Opinion ID: 6661188
Heading Depth: 1
Heading Rank: 3

Heading: Plaintiffs Have Stated Claims Upon Which Relief Can Be Granted

Text: Defendants also move pursuant to RCFC 12(b)(6) to dismiss plaintiffs’ complaints for failure to state a claim upon which relief can be granted. First, defendants raise a series of arguments contending that plaintiffs have waived their right to protest the option exercise. Second, defendants argue that certain Federal Circuit case law establishes that FAR § 17 — 207(f) does not create a right in plaintiffs’ favor. The court will dismiss a complaint for failure to state a claim upon which relief can be granted pursuant to RCFC 12(b)(6) if “the plaintiff can prove no set of facts that would warrant the requested relief, when drawing all well-pleaded factual inferences in favor of the complainant.” Levine v. United States, 453 F.3d 1348, 1350 (Fed.Cir. 2006). If the facts alleged reveal any possible basis on which the plaintiff might prevail, the court must deny the motion. See Sommers Oil Co. v. United States, 241 F.3d 1375, 1378 (Fed.Cir.2001). Plaintiff must, however, do more than recite the elements of a cause of action; it must make sufficient factual allegations to “raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); see also Ashcroft v. Iqbal, —— U.S. -, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). The complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face,’ ” meaning that “the plaintiff [must] plead [] factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 129 S.Ct. at 1949 (quoting Twombly, 550 U.S. at 570, 127 S.Ct. 1955); see also St. Bernard’s Parish v. United States, 88 Fed.Cl. 528, 556 (2009).
Relying upon Blue & Gold Fleet, L.P. v. United States, 492 F.3d 1308 (Fed. Cir.2007), defendants contend that plaintiffs have failed to state a claim upon which relief can be granted because they waived their right to challenge the exercise of the options by failing to raise their objections at an earlier time. First, defendants argue that plaintiffs have waived their ability to object to the exercise of the options because during the bidding period for the ID/IQ contracts, plaintiffs were aware that the contacts did not include pricing for all positions that the awardees would potentially be required to provide under the contracts. Def.’s Reply at 44; Oral Arg. Tr. at 40. In fact, the Air Force issued task orders for 52 positions for which no price was evaluated or requested as part of the base ID/IQ contracts. Oral Arg. Tr. at 40. Therefore, defendants argue that pricing was always “notional,” and plaintiffs were required to protest the structure of the pricing prior to the close of bidding for the ID/IQ contract. 17 Id. Defendants’ argument erroneously equates two different situations. In the first, prices for several positions that could potentially be filled under an ID/IQ contract in the future are undefined at the time of award. In the second, prices for the majority of positions that were certain to be filled under the contract are evaluated at the time of award, and subsequently deleted prior to the exercise of contract options. In the context of an ID/IQ contract, the former is not necessarily objectionable. As Professors Nash and Cibinie observe, it can be difficult for the Government to evaluate price or cost where the quantity of work may not be known until task orders are issued. Ralph C. Nash, Evaluating Price or Cost in Task Order Contracts, 19 No. 11 Nash & Cibinie Report ¶ 52 (Nov.2005); Ralph C. Nash & John Cibinie, Evaluating Cost to the Government When Quantities Are Unknown, 14 No. 2 Nash & Cibinie Report ¶ 10 (Feb.2000). In such circumstances, the GAO has recognized the legitimacy of methods of evaluating and comparing the relative cost or price of task orders that do not necessarily take into account the price of every individual category of goods or services that could potentially be ordered under the contract, such as pricing sample task orders. See S.J. Thomas Co., B-283192, 99-2 CPD ¶ 73, 1999 WL 961750, at  (Comp.Gen. Oct.20, 1999) (“If used intelligently, sample tasks can provide insight into competing offerors’ technical and staffing approach and thus provide a reasonable basis to assess the relative cost of the competing proposals.”); Aalco Forwarding, Inc., B-277241, 98-1 CPD ¶ 87, 1998 WL 121352, at  (Comp.Gen. March 11, 1998) (“Where estimates for various types of required services are not reasonably available, an agency may establish a reasonable hypothetical, consistent with the RFP requirements, to provide a common basis for comparing the relative costs of the proposals.”); High-Point Schaer, B-242616, 91-1 CPD ¶ 509, 1991 WL 119136, at  (Comp.Gen. May 28, 1991) (approving evaluation of total cost of an ID/IQ contract based upon a sample task order where labor categories and estimated hours of work are unknown); see also Envtl. Sci. & Eng’g, Inc., B-253208, 1993 WL 335053, at  (Comp.Gen. Aug.25, 1993) (holding that it was sufficient to compare labor rates for key personnel only in a labor-hour contract). However, as discussed infra at Section IV, while there is flexibility in price evaluation for ID/IQ contracts, there must be some binding price that can be evaluated for purposes of a meaningful comparison of the of-ferors’ proposals. In the present case, the alleged error only occurred after the NTEs were made non-binding and thus all previously evaluated price ceilings were removed from the contracts. Moreover, the harm allegedly suffered by plaintiffs only occurred once the options of the other ID/IQ contract holders were exercised after the deletion of the NTE prices. Therefore, the fact that the RFP always contemplated that some positions not priced in the ID/IQ contracts could be filled under the contracts does not mean that plaintiffs have waived their ability to protest the exercise of options after the only prices evaluated at the time of award were made entirely non-binding. Next, defendants argue that under Blue & Gold, plaintiffs have waived their ability to protest the exercise of the options by failing to timely object to the October 2008 contract modifications deleting the NTE pricing. See Def.’s Mot. at 15 n. 9; Luke’s Mot. at 6-7. They argue that if the removal of the NTE pricing made it impossible to consider price in exercising options, then the removal of the NTE rate caps should have made price reasonableness impossible to determine at the task order level under the base ID/IQ contract as well. Luke’s Reply at 22; Oral Arg. Tr. at 70. Because plaintiffs “continued to happily perform” under the ID/IQ contract for a year after the removal of the NTE pricing, defendants contend that plaintiffs “missed their chance” to argue that the exercise of the options violated FAR § 17.207(f). Oral Arg. Tr. at 71. The facts of this case simply do not implicate the waiver doctrine set forth in Blue & Gold. In Blue & Gold, the Federal Circuit held that a party that has the opportunity to object to the terms of a solicitation containing a patent error but fails to do so prior to the close of the bidding process waives its ability to raise the objection in a subsequent bid protest. Blue & Gold, 492 F.3d at 1314. In the present cases, there was no bidding process for the option work at issue — in fact, the gravamen of plaintiffs’ complaints is that the work was not procured competitively. See Magnum Opus Compl. ¶¶ 86-115; Healing Staff Compl. ¶¶ 39-43. Indeed, it is difficult to determine at what juncture defendants contend plaintiffs would have had to raise their objections in order to comply with Blue & Gold, since “bidding” never commenced with respect to the exercise of the options and therefore could not “close.” Although plaintiffs were aware that the NTE pricing had been deleted from their contracts nearly a year before the options of the other ID/IQ contract holders were exercised, plaintiffs do not complain of the elimination of the NTE rates, but rather of the later exercise of the options in violation of FAR § 17.207(f). For these reasons, the Court finds that plaintiffs did not waive their ability to bring these protests by failing to object to the contract modifications deleting the NTE pricing at some earlier time. Defendant alternatively argues that plaintiffs have waived their right to challenge the exercise of the options because they “should have raised their concerns with the proposed terms of the Government’s ability to exercise discretionary three-year option periods when the Air Force issued the RFP in May 2005.” Def.’s Mot. at 15. Once again, defendant’s argument disregards the fact that the circumstances that plaintiffs find objectionable — the exercise of options after the NTE pricing was deleted from the original ID/IQ contracts — did not occur until long after the bidding process for the original ID/IQ contract had closed. More importantly, the Court is unpersuaded that plaintiffs could waive their right to challenge the illegal exercise of options by failing to object to provisions in the RFP stating that the Government was entitled to exercise the options at its discretion. Such a waiver would require the RFP to allow the Government discretion to illegally exercise the options, which is clearly not the case. Magic Brite, 72 Fed.Cl. at 721 (“When the government holds an option it may employ whatever lawful criteria it chooses when deciding whether to exercise it or not.”) (emphasis added). The Court declines to adopt such a plainly unreasonable construction of the RFP. See Nw. Marine Iron Works v. United States, 203 Ct.Cl. 629, 493 F.2d 652, 657 (1974) (“Construction of the terms of a contract, like construction of a statute, should avoid absurd and whimsical results.”) (internal quotations omitted). 18
Defendants also argue that plaintiffs’ protests must be dismissed pursuant to RCFC 12(b)(6) because in Freightliner Corp. v. Caldera, 225 F.3d 1361, 1365 (Fed.Cir.2000), the Federal Circuit determined that FAR § 17.207 is a regulation for the benefit of the Government that does not confer a private right of action upon contractors. Def.’s Mot. at 17-18; Luke’s Reply at 18-21. In Freightliner, a contractor whose option had been exercised brought a CDA claim seeking additional payment for performing the option work on the theory that the option had not been validly exercised because the Government had failed to comply with FAR § 17.207(f). Freightliner, 225 F.3d at 1364. In that context, the Federal Circuit found that “even if [the agency] failed to comply with FAR § 17.207(f), it would not render the [option exercise] ineffective because FAR § 17.207(f) did ‘not exist for the benefit of the contractor.’ ” Id. at 1365. That is, FAR § 17.207(f) does not exist for the benefit of a contractor whose option has already been exercised seeking an equitable adjustment for performing the option work. Instead, the Federal Circuit held that “FAR § 17.207(f) exists to ensure that the contracting officer acts in the best interest of the government.” Id. at 1365. Freightliner does not govern the present case because plaintiffs are not bringing their claims as contractors. Instead, they bring their claims as potential competitors, alleging that the Air Force’s violation of FAR § 17.207(f) and CICA requires a new procurement in lieu of exercising the options of the other four ID/IQ contract holders. See, e.g., Myers, 275 F.3d at 1369-70 (recognizing that an interested party in a bid protest is a party that was injured as a competitor or potential competitor). Thus, while Freightliner would, for example, prohibit Luke or TerraHealth from relying on FAR § 17.207(f) in a later CDA action seeking an equitable adjustment for performing work during the option period, it does not necessarily preclude potential competitors like Magnum Opus and Healing Staff from bringing a bid protest challenging an alleged violation of the competition requirements in FAR § 17.207. The Federal Circuit’s finding that FAR 8 17.207(f) exists for the benefit of the Government as opposed to a contractor seeking an equitable adjustment does not mean that the regulation exists for the benefit of the Government to the exclusion of all other potential parties. Certainly it is possible for a regulation to exist both for the benefit of the Government and for potential competitors in different contexts. For example, in D.V. Gonzalez Electric & General Contractors, Inc. v. United States, 55 Fed.Cl. 447, 454 (2003), this court held that a contractor could not bring a CDA claim alleging a violation of a Department of Veterans Affairs regulation analogous to FAR § 19.806(b), because the regulation existed for the benefit of the Government, as opposed to the contractor. However, in Techno-Sciences, Inc., B-277260, 97-2 CPD ¶ 115, 1997 WL 666979, at -5 (Comp.Gen. Sept.22, 1997), the GAO sustained a bid protest brought by a competitor alleging a violation of FAR 8 19.806(b). In Freightliner, the Federal Circuit held that FAR § 17.207(f) did not provide a cause of action for a contractor bringing a CDA claim seeking additional payment for the work covered by the option because the regulation existed for the benefit of the Government, as opposed to the contractor. Freightliner, 225 F.3d at 1365. But in Phoenix Air Group, this court entertained a bid protest upon the merits in which a competitor sought to set aside a contract award based upon allegations that the Government violated FAR 8 17.207(f). 19 Phoenix Air Group, 46 Fed. Cl. at 107. It is only logical that a regulation such as 8 17.207(f), which mandates that the requirements of full and open competition be met unless certain criteria are satisfied, could serve to benefit both the Government, which seeks to obtain the best valued goods and services, and potential competitors, who seek to be selected by the Government as providing the best value in goods and services. See FAR 8 17.207(f); see also Major Contracting Servs., Inc., 2009 WL 2933344, at . The history surrounding the enactment of FAR 8 17.207(f) further suggests that the purpose of its enactment was to ensure price competition and therefore, the regulation should be the basis for a valid CICA claim. In the 1980s, the GAO expressed concern over defense agencies’ use of unpriced options on “umbrella” contracts to procure services. Letter from Frank C. Conahan, Director, National Security and International Affairs Division, General Accounting Office to Hon. Caspar W. Weinberger, Secretary of Defense, B-217655, 1986 WL 312402, at -2 (Comp.Gen. Apr.23, 1986) (“Weinberger Report”); see also Vernon J. Edwards, Postscript: Options for Additional Years of Work, 23 No. 4 Nash & Cibinic Report ¶ 21 (Apr.2009). That is, in exercising the option, the agency left the price open to future negotiation instead of accepting a specific price offered in the original contract. Weinberger Report, 1986 WL 312402, at . This practice led to later disputes over the proper pricing of the option services. See, e.g., Aviation Contractor Employees, Inc. v. United States, 945 F.2d 1568, 1570 (Fed.Cir.1991). In a series of decisions, the GAO found these unpriced options to be improper. See Varian Assocs., Inc., B-208281, 83-1 CPD ¶ 160, 1983 WL 26465, at  (Comp.Gen. Feb.16, 1983); Dep’t of Health & Human Servs.-Reconsideration, 81-2 CPD ¶ 279, B-198911.3, 1981 WL 23275, at  (Comp.Gen. Oct.6, 1981); see also Amdahl Corp., B-198911, 81-1 CPD 1231, 1981 WL 24233, at  (Comp.Gen. March 27, 1981); Pacificon Prods. Inc., B-196371, 80-2 CPD ¶ 58, 1980 WL 16248 (Comp.Gen. July 22, 1980). The GAO found that accepting an unpriced option “constitutes a resolicitation of the contract on a noncompetitive basis.” Weinberger Report, 1986 WL 312402, at . Unless the agency issued an appropriate sole-source selection finding, see, e.g., Kollsman Instrument Co., B-233759, 89-1 CPD ¶243, 1989 WL 237450, at  (Comp.Gen. March 6, 1989); Pacifican Prods., 1980 WL 16248, at -4, exercising the option was an impermissible de facto sole source procurement. Weinberger Report, 1986 WL 312402, at . The GAO ultimately recommended that the FAR be revised “to help ensure that future option provisions are priced.” Weinberger Report, 1986 WL 312402, at . As a result, FAR § 17.207(f) clarified that a proper option must include a price term that is “specified in or reasonably determinable from the terms of the basic contract.” FAR § 17.207(f); see Federal Acquisition Regulation (FAR); Options, 51 Fed.Reg. 39,456, 39,456-57 (Oct. 28, 1986); Vernon J. Edwards, Postscript: Options for Additional Years of Work, 23 No. 4 Nash & Cibinic Report ¶ 21 (Apr.2009). FAR § 17.207(f) thus both preserves the right to competition at the conclusion of a base contract and protects the government from potentially unlimited costs resulting from exercising an unpriced option. See Freightliner, 225 F.3d at 1365 (“FAR § 17.207(f) exists to ensure that the contracting officer acts in the best interest of the government.”). To read Freightliner as precluding a bid protest challenge of this sort would render meaningless the provision in FAR § 17.207(f) requiring that agencies “satisfy the requirements of [FAR] part 6 regarding full and open competition” and the Tucker Act’s grant of jurisdiction to hear objections to “any alleged violation of a statute or regulation in connection with a procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1). The Government concedes that the Air Force was bound by § 17.207(f) in this procurement, Oral Arg. Tr. at 41, and plaintiffs contend that regulation was violated. There are certainly some instances where an alleged violation of a regulation does not create an enforceable right for disappointed bidders. See E.W. Bliss Co. v. United States, 77 F.3d 445, 448 (Fed.Cir. 1996); Keco Indus., Inc., 203 Ct.Cl. 566, 492 F.2d 1200, 1206 (1974). However, for the reasons discussed above, the Court finds that plaintiffs’ claims that the option work was improperly awarded without the requisite competition as a result of an alleged violation of § 17.207(f) do not fall within that category. The Court therefore concludes that FAR § 17.207(f) creates a cause of action for potential competitors such as plaintiffs. For these reasons, defendants’ motions to dismiss for failure to state a claim upon which relief can be granted are DENIED.