Court Opinion

ID: 787
Source: CourtListenerOpinion
Date Created: 2010-03-30 04:09:37+00
Date Added: 2024-06-11T11:51:35.528418
License: Public Domain

United States Court of Appeals for the Federal Circuit
                                          2009-5076

                         SAVANTAGE FINANCIAL SERVICES, INC.,

                                                          Plaintiff-Appellant,

                                               v.

                                      UNITED STATES,

                                                          Defendant-Appellee.

.
            Timothy Sullivan, Thompson Coburn, LLP, of Washington, DC, argued for
    plaintiff-appellant.

           A. Bondurant Eley, Attorney, Commercial Litigation Branch, Civil Division, United
    States Department of Justice, of Washington, DC, argued for defendant-appellee. With
    her on the brief were Tony West, Assistant Attorney General, Jeanne E. Davidson,
    Director, and Bryant G. Snee, Deputy Director.

    Appealed from: United States Court of Federal Claims

    Senior Judge Bohdan A. Futey
 United States Court of Appeals for the Federal Circuit

                                      2009-5076

                     SAVANTAGE FINANCIAL SERVICES, INC.,

                                                Plaintiff-Appellant,

                                           v.

                                  UNITED STATES,

                                                Defendant-Appellee.

                 Appeal from the United States Court of Federal Claims
             in 08-CV-021 and 09-CV-113, Senior Judge Bohdan A. Futey.

                           __________________________

                           DECIDED: February 22, 2010
                           __________________________

Before NEWMAN, BRYSON, and PROST, Circuit Judges.

BRYSON, Circuit Judge.

      In this pre-award bid protest case, Savantage Financial Services, Inc.,

challenges the terms of a request for proposals from the Department of Homeland

Security (“DHS”). The request sought proposals to implement an agency-wide financial,

acquisition, and asset management system. The request required proposers to offer a

system that is integrated and currently fully operational within the federal government.

Although the Court of Federal Claims had previously enjoined DHS from using an earlier

solicitation, the court concluded that the requirements of the new solicitation were not

unlawful. Savantage appeals, contending that the new solicitation, like the previous
one, unduly restricts competition, in violation of the Competition in Contracting Act

(“CICA”), 10 U.S.C. § 2304(a)(1).

                                            I

      DHS was established in 2003 through the merger of 22 federal agencies. As a

result of the merger, DHS inherited five different financial management software

systems and a number of different acquisition management and asset management

systems. The use of different financial systems within the agency has caused logistical

difficulties and has been the subject of criticism and concern from federal auditors and

lawmakers. As a result, DHS has devoted considerable effort to obtaining an integrated

financial, acquisition, and asset management system.

      In January 2004, DHS launched its first effort to integrate its financial systems

through a project entitled Electronically Managing Enterprise Resources for Government

Effectiveness and Efficiency (“eMerge2”). The plan underlying the eMerge2 project was

to purchase commercial off-the-shelf software products and to integrate them so as to

facilitate communication among all the Department’s components. That project was a

complete failure; in December 2005, after spending $52 million with no discernible

results, the agency abandoned the eMerge2 program.

      DHS initiated its second effort to integrate its financial systems in 2007, through

the Transformation and Systems Consolidation (“TASC”) initiative. Its initial request for

proposals contained a series of task orders proposing the “migration” of all DHS

components to one of two integrated “shared software baselines” already in use within

the agency: (1) the Oracle financial management system integrated with the

Compusearch PRISM and Sunflower Assets systems, or (2) an integrated system from

2009-5076                                  2
Systems Applications Products (“SAP”). In response, Savantage filed a pre-award bid

protest with the Court of Federal Claims in January 2008. In April 2008, the court ruled

in favor of Savantage, concluding that DHS’s decision to require migration to the Oracle

or SAP financial software systems constituted an improper sole-source procurement.

See Savantage Fin. Servs., Inc. v. United States (“Savantage I”), 81 Fed. Cl. 300, 308

(2008).   The court enjoined DHS from proceeding with its solicitation until it had

conducted a competitive procurement. Id. at 311.

      Following the court’s ruling, DHS spent 10 months conducting market research

regarding the integration and implementation of financial systems in an effort to develop

a new solicitation. The result was a new request for proposals, issued on January 9,

2009, and amended on February 14, 2009.           The new request sought a financial,

acquisition, and asset management system that “will be provided as an integrated

solution that is currently fully operational in the Federal government.” The new TASC

procurement was to be conducted as “a full and open competition” in two separate

phases: (1) identification of viable offerors through submission of information to DHS;

and (2) submission and demonstration of proposals by viable offerors.

      That process was halted following the receipt of the first phase submissions,

when Savantage filed the present bid protest action with the Court of Federal Claims.

Savantage argued that DHS’s requirements unduly restricted full and open competition,

in violation of CICA, because the requirements effectively eliminated all solutions except

for Oracle-based systems.     Both parties moved for judgment on the administrative

record.

2009-5076                                   3
         In an April 2009 opinion, the trial court denied the protest, holding that Savantage

“ha[d] not met its burden of demonstrating that the requirement of a fully integrated,

currently operational system lacks a rational basis” and thus “defer[ring] to the agency’s

discretion in determining its own needs.” Savantage Fin. Servs., Inc. v. United States

(“Savantage II”), 86 Fed. Cl. 700, 706 (2009). Savantage appealed to this court.

         On appeal, Savantage argues that by requiring a system that is integrated and

currently operational in the federal government, the new solicitation unduly restricts

competition. Savantage contends that DHS’s attempts to justify those requirements are

based on conclusory statements lacking factual support in the administrative record.

Savantage further asserts that DHS’s requirements effectively guarantee that only the

Oracle     financial   management     product        (coupled   with   the   PRISM   acquisition

management and the Sunflower asset management products) will qualify for selection.

According to Savantage, the requirements of the new solicitation are pretextual,

disguising DHS’s efforts to favor Oracle—one of the solutions DHS was enjoined from

selecting by specific designation in the prior solicitation.

                                                II

         In a bid protest case, an agency’s action must be set aside if it is arbitrary,

capricious, an abuse of discretion, or otherwise not in accordance with law.               See

Bannum, Inc. v. United States, 404 F.3d 1346, 1351 (Fed. Cir. 2005); see also 28

U.S.C. § 1491(b)(4); 5 U.S.C. § 706(2)(A). The court’s task is to determine whether “(1)

the procurement official’s decision lacked a rational basis; or (2) the procurement

procedure involved a violation of regulation or procedure.” Weeks Marine, Inc. v. United

States, 575 F.3d 1352, 1358 (Fed. Cir. 2009). Savantage does not allege a procedural

2009-5076                                       4
violation, but argues that DHS’s restrictions on the solicitation lacked a rational basis

and were therefore unlawful.

       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). For that

reason, procurement decisions “invoke[] ‘highly deferential’ rational basis review.” CHE

Consulting, Inc. v. United States, 552 F.3d 1351, 1354 (Fed. Cir. 2008). Under that

standard, we must sustain an agency action unless the action does not “evince[] rational

reasoning and consideration of relevant factors.”       Advanced Data Concepts, Inc. v.

United States, 216 F.3d 1054, 1058 (Fed. Cir. 2000). Upon review of the record in this

case, we agree with the trial court that there is a rational basis for the three contested

requirements of the new solicitation: (1) that the proposed financial, acquisition, and

asset management system be “integrated”; (2) that it be “currently fully operational”; and

(3) that it be “currently fully operational in the Federal government.”

       With respect to the requirement that the system be integrated, we agree with the

trial court that it is “logical that [DHS] would want to ensure its success by seeking a

fully integrated system, both on the basis of its own experiences and those of other

agencies and departments.” Savantage II, 86 Fed. Cl. at 706. As the administrative

record amply shows, the failure of DHS’s own eMerge2 project—largely due to the

contractors’ inability to provide functional integration among components—underscored

the risks of building an entirely new system using separate, unintegrated, off-the-shelf

components. Internal DHS documents indicate that the Department responded to that

failure by rejecting a piecemeal approach and electing to acquire a core financial

2009-5076                                     5
system pre-integrated with other key systems. As we have held, an agency “has no

obligation to point to past experiences substantiating its concerns in order to survive

rational basis review . . . [as CICA does not require the agency] to supply a historical

record of failures to substantiate a risk.”        CHE Consulting, 552 F.3d at 1355.

Nonetheless, DHS’s prior “fifty-two million-dollar failure at integration,” Savantage II, 86

Fed. Cl. at 705, provides support for its decision to obtain a pre-integrated system.

       Savantage contends that there is no justification for DHS’s choice of a pre-

integrated solution, rather than implementing a core financial system first and then

separately integrating and implementing feeder systems. Savantage points to evidence

that building a fully integrated solution at the outset is more difficult than subsequently

integrating feeder systems into a core financial system, and that a pre-integrated

solution is thus more likely to fail. On a question such as whether to implement a pre-

integrated system or to build a system by beginning with a core financial system and

then integrating other systems afterwards, an agency’s preferences are entitled to great

weight.   As the trial court noted, “competitors do not dictate an agency’s minimum

needs, the agency does.”        Savantage II, 86 Fed. Cl. at 706.     And determining an

agency’s minimum needs “is a matter within the broad discretion of agency officials . . .

and is not for [the] court to second guess.” Wit Assocs., Inc. v. United States, 62 Fed.

Cl. 657, 662 (2004). We agree with the trial court that Savantage has failed to meet its

burden of showing that the agency’s decision to require a fully integrated system is so

plainly unjustified as to lack a rational basis.

       Similarly, DHS’s requirement that the financial management, asset, and

acquisition system be currently fully operational cannot be considered unreasonable.

2009-5076                                      6
Having already failed to build an operational system from the ground up, DHS could

reasonably prefer a system that is already operating successfully.           Savantage’s

contention that a pre-integrated system is difficult to implement supports DHS’s decision

to require a system that has been shown to work.

      Savantage focuses principally on DHS’s final requirement, that the system be

currently operational in the federal government.          Savantage asserts that the

administrative record is devoid of evidence connecting DHS’s needs to that requirement

of the new solicitation. We disagree.

      Contrary to Savantage’s suggestion, DHS was not required to synthesize its

thinking and its market research into a prelitigation written explanation of the rationale

for each of the solicitation requirements.      DHS’s rationale for its “in the federal

government” requirement is apparent from, and supported by, the agency record. The

$52 million loss resulting from the failed eMerge2 program, which was discussed in June

2007 testimony before a Senate Committee, prompted DHS to investigate ways to

leverage its resources and those of other federal agencies to save money and avoid

unnecessary duplication of efforts.       See Meeting the Challenge: Are Missed

Opportunities Costing Us Money?: Hearing Before the Subcomm. on Fed. Fin. Mgmt.,

Gov’t Info., Fed. Servs., and Int’l Sec. of the S. Comm. on Homeland Sec. &

Governmental Affairs, 110th Cong. 27-39 (2007). The “process overview” of the new

request for proposals explains the need to “leverage the tremendous investment that

DHS and the Federal government have made” and to “utilize and reuse work already

completed” within the federal government. DHS’s TASC documentation also expresses

the agency’s intention to comply with Office of Management and Budget Circular A-130.

2009-5076                                   7
While Circular A-130 does not directly favoring the sharing of information systems, it

expresses a preference for “satisfy[ing] new information needs through interagency or

intergovernmental sharing of information . . . , where appropriate, before creating or

collecting new information.” OMB, Circular No. A-130 § 8(a)(1)(d).

       In addition, numerous DHS documents express the need for a system that

complies with standards and requirements specific to the government and to DHS. For

example, the solicitation’s statement of objectives explains that success in achieving

DHS’s goals of producing timely, accurate, and useful financial information and ensuring

the integrity of internal controls and clean audit reports “rests upon an integrated core

financial management system that meets FSIO [Financial Systems Integration Office]

and DHS-specific requirements,” and complies with statutory and regulatory standards.

As DHS has explained, federal government accounting practices differ significantly from

those of private commercial entities. Although Savantage asserts that the requirement

of FSIO compliance alleviates any concerns regarding the viability of systems from

outside the federal government, the FSIO requirement does not render irrational DHS’s

insistence on a contractor with experience in successfully executing a task of a similar

nature, context, and scope.

       Savantage argues that this case is similar to Redland Genstar, Inc. v. United

States, 39 Fed. Cl. 220 (1997), in which the Court of Federal Claims held that changes

to procurement requirements were unsupported by rationales belatedly offered by the

Army Corps of Engineers. Unlike this case, Redland concerned an agency’s changes

to its requirements (and attempted justifications) after the filing of a bid protest; the court

nevertheless considered the late-proffered justifications, but concluded that those

2009-5076                                     8
justifications were unpersuasive.     39 Fed. Cl. at 232-34.       Like bid protest cases

generally, the decision in Redland is highly fact-specific.         Whether an agency’s

explanation for its bid proposal requirements is reasonable depends on the particular

circumstances of each case; in this case, we find nothing unreasonable in the means

DHS has devised to improve its likelihood of success in obtaining the agency-wide

financial system that it has pursued, so far unsuccessfully, for more than six years.

       Finally, we find no support for Savantage’s argument that DHS’s requirements

constitute a pretextual attempt to circumvent the trial court’s earlier injunction and

procure an Oracle-based system.         As an initial matter, government officials are

presumed to act in good faith. See Alaska Airlines, Inc. v. Johnson, 8 F.3d 791, 795

(Fed. Cir. 1993) (“[T]here is a presumption that public officers perform their duties

correctly, fairly, in good faith, and in accordance with the law and governing regulations

. . . . [T]his presumption stands unless there is irrefragable proof to the contrary.”).

There is no evidence in the record to suggest that DHS acted with intent to injure

Savantage or any other potential bidder.         See Galen Med. Assocs., Inc. v. United

States, 369 F.3d 1324, 1330 (Fed. Cir. 2004) (“In the cases where the court has

considered allegations of [governmental] bad faith, the necessary ‘irrefragable proof’

has been equated with evidence of some specific intent to injure the plaintiff.”).

       Savantage’s “pretext” argument rests on its contention that DHS’s new

solicitation requires the use of the PRISM acquisition management system and the

Sunflower asset management system, which are already used by several of DHS’s

components.    Although the solicitation does not require the use of the PRISM and

Sunflower systems, Savantage argues that in light of the widespread current use of

2009-5076                                    9
those systems by DHS components, “it doesn’t take much analysis to deduce DHS’s

unstated requirement that the integrated solution must include the PRISM and

Sunflower systems.”    Savantage further argues that, among the integrated systems

currently in operation in the federal government, only Oracle is integrated with the

PRISM and Sunflower systems. Accordingly, Savantage contends that the solicitation,

although general in form, is designed to ensure that an Oracle-based system is

selected.

       Savantage’s argument that DHS is committed to an integrated system using

PRISM and Sunflower components is speculative and lacks support in the record. The

Frequently Asked Questions for the new solicitation explicitly states that “[o]fferors are

free to propose any software and solutions, if appropriate to meet DHS’ requirements”

and that “corporate experience is not limited to previous experience within DHS.” Other

DHS documents contrast the new solicitation, which seeks a solution from either inside

or outside DHS, with the previous solicitation, which limited solutions to those already in

use within DHS. Finally, there is record support for DHS’s assertion that at least two

systems other than Oracle are presently integrated and fully operational within the

federal government.      Therefore, we reject Savantage’s contention that DHS’s

requirements constitute a pretextual cover for demanding an Oracle-based system.

       Because we agree with the trial court that DHS has a rational basis for requiring

an integrated financial, acquisition, and asset management system that is currently fully

operational within the federal government, we uphold the judgment of the Court of

Federal Claims.

                                       AFFIRMED.

2009-5076                                   10