrepreneurs should critically examine any potential OTA for language designed to prevent judicial review.

Since this decision comes from the Court of Federal Claims, it does not constitute a precedent. There is always the possibility of the pendulum swinging in a different direction in future decisions and there is still time for the entrepreneur to appeal in Hydraulic. Waiting, Hydraulic bolsters the argument that contractors have a forum for at least some of their disputes with the OTA, and likely foreshadows the Federal Claims Court’s desire to deal more consistently with what were once considered particular disputes.

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