## United States Court of Appeals for the Federal Circuit

2008-5177 TYLER CONSTRUCTION GROUP, Plaintiff-Appellant,

v. UNITED STATES, Defendant-Appellee.

Michael H. Payne , Payne Hackenbracht & Sulliv an, of Fort Washington, Pennsylvania, argued for plaintiff-appellant. Douglas G. Edelschick , Trial Attorney, Commercial Litigation Branch, Civil Division, United States Department of Ju stice, of Washingt on, DC, argued for de fendant-appellee. With him on the brief were Michael F. Hertz , Acting Assistant Attorney General, Jeanne E. Davidson , Director, and Reginald T. Blades, Jr. , Assistant Director. Of counsel on the brief were Thomas J. Warren , Office of the Chief Counsel, A rmy Corps of Engineers, of Washington, DC, and Charles L. Webster III , Engineer Trial Attorney, of Fort Worth, Texas. Appealed from: United States Court of Federal Claims Senior Judge John P. Wiese

## United States Court of Appeals for the Federal Circuit

2008-5177 TYLER CONSTRUCTION GROUP, Pl aintiff-Appellant,

v. UNITED STATES, Defendant-Appellee.
Appeal from the United States Court of Federal Claims in 08-CV-094, Senior Judge John P. Wiese.

______________________________ DECIDED: June 25, 2009

______________________________

Before MAYER, FRIEDMAN, and RADER, Circuit Judges

. FRIEDMAN, Circuit Judge

. The principal issue is w hether the United States A rmy Corps of Engineers (“the Corps”) was authorized to use so-called Indef inite Deliver/Indefinit e Quantity Contracts (known as “IDIQ contracts”) for the design and construction of military buildings (barracks and related structures) in an eight -state area in the southeastern United States. As the name implies, those cont racts did not state the number of such structures to be built or the dates for construction, but did specify the total dollar range the construction would involve. The Court of Federal Claims held that the Corps was authorized to use those contracts fo r this procurement, and we affirm.I A. This litigation stems from what the Corps described, in the language of the Court of Federal Claims’ opinion, as “part of a fundamental change in military construction strategy designed to transform the United States Army into a more modular, expeditionary, and ef fective fighting force.” Tyler Constr. Group v. United States , 83 Fed. Cl. 94, 95 (2008). The underlying fa cts, as stated in that opinion, are largely undisputed. The Corps stated that “its primary objecti ve is to meet the Department of the Army’s time, cost, quality, and standardizati on targets and goals while providing new facilities for our soldiers and their familie s—an undertaking requiring a minimum of 20% reduction in cost and a minimum of 30% reduction in time to occupancy.” Id. at 95-96 (internal quotation marks omitted). To accomplish that objective, the Corps: initiated a market research program in 2005 to acquaint members of the constructi on industry with the Army’s upcoming needs and to gain the industry’s perspective on how best to execute a cons truction program of the magnitude contemplated. The program included sponsorship of a nationwide forum, four regional forums, and a specialized forum with repr esentatives of the prefabricated/pre-engineer ed/modular construc tion industry, as well as the implementation of an internet-based research questionnaire. Through these effo rts, the Corps identified an industry consensus that the successful execution of its construction program woul d require an emphasis on standardization and economies of scale. Based on this conclusion, the Corps decided to pursue a flexible acquisition strategy “compos ed of primarily local and regional contracts with a possibilit y of national contracts, in order to execute an estima ted $40 Billion dollar Military Construction . . . Program.” Id. at 96.

2008-5177 2In 2007, the Corps issued a solicitation se eking proposals for the construction. The amended solicitation provided for a negotiated one-ye ar multiple award task order contract, with two additional one-year opt ions, a minimum $10,000 guarantee for the first year, and a total estimated contract am ount of $301 million. The Corps estimated that the value of the initial task order under the contract would be between $25 million and $100 million. The solicitation described in general terms the facilities to be constructed under the initial task order. It in cluded a 252-page statem ent of work outlining in detail the other types of facilities to be built. “The st atement of work does not indicate where these facilities are to be built; it does, howeve r, inform offerors that the facilities will be required primarily at Fort Benning, Georgia.” The solicitation contempl ated a two-phase proposal pr ocess in which two or more contractors would be selected. In th e first phase, the Corps would evaluate the performance capabilities of the prospective contractors based on specified criteria. In the second phase, the contract ors would submit proposals fo r the initial task order. Those to whom contracts were awarded w ould “become the only competitors for the negotiation and award of all subsequent task order s, subject only to the limitation that a contractor is not . . . obligated to honor a task order of less than $14 million, a task order in excess of $47. 5 million, or any order involving a combination of items in excess of $95 million.” Id. at 96 B. The appellant, Tyler Construction Group (“Tyler”), which described itself in its complaint as “a small business general cont ractor,” did not subm it any proposal in response to the solicitation. Instead, it filed the present su it in the Court of Federal

2008-5177 3Claims seeking injunctive and declaratory relief against the solicitation. It challenged the Corps’ use of IDIQ contracts for this procurement on various grounds, including the claims that such use was not authorized by the Federal Acquisition Regulation (“FAR”) and that it violated statutor y and regulatory provisions that favor and protect small businesses. On the parties’ cross-motions for j udgment on the administrative record, the Court of Federal Cla ims granted the government’s mo tion and dismissed the suit. Tyler Constr. Group , 83 Fed. Cl. at 95. After that decisi on, the Corps selected three firms to whom it awarded contracts. The court rejected Tyler’s contention that the FAR does not authorize the use of IDIQ contracts for a major construction project. Tyler stated that such contracts “have historically been used for the pr ocurement of essentially identical ‘supplies or services’ for which there is a recurring need at a sing le installation or wit hin a small geographic area.” Tyler argued that FAR § 16.501-2(a), 48 C.F. R. § 16.501-2(a), “which identifies an IDIQ contract as a contract used ‘to acqu ire supplies and/or services when the exact times and/or exact quantities of future deliver ies are not known at th e time of contract award,’” does not cover “construction” because the latter is not a “service.” It pointed to other provisions of the FAR that parenthetically inserted, after “goods and services,” the term “(including construction).” The governm ent countered by citing still other FAR provisions that stated, a fter “goods and services,” “(ex cluding construction).” Noting that there is “no law, statute, or regulation that prohibits the use of an IDIQ contract for the procurement of constructi on services,” the Cour t of Federal Claims concluded that “the various provisions of the FAR offer little insight into whether

2008-5177 4‘construction’ is included in or ex cluded from ‘supplies or services.’” Tyler Constr. Group. , 83 Fed. Cl. at 99. The court ruled that FAR § 1.102(d)—providing proc urement officials with the authority to use innovative approaches to satisfy the government’s procurement needs so long as such approaches are not otherwise addressed in the FAR or prohibited by law—governs t he instant procurement. We find that the solicitation repres ents the sort of innovation envisioned by that se ction and, with its i dentification of both a contract dollar value and a general scope of work, constitutes a permissible exer cise of IDIQ contracting authority. Id. The Court of Federal Claims also rejected Tyler’s al ternative contention that “the scope of the solicitation, as measured by both its dollar amoun t and the geographic distribution of its construction work, is ofa magnitude that impermissibly forecloses small business participation.” Id. at 100 (footnote omitted). Tyler relied on the antibundling provision of the Small Business Ac t, 15 U.S.C. § 631(j)(3), which requires “each Federal agency” to “avoid unnecessa ry and unjustified bundling of contract requirements that precludes small busines s participation in procurements as prime contractors,” and the similar lim itation on “consolidation” of procurement in 10 U.S.C. § 2382(a). The court stated: “In plaintiff’s vi ew, the Corps’ use of a single procurement to acquire the design and constr uction of multiple facilities, many of which would have been suitable for small-business contractor s, constitutes the improper bundling the statute prohibits and should be enjoined on that ground.” Tyler Constr. Group , 83 Fed. Cl. at 100. In rejecting this contention, the cour t relied on 15 U.S.C. § 644(e)(2)(A), which provides:

2008-5177 5Before proceeding with an acquisition strategy that could lead to a contract containing consolidated procurement requirements, the head of an agency shall conduct market research to determine whether consolidation of the requirements is necessary and justified. The court conclude[d] . . . that the Corps has demonstrated that the consolidation of the contract requirements was necessary and justified within the meaning of the relevant statutes. [T]he Corps’ choice of acquisition strategy was dictated by an industry consensus that succ essfully meeting the Army’s goals in construction costs and time would require a departure from the Corps’ tradi tional “one project at a time” approach in favor of an acquisition strategy that maximized economies of scale. Given the Corps’ extensive market research and its detailed analysis of the issue, we can find no fault with the Corps’ decisio n to rely on the industry’s counsel. Tyler Constr. Group , 83 Fed. Cl. at 103. II The FAR provisions relating to IDIQ cont racts (there called “i ndefinite delivery contracts”) state that such contracts “may be used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award.” FAR § 16. 501-2(a), 48 C.F.R.. § 16.501-2(a). FAR § 16.504(a)(1), 48 C.F.R. § 16.5 04(a)(1) provides that “[t]he contract must require the Government to order and the contractor to fu rnish at least a stated minimum quantity of supplies or services.” The FAR provides that contracting officers “may use” such contracts “when the Governm ent cannot predetermine, above a specified minimum, the precise quantities of supplies or services that the Govern ment will require during the contract period.” Id. § 16.504(b). Other provisions of t hat section also refer to “supplies

2008-5177 6or services” the contractor will furnis h or the governmen t will acquire. Id. § 16.504(a)(1), (a)(4)(iii). Tyler contends that under t hese provisions IDIQ contracts cannot be used for large scale building construction because “s ervices” as there used does not include “construction.” As previously noted, each party seeks to support its position by citing other provisions of the FA R, some of which state “(i ncluding construction)” after “supplies or services” and others of which state “(excluding constr uction)” after that phrase. We agree with the Co urt of Federal Claims that these provisions of the FAR “offer little insight into whether ‘construction’ is included in or excl uded from ‘supplies or services.’” Tyler Constr. Group , 83 Fed. Cl. at 99. All that they show is that, depending on the context, “services” may or may not incl ude “construction.” They do not establish, as Tyler contends, that in determining whet her IDIQ contracts may be used for major military building projects, “service s” does not include “construction.” Like the Court of Federal Claims, we conclude that the proper inquiry is not whether the FAR authorizes the use of IDIQ contracts for a procurement of construction, but whether there is any stat utory or regulatory provision that precludes such use. Again, like that court, we are unaware of any such prov ision, and Tyler has not pointed to any. Indeed, it appears that Tyler does not challenge that conclusion. The reason that this is the appropriate inquiry is explained in FAR § 1.102(d), 48 C.F.R. § 1.102(d), which states: The role of each member of the Acquisition Team is to exercise personal initiative and sound business judgment in providing the best value product or service to meet the customer’s needs. In exerci sing initiative, Government members of the Acquisition Team may assume if a specific strategy, practice, policy or procedure is in the best interests

2008-5177 7of the Government and is not addressed in the FAR nor prohibited by law (statute or case law), Executive order or other regulation, that the st rategy, practice, policy or procedure is a permissible exercise of authority. In other words, government officers are authorized, i ndeed, encouraged, in exercising personal initiative in procurement matters, to assume that “a specific strategy, practice, policy or procedure” that is not “addressed in the FAR nor prohibited by law (statute or case law), Executive orde r or other regulation” and that “is in the best interests of the Government,” “is a permissible exercise of authority.” We agree with the Court of Federal Claims that the Corp s’ use of IDIQ contracts to effect this procurement of military housing “represents the sort of innovation envisioned by that sect ion and, with its identification of both a contract dollar value and a general scope of work, constitutes a permi ssible exercise of IDIQ contracting authority.” Tyler Constr. Group , 83 Fed. Cl. at 99. The Corps was faced with an unusually la rge and novel procurement that had to meet the Army’s unusual and demanding standards and requirements. The Army was seeking what the Corps viewed as “a fundamental change in military construction strategy designed” to make the Army “a more modular expediti onary and effective fighting force.” Tyler Constr. Group. , 83 Fed. Cl. at 95. The Army’s new approach to housing construction required a 20% reduction in cost and a 30% reduction in the time required until the facilities could be occupied. Prior to deciding to use IDIQ contracts for this procurement, the Corps carefully studied, analyzed and evaluated the situation. It conducted a research program which included a nationwide forum, four regional fora, and “a specialized forum with representatives of the pre- fabricated/pre-engineer ed/modular construction industry, as

2008-5177 8well as the implementation of an inte rnet-based research questionnaire.” Tyler Constr. Group , 83 Fed. Cl. at 96. The Corps concl uded that there was “an industry consensus that the successful executi on of its construction program would require an emphasis on standardization and economies of scale. Based on this conclusion, the Corps decided to pursue a flexible acquisition strategy ‘composed of primarily local and regional contracts with a possibility of national contra cts, in order to execute an estimated $40 Billion dollar Military Cons truction . . . Program.’” Id. The Corps, like other federal procurement entities, has br oad discretion to determine what particular method of procurement will be in the best interests of the United States in a particular situation. Cf. E.W. Bliss Co. v. United States , 77 F.3d 445, 449 (Fed. Cir. 1996) (in negotiated contracts “[p]rocurem ent officials have substantial discretion to determine which proposal repr esents the best value for the government”); Lockheed Missiles & Space Co. v. Bentsen , 4 F.3d 955, 958 (Fed. Cir. 1993) (“Effective contracting demands broad discretion.”). The Corps did not abuse that discretion in concluding that in the sit uation here, the use of IDIQ contracts to obtain this large military construction was the most appropria te method of proceeding and therefore best served the interests of the United States. Nor did the Corps vi olate or ignore any statutory or regulat ory requirements, prohibitions or standards in so acting. III A. Tyler also contends that in using this type of procurement, the Corps violated statutory and regulatory provis ions designed to aid and protect small businesses and to insure that they receive a fair and ade quate share of government contracts and business. It relies primarily on the anti-bundling provision of the Small Business Act,

2008-5177 9which in pertinent part require s “each Federal [acquiring] agen cy” to “avoid unnecessary and unjustified bundling of co ntracts requirements that precludes small business participation in procurements as prime contractors.” 15 U.S.C. § 631(j)(3). According to Tyler, the Corps’ combination (or “bundling”) of procurement of military facilities under a single contract resulted in a procurement whose dollar amount was beyond the financial capacity of small business firms, who could and would have competed for constituent individual components of smaller size. The government seeks to avoid this limit ation on its contracting authority by arguing that this statutory provision does not apply to ne w construction. It relies on statutory provisions that stat e that “[t]he term ‘ bundling of contract requirements’ means consolidating 2 or more pr ocurement requirements for goods or services previously provided or performed under s eparate smaller contracts,” 15 U.S.C. § 632(o)(2), and that “[t]he terms ‘consolidation of contract requirements’ and ‘consolidation’ . . . mean a use of a solicitation to obtain offers for a si ngle contract or multip le award contract to satisfy two or more requirements . . . for goods or services that have previously been provided . . . under two or more separate c ontracts smaller in cost.” 10 U.S.C. § 2382(c)(1). According to the governmen t, under these definiti ons the bundling and consolidation statutes “ apply only to contracts that would combine existing requirements, previously provided, under separ ate smaller contracts,” but “do not apply to new construction, which is a new requirement.” Like the Court of Federal Claims, we need not decide this question because we conclude that even if those provisions cove r new construction, the Corps’ conduct of this procurement did not violate them.

2008-5177 10The statute does not prohibit all bundling of contract requirements, but only “unnecessary and unjustified bundling.” Light on the meaning of this language is provided by 15 U.S.C. § 644(e)(2)(A), which states Before proceeding with an acquisition strategy that could lead to a contract containing consolidated procurement requirements, the head of an agency shall conduct market research to determine whether consolidation of the requirements is necessary and justified. As we have noted, the Corps conduct ed extensive market research before determining that consolidat ion of the procurem ent requirements was “necessary and justified.” We agree with t he Court of Federal Claims that the Corps has demonstrated that the consolidation of the contract requirements was necessary and justified within the meaning of the relevant statut es . . . the Corps’ choice of acquisition strategy was dict ated by an industry consensus that successfully meeting the Army’s goals in construction costs and time would require a departure from the Corps’ traditional “one project at a time” approach in favor of an acquisition strategy that ma ximized economies of scale. Given the Corps’ extensive ma rket research and its detailed analysis of the issue, we c an find no fault with the Corps’ decision to rely on the industry’s counsel. Tyler Constr. Group , 83 Fed. Cl. at 103. B. Tyler makes an alternative argument ch allenging the combin ation or bundling of these procurements, based on the requirements of the Small Business Competitiveness Demonstration Program Act of 1988, 15 U.S.C. § 644 note, that relate to set-asides of government contracts for sm all business. The Court of Federal Claims stated: “As explained in the Act’s in troductory findings, traditional efforts to implement the mandate for small business participation in federal procur ements have resulted in an over-concentration of small busin ess participation in a limited

2008-5177 11number of industry categories, wh ile at the same time failing to expand small business part icipation in certain other categories. 15 U.S.C. § 644 not e, §§ 702(3)(A), (B). FAR § 19.1007(b), the regulation im plementing the Act, thus prohibits solicitations in certain designated contract categories from being subject to small business set-asides, except for those set-asi des mandated for socially and economically disadvantaged smal l businesses. 15 U.S.C. § 644 note, §§ 713(a), 717(a) , (b), 718(a).” Tyler Constr. Group , 83 Fed. Cl. at 103 n.9. Tyler concedes that it is not such a disadvantaged small business and that the statute would prohibit the Corp s from awarding it a contra ct under a small business setaside. It argues, however, t hat because the Army had not met its total small business set-aside requirement for the year invo lved, the Corps on its own should have requested the Department of Def ense to waive the foregoing statutory limitation on setasides for non-disadvantaged small businesses. It contends that the Corps’ failure to seek such a waiver constituted an abuse of discretion. Tyler does not state that it requested the Corps to seek such a waiver, that the Department of Defense had any administrativ e procedure for doing so, or that if a waiver had been sought it likel y would have been granted. Nor is it clear exactly what precise waiver was sought. Since Tyler cont ends that the combinat ion of the individual construction projects produced a contract w hose dollar amount exceeded the financial capacity of small businesses, it would not have aided Tyler if the entire contract project had been set aside for small business: The contract still would have been beyond Tyler’s financial capacity. What Tyler mu st have sought, therefore, was the breaking down of this large contract into its compone nt parts and separate procurements for each part, for which Tyler would have had t he financial capacity to compete.

2008-5177 12Seeking such a waiver would hav e been inconsistent with the Corps’ determination that the consolidation of proc urement it undertook was “necessary and justified.” The Corps did not abuse its discretion in failing sua sponte to seek a waiver of that statutory limit ation, which would have undone that determination. C. In evaluating Tyler’s contention that the Corps’ handling of this procurement was inconsistent with, if not contrary to, t he statutory and regulatory provisions involving the federal commitment to aiding small business participation in government procurement, it is important to consider the Corps’ action her e in helping small businesses to participate in this procurement. In its “National Acquisitional Strategy” plan for this major military construction, the Corps directed that regional ac quisition plans “must strike a balance between achieving economies of scale and meeting small busi ness and other social-economic goals, as well as small-business considerations when unrestricted acquisitions are necessary.” The Acquisition Plan that covered this pr ocurement provided that 20 percent of the contract dollars be set aside for small bu siness, including 100 per cent of the dollar amount for certain types of facilities and fo r projects valued at less than $15 million. The solicitation in the present case provided that: “All offerors (both large and small businesses) will be evaluated on the leve l of small business commitment they demonstrate for the proposed acquisition, and thei r prior level of commitment to utilizing small businesses in performance of prio r contracts.” The Corps established “reasonable and achievable” subcontracting goals for the utilization of small businesses, including a goal that 70 percent of subcont racted work should be performed by small

2008-5177 132008-5177 14 business. Firms could associ ate together as team s or joint ventures when submitting proposals. The Corps endeavored, as far as practicable, to comply with the statutory and regulatory requirements and policies for sm all business participation in government procurement. It cannot proper ly be faulted for failing to do so because it did comply. D. We have considered Tyler’s other contentions, but they are unconvincing. They do not require separate discussion. CONCLUSION The judgment of the Cour t of Federal Claims is AFFIRMED

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