In the United States Court of Federal Claims

No. 16-1453C

Filed: November 17, 2017

Reissued: December 12, 20171

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ANALYTICAL GRAPHICS, INC.,

 Protestor,

 v.

UNITED STATES,

 Defendant,

 v.

APPLIED DEFENSE SOLUTIONS, 

INC.,

 Defendant-Intervenor.

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Bid Protest; Cross-Motions for 

Judgment on the Administrative 

Record; Small Business Set-Aside; 

Commercial Availability; 10 U.S.C. 

§ 2377.

Seamus Curley, Stroock & Stroock & Lavan LLP, Washington, D.C., for protestor. 

With him was Daniel J. Cook, DLA Piper LLP, Washington, D.C.

James W. Poirier, Senior Trial Counsel, Commercial Litigation Branch, Civil 

Division, United States Department of Justice, Washington, D.C., for defendant. With him

were Douglas K. Mickle, Assistant Director, Commercial Litigation Branch, Robert E. 

Kirschman, Jr., Director, Commercial Litigation Branch, and Chad A, Readler, Acting

Assistant Attorney General, Civil Division, Department of Justice. Of counsel were 

Christopher Cole, and Jason Templin, United States Air Force.

Edward J. Tolchin, Offit Kurman, P.A., Bethesda, Md., for defendant-intervenor.

 

1 This opinion was issued under seal on November 17, 2017. The parties were given the 

opportunity to propose redactions to the court. No redactions were proposed. The opinion, 

therefore, is unsealed and issued for publication.
2

O P I N I O N

HORN, J.

Analytical Graphics, Inc. (Analytical Graphics) filed a post-award bid protest in this 

court challenging Solicitation No. FA2550-16-R-8008 (the solicitation), issued by the

United States Air Force (Air Force) on behalf of the Joint Interagency Combined Space 

Operations Center (JICSpOC) for its Space Situational Awareness (SSA) data 

requirements, as well as the contract subsequently awarded to defendant-intervenor 

Applied Defense Solutions, Inc. (Applied Defense). Analytical Graphics filed suit in the 

United States Court of Federal Claims after the United States Government Accountability 

Office (GAO) denied protestor’s GAO protest. See generally Analytical Graphics, Inc., B413385, 2016 WL 6212299 (Comp. Gen. Oct. 17, 2016). In this court, Analytical Graphics

asserts that the Air Force acted arbitrarily and capriciously when it issued the solicitation 

as a non-commercial item solution, because Analytical Graphics alleges that a majority 

of the services that the Air Force sought were available commercially, and further argues 

that Air Force acted arbitrarily and capriciously when it issued the solicitation as a setaside for small businesses.

FINDINGS OF FACT

By way of background to understand the protest currently before the court, 

JICSpOC was established by the Department of Defense in October 2015. Even before 

JICSpOC was formally established, the Air Force had begun market research “for a new, 

firm-fixed price subscription service for commercial space observation and analysis 

capabilities.” The Air Force sought a “solution to include hardware, software, training, and 

a commercial subscription service to include Space Situational Awareness Suite and 

Battle Management Command and Control software licenses.” The parties have jointly 

stipulated that “the Air Force took a two-phase approach to determining and obtaining 

commercial capabilities that could contribute to the JICSpOC mission: (1) to test products 

found in the marketplace, and (2) to contract for operating capabilities.” On August 24, 

2015, the contracting officer issued a market research report (the JICSpOC market 

research report), recommending a sole source award to Analytical Graphics.2 The 

JICSpOC market research report indicated that:

Limited market research was conducted. Given the national security 

implications of the requirement, the use of various market research tools is 

necessarily constrained. For example, it is not practicable to engage 

industry with synopses for sources sought, draft request for proposals, 

capability statements/analysis, and other standard market research tools 

used for full and open competitions.

Regarding Analytical Graphics, the JICSpOC market research report stated:

 

2 The parties have stipulated that “[t]he market research report leading to the AGI 

[Analytical Graphics] contract stated that the procurement was classified under NAICS 

Code 511210, Software Publishers.” 
3

AGI’s ComSpOC [Commercial Space Operations Center] is cutting edge in 

the industry. Research confirms potential sources are time away from 

providing the tools AGI has developed commercially for application-level 

mission needs. The Government has determined that no other commercial 

sources currently produce or offer comparable capabilities in terms of the 

space situational awareness that AGI publicly offers for sale. 

Commercial item: FAR 2.101 defines commercial item, other than real 

property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and-

- (i) Has been sold, leased, or licensed to the general public; or, (ii) Has 

been offered for sale, lease, or license to the general public. ComSpOC is 

available on the Analytical Graphics, Inc website (agi.com) for sale to the 

general public. This subscription service new and emerging technology with 

limited commercial sales; however, ComSpOC has been bought by the 

commercial company, Boeing Inc, to launch two commercial satellites. The 

backbone of ComSpOC is based on commercial software known as Space 

Situation Awareness (SSA). SSA is available and sold to the general public 

via the internet and GSA schedule. Therefore, FAR Part 12, Acquisition of 

Commercial Items, applies to the acquisition and has been determined by 

the contracting officer to be a commercial item. 

The JICSpOC market research report also explained the difference between a 

license and subscription service, indicating: 

License versus Subscription Service: Market research indicates this is a 

commercial software subscription and not a software license or agreement. 

In a license, the government gets rights to copy and use a software 

application, while in a subscription service; the government gets a 

subscription to use the software via the internet. The confusion stems from 

the central role of “software” in software as a service. Bottom line, what the 

government will do with the software. If the government puts a copy of a 

software application on a computer--downloads it, installs it from a disk, 

etc.--the contract calls for a license. Copyright law gives the software’s 

owner a monopoly over the right to copy it (to “reproduce” it), so the 

government needs a copyright license to make a copy and put it on a 

computer. In a subscription service, the government does not put software 

on a computer, or copy it at all. The software sits on the contractor’s 

computer and the government merely accesses it via the Internet. With no 

copies, copyright plays no role in the transaction, so the government does 

not need a copyright license. During the term of the contract, the contractor 

shall provide the application to government via the internet. 

Finally, the JICSpOC market research report stated that “AGI provided a capability brief 

to the government customer. The customer has determined AGI is capable of providing 
4

this capability. At this time, there are no known commercial items with the capabilities 

similar to ComSpOC.”

In addition to the JICSpOC market research report, the contracting officer also 

issued a streamlined acquisition strategy summary (the JICSpOC streamlined acquisition 

strategy summary), again recommending a sole source award to Analytical Graphics. 

The JICSpOC streamlined acquisition strategy summary noted that “[t]he Government 

will acquire AGI’s commercial products and capabilities collectively known as Commercial 

Space Operations Center (ComSpOC). The period of performance is 10 months from 

contract award.” (emphasis in original). The JICSpOC streamlined acquisition strategy 

summary also indicated that:

A search of General Service Administration, Space Symposium, and 

technical publications revealed no commercial product with similar 

capabilities other than AGI. In Space News, Lockheed Martin Space 

Systems, working with Australia's Electra Optic Systems, announced 

August 2014, it is planning a new space object-tracking site in western 

Australia and hopes to sell the data commercially and to the Government in 

the future. No commercial products are currently available for sale other 

than ComSpOC. 

AGI has provided a capability brief to the Government customer. At this 

time, there are no other known commercial items with the capabilities similar 

to ComSpOC.

Similar to the JICSpOC market research report, the JICSpOC streamlined acquisition 

strategy summary provided a rationale for proceeding under “FAR 12: Acquisition of a 

Commercial Item:”

Commercial Item: FAR 2.101 defines commercial item, other than real 

property, that is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and-

- (i) Has been sold, leased, or licensed to the general public; or, (ii) Has 

been offered for sale, lease, or license to the general public. ComSpOC is 

available on the Analytical Graphics, Inc. website (agi.com) for sale to the 

general public. In addition, this subscription service has been bought by 

commercial companies such as Boeing Inc to launch two commercial 

satellites. The backbone of ComSpOC is based on a commercial software 

known as Space Situation Awareness (SSA). SSA is available and sold to 

the general public via the internet and GSA schedule. Therefore, FAR Part 

12, Acquisition of Commercial Items, applies to the acquisition and has 

been determined by the contracting officer to be a commercial item. 

This is a sole source requirement; therefore, FAR Part 15 applies. When 

contracting in a sole source environment, the request for proposal will be 

tailored to remove unnecessary information and requirements. 
5

After the JICSpOC market research report and JICSpOC streamlined acquisition strategy 

summary, the contracting officer issued Solicitation Number FA2550-15-R-8002 to 

Analytical Graphics. The solicitation included CLIN 0001, which stated: “ComSpOC 

Subscription Service and Technical Support, including the AGI SSA and BMC2 SW 

Prototype/Risk Evaluation License IAW Statement of Objectives, 1 Sep 15,” and CLIN

0002,3 which stated: 

Onsite Data Processing Solution to include Hardware, Operating 

System/Software and Installation. Provide all necessary hardware for onsite data processing as well as all remote access log-in capabilities 

necessary to view and obtain ComSpOC subscription services and data 

from the contractor’s processing center. Install and support initial system 

software configuration. Install and support the complete (target) system 

hardware configuration.

On September 29, 2015, the Air Force awarded Analytical Graphics, Contract No. 

FA2550-15-C-8008, a sole-source, fixed price contract (the JICSpOC contract). The 

period of performance was September 29, 2015 to July 30, 2016.4 The value of the 

JICSpOC contract was $8,426,064.00.5 The parties have stipulated that “[d]uring contract 

negotiations, the Contracting Officer negotiated a data rights addendum with AGI which 

was made part of the contract.” The JICSpOC data rights addendum stated, in its entirety:

DFARS 252.227-7015-Technical Data Commercial Items

DATA RIGHTS ADDENDUM

AGI grants AFSPC a limited, non-exclusive, non-transferable, nonsublicenseable right to access and use the features and functions of the 

ComSpOC Subscription Service for the Period of Performance, in 

accordance with the ComSpOC Corporation's Spacebook Subscription 

Service Agreement. ComSpOC Corporation is a wholly-owned subsidiary 

of AGI. 

AGI shall provide to AFSPC a Prototype/Risk Reduction License to AGI’s 

SSA Software Suite for the Period of Performance in accordance with AGI’s 

SSA Software License Agreement. 

 

3 The remaining CLINs refer to training and a “Commercial Communications Leased 

Line.” 

4 The Air Force declined to exercise its option to extend the JICSpOC contract, allowing 

the JICSpOC contract to expire on July 31, 2016. 

5 The JICSpOC contract was broken out by CLINs. The fixed price for CLIN 0001 was 

$8,071,580.00, the fixed price for CLIN 0002 was $229,586.00, the fixed price for CLIN 

0003 was $38,636.00, the fixed price for CLIN 0004 was $38,636.00, and the fixed price 

for CLIN 0005 was $47,626.00.
6

AGI shall provide to AFSPC a Prototype/Risk Reduction License to AGl’s 

BMC2 Software Suite for the Period of Performance in accordance with 

AGl's BMC2 Software License Agreement. 

The ComSpOC Subscription Service shall only be used for the purpose of 

the JICSpOC activities. Usage is limited to those “JICSpOC activity users.” 

These users are defined as those JICSpOC, AFSPC HQ, and SMC 

personnel engaged in JICSpOC activities.

Furthermore, usage and distribution of any data resulting from the 

ComSpOC Subscription Service is limited as follows: 

• ComSpOC raw data and products, including ComSpOC output products, 

may be used to directly support JICSpOC activities. These raw data and 

products will not be used for R&D purposes by other capability providers 

and developers, nor will they be used to reverse engineer and improve the 

tools of other participating capability providers and developers.

• Live data included in ComSpOC output products will not be transferred 

outside of the JICSpOC facility. However, historical data included in 

ComSpOC output products may be distributed outside the JICSpOC facility 

to be used solely as part of JICSpOC activities. 

ComSpOC output products included as part of a JICSpOC operational 

report may be made available to all DoD personnel. ComSpOC output 

products not included as part of a JICSpOC operational report shall be 

limited in availability to JICSpOC, AFSPC HQ, and SMC personnel. Such 

availability to personnel beyond these Identified organizations shall require 

AGI’s prior consent. 

Commercial items are subject to the policies in other parts of the FAR. FAR 

Part 12 shall take precedence for the acquisition of commercial items. This 

addendum shall take precedence over the attached service and license 

agreements. 

(capitalization in original).

Approximately one month after the JICSpOC contract was awarded to Analytical 

Graphics, the contracting officer began market research for the contract at issue in the 

above captioned protest, which was ultimately awarded to Applied Defense on October 

21, 2016. The contracting officer first issued a Request for Information (RFI) on November 

4, 2015, “to conduct market research, a continuous process for collecting and analyzing 

information about capabilities within the market to satisfy agency needs.” The November

4, 2015 RFI continued, “the US Air Force needs processed, commercial Space Situational 

Awareness (SSA) data for operational use. SSA data must originate from non-DoD 

sensors and be validated on commercial systems outside of the Department of Defense 

(DoD) network.” The parties have stipulated that the list of capabilities in the RFI was 
7

similar to the “Application Technical Specifications”6in the JICSpOC contract and further 

stipulated that “[a]t the time this RFI was issued, the contracting officer anticipated that 

the application ultimately procured for operations would probably be a commercial item.” 

 

6 The RFI sought information about the ability of offerors to provide the following 

applications:

 Include a mix of optical, radar and passive radio frequency (RF) systems 

capable of providing astrometric, radiometric, and/or photometric data. 

 Provide high definition ephemeris data on space objects to include 

position, status, accuracy/confidence, covariance, and historical 

trending data. 

 Provide specific meta-data on the source of the observations such as 

latitude, longitude, and altitude; time of collection, owner/operator, 

and/or country of origin. 

 Provide sensor status, such as Non-Mission Capable, Fully Mission 

Capable, or Partially Mission Capable. 

 Provide realistic SSA sensor collection opportunities considering 

feasibility and timing for metric and non-metric data needed to support 

SSA courses of actions. 

 Be capable of processing metric observations from sensors from any 

commercial or US Government, civil, and/or international entity in any 

format. 

 Be capable of identifying, when technically possible, possible, associate, 

characterize, monitor and track observable space objects whose orbits 

are not in the Geosynchronous Earth Orbit (GEO) belt, including, but not 

limited to, objects in Low Earth Orbit (LEO), Medium Earth Orbit (MEO), 

and Highly Elliptical Orbit (HEO).

 Provide a threat analysis for specified high interest US satellites, 

depicting time and distance, as well as required time for a specified 

threat to maneuver into a threatening position. 

 Provide a threat analysis to current and planned operations of spacebased mission capabilities supporting Intelligence, Surveillance and 

Reconnaissance (ISR), Communications, Position, Navigation and 

Timing (PNT), Missile Warning, and Weather. 

 Provide predicted and real time characterization of all launch and early 

orbit operations, to include direct ascent Anti-satellite (ASAT) threats, by 
8

Fifteen potential offerors responded to the November 4, 2015 RFI, including 

Analytical Graphics, Applied Defense and ExoAnalytic Solutions, Inc. (Exo). 

Subsequently, on March 29, 2016, the contracting officer issued the first amended RFI,7

which included a revised statement of the needs, indicating: “The US Air Force needs 

commercial SSA data for operational use. SSA data must originate from non-DoD 

sensors and be real-time. See attached for minimum salient characteristics.” The parties 

have stipulated:

In the amended RFI, The Air Force sought information about collections of 

data, software and personal services that could meet certain minimum 

requirements. The Air Force included a list of ten “Salient Characteristics” 

that the Air Force considered to be “minimum requirements” for the SSA 

system: 

SALIENT CHARACTERISTICS: The collection of non-governmental SSA 

data, processing tools, personnel, and contracted support will be referred 

to as the Commercial SSA System. 

• Provide metric, non-metric, and Space Object Identification (SOI) 

observations from data collected from a minimum of 10 worldwide sensors 

outside the control of the USG, at least half of which must not be terrestrial 

sensors in North America (e.g. sensors in Europe, on orbit). 

• Document whether sensors can be utilized on an on-demand basis or if 

their use must be pre-planned and list the additional costs for on-demand 

service, if applicable. 

• Provide the format and source of the data. 

• Ingest authorized DoD data (raw or processed observations) into any 

contractor event processing or analysis capability. 

 

determining orbital trajectories, projected conjunctions with projected 

launch vehicle path, etc. 

 Support the ability to assess feasible courses of action, for deliberate 

and/or crisis action planning, to maximize safety of flight, continued 

operations, and response options of space assets and missions to 

support warfighter needs and commander’s intents.

7 The contracting officer subsequently issued a second amended RFI, on April 1, 2016, 

to publicly answer four questions submitted by potential offerors, as well as a third 

amended RFI, issued on April 5, 2016, to extend the deadline for submissions by five 

hours. Subsequently, the contracting officer issued a fourth amended RFI, dated May 11, 

2016, which is discussed further below.
9

• Ensure they export their data, one-way, to DoD networks of equal or higher 

classification for additional processing. 

• Provide for threat warning assessment by detecting and notifying 

JICSpOC personnel of a space object entering or projected to enter a userdefinable area around specific resident space objects (RSO) within 15 

minutes of entering. NOTE: 15 minutes is the unclassified value. 

• Process and correlate feature-type data (Visual Magnitude (Vmag), Radar 

Cross Section (RCS) changes, RF spectrum, etc.). 

• Ability to detect hostile and non-hostile maneuvers and analyze the 

change of behavior, to include the revised orbit, within 2 minutes of 

maneuver detection. 

• Augment DoD persistent monitory capabilities by maintaining custody of 

designated objects (e.g. Super High Interest Objects) to the maximum 

degree possible. 

• Provide telemetry data on the orbits of all detectable objects. 

(capitalization in original). On April 6, 2016, fifteen potential offerors again responded to 

the first amended RFI, including Analytical Graphics, Applied Defense, and Exo. 

Analytical Graphics, Applied Defense, and Exo. Analytical Graphics stated that it could 

meet the Air Force’s minimum salient characteristics and explained that “[t]he 

Government’s requested product (the Commercial SSA System) requires a private 

implementation of AGI’s Commercial Space Operations Center (ComSpOC) consisting 

of four AGI products, all of which are available commercially.” In response to the RFI 

question: “Describe how your product meets the definition of commercial item in FAR 

2.101,” Analytical Graphics explained:

AGI’s product meets the definition of commercial item in FAR 2.101 as 

follows: 

1. The product is of a type customarily used by the general public or by nongovernmental entities for purposes other than governmental purposes, and 

a. Has been sold, leased, or licensed to the general public; or, 

b. Has been offered for sale, lease, or license to the general public; 

2. The product evolved from an item described in (1) of this definition 

through advances in technology or performance and that is not yet available 

in the commercial marketplace, but will be available in the commercial 

marketplace in time to satisfy the delivery requirements under a 

Government solicitation. 

3. The product related services are of a type offered and sold competitively 

in substantial quantities in the commercial marketplace based on 
10

established catalog or market prices for specific tasks performed or specific 

outcomes to be achieved and under standard commercial terms and 

conditions. 

Analytical Graphics also suggested that:

Since the Government is procuring a commercial item, AGI recommends 

that source selection evaluation be done under FAR Part 12 (12.6, 

Streamlined evaluation of offers), which will enable the Government to 

select a commercial solution provider who not only meets but exceeds the 

majority of the salient characteristics, with recent and relevant past 

performance, and with a price that can be justified based on these 

contributing inputs.

The parties have stipulated that Applied Defense, in contrast to Analytical 

Graphics, indicated in its response that “it would lead a consortium of organizations long 

involved in SSA to provide a Commercial SSA System,” and that “the consortium could 

meet the minimum salient characteristics set forth in the amended RFI.” In response to 

the RFI question: “Describe how your product meets the definition of commercial item in 

FAR 2.101,” Applied Defense responded:

The definition of the product in the Salient Characteristics is not available in 

the general public and as such would not meet these criteria. Due to the 

nature of the published requirements, it is our assessment that any existing 

product which meets all of those requirements would only do so with 

significant security concerns. This is a topic which could be addressed 

further at Industry Day and subsequent direct interactions. With that said 

we do believe commercially sourcing of data, processing, and services is 

very achievable and that non-US Government sourced products and 

services can mature quickly in an open marketplace if security and policy 

restrictions are eased.

Regarding the procurement generally, Applied Defense indicated that:

It is our strong belief that No Single Bundle of Commercial Products or 

Services will meet the USG needs. The requirements for SSA and the 

mission needs are such that a multiple award IDIQ type strategy is the only 

workable strategy. Sensor types satisfying the operational needs are so 

diverse, covering not only global geography but spanning all orbit regimes 

for small or large, bright or faint, and emitting or quiet, that new sensor 

phenomenology can only be brought online in a multiple award, nonmonopoly marketplace. If the USG were to select only one provider of 

sensors and processing they would artificially restrain competition, 

innovation, and bring great long term risk to US commercial and sovereign 
11

interests. A very real fear is that the marketplace would be dominated by a 

monopoly or duopoly, much like the launch industry had been dominated by 

two providers, to the detriment of the interests of the US Government and 

US industry competitiveness worldwide. The US Government should be 

concerned that they may evolve the SSA arena into a commercial market 

dominated by a monopoly. 

In its response to the first amended RFI, Exo indicated that it could meet the 

government’s minimum salient characteristics. In response to the RFI question: “Describe 

how your product meets the definition of commercial item in FAR 2.101,” Exo stated, in 

part, “ExoAnalytic’s commercial data and software packages meet the FAR 2.101 

definition of commercial items as they have been sold and/or offered for sale to the 

general public, and are used for purposes other than governmental purposes.” Both 

Applied Defense and Exo indicated in their April 6, 2016 responses that they were small 

businesses “according to the criteria of the relevant NAIC code.” Analytical Graphics 

indicated that it was not a small business. 

The parties have stipulated that, after the submissions to the first amended RFI,

“[t]he Air Force determined that the responses of AGI and ADS [Applied Defense] 

indicated that AGI and ADS could satisfy all 10 of the minimum salient characteristics, 

and that the response of Exo indicated that Exo could satisfy 9 of the minimum salient 

characteristics.” 

After receiving the responses to the first amended RFI, the Air Force held a 

classified industry day on April 15, 2016, inviting eight potential offerors to the event, 

including Applied Defense, Exo, and Analytical Graphics.

8 Regarding protestor’s 

participation at the industry day, the parties have stipulated that:

During the Industry Day, AGI had a one-on-one meeting with the Air Force 

during which the Agency confirmed that AGI solutions satisfied the 

requirements. AGI was asked whether it was willing to negotiate greater 

data rights to satisfy unique Government needs. AGI responded 

affirmatively. An Industry Day One-on-One summary document later 

memorialized this exchange, explaining that “AGI stated they have no 

problem with giving the USG [United States Government] full data rights 

and ‘it makes sense.’” 

(internal references omitted).

 

8 The court notes that the parties have stipulated that “[t]he portion of the market research 

conducted during industry day was not conducted directly by the contracting officer -- who 

lacked both technical expertise and the necessary security clearance.” The parties agree 

that the agency relied upon the agency’s technical expert, Lieutenant Colonel Anthony 

Calabrese. 
12

Subsequent to the industry day, the Air Force generated a draft Performance Work 

Statement. The contracting officer, in a limited deposition taken after the protest was filed 

in this court, stated that, in her opinion, there were multiple factors that could not be met 

by a commercial item.9 She stated:

I determined it to be a noncommercial requirement although some of it could 

be met with commercial items, I did not feel that the entire solution could be 

network commercial items, due to several factors, which included services, 

the data -- services, data rights, the DOD publications and regulations and 

the type of contract that I was planning to utilize. The combination of those 

led me to believe it was noncommercial.

Regarding data rights, at the deposition, protestor’s counsel asked the contracting officer, 

“you just testified that because you had a small business set aside, you didn't approach 

AGI to negotiate [the data rights]?” The contracting officer answered:

I already had. There was no reason to have to negotiate. AGI had said in 

their market research that they were willing to negotiate. So at that time I 

have to take the fact that AGI stated several times you were willing to 

negotiate rights. However, at the same time, I was making a decision on the 

small business set aside, so based on the fact -- I was making a 

noncommercial decisions [sic] and yours was a commercial solution, and I 

had two small businesses capable, there was no reason to have to -- you 

wouldn't negotiate rights unless you had a proposal and you were going into 

discussions.

After generating the draft Performance Work Statement, the contracting officer 

issued a fourth amended RFI, dated May 11, 2016, which included the draft Performance 

Work Statement, asked potential offerors to comment on the draft Performance Work 

Statement and indicated in the section identified as “Scope:” “This is a non-personal 

services contract to provide nongovernmental space situational awareness (SSA) 

software and services. Nongovernmental SSA solutions are required to augment the 

Government’s ability to detect and characterize space threats and improve integration 

between DoD, intelligence community, interagency, and nongovernmental space 

assets.”10 In addition, the fourth amended RFI stated that the Air Force was considering 

 

9 On November 22, 2016, the court issued an Order, which stated, in part, “for the reasons 

explained at the hearing, the protestor is permitted to take a deposition of the Contracting 

Officer.” The protestor requested the deposition, over the defendant’s and intervenor’s 

objections, which the court granted, noting that although “depositions are unusual in 

protests,” there were questions about what the contracting officer considered in making 

her decision, and how she handled the data rights issue. 

10 The parties have stipulated that “[t]he Contracting Officer testified that, prior to the 

issuance of the fourth amended RFI, the Contracting Officer began to doubt that the 

requirement could be satisfied in full with a commercial item.” 
13

issuing the procurement as a small business set-aside. The fourth amended RFI asked 

the potential offerors to address a series of questions, including, “[t]he Government is 

considering NAICS code 511210, Software Publisher. Do you believe this is an 

appropriate NAICS code? If not, please provide the NAICS code you consider to be most 

appropriate and why,” and “[d]o you have a Top Secret facility clearance?” 

Applied Defense responded to the fourth amended RFI on May 20, 2016. The 

parties stipulated that “ADS asserted that it would be eligible for a small business setaside, but further asserted that the appropriate NAICS code category was ‘Engineering 

Services.’” Exo likewise responded to the fourth amended RFI, and like Applied Defense 

indicated it would be eligible for a small business set-aside, but unlike Applied Defense, 

Exo stated: “ExoAnalytic is a small business under NAICS code 511210, and considers 

this NAICS code appropriate for the subject acquisition.” 

Analytical Graphics responded to the fourth amended RFI on May 23, 2016, and 

suggested that its commercial solution, consisting of the ComSpOC SSA Subscription 

Service, SSA Software Suite, and BMC2 Software, all commercial items, met the 

requirements of the draft Performance Work Statement. Regarding the issue of a small 

business set-aside, Analytical Graphics indicated that 

Although AGI understands the need of the Government to consider small 

business, AGI recommends that the Government purchase AGI's 

Commercial SSA System as a commercial item under FAR Part 12 

(Commercial Item Acquisition). The reasons for this are: 1) the 

Government's requirements (from the FBO Announcements, Salient 

Characteristics, and PWS) indicate that the Government wants a 

Commercial SSA System; 2) 41 USC 3307 and FAR Part 12 requires that 

commercial items be purchased when commercial items are available; and 

3) a commercial item exists and has uniquely demonstrated that it exceeds 

the salient characteristics and provides the best value to the Government 

with the lowest risk during the JICSpOC exercises, as well as on other 

Government and Commercial contracts. 

Given that AGI does not qualify as a small business under any relevant 

NAICS code, AGI recommends that the Government not pursue a small 

business set-aside because it would preclude the Government from 

procuring the best available commercial solution, one that has uniquely 

demonstrated it satisfies the requirements and provides the best value at 

the lowest risk. Additionally, FAR Part 12 policy (12.102 (c)) states that FAR 

Part 12 shall take precedence over other FAR parts (including FAR Part 19 

– Small Business Programs), when a policy in another part of the FAR is 

inconsistent with FAR Part 12. Furthermore, based upon market research 

and experience, AGI believes there are no small businesses with existing 

commercial items that can meet the Government's requirements. As a 

result, it is not reasonable to expect that the Government will obtain offers 

from at least two responsible small businesses, as required by FAR Part 
14

19.502-2 (b)1 [sic], which mandates that the Government has to have a 

reasonable expectation that offers will be obtained from at least two 

responsible small business concerns and that award will be made at fair 

market prices. 

Additionally, there is no reason to limit competition to small business due to 

security concerns. AGI has uniquely demonstrated under AFSPC Contract 

No. FA2550-15-C-8006 that it has satisfied all of the security requirements 

at the JICSpOC and can meet the security requirements in the PWS. 

Finally, if commercial acquisition is used, there is still significant opportunity 

for small business participation. AGI has a commercial products 

subcontracting plan in place under its GSA contract (per FAR 19.704(d)), 

the preferred type of plan for contractors furnishing commercial items. This 

plan has goals for small business participation that are in accordance with 

the Small Business Program. For GFYE 2015, small business participation 

under AGI’s commercial products subcontracting plan totaled 44%. For this 

procurement of AGI's Commercial SSA System, AGI expects 22% will be 

provided by small business.

(emphasis in original; footnote omitted). 

On May 31, 2016, the contracting officer recommended a small business set-aside, 

and on June 1, 2016, the agency’s small business specialist concurred with the 

recommendation of a small business set-aside. The same day, June 1, 2016, the 

contracting officer wrote a Memorandum for Record with the subject: “Noncommerciality 

for Services and Government Purpose Rights.” The memorandum began:

The Government’s requirement is for the contractor to provide government 

purpose rights for the raw data identified in the performance work statement 

to specified locations at Schriever AFB, Peterson AFB, Vandenberg AFB, 

and other locations directed by the Government. Product data shall be 

available with government purpose rights and shall be distributed to 

operations centers at: Offutt AFB, Vandenberg AFB, Chantilly, five specified 

intelligence locations; and other locations as deemed necessary by the 

Government. Such data may be shared for government use only, with other 

contractors.

The Government’s rights typically would be limited to standard commercial 

uses as a “commercial item.” AGI’s license agreements included the 

following statement: You may NOT allow the processed data to be viewed 

outside the organization or program for which the software is licensed 

without the prior written consent of the vendor. The Government must have 

government purpose rights to allow the Government to make strategic, 

tactical, and course-of-action decisions real-time. The Government will not 

be able to obtain written permission prior to providing raw data, processed 
15

data, or end products to another government agency or a contractor 

supporting a government requirement. The contracting officer assessed the 

data rights required were substantially different than standard commercial 

use. 

(capitalization in original). Two days later, on June 3, 2016, the contracting officer wrote 

a Memorandum for Records with the subject: “Pricing for Analytical Graphics and 

ExoAnalytical [sic] Solutions.” The memorandum stated:

The majority of respondents did not provide a price list for their products 

during market research. ExoAnalytical's [sic] price list was utilized to 

develop the Government's independent cost estimate and historical data 

from other contracts.

Analytical Graphics’ prices were high compared to the Government's IGE. 

Based on the contracting officer's understanding of the requirement, an 

estimate was developed. The estimate utilizing AGI's price list was twice 

the estimate of the Government's IGE [Independent Government Estimate]. 

See attached spreadsheet for details.

The parties have stipulated that “[t]he Contracting Officer testified that, at the time she 

prepared this memorandum, she doubted whether a commercial item could satisfy the 

Government requirement, but no formal decision had been made.” 

As noted in the parties’ joint stipulations of fact, “[b]etween June 7, 2016 and June 

15, 2016, various Air Force officials signed the justification and authorization document 

to approve limiting competition to ADS and Exo, pursuant to the authority of 10 U.S.C. [§] 

2304(c)(6) and 48 C.F.R. [§] 6.302-6.” (internal references omitted). The parties have 

stipulated that:

The J&A [justification and authorization] document assumed the possible 

award of “one or more negotiated, non-commercial, hybrid-type contracts 

space situational awareness (SSA) capabilities to be deployed at the Joint 

Interagency Combined Space Operations Center (JICSpOC).” The J&A 

document also assumed “the CO determined the acquisition is suited for a

total small business set aside,” and noted that an “extensive market 

research report is in draft to support the conclusion that two small 

businesses are capable of fulfilling the government’s requirement.” 

(internal references omitted). The justification and authorization document explained:

(U)[

11] For this acquisition, the government: 1) publicly sought sources for 

the opportunity to fulfill its requirements, 2) disclosed the salient features of 

the products/services sought, 3) transparently communicated the security 

 

11 The court in uncertain why each new paragraph begins with “(U).”
16

requirements associated with the acquisition, 4) evaluated thoroughly 

capability statements from all respondents, 5) provided an exchange of 

information opportunity at an Industry Day event, and 6) re-publicized the 

opportunity for industry consideration following the Industry Day event. 

(U) As a result of government exchanges with industry as listed above, the 

government identified eight firms that demonstrated a rudimentary 

understanding of the government’s requirements and possessed sufficient 

security clearances to participate in the government’s Industry Day event. 

(U) In reviewing the results of informational exchanges and vendor 

presentations from the Industry Day, the Contracting Officer (CO) and the 

Program Manager (PM) jointly determined that three of the firms 

participating in Industry Day were small business concerns that could 

potentially provide the products/services as prime contractors. 

(U) In follow-on discussions with the three small business concerns, two of 

the firms expressed strong interest in submitting proposals as prime 

contractors. The PM assesses two of the interested small businesses as 

having capability to provide the required products and services for this 

requirement as prime contractors. Therefore the CO determined the 

acquisition is suited for a total small business set-aside as prescribed at 

FAR 19.502-2(a); that is, within the context of the national security 

constraints imposed on this acquisition. 

(U) The CO finds a reasonable expectation exists for receiving proposals 

from two responsible small business concerns, and that award can be made 

at fair market prices. For this acquisition, the two small businesses that have 

emerged from the Requests for Information (RFI) and Industry Day 

processes appear to be uniquely qualified at this time in terms of security 

qualifications and possessing the capabilities required, or ability to obtain 

them, to facilitate the objectives contemplated in the Performance Work 

Statement (PWS). The two small businesses are ExoAnalytics [sic] and 

Applied Defense Solutions (ADS). 

(U) Both ExoAnalytics [sic] and ADS were determined by the PM to have 

responded affirmatively to the questions posed by the government in the 

RFI and Industry Day exchanges. Both firms have demonstrated extensive 

experience with space observation technologies. Both have ongoing 

contractual relationships with the government and have developed, or 

helped to develop, capabilities currently in use in both the Defense and 

Intelligence communities. Both firms are postured to team as needed with 

an extensive network of commercial and non-government sources to 

facilitate delivery of the required products/services. Both firms have 

requisite facility and personnel security clearance posture to begin 

delivery/performance immediately upon contract award. Given these 
17

factors, ExoAnalytics [sic] and ADS are reasonably assessed to have 

unique qualifications to provide/perform the SSA work contemplated in the 

PWS. Thus through [sic] these elements of market research, the CO and 

PM conclude that ExoAnalytics [sic] and ADS are presently the only two 

small businesses with demonstrated capabilities necessary to deliver the 

non-government, non-developmental SSA requirements for the JICSpOC, 

as put forth in the government’s PWS.

As related to market research, the justification and authorization document stated:

(U) Market research was conducted, including two RFls posted to the GPE

[Government Point of Entry] and an industry day conducted between the 

first and second RFI. The initial RFI provided potential offerors with 

notification of security requirements and a list of salient characteristics 

offeror products and services would need to demonstrate to receive 

consideration for an industry day invitation. Responses from the initial RFI 

were assessed to gauge potential technical capabilities as well as security 

clearance requirements. Firms that did not demonstrate a rudimentary 

understanding of the requirements and those without appropriate clearance 

levels were not invited to attend industry day. For the industry day, the 

Program Manager (PM) determined disclosure of classified information to 

those invited was necessary to sufficiently explain the government's 

requirements and allow for a meaningful exchange of information. This led 

to the conclusion that eight responding firms possessed requisite security 

clearance requirements and demonstrated a rudimentary capability to 

potentially participate in the acquisition.

(U) Following industry day presentations, the PM and CO jointly determined 

three small business concerns were potential candidates for prime contract 

award. The three small businesses were contacted to discuss prime 

contract interest. Two of the small business firms (ExoAnalytics [sic] and 

ADS) expressed strong desire to participate as a prime contractor for the 

requirements. The third firm (Rincon) affirmed their desire to participate, but 

only in terms of subcontracting opportunities.

(U) An extensive market research report is in draft to support the conclusion 

that two small businesses are capable of fulfilling the government's 

requirement.

Regarding the cost, the justification and authorization document stated:

(U) Determination by the Contracting Officer that the anticipated cost

to the Government will be fair and reasonable.

(U) The Contracting Officer (CO) anticipates that cost to the Government 

may be determined to be fair and reasonable on the basis of price and/or 
18

cost analysis and by using certified cost or pricing data to analyze elements 

of cost. Given the government with solicit for the award of one or more 

contracts for the work, the CO further anticipates that proposed costs to the 

government will be driven by competitive forces. 

(emphasis in original).

On June 21, 2016, the Air Force produced a Market Research Report which 

contained the evaluation of the each of the offerors that had responded to the first

amended RFI.12 Of the seventeen offerors who had responded to the Air Force, only two, 

Applied Defense and Analytical Graphics, meet all ten of the ten “Salient Characteristics” 

identified by the Air Force. Notably, Exo met nine of the ten “Salient Characteristics,” 

failing to meet the characteristic: “Process and correlate feature-type data (Visual 

Magnitude (Vmag), Radar Cross Section (RCS) changes, RF spectrum, etc.” 

The Market Research Report contained a section titled “Commercial 

Opportunities,” which stated in full: 

The RFI originally sought to obtain SSA data from a commercial solution. 

However, it became apparent after market research that the data and 

services required could only be met through noncommercial sources 

because of the following factors: limited commercial data solutions are 

available, the required services to be performed are not found in the 

commercial marketplace, the Government requires unique hardware 

requirements and the Government’s desire to obtain complete technical 

rights. Also, the commercial data solutions that are available focus on safety 

of flight and do not meet all of the requirements for SSA as listed in the 

PWS. Additionally, some vendor’s responses stated their solution was a 

commercial product; however, most vendors were unable to provide a 

commercial price list or commercial customers for the software. Lastly, upon 

review of the PWS, the DoD and AF regulations governing the execution of 

the requirement, the Government’s desire to obtain data rights, and the 

integration of the product data into national security operations makes this 

requirement noncommercial. It is hereby determined that the requirement is 

not offered to the general public in the commercial marketplace and is not 

a commercial service as described in FAR Part 12.

For the section titled: “Government’s Presence/Leverage in the Market,” the Market 

Research Report indicated:

Although market research determined limited commercial data solutions are 

available; the required services to be performed, unique hardware 

requirements, the integration of product data into national security 

 

12 The parties’ joint stipulations of fact indicate that the Market Research Report was 

written “by the contracting officer and program manager.”
19

operations and the Government’s desire to obtain complete technical rights 

of the data are not commonly or readily available in the commercial 

marketplace. Additionally, the commercial data solutions that are available 

focus on safety of flight and do not meet all the requirements for Space 

Situational Awareness as listed in the PWS.

Regarding the small business possibility, the Market Research Report indicated that 

“[t]hree of the eight respondents deemed capable through market research as outlined in 

section E are small businesses. Two respondents (ADS and ExoAnalytics [sic]) stated

they could perform 50% or more of the work [as the prime contractor].” 

Concurrent to the justification and authorization document and the Market 

Research Report, the Air Force developed an acquisition plan, and as stipulated to by the 

parties: “The acquisition plan was signed on various dates between June 30, 2016 and 

July 12, 2016. The commercial item determination from the market research report is 

repeated in the acquisition plan.”13 (internal citations omitted). The acquisition plan, in a 

section titled “Product or Service Descriptions,” stated:

The majority of this acquisition is commodity based. Approximately 71% of 

the estimated contract value is commodity and 29% of the estimated 

contract value is embedded non-personal services. The PWS is written IAW 

FAR part 37.6 to minimize non-performance aspects. There are, however, 

several DOD and AF directives that preclude a completely performancebased contract. Inclusion of these directives has been limited to the extent 

practicable. 

The PWS in combination with the service summary (SS) will identify the 

minimum contractor performance requirements and associated 

performance thresholds. The SS Items are the key measures of success for 

contractor operations and are considered by the acquisition team from a 

risk management and contract quality assurance perspective. 

The sources sought announcement requested comments regarding the 

PWS and service summaries. Industry has not recommended any specific 

performance thresholds and highly recommends the Government utilize 

only measurable and attainable thresholds. 

During the deposition taken after the protest was filed in this court, the contracting officer

indicated that “in her view, the ‘commodity’ portion of the contract could be satisfied by 

commercial items, but that the services portion could not be satisfied by commercial 

items.” On June 30, 2016, the Air Force finalized its decision to move forward with a non-

 

13 The acquisition plan reflects that on June 30, 2016, the Competition Advocate, the Staff 

Judge Advocate, and the Approval Authority all signed the acquisition plan, and that on 

July 12, 2016, the Director of the AFSPC (Air Force Space Command) Small Business 

Programs signed the acquisition plan. 
20

commercial item small business set-aside acquisition. The following day, on July 1, 2016, 

the Air Force issued Solicitation No. FA2550-16-R-8008,

14 and limited the competition to 

only two small businesses: Exo and Applied Defense. The solicitation was issued as a 

best value and indicated:

The Government will select the best overall offer, based upon an integrated 

assessment of Technical/Technical Risk, and Cost/Price. The Government 

may only award a contract to an offeror who is deemed responsible in 

accordance with the FAR, as supplemented, whose proposal conforms to 

the solicitation’s requirements (to include all stated terms, conditions, 

representations, certifications and all other information required by Section 

L of this solicitation) and is judged, based on the evaluation factors, to 

represent the best value to the Government. 

The solicitation explained the evaluation process: “Subfactor 1 will be evaluated as a 

combined technical/risk. Subfactor 2 as acceptable/unacceptable. Cost/Price will be 

evaluated for reasonableness, completeness, affordability and realism.” Subfactor 1 

addressed technical products, and Subfactor 2 addressed technical products, and both 

subfactors required the offerors to demonstrate an acceptable approach and 

understanding of the solicitation’s “Nongovernmental SSA Requirements,” the 

Performance Work Statement’s “Nongovernmental Space Situational Awareness 

Requirements,” and the Performance Work Statement’s “Nongovernmental Space 

Situational Awareness Product Requirements.” Regarding price:15

The price evaluation assesses each offeror’s proposed price for base and 

two 12-month option period [sic] for reasonableness and affordability. An 

assessment that the proposal is not reasonable or affordable will result in 

the offer being considered unacceptable for award. The burden of proof for 

price reasonableness rests with the offeror. Price reasonableness and 

affordability will be evaluated using techniques described in FAR 15.404-

1(b) as necessary.

The parties have stipulated that, “[a]fter July 1, 2016, AGI learned that the RFP 

had been issued and that responses were due on or before July 18, 2016. AGI learned 

that the Solicitation was set aside for small businesses and sought a non-commercial 

SSA solution. The Air Force further restricted the set-aside competition to only two firms, 

Exo and ADS.” (internal reference omitted). The Air Force explained the agency’s 

decision to Analytical Graphics in an email, which stated, in part:

 

14 The solicitation was subsequently amended on July 6, 2016, July 20, 2016, August 25,

2016, and September 12, 2016.

15 The solicitation also indicated that “[t]he Government will perform a cost realism 

analysis of all offers based on the offeror’s cost/price proposal total estimated contract 

price for CLIN X002 only.” 
21

Through market research and evolving requirements, the JICSpOC 

software requirements have been determined to be non-commercial for the 

Space Situational Awareness integrated solution. The Government’s has a 

reasonable expectation of obtaining offers from two or more responsible 

small business concerns that are competitive in terms of market prices, 

quality, and delivery. Therefore, this acquisition shall be set-aside 

exclusively for small business. The RFP will not be posted to FedBizOps 

due to the classified nature of the some of the documents.

On July 11, 2016, Analytical Graphics filed a bid protest at the GAO. Analytical 

Graphics alleged that the Air Force’s decision to set aside the procurement for small 

businesses was unreasonable and an abuse of discretion. Analytical Graphics 

additionally alleged that the Air Force’s decision to “disregard the statutorily-mandated 

preference for commercial items was unreasonable, arbitrary, capricious, and contrary to 

law.”

16

On October 17, 2016, the GAO denied Analytical Graphics’ protest. See Analytical 

Graphics, Inc., B-413385, 2016 WL 6212299. The GAO indicated that, regarding 

Analytical Graphics’ contention that Air Force unreasonably set the procurement aside 

for small businesses, “we find no basis to sustain the protest,” and held that “[f]urther, 

nothing in the record supports the protester’s argument that the Air Force unreasonably 

concluded that ADS could meet the agency’s requirements.” Id. at *4, *8. The GAO 

explained that for a small business set-aside determination, the Air Force was not 

required to make a responsibility decision, but only an “informed business judgment that 

there is a reasonable expectation of receiving acceptably priced offers from small 

business concerns that are capable of performing the contract.” Id. at *6. Regarding Exo, 

Analytical Graphics had argued that Exo “could meet only 9 of the 10 minimum 

requirements,” which “meant that the agency could not reasonably expect this firm to be 

a responsible offeror.” The GAO noted that “ExoAnalytic stated that it could perform the 

requirements, and there is no allegation of misrepresentation in this regard,” and that 

“[n]either FAR § 19.502-2(b) nor the decisions by our Office require an agency to request, 

or a prospective small business offeror to provide, a complete technically-acceptable 

approach in response to market research.” Id. The GAO, therefore, determined that 

“[u]nder the applicable standards for making a set-aside determination, we find no basis 

to conclude that the agency’s judgment here regarding ExoAnalytic was unreasonable.” 

Id. Specifically regarding Applied Defense, the GAO indicated that although protestor 

“AGI argues that the Air Force unreasonably found that ADS would be capable of meeting 

the agency's requirement,” “the agency found that ADS could meet all 10 of the minimum 

requirements.” Id. at *7. The GAO concluded that, “given the discretion afforded to 

agencies in exercising their business judgment to determine whether to set aside a 

requirement for small businesses, we conclude that the record here does not show that 

the agency's determination regarding ADS was unreasonable.” Id. at *8.

 

16 At the GAO, Analytical Graphics raised a third issue, which it does not raise in this 

court, that the Air Force unreasonably had required that the proposed solutions only 

identify up to 200 resident space objects.
22

Regarding Analytical Graphics’ protest ground that the Air Force improperly 

designated the solicitation requirements as non-commercial, the GAO first indicated that 

“[d]etermining whether a product or service is a commercial item is largely within the 

discretion of the contracting agency, and such a determination will not be disturbed by 

our Office unless it is shown to be unreasonable. Palantir USG, Inc., B-412746, May 18, 

2016, 2016 CPD ¶ 138 at 4.” Analytical Graphics, Inc., B-413385, 2016 WL 6212299, at 

*9.

17 Regarding the procurement currently at issue, rather than deciding the merits of the 

commerciality protest ground, the GAO referred to its earlier conclusion that that the Air 

Force reasonably set the procurement aside for small businesses and stated that 

Analytical Graphics “does not demonstrate why the agency’s evaluation of the 

commerciality of the services affects the assessment of the capabilities of the two 

potential small business offerors.” Id. The GAO concluded: 

Thus, even if the requirements were deemed commercial, the protester has 

not demonstrated that such a designation would affect the agency’s 

conclusion here that the two small business firms are capable of meeting 

those requirements. Because AGI, a large business, is ineligible to compete 

for the award, we conclude that it is not an interested party to challenge the 

terms of the solicitation, and dismiss its remaining arguments.

Id.

The day after the GAO issued its decision, on October 18, 2016, the contracting 

officer made the “Determination and Finding Contractor Responsibility,” and the Source 

Selection Evaluation Board recommended award to Applied Defense. The same day,

October 18, 2016, the Source Selection Authority determined that Applied Defense and 

Exo were both “considered technically good.” (emphasis in original). The Source 

Selection Authority explained that for Subfactor 1, products, “SSA software products were 

rated based on a combination of technical acceptability and contract performance risk. 

Both offerors met all requirements and demonstrated a thorough approach and 

understanding to perform the product requirements in the PWS. Both proposals contained 

two strengths each,” and for Subfactor 2, services, “[b]oth offerors were rated as 

 

17 There is not much precedent in the Federal Circuit regarding challenges to 

commercial/non-commercial standards. As discussed below, however, Palantir USG, Inc. 

and Palantir Technologies, Inc., after their GAO protest was unsuccessful, filed a bid 

protest in the court which was assigned to the undersigned. In Palantir USG, Inc. v. United 

States, 129 Fed. Cl. 218 (2016), in a different procurement from the one referenced 

above, which did not present a small business set-aside issue, and with different facts 

presented, the undersigned determined that pursuant, to 10 U.S.C. § 2377, the United 

States Army had failed to conduct a proper commercial availability evaluation. See

Palantir USG, Inc. v. United States, 129 Fed. Cl. at 289. The Palantir decision is currently 

on appeal to the United States Court of Appeals for the Federal Circuit. See Palantir USG, 

Inc. v. United States, Case No. 17-1465 (Fed. Cir. Jan. 9, 2017).
23

acceptable.” (emphasis in original). For the comparative analysis, the Source Selection 

Authority determined:

Comparing the two offerors’ proposals resulted in an assessment that both 

proposals were good and offered equivalent software and services per the 

solicitation. The technical differences are in details and not in overall 

performance, risk, or acceptability. A point-by-point comparison would show 

that the required data would be provided and handled similarly in a secure 

fashion; each offeror would be able to access and task a global network of 

SSA sensors; each offeror would provide effective and efficient analysis 

tools and support to JICSpOC experiments; and each offeror would 

adequately staff the effort. There are distinctive strengths, however: the 

ExoAnalytic sensor network is twice the size of ADS’s network; ADS will be 

able to demonstrate its capability in the JICSpOC earlier than ExoAnalytic. 

These distinctions, however, are not enough to select one bidder over 

another on a purely technical or risk basis as both are considered 

technically good.

(emphasis in original). Regarding cost/price, the Source Selection Authority determined:

The final proposal revision cost/price proposals submitted by both offerors 

are reasonable, realistic (no probable cost adjustments were necessary), 

affordable, and complete. ADS offers the lowest total evaluated price at 

$24,252,038, which is $8,102,266 lower than ExoAnalytic’s proposed price 

of $32,354,304. Both offerors were responsive to the RFP and met all 

requirements; acknowledged and responded to all amendments; conformed 

to all required terms and conditions; and included all required certifications. 

The Professional Compensation Plan was acceptable for both offerors. In 

addition, ADS and ExoAnalytic were deemed to be responsible in 

accordance with FAR 9.104, as supplemented.

The Source Selection Authority indicated the Source Selection Evaluation Board 

recommended award to Applied Defense, and noted that “[t]echnical performance and 

risk are equivalent. While both offerors demonstrated strengths in their approach, the nonsimilar ExoAnalytic strengths compared to ADS’s strengths does not justify an $8 million 

price difference. The determining factor, therefore, is price. ADS’s price is significantly 

lower than that quoted by ExoAnalytic for the similar products and services.” The Source 

Selection Authority concluded: 

I made no tradeoffs in the evaluation of either the technical or cost/price 

factors. I assessed that the offerors’ “good [sic] technical approaches and 

understanding and similar strengths are equal. While I acknowledge 

ExoAnalytic’s 96-percent average availability rate to track tasked objects is 

a strength, ADS’s ability to exceed PWS requirements, matched with a 

cost/price $8,102,266 less than ExoAnalytic, represents the best value to 

the Government.
24

(emphasis in original). After informing Exo that it would not receive the award, on October 

21, 2016, the Air Force awarded a contract to Applied Defense. 

As noted above, after the protest Analytical Graphics filed at GAO was 

unsuccessful, Analytical Graphics, Inc., B-413385, 2016 WL 6212299, and after the Air 

Force made the award to Applied Defense the protestor filed the current post-award bid 

protest in this court. The complaint in this court has seven counts. Count one alleges that 

the Air Force violated 10 U.S.C. § 2377 (2012) and 48 C.F.R. § 10.002 (2017) and 48 

C.F.R. § 11.002 (2017) by ignoring the statutorily mandated preference for commercial or 

non-developmental items. Similarly, count two alleges that the Air Force violated 10 

U.S.C. § 2377 and 48 C.F.R. § 10.002 and 48 C.F.R. § 11.002 by refusing to tailor the 

requirements “in a manner that would allow the agency to take advantage of available 

commercial SSA solutions.” Count three alleges that the Air Force’s decision to procure 

a non-commercial solution in order to obtain broader data rights violated 10 U.S.C. § 2320 

(2012), as well as several provisions of the FAR. Count four alleges that the Air Force’s 

failure to negotiate the terms of Analytical Graphics software license violated 10 U.S.C. § 

2320 (2012), as well as several provisions of the FAR. Count five alleges that “[t]he Air 

Force’s ‘Rule of Two’ determination underlying the set-aside decision was arbitrary, 

capricious, and an abuse of discretion and unlawfully restricts competition in violation of 

the Competition in Contracting Act, 10 U.S.C. § 2304.” Count six alleges that “[t]he Air 

Force’s ‘Rule of Two’ determination underlying the set-aside decision was arbitrary, 

capricious, and an abuse of discretion because the Air Force did not analyze price as 

required under 48 C.F.R. § 19.502-2(b).” Finally, count seven alleges that “[t]he award of 

a contract to ADS was arbitrary, capricious, and an abuse of discretion because the 

underlying procurement was conducted in violation of law.” 

The complaint also asked this court to enter a temporary restraining order, a 

preliminary injunction and a permanent injunction. After a hearing, the court denied the 

temporary restraining order and preliminary injunction. After discussion with the parties 

at a hearing, and with the agreement of the parties, the court set a schedule for briefing 

regarding the protestor’s request for:

A permanent injunction requiring the Air Force to rescind the Solicitation 

and to take any and all necessary corrective action needed to remedy its 

legal violations, including, at a minimum, by (1) terminating the contract with 

ADS; (2) issuing a revised Solicitation that complies with the statutory 

mandated preference for commercial items and; (3) conducting the 

procurement on an unrestricted basis, consistent with the Air Force’s market 

research that demonstrated there are no small businesses with existing 

non-developmental solutions that satisfy the Air Force’s SSA requirements.

Without a temporary restraining order in place, the procurement has continued pursuant 

to the contract award made to intervenor Applied Defense.
25

The parties have filed cross-motions for judgment on the Administrative Record.

Protestor argues that “the Air Force has arbitrarily and capriciously violated the statutory

preference for commercial items in the Federal Acquisition Streamlining Act (‘FASA’) and

Federal Acquisition Regulation (‘FAR’) Part 12’s implementation of the preference.” 

Analytical Graphics also contends, “[a]dditionally, the Air Force wrongfully set-aside this 

procurement for small businesses. . . .” According to the defendant, the “contracting 

officer acted reasonably, and well within her discretion, when conducting market 

research.” Defendant also argues that the Air Force’s market research, and the 

determination based on the market research, were appropriate and that the documents 

in the Administrative Record do not support Analytical Graphics’ argument that the Air 

Force erred in not issuing the solicitation as a commercial item or nondevelopmental item.

Defendant and intervenor also stress that the procurement was a proper small-business 

set-aside, because the Air Force properly concluded that two small businesses could 

meet the requirements. According to defendant, Analytical Graphics, which is not a small 

business, therefore, does not have standing to challenge the Air Force’s evaluation.

D I S C U S I O N

This protest presents difficult, extremely fact based commercial availability issues, 

regarding which little precedent exists, and equally novel small business set-aside issues. 

As noted above, the parties have filed cross-motions for judgment on the Administrative 

Record on the issues of the Air Force’s compliance with 10 U.S.C. § 2377 and the small 

business set-aside. See 48 C.F.R. § 19.502-2 (2017). Rule 52.1(c) of the Rules of the 

United States Court of Federal Claims (RCFC) (2017) governs motions for judgment on 

the Administrative Record. The court’s inquiry is directed to “‘whether, given all the 

disputed and undisputed facts, a party has met its burden of proof based on the evidence 

in the record.’” Mgmt. & Training Corp. v. United States, 115 Fed. Cl. 26, 40 (2014) 

(quoting A & D Fire Prot., Inc. v. United States, 72 Fed. Cl. 126, 131 (2006) (citing 

Bannum, Inc. v. United States, 404 F.3d 1346, 1356–57 (Fed. Cir. 2005))); see also Eco 

Tour Adventures, Inc. v. United States, 114 Fed. Cl. 6, 21 (2013); DMS All-Star Joint 

Venture v. United States, 90 Fed. Cl. 653, 661 (2010).

The Administrative Dispute Resolution Act of 1996, Pub. L. No. 104-320, §§ 12(a), 

12(b), 110 Stat. 3870, 3874 (1996), provides that protests of agency procurement 

decisions are to be reviewed under Administrative Procedure Act (APA) standards, 

making applicable the standards outlined in Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859 

(D.C. Cir. 1970), and the line of cases following that decision. See, e.g., Per Aarsleff A/S 

v. United States, 829 F.3d 1303, 1309 (Fed. Cir. 2016) (quoting NVT Techs., Inc. v. United 

States, 370 F.3d 1153, 1159 (Fed. Cir. 2004)) (“Protests of agency procurement decisions 

are reviewed under the standards set forth in the Administrative Procedure Act (‘APA’), 

see 28 U.S.C. § 1491(b)(4) (citing 5 U.S.C. § 706), ‘by which an agency's decision is to 

be set aside only if it is arbitrary, capricious, an abuse of discretion, or otherwise not in

accordance with law[.]’”); Impresa Construzioni Geom. Domenico Garufi v. United States, 

238 F.3d 1324, 1332 (Fed. Cir. 2001)); Res. Conservation Grp., LLC v. United States, 

597 F.3d 1238, 1242 (Fed. Cir. 2010) (“Following passage of the APA in 1946, the District 

of Columbia Circuit in Scanwell Labs., Inc. v. Shaffer, 424 F.2d 859 (D.C. Cir. 1970), held 

that challenges to awards of government contracts were reviewable in federal district 
26

courts pursuant to the judicial review provisions of the APA.”); Galen Med. Assocs., Inc. 

v. United States, 369 F.3d 1324, 1329 (Fed. Cir. 2004) (citing Scanwell Labs., Inc. v. 

Shaffer, 424 F.2d at 864, 868, for its “reasoning that suits challenging the award process 

are in the public interest and disappointed bidders are the parties with an incentive to 

enforce the law”); Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345, 1351 

(Fed. Cir. 2004) (“Under the APA standard as applied in the Scanwell line of cases, and 

now in ADRA cases, ‘a bid award may be set aside if either (1) the procurement official’s 

decision lacked a rational basis; or (2) the procurement procedure involved a violation of 

regulation or procedure.’” (quoting Impresa Construzioni Geom. Domenico Garufi v. 

United States, 238 F.3d at 1332)); Info. Tech. & Applications Corp. v. United States, 316 

F.3d 1312, 1319 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2003). 

When discussing the appropriate standard of review for bid protest cases, the 

United States Court of Appeals for the Federal Circuit addressed subsections (2)(A) and 

(2)(D) of 5 U.S.C. § 706, see Impresa Construzioni Geom. Domenico Garufi v. United 

States, 238 F.3d at 1332 n.5, but focused its attention primarily on subsection (2)(A). See

Croman Corp. v. United States, 724 F.3d 1357, 1363 (Fed. Cir. 2013) (“‘[T]he proper 

standard to be applied [to the merits of] bid protest cases is provided by 5 U.S.C. 

§ 706(2)(A) [(2006)]: a reviewing court shall set aside the agency action if it is “arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law.”’” (quoting 

Banknote Corp. of Am. v. United States, 365 F.3d at 1350–51 (citing Advanced Data 

Concepts, Inc. v. United States, 216 F.3d 1054, 1057–58 (Fed. Cir.), reh’g denied (Fed. 

Cir. 2000)), aff’d, 365 F.3d 1345 (Fed. Cir. 2004)))), reh’g and reh’g en banc denied (Fed. 

Cir. 2013) (alterations in original). The statute says that agency procurement actions 

should be set aside when they are “arbitrary, capricious, an abuse of discretion, or 

otherwise not in accordance with law,” or “without observance of procedure required by 

law.” 5 U.S.C. § 706(2)(A), (D) (2012);18 see also Tinton Falls Lodging Realty, LLC v. 

 

18 The language of 5 U.S.C. § 706 provides in full:

To the extent necessary to decision and when presented, the reviewing 

court shall decide all relevant questions of law, interpret constitutional and 

statutory provisions, and determine the meaning or applicability of the terms 

of an agency action. The reviewing court shall—

(1) compel agency action unlawfully withheld or unreasonably delayed; 

and

(2) hold unlawful and set aside agency action, findings, and conclusions 

found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in 

accordance with law;

(B) contrary to constitutional right, power, privilege, or immunity;
27

United States, 800 F.3d 1353, 1358 (Fed. Cir. 2015); Orion Tech., Inc. v. United States, 

704 F.3d 1344, 1347 (Fed. Cir. 2013); COMINT Sys. Corp. v. United States, 700 F.3d 

1377, 1381 (Fed. Cir. 2012) (“We evaluate agency actions according to the standards set 

forth in the Administrative Procedure Act; namely, for whether they are ‘arbitrary, 

capricious, an abuse of discretion, or otherwise not in accordance with law.’” (quoting 5 

U.S.C. § 706(2)(A); Bannum, Inc. v. United States, 404 F.3d at 1351)); Savantage Fin. 

Servs. Inc., v. United States, 595 F.3d 1282, 1285–86 (Fed. Cir. 2010); Weeks Marine, 

Inc. v. United States, 575 F.3d 1352, 1358 (Fed. Cir. 2009); Axiom Res. Mgmt., Inc. v. 

United States, 564 F.3d 1374, 1381 (Fed. Cir. 2009) (noting arbitrary and capricious 

standard set forth in 5 U.S.C. § 706(2)(A), and reaffirming the analysis of Impresa 

Construzioni Geom. Domenico Garufi v. United States, 238 F.3d at 1332); Blue & Gold 

Fleet, L.P. v. United States, 492 F.3d 1308, 1312 (Fed. Cir. 2007) (“‘[T]he inquiry is 

whether the [government]’s procurement decision was “arbitrary, capricious, an abuse of 

discretion, or otherwise not in accordance with law.”’” (quoting Bannum, Inc. v. United 

States, 404 F.3d at 1351 (quoting 5 U.S.C. § 706(2)(A) (2000))); NVT Techs., Inc. v. 

United States, 370 F.3d at 1159 (“Bid protest actions are subject to the standard of review 

established under section 706 of title 5 of the Administrative Procedure Act (‘APA’), 28 

U.S.C. § 1491(b)(4) (2000), by which an agency’s decision is to be set aside only if it is 

‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’ 5 

U.S.C. § 706(2)(A) (2000).”) (internal citations omitted); Info. Tech. & Applications Corp. 

v. United States, 316 F.3d at 1319 (“Consequently, our inquiry is whether the Air Force’s 

procurement decision was ‘arbitrary, capricious, an abuse of discretion, or otherwise not 

in accordance with law.’ 5 U.S.C. § 706(2)(A) (2000).”); Eco Tour Adventures, Inc. v. 

United States, 114 Fed. Cl. at 22; Contracting, Consulting, Eng’g LLC v. United States, 

104 Fed. Cl. 334, 340 (2012). “In a bid protest case, the agency’s award must be upheld 

unless it is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance 

with law.’” Turner Constr. Co. v. United States, 645 F.3d 1377, 1383 (Fed. Cir.) (quoting 

PAI Corp. v. United States, 614 F.3d 1347, 1351 (Fed. Cir. 2010)), reh’g and reh’g en

 

(C)in excess of statutory jurisdiction, authority, or limitations, or short 

of statutory right;

(D)without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections 

556 and 557 of this title or otherwise reviewed on the record of 

an agency hearing provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject 

to trial de novo by the reviewing court.

In making the foregoing determinations, the court shall review the whole 

record or those parts of it cited by a party, and due account shall be taken 

of the rule of prejudicial error.

5 U.S.C. § 706.
28

banc denied (Fed. Cir. 2011); see also Tinton Falls Lodging Realty, LLC v. United States, 

800 F.3d at 1358 (“In applying this [arbitrary and capricious] standard to bid protests, our 

task is to determine whether the procurement official's decision lacked a rational basis or 

the procurement procedure involved a violation of a regulation or procedure.”) (citing 

Savantage Fin. Servs., Inc. v. United States, 595 F.3d at 1285–86); Glenn Def. Marine 

(ASIA), PTE Ltd. v. United States, 720 F.3d 901, 907 (Fed. Cir.), reh’g en banc denied

(Fed. Cir. 2013); McVey Co., Inc. v. United States, 111 Fed. Cl. 387, 402 (2013) (“The 

first step is to demonstrate error, that is, to show that the agency acted in an arbitrary and 

capricious manner, without a rational basis or contrary to law.”); PlanetSpace, Inc. v. 

United States, 92 Fed. Cl. 520, 531–32 (2010) (“Stated another way, a plaintiff must show 

that the agency’s decision either lacked a rational basis or was contrary to law.” (citing 

Weeks Marine, Inc. v. United States, 575 F.3d at 1358)). 

The United States Supreme Court has identified sample grounds which can 

constitute arbitrary or capricious agency action:

[W]e will not vacate an agency’s decision unless it “has relied on factors 

which Congress has not intended it to consider, 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 is so implausible 

that it could not be ascribed to a difference in view or the product of agency 

expertise.”

Nat’l Ass’n of Home Builders v. Defenders of Wildlife, 551 U.S. 644, 658 (2007) (quoting 

Motor Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983)); see

also Tinton Falls Lodging Realty, LLC v. United States, 800 F.3d at 1358; F.C.C. v. Fox 

Television Stations, Inc., 556 U.S. 502, 552 (2009); Ala. Aircraft Indus., Inc.-Birmingham 

v. United States, 586 F.3d 1372, 1375 (Fed. Cir. 2009), reh’g and reh’g en banc denied

(Fed. Cir. 2010); In re Sang Su Lee, 277 F.3d 1338, 1342 (Fed. Cir. 2002) (“[T]he agency 

tribunal must present a full and reasoned explanation of its decision. . . . The reviewing 

court is thus enabled to perform meaningful review . . . .”); Textron, Inc. v. United States, 

74 Fed. Cl. 277, 285–86 (2006), appeal dismissed sub nom. Textron, Inc. v. Ocean 

Technical Servs., Inc., 223 F. App’x 974 (Fed. Cir. 2007). The United States Supreme 

Court also has cautioned, however, that “courts are not free to impose upon agencies 

specific procedural requirements that have no basis in the APA.” Pension Benefit Guar. 

Corp. v. LTV Corp., 496 U.S. 633, 654 (1990).

Under an arbitrary or capricious standard, the reviewing court should not substitute 

its judgment for that of the agency, but should review the basis for the agency decision to 

determine if it was legally permissible, reasonable, and supported by the facts. See Motor 

Vehicle Mfrs. Ass’n v. State Farm Mut. Auto. Ins. Co., 463 U.S. at 43 (“The scope of 

review under the ‘arbitrary and capricious’ standard is narrow and a court is not to 

substitute its judgment for that of the agency.”); see also Turner Constr. Co., Inc. v. United 

States, 645 F.3d at 1383; R & W Flammann GmbH v. United States, 339 F.3d 1320, 1322 

(Fed. Cir. 2003) (citing Ray v. Lehman, 55 F.3d 606, 608 (Fed. Cir.), cert. denied, 516 

U.S. 916 (1995)). “‘“If the court finds 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 
29

different conclusion as to the proper administration and application of the procurement 

regulations.”’” Weeks Marine, Inc. v. United States, 575 F.3d at 1371 (quoting Honeywell, 

Inc. v. United States, 870 F.2d 644, 648 (Fed. Cir. 1989) (quoting M. Steinthal & Co. v. 

Seamans, 455 F.2d 1289, 1301 (D.C. Cir. 1971))); Jordan Pond Co., LLC v. United 

States, 115 Fed. Cl. 623, 631 (2014); Davis Boat Works, Inc. v. United States, 111 Fed. 

Cl. 342, 349 (2013); Norsat Int’l [America], Inc. v. United States, 111 Fed. Cl. 483, 493 

(2013); HP Enter. Servs., LLC v. United States, 104 Fed. Cl. 230, 238 (2012); Vanguard 

Recovery Assistance v. United States, 101 Fed. Cl. 765, 780 (2011).

Stated otherwise by the United States Supreme Court:

Section 706(2)(A) requires a finding that the actual choice made was not 

“arbitrary, capricious, an abuse of discretion, or otherwise not in accordance 

with law.” To make this finding the court must consider whether the decision 

was based on a consideration of the relevant factors and whether there has 

been a clear error of judgment. Although this inquiry into the facts is to be 

searching and careful, the ultimate standard of review is a narrow one. The 

court is not empowered to substitute its judgment for that of the agency.

Citizens to Pres. Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971), abrogated on

other grounds by Califano v. Sanders, 430 U.S. 99 (1977) (internal citations omitted); see

also U.S. Postal Serv. v. Gregory, 534 U.S. 1, 6–7 (2001); Bowman Transp., Inc. v. 

Arkansas-Best Freight Sys., Inc., 419 U.S. 281, 285 (1974), reh’g denied, 420 U.S. 956 

(1975); Co-Steel Raritan, Inc. v. Int’l Trade Comm’n, 357 F.3d 1294, 1309 (Fed. Cir. 2004) 

(In discussing the “arbitrary, capricious, and abuse of discretion, or otherwise not in 

accordance with the law” standard, the Federal Circuit stated: “the ultimate standard of 

review is a narrow one. The court is not empowered to substitute its judgment for that of 

the agency.”); In re Sang Su Lee, 277 F.3d at 1342; Advanced Data Concepts, Inc. v. 

United States, 216 F.3d at 1058 (“The arbitrary and capricious standard applicable here 

is highly deferential. This standard requires a reviewing court to sustain an agency action 

evincing rational reasoning and consideration of relevant factors.” (citing Bowman 

Transp., Inc. v. Arkansas-Best Freight Sys., Inc., 419 U.S. at 285)); Lockheed Missiles & 

Space Co. v. Bentsen, 4 F.3d 955, 959 (Fed. Cir. 1993); BCPeabody Constr. Servs., Inc. 

v. United States, 112 Fed. Cl. 502, 508 (2013) (“The court ‘is not empowered to substitute 

its judgment for that of the agency,’ and it must uphold an agency’s decision against a 

challenge if the ‘contracting agency provided a coherent and reasonable explanation of 

its exercise of discretion.’” (quoting Keeton Corrs., Inc. v. United States, 59 Fed. Cl. 753, 

755, recons. denied, 60 Fed. Cl. 251 (2004), and Axiom Res. Mgmt., Inc. v. United States, 

564 F.3d at 1381)), appeal withdrawn, 559 F. App’x 1033 (Fed. Cir. 2014) (internal 

citations omitted); Supreme Foodservice GmbH v. United States, 109 Fed. Cl. 369, 382 

(2013); Alamo Travel Grp., LP v. United States, 108 Fed. Cl. 224, 231 (2012); ManTech 

Telecomms. & Info. Sys. Corp. v. United States, 49 Fed. Cl. 57, 63 (2001), aff’d, 30 F. 

App’x 995 (Fed. Cir. 2002); Ellsworth Assocs., Inc. v. United States, 45 Fed. Cl. 388, 392 

(1999) (“Courts must give great deference to agency procurement decisions and will not 

lightly overturn them.” (citing Fla. Power & Light Co. v. Lorion, 470 U.S. 729, 743–44 

(1985))), appeal dismissed, 6 F. App’x 867 (Fed. Cir. 2001), and superseded by regulation

as recognized in MVS USA, Inc. v. United States, 111 Fed. Cl. 639 (2013).
30

According to the United States Court of Appeals for the Federal Circuit:

Effective contracting demands broad discretion. Burroughs Corp. v. United 

States, 223 Ct. Cl. 53, 617 F.2d 590, 598 (1980); Sperry Flight Sys. Div. v. 

United States, 548 F.2d 915, 921, 212 Ct. Cl. 329 (1977); see NKF Eng’g, 

Inc. v. United States, 805 F.2d 372, 377 (Fed. Cir. 1986); Tidewater 

Management Servs., Inc. v. United States, 573 F.2d 65, 73, 216 Ct. Cl. 69 

(1978); RADVA Corp. v. United States, 17 Cl. Ct. 812, 819 (1989), aff’d, 914 

F.2d 271 (Fed. Cir. 1990). Accordingly, agencies “are entrusted with a good 

deal of discretion in determining which bid is the most advantageous to the 

Government.” Tidewater Management Servs., 573 F.2d at 73, 216 Ct. Cl. 

69.

Lockheed Missiles & Space Co. v. Bentsen, 4 F.3d at 958–59; see also Res-Care, Inc. v. 

United States, 735 F.3d 1384, 1390 (Fed. Cir.) (“DOL [Department of Labor], as a federal 

procurement entity, has ‘broad discretion to determine what particular method of 

procurement will be in the best interests of the United States in a particular situation.’” 

(quoting Tyler Constr. Grp. v. United States, 570 F.3d 1329, 1334 (Fed. Cir. 2009))), reh’g

en banc denied (Fed. Cir. 2014); Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 995 

(Fed. Cir. 1996); Geo-Med, LLC v. United States, 126 Fed. Cl. 440, 449 (2016); Cybertech 

Grp., Inc. v. United States, 48 Fed. Cl. 638, 646 (2001) (“The court recognizes that the 

agency possesses wide discretion in the application of procurement regulations.”); 

Furthermore, according to the Federal Circuit:

Contracting officers “are entitled to exercise discretion upon a broad range 

of issues confronting them in the procurement process.” Impresa 

Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 

1332 (Fed. Cir. 2001) (internal quotation marks omitted). Accordingly, 

procurement decisions are subject to a “highly deferential rational basis 

review.” CHE Consulting, Inc. v. United States, 552 F.3d 1351, 1354 (Fed. 

Cir. 2008) (internal quotation marks omitted). 

PAI Corp. v. United States, 614 F.3d at 1351; see also Weeks Marine, Inc. v. United 

States, 575 F.3d at 1368–69 (“We have stated that procurement decisions ‘invoke[ ] 

“highly deferential” rational basis review.’ Under that standard, we sustain an agency 

action ‘evincing rational reasoning and consideration of relevant factors.’” (quoting CHE 

Consulting, Inc. v. United States, 552 F.3d at 1354 (quoting Advanced Data Concepts, 

Inc. v. United States, 216 F.3d at 1058))).

On a motion for judgment on the administrative record, a disappointed bidder has 

the burden of demonstrating the arbitrary and capricious nature of the agency decision 

by a preponderance of the evidence. See Tinton Falls Lodging Realty, LLC v. United 

States, 800 F.3d at 1364; see also Grumman Data Sys. Corp. v. Dalton, 88 F.3d at 995–

96; Davis Boat Works, Inc. v. United States, 111 Fed. Cl. at 349; Contracting, Consulting, 

Eng’g LLC v. United States, 104 Fed. Cl. at 340. The Federal Circuit has indicated that 

“[t]his court will not overturn a contracting officer’s determination unless it is arbitrary, 

capricious, or otherwise contrary to law. To demonstrate that such a determination is 
31

arbitrary or capricious, a protester must identify ‘hard facts’; a mere inference or suspicion 

. . . is not enough.” PAI Corp. v. United States, 614 F.3d at 1352 (citing John C. Grimberg 

Co. v. United States, 185 F.3d 1297, 1300 (Fed. Cir. 1999)); see also Turner Constr. Co., 

Inc. v. United States, 645 F.3d at 1387; Sierra Nevada Corp. v. United States, 107 Fed. 

Cl. 735, 759 (2012); Filtration Dev. Co., LLC v. United States, 60 Fed. Cl. 371, 380 (2004).

A bid protest proceeds in two steps. First . . . the trial court determines 

whether the government acted without rational basis or contrary to law when 

evaluating the bids and awarding the contract. Second . . . if the trial court 

finds that the government’s conduct fails the APA review under 5 U.S.C. 

§ 706(2)(A), then it proceeds to determine, as a factual matter, if the bid 

protester was prejudiced by that conduct.

Bannum, Inc. v. United States, 404 F.3d at 1351; FirstLine Transp. Sec., Inc. v. United 

States, 119 Fed. Cl. 116, 126 (2014); Eco Tour Adventures, Inc. v. United States, 114 

Fed. Cl. at 22; Archura LLC v. United States, 112 Fed. Cl. 487, 496 (2013). To prevail in 

a bid protest case, the protestor not only must show that the government’s actions were 

arbitrary, capricious, or otherwise not in accordance with the law, but the protestor also 

must show that it was prejudiced by the government’s actions. See 5 U.S.C. § 706 (“[D]ue 

account shall be taken of the rule of prejudicial error.”); see also Glenn Def. Marine 

(ASIA), PTE Ltd. v. United States, 720 F.3d at 907 (“In a bid protest case, the inquiry is 

whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise 

not in accordance with law and, if so, whether the error is prejudicial.”) ; Linc Gov’t Servs., 

LLC v. United States, 96 Fed. Cl. 672, 694-96 (2010). In describing the prejudice 

requirement, the Federal Circuit also has held that:

To prevail in a bid protest, a protester must show a significant, prejudicial 

error in the procurement process. See Statistica, Inc. v. Christopher, 102 

F.3d 1577, 1581 (Fed. Cir. 1996); Data Gen. Corp. v. Johnson, 78 F.3d 

1556, 1562 (Fed. Cir. 1996). “To establish prejudice, a protester is not 

required to show that but for the alleged error, the protester would have 

been awarded the contract.” Data General, 78 F.3d at 1562 (citation 

omitted). Rather, the protester must show “that there was a substantial 

chance it would have received the contract award but for that error.” 

Statistica, 102 F.3d at 1582; see CACI, Inc.-Fed. v. United States, 719 F.2d 

1567, 1574-75 (Fed. Cir. 1983) (to establish competitive prejudice, protester 

must demonstrate that but for the alleged error, “‘there was a substantial 

chance that [it] would receive an award--that it was within the zone of active 

consideration.’”) (citation omitted).

Alfa Laval Separation, Inc. v. United States, 175 F.3d 1365, 1367 (Fed. Cir.), reh’g denied

(Fed. Cir. 1999); see also Glenn Def. Marine (ASIA), PTE Ltd. v. United States, 720 F.3d 

at 912; Allied Tech. Grp., Inc. v. United States, 649 F.3d 1320, 1326 (Fed. Cir.), reh’g en

banc denied (Fed. Cir. 2011); Info. Tech. & Applications Corp. v. United States, 316 F.3d 

at 1319; Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d at 

1332-33; OMV Med., Inc. v. United States, 219 F.3d 1337, 1342 (Fed. Cir. 2000); 

Advanced Data Concepts, Inc. v. United States, 216 F.3d at 1057; Stratos Mobile 
32

Networks USA, LLC v. United States, 213 F.3d 1375, 1380 (Fed. Cir. 2000).

In Data General Corp. v. Johnson, the United States Court of Appeals for the 

Federal Circuit wrote:

We think that the appropriate standard is that, to establish prejudice, a 

protester must show that, had it not been for the alleged error in the 

procurement process, there was a reasonable likelihood that the protester 

would have been awarded the contract . . . . The standard reflects a 

reasonable balance between the importance of (1) averting unwarranted 

interruptions of and interferences with the procurement process and (2) 

ensuring that protesters who have been adversely affected by allegedly 

significant error in the procurement process have a forum available to vent 

their grievances. This is a refinement and clarification of the “substantial 

chance” language of CACI, Inc.-Fed. [v. United States], 719 F.2d at 1574.

Data Gen. Corp. v. Johnson, 78 F.3d 1556, 1562 (Fed. Cir.), reh’g denied, en banc

suggestion declined (Fed. Cir. 1996); see also Glenn Def. Marine (ASIA), PTE Ltd. v. 

United States, 720 F.3d at 912; Bannum, Inc. v. United States, 404 F.3d at 1353, 1358 

(“The trial court was required to determine whether these errors in the procurement 

process significantly prejudiced Bannum . . . . To establish ‘significant prejudice’ Bannum 

must show that there was a ‘substantial chance’ it would have received the contract award 

but for the [government’s] errors” in the bid process.) (citing Info. Tech. & Applications 

Corp. v. United States, 316 F.3d at 1319; Alfa Laval Separation, Inc. v. United States, 

175 F.3d at 1367; Statistica, Inc. v. Christopher, 102 F.3d at 1581; Data Gen. Corp. v. 

Johnson, 78 F.3d at 1562); see also Todd Constr., L.P. v. United States, 656 F.3d 1306,

1315 (Fed. Cir. 2011); Advanced Data Concepts, Inc. v. United States, 216 F.3d at 1057 

(using a “reasonable likelihood” rule); Stratos Mobile Networks USA, LLC v. United 

States, 213 F.3d at 1380 (using a “substantial chance” test); Archura LLC v. United 

States, 112 Fed. Cl. at 496 (using a “substantial chance” test); Info. Scis. Corp. v. United 

States, 73 Fed. Cl. 70, 96 (2006) (using a “substantial chance” test), recons. in part, 75

Fed. Cl. 406 (2007). 

Small Business Set-Aside versus Commercial Availability

Prior to reaching the issue of commercial availability 10 U.S.C. § 2377, both 

defendant and intervenor argue that the Air Force’s decision to make the procurement a 

small business set-aside must be addressed first. Intervenor states: “The small business 

set aside should be analyzed first and it is clear that this decision comported with statute 

and regulation and that, therefore, AGI lacks standing to proceed to challenge the 

commerciality issues.” Intervenor emphasizes that “[t]he commerciality rule is subject to 

the Rule of Two.” Defendant agrees, arguing that “once the small business set-aside is 

ruled proper, both of AGI's remaining claims should be dismissed for lack of standing 

because AGI is not eligible for award.” By contrast, protestor emphasizes that “[t]he 

commerciality determination must come first,” and argues that “[t]he statutorily mandated 

preference for commercial items and the Rule of Two are interpreted harmoniously by 

AGI, but the defendants’ interpretation extinguishes the commercial item preference.” 
33

The only thing all parties properly agree on is that agency market research must precede 

both a commercial availability determination and a small business set-aside 

determination.

Regarding the small business set-aside determination, the FAR provides that: “The 

purpose of small business set-asides is to award certain acquisitions exclusively to small 

business concerns.” 48 C.F.R. § 19.501(a) (2017); see also Proxtronics Dosimetry, LLC 

v. United States, 128 Fed. Cl. 656, 680 (2016). 48 C.F.R. § 19.502-2(b) indicates that:

The contracting officer shall set aside any acquisition over $150,000 for 

small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business 

concerns offering the products of different small business concerns (see 

paragraph (c) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides 

shall not be made unless such a reasonable expectation exists (see 

19.502–3 as to partial set-asides). Although past acquisition history of an 

item or similar items is always important, it is not the only factor to be 

considered in determining whether a reasonable expectation exists. In 

making R & D small business set-asides, there must also be a reasonable 

expectation of obtaining from small businesses the best scientific and 

technological sources consistent with the demands of the proposed 

acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b). 

The “Preference for acquisition of commercial items” statute, 10 U.S.C. § 2377, 

states:

(a) Preference.--The head of an agency shall ensure that, to the maximum 

extent practicable--

(1) requirements of the agency with respect to a procurement of supplies or 

services are stated in terms of--

(A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent 

that commercial items suitable to meet the agency’s needs are not 

available, nondevelopmental items other than commercial items, may be 

procured to fulfill such requirements; and
34

(3) offerors of commercial items and nondevelopmental items other than 

commercial items are provided an opportunity to compete in any 

procurement to fill such requirements.

(b) Implementation.--The head of an agency shall ensure that 

procurement officials in that agency, to the maximum extent practicable--

(1) acquire commercial items or nondevelopmental items other than 

commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the 

agency contracts to incorporate commercial items or nondevelopmental 

items other than commercial items as components of items supplied to the 

agency;

(3) modify requirements in appropriate cases to ensure that the 

requirements can be met by commercial items or, to the extent that 

commercial items suitable to meet the agency’s needs are not available, 

nondevelopmental items other than commercial items;

(4) state specifications in terms that enable and encourage bidders and 

offerors to supply commercial items or, to the extent that commercial items 

suitable to meet the agency’s needs are not available, nondevelopmental 

items other than commercial items in response to the agency solicitations;

(5) revise the agency’s procurement policies, practices, and procedures not 

required by law to reduce any impediments in those policies, practices, and 

procedures to the acquisition of commercial items; and

(6) require training of appropriate personnel in the acquisition of commercial 

items.

(c) Preliminary market research.--(1) The head of an agency shall 

conduct market research appropriate to the circumstances--

(A) before developing new specifications for a procurement by that agency;

(B) before soliciting bids or proposals for a contract in excess of the 

simplified acquisition threshold; and

(C) before awarding a task order or delivery order in excess of the simplified 

acquisition threshold.

(2) The head of an agency shall use the results of market research to 

determine whether there are commercial items or, to the extent that 
35

commercial items suitable to meet the agency’s needs are not available, 

nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were 

modified to a reasonable extent.

(3) In conducting market research, the head of an agency should not require 

potential sources to submit more than the minimum information that is 

necessary to make the determinations required in paragraph (2).

(4) The head of an agency shall take appropriate steps to ensure that any 

prime contractor of a contract (or task order or delivery order) in an amount 

in excess of $5,000,000 for the procurement of items other than commercial 

items engages in such market research as may be necessary to carry out 

the requirements of subsection (b)(2) before making purchases for or on 

behalf of the Department of Defense.

10 U.S.C. § 2377 (emphasis in original). The regulation implementing 10 U.S.C. § 2377, 

48 C.F.R. § 10.002, states:

(a) Acquisitions begin with a description of the Government’s needs stated 

in terms sufficient to allow conduct of market research.

(b) Market research is then conducted to determine if commercial items or 

nondevelopmental items are available to meet the Government’s needs or 

could be modified to meet the Government’s needs.

(1) The extent of market research will vary, depending on such factors as 

urgency, estimated dollar value, complexity, and past experience. The 

contracting officer may use market research conducted within 18 months 

before the award of any task or delivery order if the information is still 

current, accurate, and relevant. Market research involves obtaining 

information specific to the item being acquired and should include—

(i) Whether the Government’s needs can be met by—

(A) Items of a type customarily available in the commercial marketplace;

(B) Items of a type customarily available in the commercial marketplace with 

modifications; or

(C) Items used exclusively for governmental purposes;
36

(ii) Customary practices regarding customizing, modifying or tailoring of 

items to meet customer needs and associated costs;

(iii) Customary practices, including warranty, buyer financing, discounts, 

contract type considering the nature and risk associated with the 

requirement, etc., under which commercial sales of the products or services 

are made;

(iv) The requirements of any laws and regulations unique to the item being 

acquired;

(v) The availability of items that contain recovered materials and items that 

are energy efficient;

(vi) The distribution and support capabilities of potential suppliers, including 

alternative arrangements and cost estimates; and

(vii) Size and status of potential sources (see part 19).

(2) Techniques for conducting market research may include any or all of the 

following:

(i) Contacting knowledgeable individuals in Government and industry 

regarding market capabilities to meet requirements.

(ii) Reviewing the results of recent market research undertaken to meet 

similar or identical requirements.

(iii) Publishing formal requests for information in appropriate technical or 

scientific journals or business publications.

(iv) Querying the Governmentwide database of contracts and other 

procurement instruments intended for use by multiple agencies available at 

https://www.contractdirectory.gov/contractdirectory/ and other Government 

and commercial databases that provide information relevant to agency 

acquisitions.

(v) Participating in interactive, on-line communication among industry, 

acquisition personnel, and customers.

(vi) Obtaining source lists of similar items from other contracting activities 

or agencies, trade associations or other sources.

(vii) Reviewing catalogs and other generally available product literature 

published by manufacturers, distributors, and dealers or available on-line.
37

(viii) Conducting interchange meetings or holding presolicitation 

conferences to involve potential offerors early in the acquisition process.

(c) If market research indicates commercial or nondevelopmental items 

might not be available to satisfy agency needs, agencies shall reevaluate 

the need in accordance with 10.001(a)(3)(ii) and determine whether the 

need can be restated to permit commercial or nondevelopmental items to 

satisfy the agency’s needs.

(d)(1) If market research establishes that the Government’s need may be 

met by a type of item or service customarily available in the commercial 

marketplace that would meet the definition of a commercial item at subpart 

2.1, the contracting officer shall solicit and award any resultant contract 

using the policies and procedures in part 12.

(2) If market research establishes that the Government’s need cannot be 

met by a type of item or service customarily available in the marketplace, 

part 12 shall not be used. When publication of the notice at 5.201 is 

required, the contracting officer shall include a notice to prospective offerors 

that the Government does not intend to use part 12 for the acquisition.

(e) Agencies should document the results of market research in a manner 

appropriate to the size and complexity of the acquisition.

48 C.F.R. § 10.002. The FAR also addresses multiple statutory provisions at 48 C.F.R. 

§ 11.002:

(a) In fulfilling requirements of 10 U.S.C. 2305(a)(1), 10 U.S.C. 2377, 41 

U.S.C. 3306(a), and 41 U.S.C. 3307, agencies shall—

(1) Specify needs using market research in a manner designed to—

(i) Promote full and open competition (see part 6), or maximum practicable 

competition when using simplified acquisition procedures, with due regard 

to the nature of the supplies or services to be acquired; and

(ii) Only include restrictive provisions or conditions to the extent necessary 

to satisfy the needs of the agency or as authorized by law.

(2) To the maximum extent practicable, ensure that acquisition officials—

(i) State requirements with respect to an acquisition of supplies or services 

in terms of—

(A) Functions to be performed;

(B) Performance required; or

(C) Essential physical characteristics;

(ii) Define requirements in terms that enable and encourage offerors to 

supply commercial items, or, to the extent that commercial items suitable to 

meet the agency's needs are not available, nondevelopmental items, in 

response to the agency solicitations;

(iii) Provide offerors of commercial items and nondevelopmental items an 

opportunity to compete in any acquisition to fill such requirements;
38

(iv) Require prime contractors and subcontractors at all tiers under the 

agency contracts to incorporate commercial items or nondevelopmental 

items as components of items supplied to the agency; and

(v) Modify requirements in appropriate cases to ensure that the 

requirements can be met by commercial items or, to the extent that 

commercial items suitable to meet the agency's needs are not available, 

nondevelopmental items.

48 C.F.R. §11.002(a).

In consideration of the above described framework, defendant argues that “there 

is statutory and regulatory support for the contention that small business set-aside 

decisions should be made on a priority basis before further consideration of a 

procurement.” By contrast, the protestor argues that “the Air Force has arbitrarily and 

capriciously violated the statutory preference for commercial items in the Federal 

Acquisition Streamlining Act (‘FASA’) and Federal Acquisition Regulation (‘FAR’) Part 

12’s implementation of the preference.” 

In a statutory construction analysis, the first step is “to determine whether the 

language at issue has a plain and unambiguous meaning with regard to the particular 

dispute in the case.” Barnhart v. Sigmon Coal Co., 534 U.S. 438, 450 (2002) (quoting 

Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997)); see also Caraco Pharm. Labs., Ltd. 

v. Novo Nordisk A/S, 132 S. Ct. 1670, 1680 (2012) (“We begin ‘where all such inquiries 

must begin: with the language of the statute itself.’” (quoting United States v. Ron Pair 

Enters., Inc., 489 U.S. 235, 241 (1989))); Bettcher Indus., Inc. v. Bunzl USA, Inc., 661 

F.3d 629, 644 (Fed. Cir.), reh’g and reh’g en banc denied (Fed. Cir. 2011); Jimenez v. 

Quarterman, 555 U.S. 113, 118 (2009) (“As with any question of statutory interpretation, 

our analysis begins with the plain language of the statute.”); Strategic Hous. Fin. Corp. of 

Travis Cnty. v. United States, 608 F.3d 1317, 1323 (Fed. Cir.) (“When interpreting any 

statute, we look first to the statutory language.”), reh'g and reh'g en banc denied (Fed.

Cir. 2010), cert. denied, 562 U.S. 1221 (2011); Mgmt. and Training Corp. v. United States, 

115 Fed. Cl. at 42 (“Principles of statutory interpretation dictate that the court begin its 

analysis with the text of the regulation at issue because, if the terms of the regulation are 

unambiguous, the plain language of a regulation is controlling.”). “The plainness or 

ambiguity of statutory language is determined by reference to the language itself, the 

specific context in which that language is used, and the broader context of the statute as 

a whole.” Robinson v. Shell Oil Co., 519 U.S. at 341 (citing Estate of Cowart v. Nicklos 

Drilling Co., 505 U.S. 469, 477 cert. denied 505 U.S. 1218 (1992); McCarthy v. Bronson, 

500 U.S. 136, 139 (1991)). “‘Beyond the statute’s text, the traditional tools of statutory 

construction include the statute’s structure, canons of statutory construction, and 

legislative history.’” Bartels Trust for the Benefit of Cornell Univ. ex rel. Bartels v. United 

States, 617 F.3d 1357, 1361 (Fed. Cir.) (quoting Bull v. United States, 479 F.3d 1365, 

1376 (2007)), reh’g en banc denied (Fed. Cir. 2010); see also Caraco Pharm. Labs., Ltd. 

v. Novo Nordisk A/S, 132 S. Ct. at 1680 (“[W]e consider each question [of statutory 

interpretation] in the context of the entire statute.” (citing Robinson v. Shell Oil Co., 519 

U.S. at 341)); Roberts v. Sea-Land Servs., Inc., 132 S. Ct. 1350, 1356 (2012); Bush v. 
39

United States, 655 F.3d 1323, 1329 (Fed. Cir. 2011), cert. denied, 132 S. Ct. 2681 (2012).

The initial inquiry into the statutory text ceases “if the statutory language is 

unambiguous and ‘the statutory scheme is coherent and consistent.’” Barnhart v. Sigmon 

Coal Co., 534 U.S. at 450 (quoting Robinson v. Shell Oil Co., 519 U.S. at 340); see also

Bettcher Indus., Inc. v. Bunzl USA, Inc., 661 F.3d at 644. In interpreting the plain meaning 

of the statute, it is the court’s duty, if possible, to give meaning to every clause and word 

of the statute. See Alaska Dep’t of Envtl. Conservation v. EPA, 540 U.S. 461, 489 n.13 

(2004) (“It is, moreover, ‘“a cardinal principle of statutory construction” that “a statute 

ought, upon the whole, to be so construed that, if it can be prevented, no clause, 

sentence, or word shall be superfluous, void, or otherwise insignificant.”’” (quoting TRW 

Inc. v. Andrews, 534 U.S. 19, 31 (2001) (quoting Duncan v. Walker, 533 U.S. 167, 174 

(2001)))); Williams v. Taylor, 529 U.S. 362, 404 (2000) (describing as a “cardinal principle 

of statutory construction” the rule that every clause and word of a statute must be given 

effect if possible); see also Setser v. United States, 132 S. Ct. 1463, 1470 (2012) (“Our 

decision today follows the interpretive rule they invoke, that we must ‘give effect . . . to 

every clause and word’ of the Act.” (omission in original) (quoting United States v. 

Menasche, 348 U.S. 528, 538–39 (1955))); Sharp v. United States, 580 F.3d 1234, 1238 

(Fed. Cir. 2009). Similarly, the court must avoid an interpretation of a clause or word 

which renders other provisions of the statute inconsistent, meaningless, or superfluous. 

See Duncan v. Walker, 533 U.S. at 174 (noting that courts should not treat statutory terms 

as “surplusage”). “[W]hen two statutes are capable of co-existence, it is the duty of the 

courts . . . to regard each as effective.” Radzanower v. Touche Ross & Co., 426 U.S. 

148, 155 (1976); see also Xianli Zhang v. United States, 640 F.3d 1358, 1368 (Fed. Cir.) 

(citing Cathedral Candle Co. v. U.S. Int’l Trade Comm’n, 400 F.3d 1352, 1365 (Fed. Cir. 

2005)), reh’g and reh’g en banc denied (Fed. Cir. 2011), cert. denied, 132 S. Ct. 2375 

(2012); Hanlin v. United States, 214 F.3d 1319, 1321 (Fed. Cir.), reh’g denied (Fed. Cir. 

2000).

When the statute provides a clear answer, the court’s analysis is at an end. See 

Barnhart v. Sigmon Coal Co., 534 U.S. at 450; see also Arko Foods Int’l, Inc. v. United 

States, 654 F.3d 1361, 1364 (Fed. Cir. 2011) (“‘[W]here Congress has clearly stated its 

intent in the language of a statute, a court should not inquire further into the meaning of 

the statute.’” (quoting Millenium Lumber Distrib., Ltd. v. United States, 558 F.3d 1326, 

1328 (Fed. Cir.), reh’g denied (Fed. Cir. 2009)); Am. Airlines, Inc. v. United States, 551 

F.3d 1294, 1300 (Fed. Cir. 2008), reh’g granted, 319 F. App’x 914 (Fed. Cir. 2009). Thus, 

when the “‘statute’s language is plain, “the sole function of the courts is to enforce it 

according to its terms.”’” Johnson v. United States, 529 U.S. 694, 723 (2000) (quoting 

United States v. Ron Pair Enters., Inc., 489 U.S. at 241 (quoting Caminetti v. United 

States, 242 U.S. 470, 485 (1917))); see also Bartels Trust for the Benefit of Cornell Univ. 

ex rel. Bartels v. United States, 617 F.3d at 1361 (citing Sharp v. United States, 580 F.3d 

at 1237); Jimenez v. Quarterman, 555 U.S. at 118; Hartford Underwriters Ins. Co. v. Union 

Planters Bank, N.A., 530 U.S. 1, 6 (2000)); Candle Corp. of Am. v. U.S. Int’l Trade 

Comm’n, 374 F.3d 1087, 1093 (Fed. Cir.), reh’g and reh’g denied (Fed. Cir. 2004).

Indeed, in construing a statute, courts “‘must begin with the language employed by 
40

Congress and the assumption that the ordinary meaning of that language accurately 

expresses the legislative purpose.’” Schindler Elevator Corp. v. United States, 131 S. Ct. 

1885, 1891 (2011) (quoting Gross v. FBL Fin. Servs., Inc., 557 U.S. 167, 175 (2009) 

(internal quotation marks omitted)). Even “‘[w]hen terms used in a statute are undefined, 

we give them their ordinary meaning.’” Schindler Elevator Corp. v. United States, 131 S. 

Ct. at 1891 (quoting Asgrow Seed Co. v. Winterboer, 513 U.S. 179, 187 (1995)). 

Consequently, if a statute is plain and unequivocal on its face, there is usually no need to 

resort to the legislative history underlying the statute. See Whitfield v. United States, 543 

U.S. 209, 215 (“Because the meaning of [the statute’s] text is plain and unambiguous, we 

need not accept petitioners’ invitation to consider the legislative history . . . .”), reh’g

denied sub nom. Hall v. United States, 544 U.S. 913 (2005). But see Chamberlain Grp., 

Inc. v. Skylink Techs., Inc., 381 F.3d 1178, 1196 (Fed. Cir. 2004) (“Though ‘we do not 

resort to legislative history to cloud a statutory text that is clear,’ Ratzlaf v. United States, 

510 U.S. 135, 147–48 (1994), we nevertheless recognize that ‘words are inexact tools at 

best, and hence it is essential that we place the words of a statute in their proper context 

by resort to the legislative history.’” (quoting Tidewater Oil Co. v. United States, 409 U.S. 

151, 157 (1972))), reh’g and reh’g en banc denied (Fed. Cir. 2004), cert. denied, 544 U.S. 

923 (2005).

Legislative history may be helpful in certain instances “to shed light on what 

legislators understood an ambiguous statutory text to mean when they voted to enact it 

into law.” Bruesewitz v. Wyeth LLC, 131 S. Ct. 1068, 1081–82 (2011) (citing Exxon 

Mobile Corp. v. Allapatah Servs., Inc., 545 U.S. 546, 568 (2005); see also Xianli Zhang 

v. United States, 640 F.3d at 1373. Legislative history, however, does not “trump[] clear 

text.” Bartels Trust for the Benefit of Cornell Univ. ex rel. Bartels v. United States, 617 

F.3d at 1361 (citing Sharp v. United States, 580 F.3d at 1238; Glaxo Operations UK Ltd. 

v. Quigg, 894 F.2d 392, 396 (Fed. Cir. 1990)). The Supreme Court has noted, however, 

that when it appears that the plain language of a statute resolves the issue, a court is to 

“look to the legislative history to determine only whether there is [a] ‘clearly expressed 

legislative intention’ contrary to that language, which would require us to question the 

strong presumption that Congress expresses its intent through the language it chooses.” 

INS v. Cardoza-Fonseca, 480 U.S. 421, 432 n.12 (1987) (citing United States v. James, 

478 U.S. 597, 606 (1986); Consumer Product Safety Comm'n v. GTE Sylvania, Inc., 447 

U.S. 102, 108 (1980)).

The United States Supreme Court also has held that the specific terms of a statute 

supersede general terms within that statute or within another statute that might otherwise 

control. See Fourco Glass Co. v. Transmirra Prods. Corp., 353 U.S. 222, 228–29 (1957) 

(“Specific terms prevail over the general in the same or another statute which otherwise 

might be controlling.” (quoting D. Ginsberg & Sons v. Popkin, 285 U.S. 204, 208 (1932))); 

see also Bloate v. United States, 559 U.S. 196, 207 (2010); Bulova Watch Co. v. United 

States, 365 U.S. 753, 761 (1961). In addition, the Supreme Court has endorsed “the 

‘normal rule of statutory construction’ that ‘identical words used in different parts of the 

same act are intended to have the same meaning.’” Gustafson v. Alloyd Co., 513 U.S. 

561, 570 (1995) (quoting Dep’t of Revenue of Or. v. ACF Indus., Inc., 510 U.S. 332, 342 

(1994)); see also Kislev Partners, L.P. ex rel. Bahar v. United States, 84 Fed. Cl. 385, 
41

389, recons. denied, 84 Fed. Cl. 378 (2008).

The defendant and intervenor both point to the language of “shall” in 48 C.F.R. 

§ 19.502-2(b),

19 as evidence of the need to perform the small business set-aside

determination before the commercial availability analysis. Defendant states:

This section [§ 19.502-2(b)] - which includes the mandatory term “shall” -

requires the Government to set-aside acquisitions when the Rule of Two is 

satisfied. Accordingly, the Air Force was bound by the mandatory "Rule of 

Two" directive to set aside this procurement for a small business, once the 

Air Force made the necessary findings.

(emphasis in original). Defendant also argues that “[t]here are many competition statutes 

and regulations, but they are structured in such a way to give priority to the application of 

the small business set-aside. Other competition regulations may be applied to the 

subsequent competition between small businesses.” The government is correct that a 

number of the provisions of the FAR, specifically Part 19, addresses the importance of 

the small business set-aide, for example, 48 C.F.R. § 19.201(a) states that, “[i]t is the 

policy of the Government to provide maximum practicable opportunities in its acquisitions 

to small business.” Likewise, 48 C.F.R. § 19.203(e) provides that, “[s]mall business setasides have priority over acquisitions using full and open competition,” and 48 C.F.R. 

§ 19.501(a) states that, “[t]he purpose of small business set-asides is to award certain 

acquisitions exclusively to small business concerns. A ‘set-aside for small business’ is the 

reserving of an acquisition exclusively for participation by small business concerns. A 

small business set-aside may be open to all small businesses.”

 

19 As noted above, 48 C.F.R. § 19.502-2(b) states that:

The contracting officer shall set aside any acquisition over $150,000 for 

small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business 

concerns offering the products of different small business concerns (see 

paragraph (c) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides 

shall not be made unless such a reasonable expectation exists (see 

19.502–3 as to partial set-asides). Although past acquisition history of an 

item or similar items is always important, it is not the only factor to be 

considered in determining whether a reasonable expectation exists. In 

making R & D small business set-asides, there must also be a reasonable 

expectation of obtaining from small businesses the best scientific and 

technological sources consistent with the demands of the proposed 

acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b).
42

Although the defendant and intervenor are correct that 48 C.F.R. § 19.502-2 

provides that “[t]he contracting officer shall set aside any acquisition over $150,000 for 

small business participation,” as noted by protestor, 48 C.F.R. § 12.101 also contains the 

instruction “shall.” 48 C.F.R. § 12.101, titled “Policy” provides that:

Agencies shall—

(a) Conduct market research to determine whether commercial items or 

nondevelopmental items are available that could meet the agency's 

requirements;

(b) Acquire commercial items or nondevelopmental items when they are 

available to meet the needs of the agency; and

(c) Require prime contractors and subcontractors at all tiers to incorporate, 

to the maximum extent practicable, commercial items or nondevelopmental 

items as components of items supplied to the agency.

48 C.F.R. § 12.101 (2017).20 Defendant argues that “[o]ne flaw in AGI's position is that 

the plain meaning of section 12.101 does not mandate any particular action by a 

contracting officer (the general policy goals must be met by ‘the agency’)”21 and that a 

“second flaw is that section 12.101(b) does not mandate the purchase of any commercial 

item. Instead, the policy goal is to ‘acquire’ either a ‘commercial item’ or a 

‘nondevelopmental item.’” (all emphasis in original).22 The court does not understand as 

 

20 48 C.F.R. § 12.102, titled, “Applicability,” provides, in part:

(a) This part shall be used for the acquisition of supplies or services that 

meet the definition of commercial items at section 2.101.

(b) Contracting officers shall use the policies in this part in conjunction with 

the policies and procedures for solicitation, evaluation and award 

prescribed in part 13, Simplified Acquisition Procedures; part 14, Sealed 

Bidding; or part 15, Contracting by Negotiation, as appropriate for the 

particular acquisition.

(c) Contracts for the acquisition of commercial items are subject to the 

policies in other parts of the FAR. When a policy in another part of the FAR 

is inconsistent with a policy in this part, this part 12 shall take precedence 

for the acquisition of commercial items.

48 C.F.R. § 12.102 (2017).

21 The court also notes that 10 U.S.C. § 2377 directs the “head of an agency” to “conduct 

market research,” not necessarily that it has to be the contracting officer to conduct the 

market research or investigate commercial options.

22 Although defendant empathizes “either a ‘commercial item’ or a ‘nondevelopmental 

item,’” the intervenor argues that “a commercial item by definition is a nondevelopmental 
43

dispositive that the commercial availability is aimed at the agency instead of the 

contracting officer. Moreover, as noted above, although the title of 48 C.F.R. § 12.101, is

the word “Policy,” the regulation nevertheless begins: 

Agencies shall

(a) Conduct market research to determine whether commercial items or 

nondevelopmental items are available that could meet the agency's 

requirements;

(b) Acquire commercial items or nondevelopmental items when they are 

available to meet the needs of the agency; and

(c) Require prime contractors and subcontractors at all tiers to incorporate, 

to the maximum extent practicable, commercial items or nondevelopmental 

items as components of items supplied to the agency.

48 C.F.R. § 12.101 (emphasis added).

Despite defendant’s attempt to minimize the importance of the commercial 

availability directive, it is not merely a “policy goal,” but a requirement for the agency to 

determine if a commercial option is available or can be modified to meet the agency’s 

needs. Based on the statutes and regulations at issue, the court believes that an agency 

is required to determine both if a procurement can be small business set-aside and if a 

commercial item is available for the procurement without specific direction as to the order. 

Defendant also states that

section 10.002(d) is a narrow directive to use Part 12 procedures in certain 

circumstances. Even assuming that AGI could allege facts demonstrating 

that it falls within the section 10.002(d) criteria, the drafters of the regulation 

purposefully crafted section 10.002 so that it would not supercede [sic] small 

business authorities. Thus, where the Air Force properly set aside the 

acquisition for small business, AGI’s allegations would not state a claim 

upon which relief might be granted.

Defendant’s basis for claiming that 48 C.F.R. § 10.002 does not supersede the small 

business decision, is the language that “Market research involves obtaining information 

specific to the item being acquired and should include . . . Size and status of potential 

sources (see part 19),” and “[i]f market research establishes that the Government's need 

cannot be met by a type of item or service customarily available in the marketplace, part 

 

item and a nondevelopmental item is a commercial item,” and that “[a] commercial item 

and nondevelopmental items are synonymous.” (all emphasis in original).
44

12 shall not be used.” 48 C.F.R. § 10.002.23 Although the defendant and intervenor 

repeatedly emphasize their belief that the small business set-aside determination could 

not be undermined by a commercial availability determination, they agree that market 

research must be accomplished before either the small business decision or the 

commercial availability decision is made. As intervenor explains, “[t]he purpose of market 

research – which is step one in the process, is, inter alia, to consider application of 15 

U.S.C. § 644 and the capabilities of small businesses.” (emphasis in original). 

As demonstrated above, the agency in this protest performed the market research 

prior to making the small business decision. On May 31, 2016, the contracting officer 

recommended a small business set-aside, and, on June 1, 2016, the agency’s small 

business specialist, concurred with the recommendation of a small business set-aside. 

This decision was in response to the potential offerors responses to the fourth amended 

RFI, which indicated the Air Force was considering a small business set-aside. This was 

the fifth time that the Air Force had sought a request for information about the potential 

procurement. It was the culmination of an extensive market research process to attempt 

to properly identify the requirements of the procurement. Almost seven months before the 

small business set-aside recommendation, the Air Force had initiated the procurement 

process with the first RFI issued on November 4, 2015.24 As explained above, the 

contracting officer issued a first amended RFI, a second amended RFI, a third amended 

RFI, and a fourth amended RFI. Additionally, prior to the small business set-aside 

recommendation, the Air Force held an industry day, in response to information generated 

from the RFI and the amended RFIs, inviting eight potential offerors to the event. Notably, 

it was in response to the market research that the agency even considered a small 

business set-aside. The contracting officer testified in her deposition that it was after the 

industry day event that she first thought about the possibility of a small business setaside. Therefore, the recommendation for a small business set-aside, in late May and 

early June 2016, was in response to, and not separate from, the market research.25

As noted by another Judge of the United States Court of Federal Claims, 

“[c]ontracting officers are required to ‘review acquisitions to determine if they can be set 

 

23 The defendant also claims that “the drafters [of Section 10.002] purposefully did not 

identify Part 19 as a competing contracting approach. The drafters specifically identified 

the alternative contracting approaches of Part 13, Part 14 and Part 15 - both in the 

regulation and in the preamble. The drafters assumed that small business authorities 

would not be diminished by the final rule, and created no conflicting regulation.” (citing 60 

Fed. Reg. 48231, 48233 & 48242 (Sept. 18, 1995).

24 As noted above, this process began just one month after the Air Force awarded the 

JICSpOC contract to Analytical Graphics, and almost nine months before the end of 

contract performance of the JICSpOC contract.

25 The court notes that the Market Research Report for the procurement at issue in the 

above captioned protest was issued on June 21, 2016, after the small business set-aside 

recommendation. The market research itself, however, as described above, was 

conducted prior to the small business set-aside recommendation.
45

aside for small business,’ and must ‘perform market research’ before concluding that an 

acquisition should not be set aside for a small business.” Proxtronics Dosimetry, LLC v. 

United States, 128 Fed. Cl. at 680 (citing 48 C.F.R. § 19.501(c)); see also 48 C.F.R. 

§ 19.501(c) (2017) (“The contracting officer shall perform market research and document

why a small business set-aside is inappropriate when an acquisition is not set aside for 

small business, unless an award is anticipated to a small business under the 8(a),

HUBZone, SDVOSB, or WOSB Programs.”). Likewise, in McKing Consulting Group v. 

United States, 78 Fed. Cl. 715, 726 (2007), in finding that the contracting officer did not 

act arbitrarily or capriciously when issuing the solicitation at issue in that case, the McKing

court explained that

the record demonstrates that the contracting officer had multiple reasons 

for her decision to issue the Solicitation as a small business set-aside. First, 

the procurement history shows that the expectation of at least two 

responsive small business bidders was reasonable. Second, the 

contracting officer conducted sufficient market research and acquisition 

planning before issuing the Solicitation as a small business set-aside.

Id. Numerous other decisions by Judges of the United States Court of Federal Claims, 

although each factually based, point to the market research conducted by an agency as 

evidence that the small business set-aside determination was not made arbitrarily or 

capriciously. See, e.g., Geo-Med, LLC v. United States, 126 Fed. Cl. 440, 447 (“The CO 

[Contracting Officer] did extensive market research and reasonably concluded that the 

agency was not likely to receive at least two offers from qualified small business 

manufacturers.”); Raymond Express Int’l, LLC v. United States, 120 Fed. Cl. 413 (2015);

Dynamic Educational Sys., Inc. v. United States, 109 Fed. Cl. 306, 326 (2013). The history 

of the market research in the current protest, and the nature of market research generally 

demonstrate that market research can guide an agency’s decision making process. It is, 

therefore, logical that an agency use the market research for both the small business setaside determination and of the commercial availability decision. 

Although intervenor frames its arguments in contrast to protestor’s claims that the 

commercial availability decision must come first,26 the court notes that intervenor 

nevertheless states that the “FAR says that the consideration of small business 

capabilities and commercial item possibilities occurs at the same time.” Intervenor also 

claims that “[u]nlike FAR’s mandatory Rule of Two, FAR implements the commercial item 

rule in a precatory, not mandatory, way because there is no absolute mandate for one 

type of solution over the over. Rather, the commercial item preference creates a 

continuum of analysis and review.” Intervenor, citing 48 C.F.R. § 10.001, argues that 

“FAR provides three steps in the procurement process: Step one is to conduct market 

research. Step two is to define the Government’s specific needs. Step 3 is to create 

 

26 As noted above, protestor argues that “consideration of FASA’s mandate precedes and 

takes priority over consideration of size status.” 
46

requirements descriptions.” Intervenor, quoting from 48 C.F.R. § 10.001, argues, 

somewhat confusingly, that after conducting market research the 

FAR then states that “before developing new requirements,” that is Step 

three, the “results of market research” are also used as part of the needs 

assessment (Step two) in determining if inter alia “commercial items or, to 

the extent commercial items suitable to meet the agency's needs are not 

available, nondevelopmental items are available.” 48 C.F.R. § 

10.001(a)(3)(ii)(C)). This determination of commercial items availability is 

part of the needs analysis in step two, as described in 48 C.F.R. Part 11 

(“Describing Agency Needs [sic]) and specifically, 48 C.F.R.§ 11.002. So 

too are the “results of the market research” used to consider small business 

issues. 48 C.F.R. § 10.001(a)(3)(vi) and (vii).[27] Again, FAR says that the 

consideration of small business capabilities and commercial item 

possibilities occurs at the same time.

The defendant also argues that “[t]he Rule of Two determination is a simple, 

preliminary step, requiring none of the rigorous analysis of proposal review,” citing to 

Adams and Associates, Inc. v. United States, 741 F.3d 102, 111 (Fed. Cir. 2014).28 In 

attempting to explain how the FAR makes the set-aside determination “an uncomplicated 

procedure early in the procurement decision-making,” defendant emphasizes that the 

decision not to set-aside a procurement must be documented, but a decision to procure 

as a set-aside does not. (citing 48 C.F.R. § 19.501(c)). As the court noted above, 

 

27 Although referenced by intervenor, “48 C.F.R. § 10.001(a)(3)(vi) and (vii)” provide an 

agency use the results of market research to “(vi) Determine whether consolidation is 

necessary and justified (see 7.107–2) (15 U.S.C. 657q); (vii) Determine whether bundling 

is necessary and justified (see 7.107–3) (15 U.S.C. 644(e)(2)(A)). . . .” The court notes 

that 48 C.F.R. § 10.001(a)(2)(vi) provides that: 

On an ongoing basis, take advantage (to the maximum extent practicable) 

of commercially available market research methods in order to effectively 

identify the capabilities of small businesses and new entrants into Federal 

contracting that are available in the marketplace for meeting the 

requirements of the agency in furtherance of—

(A) A contingency operation or defense against or recovery from nuclear, 

biological, chemical, or radiological attack; and

(B) Disaster relief to include debris removal, distribution of supplies, 

reconstruction, and other disaster or emergency relief activities (see 

26.205). . . .

48 C.F.R. § 10.001(a)(2)(vi).

28 Intervenor also repeatedly cites to Adams and Associates, Inc. v. United States in its 

submissions. The Federal Circuit’s decision in Adams and Associates, Inc. v. United

States is more fully address below in the small business set-aside analysis.
47

however, 10 U.S.C. § 2377, and the implementing regulation at 48 C.F.R. § 10.002(e), 

do not require a commercial availability determination be documented in a specific way, 

only that the commercial availability review be completed. Nor does 10 U.S.C. § 2377 

require a specific type of analysis as the decision is made prior to determining what kind 

of procurement is required.

Protestor, however, argues that, based on the order of the subsections of 48 

C.F.R. § 10.002, “[c]learly, during market research, consideration of FASA’s mandate 

precedes and takes priority over consideration of size status.” Protestor also argues that 

that “[t]he statutorily mandated preference for commercial items and the Rule of Two are 

interpreted harmoniously by AGI, but the defendants’ interpretation extinguishes the 

commercial item preference.” The court notes that defendant, likewise, claims that 

interpretation is “harmoniously” done, arguing that “reading the statutes and regulations 

together harmoniously, we conclude that Congress intended the small business set-aside 

to be considered first.” 

Despite the arguments from both sides, the court does not find either interpretation 

of the statutes works together “harmoniously.” In the court’s view, there is not a clear 

order of precedence in the statutes or implementing regulations for how to approach a 

procurement which potentially involves both a small business set-aside analysis and a 

commercial availability analysis. The intent of 10 U.S.C. § 2377 is to direct agencies to

investigate whether commercial or non-developmental items exist that can satisfy the 

government’s needs, in whole or in part, so as to avoid investing time and taxpayer money 

into developing a product that already exists. The agency must weigh the congressional 

policy goal of having a procurement be designated one of a percentage of small business 

set-asides and the policy goal of reducing the cost to the agency of a developmental 

contract, or not pursing a developmental contract, if an available product already exists 

in commercial form. Given the ambiguity in the two competing statutory goals and absent 

regulatory guidance regarding the choice as to which has precedence, the choice made 

by agency generally deserves deference.

The court should not be the entity to make that choice, and should intervene only 

when there is an obvious foul. Absent compelling statutory or regulatory guidance, which 

is missing here, the court generally defers to the agency’s choice in a procurement in 

which the market research was carefully conducted. As the statutes and regulations do 

not point to a clear order for an agency to proceed between the small business set-aside 

determination and a commercial availability decision, the court does not read a 

requirement into the statutes and regulations that requires the agency or this court to first 

examine either. 

The court notes, that the Air Force, in fact, considered both the small business setaside determination and the commercial availability decision essentially 

contemporaneously after the market research process. As noted above, on May 31, 2016, 

the contracting officer recommended a small business set-aside, and on June 1, 2016, 

the agency’s small business specialist, concurred with the recommendation of a small 

business set-aside. The same day, June 1, 2016, the contracting officer wrote a 

Memorandum for Record on the subject of: “Noncommerciality for Services and 
48

Government Purpose Rights.” Two days later, on June 3, 2016, the contracting officer 

was still evaluating both protestor and Exo, as evidenced by the June 3, 2016 

Memorandum for Records tilted: “Pricing for Analytical Graphics and ExoAnalytical [sic] 

Solutions.” Moreover, it was the market research process which led the contracting officer 

to consider, and ultimately opt for, the small business set-aside determination.

Small Business Set-Aside

The court therefore, must determine if the small business set-aside was proper. 

The defendant argues that the small business set-aside was indeed proper, and 

intervenor agrees, arguing that “the application of the Rule of Two here was proper.”

Protestor, by contrast, argues that “the Air Force’s ‘Rule of Two’ determination underlying 

the set-aside decision was arbitrary and capricious and unlawfully restricts competition in 

violation of the Competition in Contracting Act, 10 U.S.C. § 2304.” 

As explained by the United States Supreme Court in Kingdomware Technologies, 

Inc. v. United States:

In an effort to encourage small businesses, Congress has mandated that 

federal agencies restrict competition for some federal contracts. The Small 

Business Act thus requires many federal agencies, including the 

Department of Veterans Affairs, to set aside contracts to be awarded to 

small businesses. The Act requires each agency to set “an annual goal that 

presents, for that agency, the maximum practicable opportunity” for 

contracting with small businesses, including those “small business 

concerns owned and controlled by service-disabled veterans.” 15 U.S.C. § 

644(g)(1)(B). And federal regulations set forth procedures for most 

agencies to “set aside” contracts for small businesses. See, e.g., 48 CFR § 

19.502–2(b) (2015).

Kingdomware Techs., Inc. v. United States, 136 S. Ct. 1969, 1973 (2016). As noted 

above, the FAR provides that “[t]he purpose of small business set-asides is to award 

certain acquisitions exclusively to small business concerns.” 48 C.F.R. § 19.501(a). The 

regulations at 48 C.F.R. § 19.502-2(b) indicates that:

The contracting officer shall set aside any acquisition over $150,000 for 

small business participation when there is a reasonable expectation that—

(1) Offers will be obtained from at least two responsible small business 

concerns offering the products of different small business concerns (see 

paragraph (c) of this section); and

(2) Award will be made at fair market prices. Total small business set-asides 

shall not be made unless such a reasonable expectation exists (see 

19.502–3 as to partial set-asides). Although past acquisition history of an 

item or similar items is always important, it is not the only factor to be 

considered in determining whether a reasonable expectation exists. In 

making R & D small business set-asides, there must also be a reasonable 
49

expectation of obtaining from small businesses the best scientific and 

technological sources consistent with the demands of the proposed 

acquisition for the best mix of cost, performances, and schedules.

48 C.F.R. § 19.502-2(b); see also Adams & Assocs. v. United States, 741 F.3d at 111. 

As explained by a Judge of the United States Court of Federal Claims, “the decision to 

set aside a solicitation ‘is a matter of business judgment within the contracting officer's 

discretion and, as such, must be upheld unless the Court finds the decision to be arbitrary, 

capricious, an abuse of discretion or otherwise not in accordance with the law.’” Mgmt. 

& Training Corp. v. United States, 115 Fed. Cl. at 44 (quoting Benchmade Knife Co. v. 

United States, 79 Fed. Cl. 731, 738 (2007)); see also Adams & Assocs. v. United States, 

741 F.3d at 111; Res-Care Inc. v. United States, 735 F.3d 1384, 1390 (Fed. Cir. 2013)

(quoting Weeks Marine, Inc. v. United States, 575 F.3d at 1368–69 (“A contracting 

officer's decision to set aside a contract for small businesses invokes ‘highly deferential 

rational basis review.’”)). Likewise, as noted by another Judge of this court, “[w]e begin 

with the reminder that, whether to set aside a solicitation for small businesses ‘“is a matter 

of business judgment within the contracting officer's discretion.”’ Gear Wizzard, Inc. v. 

United States, 99 Fed. Cl. 266, 282 (2011) (quoting Benchmade Knife Co. v. United 

States, 79 Fed. Cl. 731, 738 (2007)). The ‘law does not require any particular method.’” 

Dynamic Educational Sys., Inc. v. United States, 109 Fed. Cl. 306, 326 (2013) (quoting 

Gear Wizzard, Inc. v. United States, 99 Fed. Cl. at 282). The determination for the Rule 

of Two is based on the information available to the contracting officer at the time the 

decision is made, in this case, after the market research review, as “the FAR provides for 

set asides based on the contracting officer's ‘reasonable expectation,’ implicitly accepting 

the possibility that that expectation may ultimately prove incorrect.” Mgmt. & Training 

Corp. v. United States, 118 Fed. Cl. 155, 169 (2013).

The relevant authority for the court to look to regarding the requirements for a small 

business set-aside determination is the United States Court of Appeals for the Federal 

Circuit’s 2014 decision in Adams & Associates v. United States. In Adams, the protestor 

had challenged the United States Department of Labor’s decision to set aside two 

contracts, the Gadsden contract and the Shriver contract, as small business set-asides. 

See Adams & Assocs. v. United States, 741 F.3d at 105.29 The Federal Circuit explained 

regarding the requirements for a small business set-aside determination: 

Adams’s reading of the Rule of Two ignores that “a reasonable expectation” 

that at least two responsible small businesses will submit bids at fair market 

prices is all that is required. Here, through the RFI process, the DOL 

performed market research about the level of interest from small businesses 

in bidding on the Shriver and Gadsden contracts. It then determined from 

the responses that there was a reasonable expectation that at least two 

 

29 The protestor in Adams also challenged the decision to use a small business set-aside 

as violating the Workforce Investment Act, which is not at issue in the current procurement 

under review. See Adams & Assocs. v. United States, 741 F.3d at 107-108.
50

responsible small businesses would make offers for the operation of each 

of the Centers. To Adams, “the issue here is that the market research . . . 

must generate the information necessary to address the expressly required 

responsibility and price reasonableness legal elements of the Rule of Two.” 

According to Adams, the required information is identified in another part of 

the Federal Acquisition Regulation pertaining to determining whether a 

prospective contractor is “responsible” before awarding a contract to that 

contractor. These factors include capability, capacity, and past 

performance. 48 C.F.R. § 9.104-1. Adams contends that only by collecting 

information related to these factors can the DOL meet the requirements of 

the Rule of Two.

Adams conflates a set-aside determination with a responsibility 

determination made pursuant to § 9.104-1; the former determines whether 

there is a reasonable expectation that at least two responsible small 

businesses will make an offer at fair market prices, while the latter 

determines whether an individual contractor is responsible in the context of 

awarding a contract. As the lower court noted, a seta-side determination 

requires only that the contracting officer have a reasonable expectation that 

likely small business offerors will survive a future responsibility 

determination. The DOL was not required to impose the requirements of the 

contractor-selection process onto the small business set-aside 

determination, and it properly applied the Rule of Two. Because its decision 

was not arbitrary, capricious, an abuse of discretion, or otherwise not in 

accordance with law, it will not be disturbed. 5 U.S.C. § 706(2)(A).

Adams & Assocs. v. United States, 741 F.3d at 111 (internal citations omitted). 

Despite the Federal Circuit’s clear guidance in Adams not to require a 

responsibility determination before making the set-aside determination, the protestor

nonetheless argues that “the Air Force irrationally concluded that ExoAnalytic could meet 

the Agency’s minimum requirements,” and also argues that “the Air Force’s ‘Rule of Two’ 

determination was flawed because, at the time the set-aside decision was made, the Air 

Force could not have rationally concluded that ADS could satisfy the requirements of the 

PWS without violating the limitation on subcontracting clause.” The court addresses each 

of these arguments separately. Regarding the protestor’s argument that “Air Force 

irrationally concluded that ExoAnalytic could meet the Agency’s minimum requirements,”

the protestor points to the “Salient Characteristics” identified during the RFI process as 

Exo’s inability to meet the Air Force’s requirements. The parties have stipulated:

In the amended RFI, The Air Force sought information about collections of 

data, software and personal services that could meet certain minimum 

requirements. The Air Force included a list of ten “Salient Characteristics” 

that the Air Force considered to be “minimum requirements” for the SSA 

system: 
51

SALIENT CHARACTERISTICS: The collection of non-governmental SSA 

data, processing tools, personnel, and contracted support will be referred 

to as the Commercial SSA System. 

• Provide metric, non-metric, and Space Object Identification (SOI) 

observations from data collected from a minimum of 10 worldwide sensors 

outside the control of the USG, at least half of which must not be terrestrial 

sensors in North America (e.g. sensors in Europe, on orbit). 

• Document whether sensors can be utilized on an on-demand basis or if 

their use must be pre-planned and list the additional costs for on-demand 

service, if applicable. 

• Provide the format and source of the data. 

• Ingest authorized DoD data (raw or processed observations) into any 

contractor event processing or analysis capability. 

• Ensure they export their data, one-way, to DoD networks of equal or higher 

classification for additional processing. 

• Provide for threat warning assessment by detecting and notifying 

JICSpOC personnel of a space object entering or projected to enter a userdefinable area around specific resident space objects (RSO) within 15 

minutes of entering. NOTE: 15 minutes is the unclassified value. 

• Process and correlate feature-type data (Visual Magnitude (Vmag), Radar 

Cross Section (RCS) changes, RF spectrum, etc.). 

• Ability to detect hostile and non-hostile maneuvers and analyze the 

change of behavior, to include the revised orbit, within 2 minutes of 

maneuver detection. 

• Augment DoD persistent monitory capabilities by maintaining custody of 

designated objects (e.g. Super High Interest Objects) to the maximum 

degree possible. 

• Provide telemetry data on the orbits of all detectable objects. 

(capitalization in original). As indicated above, although in its response to the first 

amended RFI, Exo indicated that it could meet the government’s minimum salient 

characteristics, the parties have stipulated that, after the responses to the first amended 

RFI, “[t]he Air Force determined that the responses of AGI and ADS [Applied Defense] 

indicated that AGI and ADS could satisfy all 10 of the minimum salient characteristics, 

and that the response of Exo indicated that Exo could satisfy 9 of the minimum salient 

characteristics.” The Air Force concluded that, at the time of the first amended RFI 
52

response, Exo did not meet the characteristic: “Process and correlate feature-type data 

(Visual Magnitude (Vmag), Radar Cross Section (RCS) changes, RF spectrum, etc).” 

Based on this, protestor argues that this failure is clear proof that the Air Force’s 

conclusion that there was a reasonable expectation Exo survive a future responsibility 

determination was arbitrary and capricious.

Defendant argues that “AGI gives undue weight to a preliminary technical scoring 

exercise conducted prior to the classified information exchanges at Industry Day.” 

(emphasis in original). Intervenor echoes defendant’s argument noting that:

AGI says that the Air Force irrationally concluded that ExoAnalytic could

meet the Agency’s requirements, because the preliminary stage RFI found 

that Exo could not meet one of the ten ‘salient characteristics. [sic] After the 

later industry day, further evaluation, and receipt of more information, 

however, the Air Force found both Exo and ADS capable of meeting the Air 

Force’s requirement certainly with teaming partners.

(emphasis in original). The court agrees that protestor places too much weight on Exo’s 

responses to the first amended RFI and does not allow for the possibility that the Air Force 

would acquire additional information that would lead them to reasonably believe Exo 

could be a responsible small business offeror. As noted above, the parties have jointly 

stipulated that “[b]etween June 7, 2016 and June 15, 2016, various Air Force officials 

signed the justification and authorization document to approve limiting competition to ADS 

and Exo, pursuant to the authority of 10 U.S.C. [§] 2304(c)(6) and 48 C.F.R. [§] 6.302-6.” 

(internal references omitted). Regarding the market research conducted by the Air Force,

the justification and authorization document stated:

(U) Market research was conducted, including two RFls posted to the GPE

and an industry day conducted between the first and second RFI. The initial 

RFI provided potential offerors with notification of security requirements and 

a list of salient characteristics offeror products and services would need to 

demonstrate to receive consideration for an industry day invitation. 

Responses from the initial RFI were assessed to gauge potential technical 

capabilities as well as security clearance requirements. Firms that did not 

demonstrate a rudimentary understanding of the requirements and those 

without appropriate clearance levels were not invited to attend industry day. 

For the industry day, the Program Manager (PM) determined disclosure of 

classified information to those invited was necessary to sufficiently explain 

the government's requirements and allow for a meaningful exchange of 

information. This led to the conclusion that eight responding firms 

possessed requisite security clearance requirements and demonstrated a 

rudimentary capability to potentially participate in the acquisition.

(U) Following industry day presentations, the PM and CO jointly determined 

three small business concerns were potential candidates for prime contract 

award. The three small businesses were contacted to discuss prime 

contract interest. Two of the small business firms (ExoAnalytics [sic] and 
53

ADS) expressed strong desire to participate as a prime contractor for the 

requirements. The third firm (Rincon) affirmed their desire to participate, but 

only in terms of subcontracting opportunities.

(U) An extensive market research report is in draft to support the conclusion 

that two small businesses are capable of fulfilling the government's 

requirement.

(internal references omitted). The justification and authorization document also explained:

(U) For this acquisition, the government: 1) publicly sought sources for the 

opportunity to fulfill its requirements, 2) disclosed the salient features of the 

products/services sought, 3) transparently communicated the security 

requirements associated with the acquisition, 4) evaluated thoroughly 

capability statements from all respondents, 5) provided an exchange of 

information opportunity at an Industry Day event, and 6) re-publicized the 

opportunity for industry consideration following the Industry Day event. 

(U) As a result of government exchanges with industry as listed above, the 

government identified eight firms that demonstrated a rudimentary 

understanding of the government’s requirements and possessed sufficient 

security clearances to participate in the government’s Industry Day event. 

(U) In reviewing the results of informational exchanges and vendor

presentations from the Industry Day, the Contracting Officer (CO) and the 

Program Manager (PM) jointly determined that three of the firms 

participating in Industry Day were small business concerns that could 

potentially provide the products/services as prime contractors. 

(U) In follow-on discussions with the three small business concerns, two of 

the firms expressed strong interest in submitting proposals as prime 

contractors. The PM assesses two of the interested small businesses as 

having capability to provide the required products and services for this 

requirement as prime contractors. Therefore the CO determined the 

acquisition is suited for a total small business set-aside as prescribed at 

FAR 19.502-2(a); that is, within the context of the national security 

constraints imposed on this acquisition. 

(U) The CO finds a reasonable expectation exists for receiving proposals 

from two responsible small business concerns, and that award can be made 

at fair market prices. For this acquisition, the two small businesses that have 

emerged from the Requests for Information (RFI) and Industry Day 

processes appear to be uniquely qualified at this time in terms of security 

qualifications and possessing the capabilities required, or ability to obtain 

them, to facilitate the objectives contemplated in the Performance Work 
54

Statement (PWS). The two small businesses are ExoAnalytics [sic] and 

Applied Defense Solutions (ADS). 

(U) Both ExoAnalytics [sic] and ADS were determined by the PM to have 

responded affirmatively to the questions posed by the government in the 

RFI and Industry Day exchanges. Both firms have demonstrated extensive 

experience with space observation technologies. Both have ongoing 

contractual relationships with the government and have developed, or 

helped to develop, capabilities currently in use in both the Defense and 

Intelligence communities. Both firms are postured to team as needed with 

an extensive network of commercial and non-government sources to 

facilitate delivery of the required products/services. Both firms have 

requisite facility and personnel security clearance posture to begin 

delivery/performance immediately upon contract award. Given these 

factors, ExoAnalytics [sic] and ADS are reasonably assessed to have 

unique qualifications to provide/perform the SSA work contemplated in the 

PWS. Thus through [sic] these elements of market research, the CO and 

PM conclude that ExoAnalytics [sic] and ADS are presently the only two 

small businesses with demonstrated capabilities necessary to deliver the

non-government, non-developmental SSA requirements for the JICSpOC, 

as put forth in the government’s PWS.

The justification and authorization document explains that in addition to the RFI, the Air 

Force considered the responses by Exo at the industry day.

30 Indeed, in the justification 

and authorization document, the Air Force stated:

For the industry day, the Program Manager (PM) determined disclosure of 

classified information to those invited was necessary to sufficiently explain 

the government's requirements and allow for a meaningful exchange of 

information. This led to the conclusion that eight responding firms 

possessed requisite security clearance requirements and demonstrated a 

rudimentary capability to potentially participate in the acquisition.

Moreover, the Market Research Report, in identifying Exo as capable, noted that not only 

did Exo participate in the industry day, but that “the Government held a teleconference 

with ExoAnalytic Solutions to ascertain their capability and willingness to serve as a prime 

contractor on this effort. During the teleconference, ExoAnalytic Solutions indicated they 

would be interested in acting as a prime contractor for this effort[.]” Notably, after the 

submissions to the third amended RFI were received and the industry day was held, the 

contracting officer issued a fourth RFI, on May 11, 2016. As noted above, the fourth 

amended RFI included the draft Performance Work Statement, and a section titled 

“Scope,” which stated that, “[t]his is a non-personal services contract to provide 

nongovernmental space situational awareness (SSA) software and services. 

 

30 Notably, the contracting officer testified in her deposition that it was after the industry 

day event that she first thought about the possibility of a small business set-aside. 
55

Nongovernmental SSA solutions are required to augment the Government’s ability to 

detect and characterize space threats and improve integration between DoD, intelligence 

community, interagency, and nongovernmental space assets.” This fourth amended RFI 

provided potential offerors, like Exo, a further opportunity to demonstrate to the Air Force 

the ability to potentially demonstrate future responsibility to meet the agency’s 

requirements.

In addition to Exo being identified as capable, other potential offerors, with lower 

scores than Exo on the Salient Characteristics were determined to be capable, indicating 

that the Air Force had taken into account more than just the number of Salient 

Characteristics to conclude if a potential offeror could be capable. For example, the Harris 

Corporation was given a Salient Characteristics score of 5, but deemed capable, and 

Rincon Research Corp. was given a Salient Characteristics score of 4, but deemed 

capable. Another potential offeror was initially given a Salient Characteristics score of 7, 

but was upgraded to a score of 9 after the industry day, and was judged capable. The 

court does not believe that the failure to achieve a perfect score of Salient Characteristics, 

on the information the potential offerors submitted in response to the first amended RFI,

precludes a finding that a potential offeror could be capable and it appears the Air Force 

did not limit the capability determination to simply the number of the Salient 

Characteristics a potential offeror received. The court agrees with the defendant and the 

intervenor that the Air Force could have had, and acted on, a reasonable expectation that 

Exo could survive a future responsibility determination.31

The court notes that although the defendant also argues that “[t]he reasonable 

expectation of the contracting officer that Exo could meet the technical requirements was 

subsequently confirmed when Exo did, in fact, submit a proposal meeting the technical 

requirements,” the court can only look to the information that the contracting officer and 

the agency had at the time the Rule of Two determination was made, and not at the time 

the Source Selection Authority evaluated Exo’s proposal, even if it was subsequently 

validated. See Mgmt. & Training Corp. v. United States, 118 Fed. Cl. at 169.

Regarding protestor’s second argument, in which protestor cites to 48 C.F.R. 

§ 9.104-3(d)(2), to argue that “the Air Force could not have rationally concluded that ADS 

could satisfy the requirements of the PWS without violating the limitation on 

 

31 The court notes that this conclusion is in line with the GAO decision, referenced above. 

See Analytical Graphics, Inc., B-413385, 2016 WL 6212299. Before the GAO, Analytical 

Graphics argued that Exo “could meet only 9 of the 10 minimum requirements,” which 

“meant that the agency could not reasonably expect this firm to be a responsible offeror.” 

Id. at *6. The GAO noted that “ExoAnalytic stated that it could perform the requirements, 

and there is no allegation of misrepresentation in this regard,” and that “[n]either FAR 

§ 19.502-2(b) nor the decisions by our Office require an agency to request, or a 

prospective small business offeror to provide, a complete technically-acceptable 

approach in response to market research.” Id. The GAO determined that “[u]nder the 

applicable standards for making a set-aside determination, we find no basis to conclude 

that the agency’s judgment here regarding ExoAnalytic was unreasonable.” Id.
56

subcontracting clause.” Protestor contends the limitation on subcontracting clause

“makes clear that ‘[a] small business that is unable to comply with the limitations on 

subcontracting at 52.219-14 may be considered nonresponsible.’’” (citing 48 C.F.R. 

§ 9.104-3(d)(2)). The court notes that protestor’s brief states that “it appears the CO 

simply relied on ADS’s RFI response to a question about compliance with FAR 52.219-

14 without ever following up on the issue independently. . . .” Applied Defense points to 

the Administrative Record, and explains that “ADS explicitly stated that it could meet the 

requirement, and there is nothing in the record indicating the contrary. In fact, the Air 

Force awarded a contract to ADS and there still is no evidence that it has not met the 

requirement.”32 (internal citation omitted). Intervenor also points to the Small Business 

Administration’s (SBA) regulations which indicate that for “[d]etermining compliance with 

applicable limitation on subcontracting,” “[c]ompliance will be considered an element of 

responsibility and not a component of size eligibility.” 13 C.F.R. § 125.6(e)(2) (2017).

33

Moreover, the very FAR provision protestor cites also makes it clear that it relates to 

responsibility: “A small business that is unable to comply with the limitations on 

subcontracting at 52.219-14 may be considered nonresponsible.” 48 C.F.R. § 9.104-

3(d)(2). To the extent the subcontracting clause was an issue, it would not be one that 

the Air Force was required to address when making the Rule of Two determination. See

Adams & Assocs. v. United States, 741 F.3d at 111 (“Adams conflates a set-aside 

determination with a responsibility determination. . . .”).

Protestor also points to the second prong of the Rule of Two analysis, that the 

award will be made at fair market prices, to argue that the “Air Force’s ‘Rule of Two’ 

determination was arbitrary and capricious.” In response, intervenor argues that “AGI’s 

 

32 Protestor cites a single case, Klinge Corp. v. United States, 82 Fed. Cl. 127, 135 (2008),

for its proposition that “contracting officers cannot simply rely on an offeror’s affirmative 

representations when their exists indicia to the contrary,” but as defendant correctly notes, 

“AGI cites a case involving the validity of a formal trade certification submitted by the 

winning vendor in response to a solicitation (and relied upon by the contracting officer to 

determine that the offeror could perform) rather than a case concerning what evidence is 

sufficient to support a ‘reasonable expectation’ prior to a set-aside determination.” 

33 In a footnote in its reply brief, protestor states: 

AGI acknowledges that on May 31, 2016, SBA issued its final rule 

implementing the National Defense Authorization Act (NDAA) of 2013 which 

changed, among other things, the basis for limitations on subcontracting for 

supplies from the cost of the items to the amount paid to the prime 

contractor and to subcontractors that are similarly situated. See 81 Fed. 

Reg. 34243; 13 C.F.R. § 125.6(a)(2). However, at the time the set-aside 

decision was purportedly made, the SBA final rule had not been issued. 

Moreover, the current version of FAR 52.219-14 as well as the version of 

FAR 52.219-14 incorporated into the RFP and the final ADS contract have 

not been updated to reflect the changes in the SBA final rule.
57

challenge to the fair market price determination is baseless,” and defendant argues that 

“[b]oth ADS and Exo had been successful in the SSA marketplace for years, indicating 

an ability to compete on price. Accordingly, it was reasonable for the Air Force to expect 

that the competition between ADS and Exo, two well-established business, would result 

in a fair market price.” 

Regarding cost, the justification and authorization document stated:

(U) Determination by the Contracting Officer that the anticipated cost 

to the Government will be fair and reasonable.

(U) The Contracting Officer (CO) anticipates that cost to the Government 

may be determined to be fair and reasonable on the basis of price and/or 

cost analysis and by using certified cost or pricing data to analyze elements 

of cost. Given the government will solicit for the award of one or more 

contracts for the work, the CO further anticipates that proposed costs to the 

government will be driven by competitive forces. 

(emphasis in original). In addition, the record reflects a Memorandum for Records, dated 

June 3, 2016, with the subject, “Pricing for Analytical Graphics and ExoAnalytical [sic] 

Solutions.” The memorandum reflected that:

The majority of respondents did not provide a price list for their products 

during market research. ExoAnalytical's [sic] price list was utilized to 

develop the Government's independent cost estimate and historical data 

from other contracts. Analytical Graphics' prices were high compared to the 

Government's IGE. Based on the contracting officer's understanding of the 

requirement, an estimate was developed. The estimate utilizing AGI's price 

list was twice the estimate of the Government's IGE.

Regarding price, protestor argues:

Here, the contemporaneous record lacks any analysis of the small business 

offerors’ potential pricing and, indeed, the RFI exercise revealed that one 

small business offeror – ExoAnalytic - was unable to provide any meaningful 

pricing information. Thus, regardless of whether the Air Force ultimately 

received proposals from two offerors capable of providing “fair market 

pricing” in response to the final Solicitation, at the time the set-aside 

determination was made, the Air Force could not have rationally held such 

an expectation.

(emphasis in original; internal citation omitted). Protestor also stated that “ExoAnalytic, 

provided pricing information, but only for observation and telescope data, not the 

complete SSA solution required by the Air Force.”34

 

34 Protestor concedes, however, in its reply brief, 
58

Moreover, as the June 3, 2016 Memorandum for Records titled: “Pricing for 

Analytical Graphics and ExoAnalytical [sic] Solutions” demonstrates Exo prices were 

lower than protestor’s prices, and Exo’s prices were used by the Air Force to develop the 

government’s own independent cost estimate for the procurement. In the justification and 

authorization document, the Air Force likewise indicated that the “CO further anticipates 

that proposed costs to the government will be driven by competitive forces.” It was, 

therefore, reasonable for the contracting officer to believe that the small business setaside would result in a fair market price.35

In its reply brief, protestor also claims that “there is nothing in the

contemporaneous procurement record indicating the Air Force considered ADS’s and

ExoAnalytic’s previous ‘successes’ in the SSA marketplace as evidence of the firms’ 

ability to compete on price.” The Market Research Report, however, has a section for 

both Exo’s and Applied Defense’s past performance, noting “ExoAnalytic Solutions has 

sold more than 50 million observations as well as commercial software to both industry 

and government customers,” and “ADS has provided SSA systems, algorithms, and 

services to: 1) US Naval Space Operations Center at Point Mugu, California, 2) Defense 

Advanced Research Projects Agency (DARPA) Orbit Outlook Program, 3) National 

Reconnaissance Office (NRO) 4) US Air Force Research Laboratories (AFRL) 5) 

classified customers at various locations.” 

 

[i]n its MJAR [motion for judgment on the Administrative Record] and in 

earlier pleadings, AGI mistakenly stated that ExoAnalytic only provided 

pricing information for observation and telescope data. Upon further review, 

it appears ExoAnalytic also provided pricing information for software 

products and enterprise solutions. There is no indication, however, that the 

price information submitted by ExoAnalytic addressed the full range of the 

Air Force’s SSA requirements and, indeed, because ExoAnalytic did not 

satisfy all of the salient characteristics, the pricing information at a minimum 

did not cover the costs associated with processing and correlating featuretype data and radar cross section changes.

(internal citations omitted). 

35 Defendant makes a different, but related point, nothing that: 

Assuming that AGI's commercial prices were at or near fair market prices, 

and recognizing that the contracting officer determined that Exo's prices 

were lower than AGI's prices, then there is ample support in the 

administrative record for the contracting officer's reasonable expectation 

that a competition between Exo (with Exo prices at or below the fair market 

value) and ADS would result in an award at fair market value.

(emphasis in original; internal citations omitted). 
59

As noted above, the Federal Circuit in Adams stated, “‘a reasonable expectation’

that at least two responsible small businesses will submit bids at fair market prices is all 

that is required.” Adams & Assocs. v. United States, 741 F.3d at 111. The June 3, 2016 

Memorandum for Records and the justification and authorization document provide 

sufficient evidence that the Air Force had a reasonable expectation that fair market prices 

could be met with Exo and Applied Defense. See Res-Care Inc. v. United States, 735 

F.3d at 1390 (quoting Weeks Marine, Inc. v. United States, 575 F.3d at 1368–69) (“A 

contracting officer's decision to set aside a contract for small businesses invokes ‘highly 

deferential rational basis review.’”). Protestor has not met its high burden to show that 

there was not a reasonable expectation that fair market prices could be obtained. The 

contemporaneous record at the time the solicitation was restricted to Exo and Applied 

Defense, as evidenced, in part, by the justification and authorization document,

demonstrates that the agency had the reasonable expectation that both small business 

offerors could survive a future responsibility determination and that the award would be 

made at fair market prices. Therefore, the Air Force’s Rule of Two analysis was not 

arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. See

id.

10 U.S.C. § 2377

Although the court has determined that the agency’s small business set-aside 

determination was proper, and Analytical Graphics, as a non-small business, therefore, 

would not be qualified for award, because the court has determined that there is no clear 

order of precedence as to which of the two issues presented by this case should be 

addressed first, the small business set-aside determination or the commercial availability 

decision, the court also examines the implications of 10 U.S.C. § 2377 in the instant 

protest.

Protestor Analytical Graphics argues that the Air Force violated 10 U.S.C. § 2377

by “ignoring the statutorily mandated preference for commercial items,” and further 

refused to “modify, or consider modifying its requirements in a manner that would allow 

the Air Force to take advantage of available commercial SSA solutions.” Defendant 

responds that “AGI is mistaken. The contracting officer acted reasonably, and well within 

her discretion, when conducting market research,” and argues that “[t]he contracting 

officer was plainly correct that the Government requirement, as a whole, could not be met 

by a product from the commercial marketplace.” 

As noted above, the “Preference for acquisition of commercial items” statute, 10 

U.S.C. § 2377, states:

(a) Preference.--The head of an agency shall ensure that, to the maximum 

extent practicable--

(1) requirements of the agency with respect to a procurement of supplies or 

services are stated in terms of--

(A) functions to be performed;
60

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent 

that commercial items suitable to meet the agency’s needs are not 

available, nondevelopmental items other than commercial items, may be 

procured to fulfill such requirements; and

(3) offerors of commercial items and nondevelopmental items other than 

commercial items are provided an opportunity to compete in any 

procurement to fill such requirements.

(b) Implementation.--The head of an agency shall ensure that 

procurement officials in that agency, to the maximum extent practicable--

(1) acquire commercial items or nondevelopmental items other than 

commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the 

agency contracts to incorporate commercial items or nondevelopmental 

items other than commercial items as components of items supplied to the 

agency;

(3) modify requirements in appropriate cases to ensure that the 

requirements can be met by commercial items or, to the extent that 

commercial items suitable to meet the agency’s needs are not available, 

nondevelopmental items other than commercial items;

(4) state specifications in terms that enable and encourage bidders and 

offerors to supply commercial items or, to the extent that commercial items 

suitable to meet the agency’s needs are not available, nondevelopmental 

items other than commercial items in response to the agency solicitations;

(5) revise the agency’s procurement policies, practices, and procedures not 

required by law to reduce any impediments in those policies, practices, and 

procedures to the acquisition of commercial items; and

(6) require training of appropriate personnel in the acquisition of commercial 

items.

(c) Preliminary market research.--(1) The head of an agency shall 

conduct market research appropriate to the circumstances--

(A) before developing new specifications for a procurement by that agency;
61

(B) before soliciting bids or proposals for a contract in excess of the 

simplified acquisition threshold; and

(C) before awarding a task order or delivery order in excess of the simplified 

acquisition threshold.

(2) The head of an agency shall use the results of market research to 

determine whether there are commercial items or, to the extent that 

commercial items suitable to meet the agency’s needs are not available, 

nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were 

modified to a reasonable extent.

(3) In conducting market research, the head of an agency should not require 

potential sources to submit more than the minimum information that is 

necessary to make the determinations required in paragraph (2).

(4) The head of an agency shall take appropriate steps to ensure that any 

prime contractor of a contract (or task order or delivery order) in an amount 

in excess of $5,000,000 for the procurement of items other than commercial 

items engages in such market research as may be necessary to carry out 

the requirements of subsection (b)(2) before making purchases for or on 

behalf of the Department of Defense.

10 U.S.C. § 2377 (emphasis in original). The regulation implementing 10 U.S.C. § 2377, 

48 C.F.R. § 10.002, states:

(a) Acquisitions begin with a description of the Government’s needs stated 

in terms sufficient to allow conduct of market research.

(b) Market research is then conducted to determine if commercial items or 

nondevelopmental items are available to meet the Government’s needs or 

could be modified to meet the Government’s needs.

(1) The extent of market research will vary, depending on such factors as 

urgency, estimated dollar value, complexity, and past experience. The 

contracting officer may use market research conducted within 18 months 

before the award of any task or delivery order if the information is still 

current, accurate, and relevant. Market research involves obtaining 

information specific to the item being acquired and should include—
62

(i) Whether the Government’s needs can be met by—

(A) Items of a type customarily available in the commercial marketplace;

(B) Items of a type customarily available in the commercial marketplace with 

modifications; or

(C) Items used exclusively for governmental purposes;

(ii) Customary practices regarding customizing, modifying or tailoring of 

items to meet customer needs and associated costs;

(iii) Customary practices, including warranty, buyer financing, discounts, 

contract type considering the nature and risk associated with the 

requirement, etc., under which commercial sales of the products or services 

are made;

(iv) The requirements of any laws and regulations unique to the item being 

acquired;

(v) The availability of items that contain recovered materials and items that 

are energy efficient;

(vi) The distribution and support capabilities of potential suppliers, including 

alternative arrangements and cost estimates; and

(vii) Size and status of potential sources (see part 19).

(2) Techniques for conducting market research may include any or all of the 

following:

(i) Contacting knowledgeable individuals in Government and industry 

regarding market capabilities to meet requirements.

(ii) Reviewing the results of recent market research undertaken to meet 

similar or identical requirements.

(iii) Publishing formal requests for information in appropriate technical or 

scientific journals or business publications.

(iv) Querying the Governmentwide database of contracts and other 

procurement instruments intended for use by multiple agencies available at 

https://www.contractdirectory.gov/contractdirectory/ and other Government 

and commercial databases that provide information relevant to agency 

acquisitions.
63

(v) Participating in interactive, on-line communication among industry, 

acquisition personnel, and customers.

(vi) Obtaining source lists of similar items from other contracting activities 

or agencies, trade associations or other sources.

(vii) Reviewing catalogs and other generally available product literature 

published by manufacturers, distributors, and dealers or available on-line.

(viii) Conducting interchange meetings or holding presolicitation 

conferences to involve potential offerors early in the acquisition process.

(c) If market research indicates commercial or nondevelopmental items 

might not be available to satisfy agency needs, agencies shall reevaluate 

the need in accordance with 10.001(a)(3)(ii) and determine whether the 

need can be restated to permit commercial or nondevelopmental items to 

satisfy the agency’s needs.

(d)(1) If market research establishes that the Government’s need may be 

met by a type of item or service customarily available in the commercial 

marketplace that would meet the definition of a commercial item at subpart 

2.1, the contracting officer shall solicit and award any resultant contract 

using the policies and procedures in part 12.

(2) If market research establishes that the Government’s need cannot be 

met by a type of item or service customarily available in the marketplace, 

part 12 shall not be used. When publication of the notice at 5.201 is 

required, the contracting officer shall include a notice to prospective offerors 

that the Government does not intend to use part 12 for the acquisition.

(e) Agencies should document the results of market research in a manner 

appropriate to the size and complexity of the acquisition.

48 C.F.R. § 10.002.

The FAR also addresses multiple statutory provisions at 48 C.F.R. § 11.002:

(a) In fulfilling requirements of 10 U.S.C. 2305(a)(1), 10 U.S.C. 2377, 41 

U.S.C. 3306(a), and 41 U.S.C. 3307, agencies shall—

(1) Specify needs using market research in a manner designed to—

(i) Promote full and open competition (see part 6), or maximum practicable 

competition when using simplified acquisition procedures, with due regard 

to the nature of the supplies or services to be acquired; and

(ii) Only include restrictive provisions or conditions to the extent necessary 

to satisfy the needs of the agency or as authorized by law.

(2) To the maximum extent practicable, ensure that acquisition officials—

(i) State requirements with respect to an acquisition of supplies or services 
64

in terms of—

(A) Functions to be performed;

(B) Performance required; or

(C) Essential physical characteristics;

(ii) Define requirements in terms that enable and encourage offerors to 

supply commercial items, or, to the extent that commercial items suitable to 

meet the agency's needs are not available, nondevelopmental items, in 

response to the agency solicitations;

(iii) Provide offerors of commercial items and nondevelopmental items an 

opportunity to compete in any acquisition to fill such requirements;

(iv) Require prime contractors and subcontractors at all tiers under the 

agency contracts to incorporate commercial items or nondevelopmental 

items as components of items supplied to the agency; and

(v) Modify requirements in appropriate cases to ensure that the 

requirements can be met by commercial items or, to the extent that 

commercial items suitable to meet the agency's needs are not available, 

nondevelopmental items.

48 C.F.R. §11.002(a). The FAR further provides a definition of a “commercial item:”

Commercial item means-

(1) Any item, other than real property, that is of a type customarily used by 

the general public or by non-governmental entities for purposes other than 

governmental purposes, and-

(i) Has been sold, leased, or licensed to the general public; or

(ii) Has been offered for sale, lease, or license to the general public;

(2) Any item that evolved from an item described in paragraph (1) of this 

definition through advances in technology or performance and that is not 

yet available in the commercial marketplace, but will be available in the 

commercial marketplace in item to satisfy the delivery requirements under 

a Government solicitation;

(3) Any item that would satisfy a criterion expressed in paragraphs (1) or (2) 

of this definition, but for-

(i) Modifications of a type customarily available in the commercial 

marketplace; or

(ii) Minor modifications of a type not customarily available in the commercial 

marketplace made to meet Federal Government requirements. Minor 

modifications means modifications that do not significantly alter the 

nongovernmental function or essential physical characteristics of an item, 

or component, or change the purpose of a process.
65

48 C.F.R. § 2.101.

36

As an initial matter, the court notes as mentioned above, the application of 10 

U.S.C. § 2377 has not often been addressed in this court or in this circuit, in the context 

of a bid protest.37

In 10 U.S.C. § 2377(a), the statute instructs: “The head of an agency shall ensure 

that, to the maximum extent practicable . . . such requirements are defined so that 

commercial items or, to the extent that commercial items suitable to meet the agency’s 

needs are not available, nondevelopmental items other than commercial items, may be 

procured to fulfill such requirements,” and “offerors of commercial items and

nondevelopmental items other than commercial items are provided an opportunity to 

compete in any procurement to fill such requirements.” Id. In 10 U.S.C. § 2377(b), the 

statute requires that “[t]he head of an agency shall ensure that procurement officials in 

that agency, to the maximum extent practicable,” “acquire commercial items or 

nondevelopmental items other than commercial items to meet the needs of the agency,” 

and “modify requirements in appropriate cases to ensure that the requirements can be 

met by commercial items or, to the extent that commercial items suitable to meet the 

 

36 The court notes that the United States Code, at 41 U.S.C. § 103, provides a

substantially similar definition of commercial item. See 41 U.S.C. § 103 (2012).

37 The statute, 10 U.S.C. § 2377, has been cited in three prior bid protest decisions before 

this court, and never before in a decision by the United States Court of Appeals for the 

Federal Circuit. See Alfa Laval Separation, Inc. v. United States, 40 Fed. Cl. 215 (1998), 

rev’d, 175 F.3d 1365 (Fed. Cir.), reh’g denied (Fed. Cir. 1999); Hydro Eng’g, Inc. v. United 

States, 37 Fed. Cl. 448 (1997); Palantir USG, Inc. v. United States, 129 Fed. Cl. 218. In 

Alfa Laval, the United States Court of Federal Claims only cited 10 U.S.C. § 2377 in a 

footnote for defendant’s statement that “one factor militating in favor of competitive 

bidding” was 10 U.S.C. § 2377. See Alfa Laval Separation, Inc. v. United States, 40 Fed. 

Cl. at 217 n.2. In Hydro Engineering, a decision by the undersigned, the protestor argued 

that the United States Army's Chemical and Biological Defense Command “violated the 

Federal Acquisition Streamlining Act of 1994, Pub. L. No. 103–355, 108 Stat. 3243 (1994)

(FASA), as codified at 10 U.S.C. § 2377, by giving Centech [the awardee] a technical 

advantage for its heating coil, which allegedly is a sole source part.” Hydro Eng’g, Inc. v. 

United States, 37 Fed. Cl. at 473. In Hydro Engineering, this court noted that “not only is 

10 U.S.C. § 2377 introduced by the words ‘to the maximum extent practicable,’ but the 

solicitation also contemplated that the offerors could use sole source or proprietary parts” 

in the designs. Id. at 474. In Hydro Engineering, the undersigned did not discuss the 

degree of discretion afforded by the phrase “to the maximum extent practicable,” or 

specifically analyze the phrase. Most recently, the undersigned addressed 10 U.S.C. 

§ 2377 in Palantir USG, Inc. v. United States, and concluded that the United States Army 

had failed to conduct a proper commercial availability evaluation. See Palantir USG, Inc.

v. United States, 129 Fed. Cl. at 289. As noted above, that decision is currently on appeal 

to the Federal Circuit. See Palantir USG, Inc. v. United States, Case No. 17-1465.
66

agency’s needs are not available, nondevelopmental items other than commercial items.” 

10 U.S.C. § 2377(b). 

As this court previously observed in Palantir, the phrases “to the maximum extent 

practicable” and “appropriate to the circumstances” in 10 U.S.C. § 2377 are not further 

defined in the statute or in the implementing regulations. See Palantir USG, Inc. v. United 

States, 129 Fed. Cl. at 267. Moreover, the same phrases “to the maximum extent 

practicable” and “appropriate to the circumstances” in the context of 10 U.S.C. § 2377,

have not been judicially defined with any finality to date and are not easily subject to bright 

line tests. See id. Turning to dictionary definitions, “maximum” is defined as “as great, 

high or intense as possible as permitted” New Oxford American Dictionary 1082 (3d ed. 

2010); “practicable” is defined as “able to be done or put into practice successfully,” id. at 

1372; and “appropriate” is defined as “suitable in the circumstance.” Id. at 77. These 

dictionary definitions provide little further clarification, the words chosen by Congress 

clearly indicate, however, that the agency must conduct a fact based analysis of 

commercial availability.

The court also notes that the word “maximum” was a specific choice made by 

Congress. In the House Report for the Federal Acquisition Streamlining Act of 1994, the 

House of Representatives proposed the following language regarding the acquisition of 

commercial items:

SEC. 111. PREFERENCE FOR ACQUISITION OF COMMERCIAL ITEMS

Section 16 of the Office of Federal Procurement Policy Act (41 U.S.C. 414)

is amended by redesignating paragraphs (2), (3), and (4) in order as 

paragraphs (3), (4), and (5), respectively, and by inserting after paragraph 

(1) the following new paragraph:

(2) implement a preference for the acquisition of commercial items by–

(A) whenever practicable, stating specifications in solicitation for bids and 

proposals in terms such that bidders and offerors are enabled and 

encouraged to offer to supply commercial items in response to agency 

solicitations[.]

H. Rep. 103-545(I), at 41 (1994), 1994 WL 261997 (capitalization in original). By contrast, 

the Senate Report first proposed the following language:

PREFERENCE FOR ACQUISITION OF COMMERCIAL ITEMS AND 

NONDEVELOPMENTAL ITEMS

SEC. 33. (a) PREFERENCE.—The head of each executive agency shall 

ensure that, to the maximum extent practicable—

(1) requirements of the executive agency with respect to a procurement of 

supplies are stated in terms of—
67

(A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent 

that commercial items suitable to meet the agency’s needs are not 

available, other nondevelopmental items may be procured to fulfill such 

requirements; and

(3) offerors of commercial items and other nondevelopmental items are 

provided an opportunity to compete in any procurement to fill such 

requirements.

(b) IMPLEMENTATION.—The head of each executive agency shall ensure 

that procurement officials in that executive agency, to the maximum extent 

practicable—

(1) acquire commercial items or other nondevelopmental items to meet the 

needs of the executive agency;

(2) require prime contractors and subcontractors at all levels under the 

executive agency contracts to incorporate commercial items or other 

nondevelopmental items as components of items supplied to the executive

agency;

(3) modify requirements in appropriate cases to ensure that the 

requirements can be met by commercial items or, to the extent that 

commercial items suitable to meet the agency’s needs are not available, 

other nondevelopmental items[.]

S. Rep. 1587, at 282-83 (1994) (capitalization in original). The House Conference Report, 

from August 21, 1994, adopted the approach of the Senate Report, and consciously

adopted the phrase “to the maximum extent practicable.” The House Conference Report 

stated:

SEC. 8104. PREFERENCE FOR ACQUISITION OF COMMERCIAL 

ITEMS.

(a) In General.-Chapter 140 of title 10, United States Code, as amended by 

section 8103, is further amended by adding after section 2376 the following 

new section:

S 2377. Preference for acquisition of commercial items
68

(a) Preference.-The head of an agency shall ensure that, to the maximum 

extent practicable-

(1) requirements of the agency with respect to a procurement of supplies or 

services are stated in terms of-

(A) functions to be performed;

(B) performance required; or

(C) essential physical characteristics;

(2) such requirements are defined so that commercial items or, to the extent 

that commercial items suitable to meet the agency's needs are not 

available, nondevelopmental items other than commercial items, may be 

procured to fulfill such requirements; and

(3) offerors of commercial items and nondevelopmental items other than 

commercial items are provided an opportunity to compete in any 

procurement to fill such requirements.

(b) Implementation.-The head of an agency shall ensure that procurement 

officials in that agency, to the maximum extent practicable-

(1) acquire commercial items or nondevelopmental items other than 

commercial items to meet the needs of the agency;

(2) require prime contractors and subcontractors at all levels under the 

agency contracts to incorporate commercial items or nondevelopmental 

items other than commercial items as components of items supplied to the 

agency;

(3) modify requirements in appropriate cases to ensure that the 

requirements can be met by commercial items or, to the extent that 

commercial items suitable to meet the agency's needs are not available, 

nondevelopmental items other than commercial items[.]

H.R. Conf. Rep. 103-712, at 154 (1994), reprinted in 1994 U.S.C.C.A.N. 2607

(capitalization in original).

The court notes that the language of the House Conference Report closely tracked 

the final language of the Federal Acquisition Streamlining Act of 1994, and tracks the 

language at 10 U.S.C. § 2377. The word “maximum” in the phrase “to the maximum extent 

practicable,” therefore, should not be ignored and read out of the statute. Given the 

congressional choice of the word “maximum,” even when coupled with words like 
69

“practicable” and “appropriate,” agencies cannot ignore or superficially comply with the 

requirement to review the availability of commercial products to meet agency needs as

the statute instructs agencies to make serious and genuine efforts to review the 

availability of commercial products to meet all or some of their needs. In Palantir, the 

undersigned specifically explained: 

Although the statute grants discretionary authority to the agency, and 

agency discretionary authority can be the most difficult kind of action to test 

in the courts, government contract law is replete with challenges to the 

exercises of agency discretion as alleged to be arbitrary and capricious; the 

current challenge to the implementation of 10 U.S.C. § 2377 is in the same 

category.

Palantir USG, Inc. v. United States, 129 Fed. Cl. at 269.

In this protest, Analytical Graphics states that “an agency’s determination 

regarding the commerciality of an item or services is a matter of discretion,” but points 

out, “such discretion is not unfettered,” and argues that the “Air Force’s decision to 

conduct the procurement on a non-commercial item basis violates FASA and its 

implementing regulations.” The protestor first points to the “Product or Service 

Descriptions” section of the Air Force’s acquisition plan. As noted above, the acquisition 

plan, stated:

The majority of this acquisition is commodity based. Approximately 71% of 

the estimated contract value is commodity and 29% of the estimated 

contract value is embedded non-personal services. The PWS is written IAW 

FAR part 37.6 to minimize non-performance aspects. There are, however, 

several DOD and AF directives that preclude a completely performancebased contract. Inclusion of these directives has been limited to the extent 

practicable. 

The PWS in combination with the service summary (SS) will identify the 

minimum contractor performance requirements and associated 

performance thresholds. The SS Items are the key measures of success for 

contractor operations and are considered by the acquisition team from a 

risk management and contract quality assurance perspective. 

The sources sought announcement requested comments regarding the 

PWS and service summaries. Industry has not recommended any specific 

performance thresholds and highly recommends the Government utilize

only measurable and attainable thresholds. 

Protestor argues that “as a practical matter, all of the service requirements in the PWS 

involve manipulating, processing, analyzing, and interpreting commercial SSA date which 

originates from commercial data sources and, which the Air Force admits, can be 

processed using commercial SSA software.” Protestor also contends that “[t]here is no 
70

independent basis for the service requirements outside of the underlying data 

subscription service and software, which both require the involvement of analysts and/or 

engineers to interpret, analyze, and evaluate the data as it is being processed through 

the SSA software. The services are ancillary requirements.” Analytical Graphics, 

therefore, alleges that it was arbitrary and capricious for the agency to have concluded 

that non-commercial items were ever needed.

The court notes that for the current protest the Air Force embarked on an extensive 

process to determine what the requirements of the contract at issue would be, first issuing

the RFI on November 4, 2015, “to conduct market research, a continuous process for 

collecting and analyzing information about capabilities within the market to satisfy agency 

needs.” The contracting officer subsequently issued a first amended RFI, followed by a 

second amended RFI, a third amended RFI, and a fourth amended RFI, which identified, 

among other items, the minimum salient characteristics required by the Air Force, and a 

fourth amended RFI. The fourth amended RFI, dated May 11, 2016, included the draft 

Performance Work Statement, and a section titled “Scope,” which stated that, “[t]his is a 

non-personal services contract to provide nongovernmental space situational awareness 

(SSA) software and services. Nongovernmental SSA solutions are required to augment 

the Government’s ability to detect and characterize space threats and improve integration 

between DoD, intelligence community, interagency, and nongovernmental space assets.”

The agency also held an industry day after receiving the responses to the first amended 

RFI, and invited eight potential offerors to the event, including Analytical Graphics, 

Applied Defense, and Exo. 

In addition to the industry day, the RFI and the various revised RFIs, on June 21, 

2016, the Air Force produced a Market Research Report which contained the evaluation 

of the each of the offerors that had responded to the first amended RFI. For the section 

titled: “Government’s Presence/Leverage in the Market,” the Market Research Report

indicated:

Although market research determined limited commercial data solutions are 

available; the required services to be performed, unique hardware 

requirements, the integration of product data into national security 

operations and the Government’s desire to obtain complete technical rights 

of the data are not commonly or readily available in the commercial 

marketplace. Additionally, the commercial data solutions that are available 

focus on safety of flight and do not meet all the requirements for Space 

Situational Awareness as listed in the PWS.

The protestor states that “during the RFI stage, the Air Force determined that AGI’s 

commercial SSA solution could satisfy its requirements, thereby demonstrating that the 

requirements themselves were commercial or, at a minimum ‘of a type’ commercial item 

requirements.” The court notes that the parties have stipulated that at the time the initial 

RFI was issued, “the contracting officer anticipated that the application ultimately 
71

procured for operations would probably be a commercial item.”38 Indeed, the Market 

Research Report had a section titled “Commercial Opportunities” which stated in full: 

 

38 The court notes that this fact demonstrates a very different approach by the Air Force 

in the instant protest compared with the Army’s approach to market research in Palantir. 

In Palantir, the undersigned repeatedly observed that the Army’s focus from the beginning 

of the procurement process was on a developmental contract, not commercial options. 

For example, in Palantir the undersigned explained how the market research was focused 

on developmental options:

The initial Request for Information, issued August 13, 2014, was “conducted 

to assess the level of relevant competition and capabilities in the market 

place and elicit industry feedback to assist the Program Office in developing 

the Acquisition Plan.” The August 13, 2014 Request for Information, 

however, “request[ed] respondents’ corporate overview information and 

basic qualifications in managing software development projects that are 

similar in scope and process to the DCGS-A program.” (emphasis added). 

Instead of asking about commercial items, or asking more open-ended 

questions about the approach to the procurement, potential respondents 

only were asked about developmental projects similar to the existing DCGSA Increment 1 program. 

After the August 13, 2014 Request for Information, the Army issued a 

second Request for Information on December 5, 2014, which “[w]as issued 

to determine ability of individual companies to act as the prime contractor 

for the DCGS-A development effort.” (emphasis added). “In addition, this 

RFI requests respondents’ specific answers regarding the basic 

qualifications in managing software development projects that are similar in 

scope and process to the DCGS-A program.” (emphasis added). As with 

the first Request for Information, the Army’s focus in the December 5, 2014 

Request for Information was on “the DCGS-A development effort” and not 

on the possibility of procuring commercial items. The goal of this second 

Request for Information was for the Army to understand the respondent’s 

“development projects that are similar in scope and process to the DCGSA program.” (emphasis added). The May 6, 2015 Request for Information, 

the third issued by the Army, stated, “this RFI requests respondents’ 

specific answers regarding the basic qualifications in managing software 

development projects that are similar in scope and process to the DCGS-A 

program.” (emphasis added). The May 6, 2015 Request for Information also 

asked respondents: “For this RFI, the Government seeks information 

regarding your corporate capabilities and experience related to the delivery 

of capabilities as described” earlier in the May 6, 2015 Request for 

Information. Like the previous two Requests for Information, the May 6, 

2015 Request for Information did not seek information for commercial items 

from the respondents, suggesting to the court that the agency likely already 

had decided that the DCGS-A Increment 2 was going to be another 

developmental project.
72

The RFI originally sought to obtain SSA data from a commercial solution. 

However, it became apparent after market research that the data and 

services required could only be met through noncommercial sources 

because of the following factors: limited commercial data solutions are 

available, the required services to be performed are not found in the 

commercial marketplace, the Government requires unique hardware 

requirements and the Government’s desire to obtain complete technical 

rights. Also, the commercial data solutions that are available focus on safety 

of flight and do not meet all of the requirements for SSA as listed in the 

PWS. Additionally, some vendor’s responses stated their solution was a 

commercial product; however, most vendors were unable to provide a 

commercial price list or commercial customers for the software. Lastly, upon 

review of the PWS, the DoD and AF regulations governing the execution of 

the requirement, the Government’s desire to obtain data rights, and the 

integration of the product data into national security operations makes this 

requirement noncommercial. It is hereby determined that the requirement is 

not offered to the general public in the commercial marketplace and is not 

a commercial service as described in FAR Part 12.

The protestor takes issue with the conclusions, described in the Market Research 

Report, arguing “whether there are ‘limited’ commercial solutions available or many does 

not change whether the requirement itself is commercial. Essentially, the Air Force is 

suggesting that, if there were more commercial solutions like AGI’s available, it would 

concede that its requirement is commercial. This position is illogical and unsupportable.” 

Moreover, protestor claims that all of the services that the agency cited as being noncommercial, protestor could offer on a commercial basis. Protestor tries to explain that:

The service portion of the PWS includes engineering services, operational 

and analytical services, and services related to software customization and 

integration, which clearly are commercial in nature, are services regularly 

performed as part of commercial item acquisitions, including under AGI’s 

recently-completed commercial contract with AFSPC/50CONS for the 

JICSpOC as well as with AFSPC/SMC for JMS, a related SSA program, 

and are services that are available on AGI’s GSA FSS contract.

Protestor also claims that “there are no unique hardware requirements in the RFP. 

Rather, all of hardware listed in the PWS is clearly commercial hardware.” Protestor also 

 

Palantir USG, Inc. v. United States, 129 Fed. Cl. at 270-71. The narrow focus on the 

developmental approach to the procurement in Palantir was one of the reasons this court 

found that the Army had not met the requirements of 10 U.S.C. § 2377. The market

research in the above captioned protest, by contrast, was more thorough than in Palantir, 

and, as indicated above, the contracting officer was initially open to considering if the 

procurement needs could be met though commercial items.
73

dismisses the desire to obtain complete technical rights as “an improper factor to support 

a non-commerciality determination.”

Initially, the court notes that some of protestor’s arguments would appear to require 

this court to second guess the agency’s process when determining how the agency could 

best meet its requirements, which the Federal Circuit has cautioned, “‘is a matter within 

the broad discretion of agency officials . . . and is not for [the] court to second guess.’”

Savantage Fin. Servs., Inc. v. United States, 595 F.3d at 1284 (quoting Wit Assocs., Inc. 

v. United States, 62 Fed. Cl. 657, 662 (2004)); see also Glenn Def. Marine (ASIA), PTE 

Ltd. v. United States, 720 F.3d at 908 (citing E.W. Bliss Co. v. United States, 77 F.3d 445,

449 (Fed. Cir. 1996)); COMINT Sys. Corp. v. United States, 700 F.3d at 1384.; E.W. Bliss 

Co. v. United States, 77 F.3d at 449; CHE Consulting, Inc. v. United States, 74 Fed. Cl. 

742, 747 (2006). As the Federal Circuit in Res-Care noted, a federal agency “has ‘broad 

discretion to determine what particular method of procurement will be in the best interests 

of the United States in a particular situation.’” Res-Care, Inc. v. United States, 735 F.3d 

at 1390 (quoting Tyler Constr. Grp. v. United States, 570 F.3d at 1334). Indeed, the court 

does not wish to be in the position to tell how any agency how they must procure any 

item, commercial or otherwise. The court, therefore, does not determine if the entire 

procurement could be met by commercial or non-developmental items, although the 

acquisition plan initially indicated that it was contemplated that “[t]he majority of this 

acquisition is commodity based. Approximately 71% of the estimated contract value is 

commodity and 29% of the estimated contract value is embedded non-personal services.” 

As noted above, 10 U.S.C. § 2377(c) requires:

(c) Preliminary market research.--(1) The head of an agency shall 

conduct market research appropriate to the circumstances--

(2) The head of an agency shall use the results of market research to 

determine whether there are commercial items or, to the extent that 

commercial items suitable to meet the agency’s needs are not available, 

nondevelopmental items other than commercial items available that--

(A) meet the agency’s requirements;

(B) could be modified to meet the agency’s requirements; or

(C) could meet the agency’s requirements if those requirements were 

modified to a reasonable extent.

10 U.S.C. § 2377(c). Therefore, an agency must consider, one, if a commercial item is 

available to meet all of the agency’s needs, two, if the commercial item could be modified 

to meet the agency’s needs, or three, if the agency’s needs could be modified to use a 

commercial item. Even holding aside the 29% of the requirements which the agency 

considered non-commercial services, protestor argues that “the Air Force had a legal 

obligation to consider modifying its requirements in a manner that would allow the Agency 
74

to incorporate available commercial products, which the Air Force admits satisfy the lion’s 

share of its requirement.” Analytical Graphics zeroes in on the acquisition plan’s 

statement that 71% of the estimated contract value was contemplated to be a commodity 

and argues that this demonstrates that the Air Force acknowledged that the procurement

could be satisfied with commercial items. Defendant argues that this argument “should 

be summarily dismissed,” and notes that the contracting officer indicated that the 

contractor had to understand the software given the urgency of the procurement. The

defendant argues that “[t]he contracting officer's answer was common sense, and 

obviously correct! How could another company take COMSpOC [protestor’s software] off 

the shelf and quickly and adroitly modify it for crucial military operations?” (footnote 

omitted). The court agrees, and, as noted above, does not wish to be in the business of 

telling an agency how to best meet its requirements. See Savantage Fin. Servs., Inc. v. 

United States, 595 F.3d at 1284. The court believes that the language of 10 U.S.C. 

§ 2377 instructing the agency to consider modification of the agency’s requirements or 

modifications of the commercial items themselves does not, in every case, force an 

agency to have to separate out all potentially commercial items from a procurement. This 

could lead to the impractical, inefficient, and unintegrated result of having only a fraction 

of a procurement utilizing a commercial item and the balance of a procurement taking the 

form of a developmental contract, which could delay procurements and also make the 

contract cumbersome to perform and administer, and further, could hinder the mission of 

the agency seeking to award the contract, especially for an urgent contract.

In the above captioned protest, during the deposition taken after the protest was 

filed in this court,39 the contracting officer was asked to discuss the 71% figure, and had 

the following exchange with protestor’s counsel:

Q: So do you agree with this 71 percent figure that's in here? Was that 

accurate at the time it was written?

A: To the best of my knowledge, it was accurate at the time it was written.

Q: And what is the 71 percent commodity, “commodity” being the word? 

What does commodity refer to?

A: I would have to refer to the IGE [Independent Government Estimate] to 

determine how we came up with those numbers originally. But my -- I 

would -- based on the fact it would be like the hardware, the software. 

There's data lines, I believe. I would have to refer to the independent 

government estimate to determine how we came up with that.

The contracting officer also indicated in her deposition that she believed the commodity

portion of the contract could be satisfied by commercial items, however, the services 

 

39 The court notes that the deposition of the contracting officer has been made part of the 

Administrative Record in the above captioned protest.
75

portion could not be satisfied by commercial items. In addition, the contracting officer also 

had the following exchange with protestor’s counsel at the deposition:

[Q.] Up until the time the RFP was issued, did you consider modifying the 

requirement to allow a commercial item to satisfy part of the overall 

requirement?

A. Through the market research, through the sources sought, through the 

draft PWS, through the industry day, all of that went into consideration on 

how commercial items could be utilized, but in the end it came down to the 

final PWS and the government's requirements and the four items that I've 

outlined that came down to my decision, that the government's 

requirements were not commercial products or were not customarily in the 

commercial market.

Q. But could part of the government's requirement have been satisfied by a 

commercial item?

A. As I stated previously, there were two companies that offered software, 

and that software was a commercial item.

Q. So yes; is that correct? You're saying yes?

A. Yeah, part, but no, the entire requirement could not be met with 

commercial items. Only part of it could be.

Q. Did you consider separating the two, the part that can be satisfied by a 

commercial item and the part that cannot?

A. We needed -- because of the urgency of the requirement, we needed the 

contractor to be able to hit the ground running at the time and I needed the 

contractor to know the software and to be able to operate the software. That 

was important. So there was no -- that wasn't an option that was available 

to the government based on the fact that we wanted the contractor to be in 

place and hit the ground running from day one and they needed to know 

how to operate the software.

Protestor challenges the urgency argument, by stating, “the CO's argument 

against splitting the requirements vastly overstates the urgency of the Air Force 

requirement.” The defendant responds that “AGI cites no evidence in the administrative 

record” in this protest. Protestor only cites to an online source for its claim that “at least 

one Air Force stakeholder has made public statements that the JICSpOC SSA program 

will not achieve full operational capability until 2018,” which, the court notes, at this point 

is not that far in the future. Defendant argues that “[a]bsent a violation of statute or 

regulation, the agency possesses discretion to make procurement decisions unless 

evidence in the administrative record demonstrates that a decision is arbitrary.” Protestor

also states that “nothing in the contemporaneous procurement record indicates that the 
76

CO ever considered modifying the Air Force’s requirements to accommodate commercial 

items.” Protestor refers the court to the Memorandum for Record for “Noncommerciality 

for Services and Government Purpose Rights,” the justification and authorization 

document, the Market Research Report and the acquisition plan. Those documents, 

described in detail above, do not specify the urgency of the procurement,40 however, in

the contracting officer’s deposition, referred to above, the contracting officer testified, 

regarding splitting the procurement in multiple parts, that “no -- that wasn't an option that 

was available to the government based on the fact that we wanted the contractor to be in 

place and hit the ground running from day one.” To be sure, this is a broad statement, 

provided after the award, but reflective of the contemporaneous thinking of the contracting 

officer, made under oath, as is her statement that an offeror “needed to know how to 

operate the software.” In her deposition, the contracting officer indicated that some 

elements could be met with commercial items, but in concluding the entire requirement 

was noncommercial, she did not specifically elaborate why the procurement as a whole 

was so intertwined that it would not be possible to break out some items for commercial 

award. The contracting officer also indicated in her deposition:

I determined it to be a noncommercial requirement although some of it could 

be met with commercial items, I did not feel that the entire solution could be 

network commercial items, due to several factors, which included services, 

the data -- services, data rights, the DOD publications and regulations and 

the type of contract that I was planning to utilize. The combination of those 

led me to believe it was noncommercial.

As noted above, the court believes there are decisions to be made within the agency’s 

discretion and that forcing the agency to spilt a potential contract into noncommercial 

requirements and commercial item requirements, especially when the agency has 

identified an urgent need, would be too broad of a second guess of the needs of the 

 

40 As the court noted in Palantir, there is not an identifiable requirement in the commercial 

determination statute or regulations that requires the agency to document its decision 

regarding commercial availability. See Palantir USG, Inc. v. United States, 129 Fed. Cl. 

at 272. Nor is there any published requirement as to what would constituted sufficient 

documentation. The undersigned in Palantir specifically declined to make a court based 

rule defining the amount of documentation that would be sufficient. The agency, however, 

must still be able to justify its decision. As noted above, in determining what the 

requirements would be the contracting officer properly conducted market research and 

identified the portions of the requirements that could not be met by commercial items. The 

extensive process by the agency of considering commercial and non-commercial 

possibilities demonstrated the seriousness with which the agency undertook how to 

ultimately undertake the procurement. The court believes, however, it behooves any 

agency making a commercial availability determination to document its decision making 

process contemporaneously, if only to demonstrate to the GAO or this court the steps the 

agency took. In the above captioned protest, documentation regarding the urgency of 

procurement would have been helpful, and would not have required the Air Force to rely 

on the deposition of the contracting officer taken after the protest was filed in this court, 

although the deposition was requested by protestor.
77

agency. Moreover, forcing the Air Force to procure some of the items as a commercial 

items would potentially put the awardee of the developmental contract and the agency in 

an unfavorable and detrimental position. As noted above, defendant questioned how 

another offeror could take protestor’s software and “quickly and adroitly modify it for 

crucial military operations?” 

Anticipating defendant’s and intervenor’s position, protestor argues that, “the CO’s 

position that the requirements could not be split is illogical. As argued, all required 

services are commercial. The commercial item requirements for data, software, and 

hardware could easily be provided by a single commercial item contractor with a noncommercial item contractor providing any ancillary non-commercial services.” Analytical 

Graphics tries to explain that:

As AGI’s work on the AGI Contract demonstrates, such services, delivered 

in conjunction with commercial SSA processing software and a commercial 

SSA data subscription, are clearly sufficient to provide the Air Force with a 

working SSA system, capable of satisfying all of the requirements of the 

PWS. To the extent the Air Force believes additional non-commercial item 

services are necessary to satisfy its requirements—a position AGI rejects—

nothing would prohibit the Air Force for [sic] procuring such services under 

a separate contract.

 

The existence of the JICSpOC contract, however, does not alone prove that the 

contracting officer must have procured the requirements on a commercial basis, although 

there was overlap with the JICSpOC contract and the requirements of the Performance 

Work Statement in the instant procurement. Both the current contract and the JICSpOC 

contract sought commercial data subscription, SSA processing software, and technical

support. Moreover, the parties also have stipulated that the list of capabilities in the RFI 

was similar to the “Application Technical Specifications” in the JICSpOC contract. But the 

two were not identical, and the Air Force began the process for procurement at issue only 

one month after the JICSpOC contract was awarded. Defendant argues in response to 

protestor that “AGI tries to expand the contracting officer's finding that AGI's subscription 

service was a commercial item to an additional finding that whatever services AGI may 

have subsequently provided were part of that commercial item.” (emphasis in original).

Defendant argues that this is unreasonable, and claims that “the purpose of the 

experiments conducted during the AGI contract was to determine what services beyond 

the capabilities of the AGI commercial product would be needed to meet the Government 

requirement; such additional services were among those services identified in the PWS 

for this procurement.” (emphasis in original). In its statement of needs, the first amended 

RFI indicated: “The US Air Force needs commercial SSA data for operational use. SSA 

data must originate from non-DoD sensors and be real-time. See attached for minimum 

salient characteristics.” In addition, the “Salient Characteristics,” discussed at length 

above, began by noting: “The collection of non-governmental SSA data, processing tools, 

personnel, and contracted support will be referred to as the Commercial SSA System.”
78

The “maximum extent practicable” language, as well as the requirement to conduct 

market research to “determine if commercial items or nondevelopmental items are 

available to meet the Government’s needs or could be modified to meet the Government’s 

needs,” 48 C.F.R. § 10.002, means the government had an obligation, once it determined 

what the requirements were to see if commercial items existed or if it could be modified

to meet all or part of the procurement requirements. See 10 U.S.C. § 2377(c). The Air 

Force was aware of Analytical Graphics’ capabilities, both from the performance of the 

JICSpOC contract, and in protestor’s submissions in response to the RFIs, and, as noted 

repeatedly above, had a statutory requirement determine if the capabilities could be 

modified in a way to meet some or all of the agency’s needs. The record reflects, however, 

that the contracting officer gave serious consideration to the Analytical Graphics 

approach, but determined that the requirement could best be meet by a noncommercial 

requirement, although some commercial items could theoretically be included. The 

contracting officer indicated, however, “I did not feel that the entire solution could be 

network commercial items, due to several factors.” In the absence of a protestor 

demonstrating from the record before the court that the agency acted arbitrarily or violated 

a statute or regulation, which, in the court’s view, Analytical Graphics has not done, the 

court gives deference to the contracting officer’s decision about the best approach for the 

agency, to acquire the urgently needed contract. 

Each commercial availability decision must be based on the specific facts of the 

particular case. The Palantir protest presented a much clearer picture of an agency trying 

to avoid a particular contractor and a commercial items approach to the procurement, as 

well as a failure on the part of the agency to do a proper investigation and review of 

available commercial alternatives. In the protest currently before the court, the Air Force

was more deliberate and more candid about its commercial options than the Army in 

Palantir. The Air Force’s consideration of how to proceed with the procurement, therefore, 

cannot be said to have been casual, unthinking, or not deliberate, despite the absence of 

articulated, contemporaneous documentation of the urgency of the procurement. In this 

case, the contracting officer selected the intervenor in order to allow one contractor to 

move expeditiously due to the urgent nature of the requirement by providing the

capability, rather than separating the procurement. As explained above, the agency 

decision is entitled to some deference to determine its own needs and to best judge the 

urgency of those needs. The court relies on the sworn testimony of the contracting officer 

that the need was urgent and could not be spilt. Moreover, other than to question the 

agency actions in this protest, the protestor has not demonstrated that the Air Force

lacked urgency, or that the contracting officer’s basis for her decision was incorrect. 

Protestor also argues that the Air Force improperly considered the issue of data 

rights before making the commerciality decision and, in any event, the Air Force did not 

consider Analytical Graphics willingness to negotiate data rights. Specifically, Analytical 

Graphics argues that the decision to pursue the procurement on a non-commercial basis 

was motived in part “by the desire to obtain broader intellectual property rights in the 

resulting data.” Analytical Graphics contends, “this approach to determining 

commerciality allows the tail to wag the dog. The requirement is either commercial in 

nature or it is not.” Protestor, therefore, argues that “[t]he data rights associated with the 

Air Force’s substantive SSA requirement are incidental to that substantive requirement 
79

and the determination regarding whether such is commercial in nature.” Defendant 

responds that “AGI's arguments that the contracting officer could have negotiated 

unlimited data rights are irrelevant. No one has ever disputed that AGI has the capability 

to meet the Government requirement; the market research report identified AGI as one 

of eight capable vendors.” Instead, defendant argues, “[t]he point is simply that what was 

required (unlimited data rights) was not a feature available in the commercial 

marketplace. And on this issue, the contracting officer was clearly correct.” 

As noted above, on June 1, 2016, the contracting officer wrote a Memorandum for 

Record with the subject: “Noncommerciality for Services and Government Purpose 

Rights.” The memorandum stated, in part:

The Government’s requirement is for the contractor to provide government 

purpose rights for the raw data identified in the performance work statement 

to specified locations at Schriever AFB, Peterson AFB, Vandenberg AFB, 

and other locations directed by the Government. Product data shall be 

available with government purpose rights and shall be distributed to 

operations centers at: Offutt AFB, Vandenberg AFB, Chantilly, five specified 

intelligence locations; and other locations as deemed necessary by the 

Government. Such data may be shared for government use only, with other 

contractors.

The Government’s rights typically would be limited to standard commercial 

uses as a “commercial item.” AGI’s license agreements included the 

following statement: You may NOT allow the processed data to be viewed 

outside the organization or program for which the software is licensed 

without the prior written consent of the vendor. The Government must have 

government purpose rights to allow the Government to make strategic, 

tactical, and course-of-action decisions real-time. The Government will not 

be able to obtain written permission prior to providing raw data, processed 

data, or end products to another government agency or a contractor 

supporting a government requirement. The contracting officer assessed the 

data rights required were substantially different than standard commercial 

use. 

(capitalization in original). Likewise, the Market Research Report indicated:

Although market research determined limited commercial data solutions are 

available; the required services to be performed, unique hardware 

requirements, the integration of product data into national security 

operations and the Government’s desire to obtain complete technical rights 

of the data are not commonly or readily available in the commercial 

marketplace. Additionally, the commercial data solutions that are available 

focus on safety of flight and do not meet all the requirements for Space 

Situational Awareness as listed in the PWS.
80

The acquisition plan similarly indicated that:

After market research the CO determined that the requirement could only 

be met through noncommercial sources because of the following factors: 

limited commercial data solutions are available; the required services to be 

performed are not found in the commercial marketplace, the government 

requires unique hardware requirements and the Government’s desire to 

obtain complete technical rights.

Consistent with the statements in the Market Research Report and the acquisition plan, 

and as described above, the contracting officer, in a deposition taken after the protest 

was filed in this court, testified:

I did not feel that the entire solution could be network commercial items, 

due to several factors, which included services, the data -- services, data 

rights, the DOD publications and regulations and the type of contract that I 

was planning to utilize. The combination of those led me to believe it was 

noncommercial.

The Administrative Record reflects Analytical Graphics willingness to negotiate the 

terms of the data rights and protestor points to the government’s industry day summaries, 

which indicated that, regarding Analytical Graphics’ presentation: “AGI stated they have 

no problem with giving the USG full data rights and ‘it makes sense.’ AGI stated they 

envisioned the USG paying an annual subscription, that could be fixed price, and that 

labor could be available per FAR Part 12. Furthermore, in its response to the question: “If 

the Government has a need for rights not conveyed under the license customarily 

provided to the public, would you be willing to negotiate acceptable terms for transferring 

such rights?” in the RFI, protestor responded that, “[y]es AGI is willing to negotiate 

mutually acceptable terms for transferring rights not conveyed under the license 

customarily provided to the public.” The court notes, however, despite Analytical 

Graphics’ willingness to negotiate the terms of the data rights, protestor’s commercial 

item, the subscription service, at the time of the market research did not include the data 

rights the government sought, and, therefore, was not a commercial items that typically 

available in the marketplace. Given the urgency of the procurement, the contracting 

officer’s hesitancy to consider a commercial item for something not then commercially

available, and which would be subject to possible failed negotiations to meet the 

procurement’s stated needs is understandable. Furthermore, the government, in its reply 

brief stresses that 

in this case, the services required are in support of a highly classified and 

technical military operation. There is no commercial marketplace for such 

services, and no commercial item services (falling within subsections (5) or 

(6) of the commercial item definition) available to meet those service 

requirements because national defense operations are reserved to the 

Department of Defense and intelligence agencies.
81

Given the through and complete market research that the Air Force undertook prior to 

issuing the solicitation, the court defers to the government’s view that there was no 

commercially available product with the requisite data rights the Air Force needed for their 

urgent requirement.

In addition, protestor notes that Defense Federal Acquisition Regulation 

Supplement (DFARS) to the FAR requires if greater rights are needed that “the 

Government must negotiate with the contractor to determine if there are acceptable terms 

for transferring such rights.” DFARS 227.7202-(3)(b) (2017).41 Analytical Graphics argues 

that the above demonstrates that protestor was willing to enter into negotiations, and 

moreover, points to its experience with Agency during the award of the JICSpOC contract. 

Protestor argues “[n]otably, the Air Force required greater rights in data than what was 

available through AGI’s standard commercial license agreements at the time that the AGI 

contract was formed. Accordingly, during contract negotiations, the CO negotiated a data 

rights addendum with AGI, which was made part of the resulting contract.” (internal 

reference omitted). Indeed, the parties in this protest have stipulated that “[d]uring 

 

41 Protestor additionally argues that the Air Force first should have considered acquiring 

the license as commercially offered by Analytical Graphics, pointing to DFARS 227.7202-

1, which states:

(a) Commercial computer software or commercial computer software 

documentation shall be acquired under the licenses customarily provided to 

the public unless such licenses are inconsistent with Federal procurement 

law or do not otherwise satisfy user needs.

(b) Commercial computer software and commercial computer software 

documentation shall be obtained competitively, to the maximum extent 

practicable, using firm-fixed-price contracts or firm-fixed-price orders under 

available pricing schedules.

(c) Offerors and contractors shall not be required to—

(1) Furnish technical information related to commercial computer software 

or commercial computer software documentation that is not customarily 

provided to the public except for information documenting the specific 

modifications made at Government expense to such software or 

documentation to meet the requirements of a Government solicitation; or

(2) Relinquish to, or otherwise provide, the Government rights to use, 

modify, reproduce, release, perform, display, or disclose commercial 

computer software or commercial computer software documentation except 

for a transfer of rights mutually agreed upon.

48 C.F.R. 227.7202–1 (2017). The court notes that DFARS 227.7202-1(b) has similar 

language to the commercial availability statute of 10 U.S.C. § 2377, by instructing 

commercial software “shall be obtained competitively, to the maximum extent 

practicable . . . .” DFARS 227.7202-1(b).
82

contract negotiations, the Contracting Officer negotiated a data rights addendum with AGI 

which was made part of the [JICSpOC] contract.” 

The data rights issue was a factor in the contracting officer’s decision not to award 

to protestor. Whether or not sufficient data rights in the current procurement and the 

government’s needs could have been negotiated prior to award remains unknown, the 

urgency of the procurement, however, appears to have made this one of the multiple

considered reasons not to award the contract as a commercial item.42 The DFARS 

language instructing the government to negotiate, moreover, does not demonstrate that 

protestor was offering a commercial item. As determined above, the Air Force concluded 

that protestor’s subscription service, at the time of the market research, did not include 

the data rights the government sought, and, therefore, was not a commercial items that 

typically available in the marketplace.

CONCLUSION

Accordingly, the agency’s decision to consider Applied Defense and Exo as 

reasonably likely to meet the requirements of the procurement was rational, and, 

therefore, the small business set-aside determination was proper. Regarding the issue of 

10 U.S.C. § 2377, the court finds that the government’s market research was sufficient

and the court will not second guess the agency’s determination that the requirements of 

the procurement could not be met by commercial items. Therefore, protestor’s motion for 

judgment on the administrative record is DENIED. Defendant and intervenor’s crossmotions for judgment on the administrative record are GRANTED. Protestor’s request for 

injunctive relief is DENIED. The Clerk of the Court shall enter JUDGMENT consistent with 

this opinion.

IT IS SO ORDERED.

 s/Marian Blank Horn 

 MARIAN BLANK HORN

 Judge

 

42 The court notes that protestor raised an additional objection to the Air Force’s Rule of 

Two determination, that because the “Air Force’s SSA requirement is commercial,” the 

Air Force needed a rational basis to conclude that at least two small businesses capable 

of providing a commercial SSA solution would submit proposals with fair market prices.” 

(emphasis in original). Protestor, reiterating its arguments above, then claims that “under 

applicable law, the Air Force was required to determine the commerciality of its 

requirements before assessing whether the procurement should be set-aside for small

businesses. Because the Air Force’s SSA requirements are commercial, and because 

the Air Force did not identify any small businesses capable of providing a commercial 

SSA solution as a prime contractor, the set-aside determination is arbitrary and 

capricious.” As the court has found that the Air Force was not required to make the 

commerciality determination first, and has, moreover, found that the non-commercial 

decision was rational, the protestor’s argument is without merit.