Court Opinion

ID: 2657803
Source: CourtListenerOpinion
Date Created: 2014-03-25 15:26:17.322662+00
Date Added: 2024-06-11T12:36:38.496609
License: Public Domain

United States Court of Appeals
      for the Federal Circuit
                ______________________

  CMS CONTRACT MANAGEMENT SERVICES,
  THE HOUSING AUTHORITY OF THE CITY OF
      BREMERTON, NATIONAL HOUSING
 COMPLIANCE, ASSISTED HOUSING SERVICES
CORP., NORTH TAMPA HOUSING DEVELOPMENT
 CORP., CALIFORNIA AFFORDABLE HOUSING
   INITIATIVES, INC., SOUTHWEST HOUSING
 COMPLIANCE CORPORATION, AND NAVIGATE
      AFFORDABLE HOUSING PARTNERS
  (formerly known as Jefferson County Assisted
             Housing Corporation),
               Plaintiffs-Appellants,

                          v.

MASSACHUSETTS HOUSING FINANCE AGENCY,
            Plaintiff-Appellee,

                          v.

                  UNITED STATES,
                  Defendant-Appellee.
                ______________________

                      2013-5093
                ______________________

    Appeal from the United States Court of Federal
Claims in consolidated Nos. 12-CV-0852, 12-CV-0853, 12-
CV-0862, 12-CV-0864, and 12-CV-0869, Judge Thomas C.
Wheeler.
                 ______________________
2                       CMS CONTRACT MANAGEMENT v. US

                Decided: March 25, 2014
                ______________________

    ROBERT K. TOMPKINS, Patton Boggs LLP, of Washing-
ton, DC, argued for all plaintiffs-appellants. With him on
the brief were MICHAEL J. SCHAENGOLD and ELIZABETH
M. GILL. Of counsel on the brief were COLM P. NELSON,
Foster Pepper PLLC, of Seattle, Washington, for CMS
Contract Management Services and The Housing Author-
ity of The City of Bremerton; and MICHAEL GOLDEN,
Pepper Hamilton LLP, of Washington, DC, for National
Housing Compliance; NEIL H. O’DONNELL, Rogers, Joseph,
O’Donnell, of San Francisco, California, for Assisted
Housing Services Corp., North Tampa Housing Develop-
ment Corp. and California Affordable Housing Initiatives,
Inc.; and RICHARD JAMES VACURA, Morrison & Foerster,
LLP, of McLean, Virginia, for Southwest Housing Com-
pliance Corp. Of counsel was WILLIAM GREGORY GUEDEL,
Foster Pepper PPLC, of Seattle, Washington, for CMS
Contract Management Services.

    GABRIEL E. KENNON, Cohen Mohr LLP, of Washing-
ton, DC, for plaintiff-appellee Massachusetts Housing
Finance Agency. Of counsel was ANDREW J. MOHR.

     KIRK T. MANHARDT, Assistant Director, Commercial
Litigation Branch, Civil Division, United States Depart-
ment of Justice, of Washington, DC, argued for defendant-
appellee. With him on the brief were STUART F. DELERY,
Acting Assistant Attorney General, and JEANNE E.
DAVIDSON, Director.     Of counsel on the brief were
DOUGLAS K. MICKLE, Senior Trial Counsel, and JOSEPH A.
PIXLEY, Trial Attorney, DORIS S. FINNERMAN, Assistant
General Counsel for Assisted Housing and Civil Rights,
Office of General Counsel, and KATHIE SOROKA, Special
Assistant to the General Counsel, Office of General Coun-
CMS CONTRACT MANAGEMENT v. US                               3

sel, United States Department of Housing and Urban
Development, of Washington, DC.

    KEVIN P. MULLEN, Jenner & Block, LLP, of Washing-
ton, DC, for amicus curiae.
                 ______________________

    Before RADER, Chief Judge, LOURIE, and MOORE, Cir-
                     cuit Judges.
RADER, Chief Judge.
    The Court of Federal Claims denied CMS Manage-
ment Services et al.’s (Appellants) request to set aside as
unlawful the Department of Housing and Urban Devel-
opment’s (HUD) solicitation and award of contract admin-
istration services related to Section 8 of the Housing Act.
Because the Performance-Based Annual Contribution
Contracts (PBACCs) are procurement contracts, not
cooperative agreements, this court reverses.
                              I.
    The Federal Grant and Cooperative Agreement Act
(FGCAA) sets forth the type of legal instrument an execu-
tive agency must use when awarding a federal grant or
contract. 31 U.S.C. § 6301. In pertinent part, “[a]n
executive agency shall use a procurement contract as the
legal instrument . . . when . . . the principal purpose of the
instrument is to acquire (by purchase, lease, or barter)
property or services for the direct benefit or use of the
United States government.” 31 U.S.C. § 6303. When
using a procurement contract, an agency must adhere to
federal procurement laws, including the Competition in
Contracting Act (CICA), 41 U.S.C. § 3301, as well as the
Federal Acquisition Regulation (FAR).
   In contrast, an “agency shall use a cooperative agree-
ment as the legal instrument . . . when . . . the principal
purpose of the relationship is to transfer a thing of value
4                         CMS CONTRACT MANAGEMENT v. US

to the [recipient] to carry out a public purpose of support
or stimulation authorized by a law of the United States
instead of acquiring . . . property or services.” 31 U.S.C.
§ 6305. The FGCAA notes that “substantial involvement
is expected between the executive agency and the [recipi-
ent] when carrying out the activity contemplated in the
[cooperative] agreement.” 31 U.S.C. § 6305(2). When
using a cooperative agreement, agencies escape the re-
quirements of federal procurement law.
                             II.
     Section 8 of the Housing Act of 1937 authorized HUD
to provide rental assistance benefits to low-income fami-
lies and individuals. These benefits included payments to
owners of privately-owned dwellings (project owners) to
subsidize the cost of rent. Traditionally, HUD entered
into Housing Assistance Program contracts (HAP con-
tracts) directly with project owners and paid the subsidies
directly. However, the 1974 amendment to the Housing
Act gave HUD a second option—to enter into an Annual
Contributions contract (ACC) with a Public Housing
Agency (PHA). The PHA would then enter into HAP
contracts with project owners. HUD provided the PHAs
funds to pay the subsidies to the project owners. A PHA
is a “State, county, municipality, or other governmental
entity or public body . . . authorized to engage in or assist
in the development or operation of public housing.” 42
U.S.C. § 1437a(b)(6)(A). The parties agree that Appel-
lants are PHAs.
    Under the 1974 amendment, HUD entered into ap-
proximately 21,000 HAP contracts directly with project
owners and 4,200 ACCs with PHAs. J.A. 300/A.R. 428.
However, in 1983, a new Act repealed HUD’s authority to
enter into new HAP contracts (either directly with project
owners or through PHAs) for new constructions of dwell-
ings or substantial rehabilitations. Pub. L. No. 98-181,
§ 209, 97 Stat. 1153, 1183 (1983). HUD retained authori-
CMS CONTRACT MANAGEMENT v. US                           5

ty to administer existing HAP contracts, as well as enter
into new HAP contracts for existing Section 8 dwellings.
However, to enter into a new HAP contract, HUD had to
engage a PHA unless “no [PHA] has been organized or [if]
the Secretary determines that a [PHA] is unable to [im-
plement the Section 8 program].” 42 U.S.C. § 1437f(b)(1).
If no PHAs were available, HUD could then contract
directly with project owners. Id.
    In 1997, when many of the HAP contracts under the
1974 amendment were beginning to expire, Congress
enacted the Multifamily Assisted Housing Reform and
Affordability Act (MAHRA), which permitted HUD to
renew existing HAP contracts. MAHRA defined “renew-
al” as the “replacement of an expiring Federal rental
contract with a new contract.” MAHRA § 512(12); CMS
Contract Mgmt. Servs. v. United States, 110 Fed. Cl. 537,
556 (2013). MAHRA was enacted at a time when HUD
was facing extensive budget cuts. It had just announced a
plan to reduce staff by one-third by the end 2000. J.A.
300/A.R. 2766–67. MAHRA’s “Findings and Purposes”
noted that HUD “lacks the ability to ensure the continued
economic and physical well-being of the stock of federally
insured and assisted multifamily housing projects.”
MAHRA § 511(10). Thus the 1997 Act addressed this
problem through “reforms that transfer and share many
of the loan and contract administration functions and
responsibilities of the Secretary to and with capable
State, local, and other entities.” MAHRA § 511(11)(C).
    Accordingly, HUD began to outsource certain contract
administration services. In its budget request for the
fiscal year 2000, HUD sought an additional $209 million
in federal funding to pay for this outsourcing program.
J.A. 300/A.R. 256. HUD noted that outsourcing contract
administration services will “improve the oversight of
HUD’s project-based program” and that it “plans to pro-
cure the services of contract administrators to assume
many of these specific duties, in order to release HUD
6                        CMS CONTRACT MANAGEMENT v. US

staff for those duties that only government can perform
and to increase accountability for subsidy payments.”
J.A. 300/A.R. 259. While outsourcing these services, HUD
still had the obligation under the 1983 amendment to
engage a PHA for any new HAP contracts.
     Thus, on May 19, 1999, HUD initiated a nationwide
competition to award an ACC to a PHA in each of the 50
States (California was allotted two ACCs), plus the Dis-
trict of Columbia and the Commonwealth of Puerto Rico.
The ACCs were performance-based; that is, in addition to
“basic” administrative fees, PHAs could earn “incentive”
fees by entering into HAP contracts beyond the number
specified in their contract. J.A. 300/A.R. 435–36. With
existing HAP contracts, HUD’s Request for Proposals
(RFP) stated that it would assign such contracts to the
PHA, and that “the PHA [would] assume[] all contractual
rights and responsibilities of HUD pursuant to such HAP
contracts.” J.A. 300/A.R. 449. The RFP also specified
that HUD would evaluate proposals “to determine which
offerors represent the best overall value, including admin-
istrative efficiency, to the Department.” J.A. 300/A.R. 442.
Lastly, the RFP stated that “[t]his solicitation is not a
formal procurement within the meaning of the Federal
Acquisition Regulations (FAR) but will follow many of
those principles.” J.A. 300/A.R. 428.
    In response to the 1999 competition, HUD awarded 37
of the PBACCs. PBACCs were awarded in the remaining
jurisdictions through later competitions. PHAs adminis-
tering these PBACCs assumed the title of Performance-
Based Contract Administrators (PBCAs).
    On February 25, 2011, HUD chose to re-compete the
PBACCs to ensure that the “Government was getting the
best value.” J.A. 300/A.R. 676. Many PBCAs adamantly
opposed HUD’s decision to re-compete and requested that,
at a minimum, incumbent PBCAs get priority considera-
tion. HUD denied this request on the ground that stricter
CMS CONTRACT MANAGEMENT v. US                              7

competition would lead to greater savings for the govern-
ment. J.A. 300/A.R. 676. In July 2011, HUD announced
awards for all jurisdictions and stated that its decision to
re-compete the PBACCs saved HUD more than $100
million per year. J.A. 6222.
    Appellants were awarded multiple contracts in multi-
ple states; however, a number of other PBCAs and PHAs
were not as fortunate. This led to a total of 66 post-award
protests being filed with the Government Accountability
Office (GAO). Among other things, protestors argued that
the PBACCs were procurement contracts and that HUD
had not complied with federal procurement laws. CMS,
110 Fed. Cl. at 548-50. In response, HUD notified the
GAO that it was going to withdraw the awards for the
protested contracts and “evaluate and revise its competi-
tive award process for the selection of [PBCAs].” J.A.
300/A.R. 2843. Accordingly, the GAO dismissed the
protests as moot. Id.
    On March 9, 2012, HUD re-issued its solicitation for
competition. However, for the first time, HUD expressly
characterized the PBACCs as cooperative agreements,
and thus, outside the scope of federal procurement law.
J.A. 300/A.R. 85. In particular, HUD labeled the solicita-
tion as a “Notice of Funding Availability” (NOFA), id., a
term typically reserved for cooperative agreements. HUD
also announced that it was choosing not to allow PBCAs
(including Appellants) to compete for PBACCs outside
their home states:
   HUD will consider applications from out-of-State
   applicants only for States for which HUD does not
   receive an application from a legally qualified in-
   State applicant. Receipt by HUD of an applica-
   tion from a legally qualified in-State applicant
   will result in the rejection of any applications that
   HUD receives from an out-of-State applicant for
   that State.
8                        CMS CONTRACT MANAGEMENT v. US

J.A. 300/A.R. 82.
    This change in policy excluded from consideration
many applicants, including Appellants, who HUD previ-
ously determined in 2011 provided the government the
best value. HUD acknowledged that “nothing in the 1937
[Housing] Act prohibits [Appellants] . . . from acting as a
PHA in a foreign state.” Id. Appellants observed that no
change in law or in program requirements required HUD
to revise its practice. Thus, in May 2012, Appellants filed
pre-award protests with the GAO, arguing that the
PBACCs under the NOFA are procurement contracts and
thus subject to federal procurement laws, and that the
NOFA’s anticompetitive provisions are unreasonable.
J.A. 300/A.R. 2852.
                           III.
    The GAO agreed with Appellants that the PBACCs
are procurement contracts. It rejected HUD’s argument
that the PBACCs “transfer a thing of value” under 31
U.S.C. § 6305 merely because HUD is required to provide
funds to the PHAs to make subsidy payments to project
owners. The GAO found that, although the payments are
made through a depository account to the PBCAs, the
PBCAs have no rights to, or control over, the payments
and that any excess funds and interest earned on those
funds must be remitted to HUD or invested on its behalf.
J.A. 300/A.R. 2849.
     The GAO also rejected HUD’s argument that the ad-
ministrative fees paid to the PBCAs qualify as a “transfer
[of] a thing of value.” The GAO found that the purpose of
the fee was not to assist the PHAs in carrying out a public
purpose. “Rather, . . . the administrative fees are paid to
the PHAs as compensation for . . . administering the HAP
contracts.” J.A. 300/A.R. 2849–50. In other words, the
fees merely cover the PHAs’ operating expenses.
CMS CONTRACT MANAGEMENT v. US                            9

    The GAO determined that “the circumstances here
most closely resemble the intermediary or third party
situation,” J.A. 300/A.R. 2850, “where the recipient of an
award [i.e., a PBCA] is not receiving assistance from the
federal agency but is merely used to provide a service to
another entity which is eligible for assistance.” S. Rep.
No. 97-180, at 5 (1981); J.A. 300/A.R. 2850. “The choice of
instrument for an intermediary relationship depends
solely on the principal federal purpose in the relationship
with the intermediary.” S. Rep. No. 97-180, at 5 (1981).
In this regard, the GAO concluded:
   [T]he asserted “public purpose” provided by the
   PHAs under the NOFA—the administration of
   HAP contracts—is essentially the same purpose
   HUD is required to accomplish under the terms of
   its HAP contracts, wherein HUD is ultimately ob-
   ligated to the property owners. As such, the prin-
   cipal purpose of the NOFA and ACCs to be
   awarded under the NOFA is for HUD’s direct
   benefit and use.
J.A. 300/A.R. 2851.
    Thus, the GAO held that the PBACCs are procure-
ment contracts. Specifically, these agreements procure
the contract administration services of the PBCAs. Be-
cause HUD conceded that it did not adhere to federal
procurement laws, the GAO recommended that HUD
cancel the NOFA and properly re-solicit the contract
administration services. J.A. 300/A.R. 2852.
    However, on December 3, 2012, HUD announced on
its website that “[t]he Department has decided to move
forward with the 2012 PBCA NOFA and plans to an-
nounce awards on December 14, 2012.” J.A. 300/A.R. 9.
An agency’s decision to disregard a GAO recommendation
is exceedingly rare. The Court of Federal Claims has
explained that it “give[s] due weight and deference” to
GAO recommendations “given the GAO’s long experience
10                      CMS CONTRACT MANAGEMENT v. US

and special expertise in such bid protest matters.” Baird
Corp. v. United States, 1 Cl. Ct. 662, 668 (1983). Appel-
lants cite evidence that from 1997–2012, the GAO issued
5,703 merit decisions and sustained 1099 protests; during
that period, an agency disregarded the GAO’s recommen-
dation only ten times. Appellant Br. 26 n.6.
     Soon after HUD’s announcement, Appellants filed
pre-award protests in the Court of Federal Claims asking
it to enjoin HUD from proceeding with the NOFA. Appel-
lants argued that the PBACCs under the NOFA are
procurement contracts, and that, even if the PBACCs are
cooperative agreements, the NOFA’s anticompetitive
provisions are arbitrary and capricious under the Admin-
istrative Procedure Act (APA). See 5 U.S.C. § 706(2)(A).
     The Court of Federal Claims ruled in favor of HUD.
It reasoned that HUD was “unburdened by any statutory
or regulatory obligation to maintain [HAP contracts]
going forward in perpetuity,” and that “[c]onsistent with
the policy goals set forth in the Housing Act,
HUD . . . enlisted the states and their political subdivi-
sions, the PHAs, to take on greater program responsibil-
ity.” CMS, 110 Fed. Cl. at 563. The trial court also held
that the fact that “HUD achieved certain cost savings in
so doing does not convert the PBCA program into a pro-
curement process that primarily benefits HUD, as op-
posed to the recipients of the Section 8 assistance.” Id.
The Court of Federal Claims did not address Appellants’
argument that the NOFA’s anticompetitive provisions are
arbitrary and capricious under the APA.
    Appellants appealed. This court has jurisdiction un-
der 28 U.S.C. § 1295(a)(3).
                           IV.
    This court reviews the trial court’s legal determina-
tions de novo and its factual determinations for clear
error. PAI Corp. v. United States, 614 F.3d 1347, 1351
CMS CONTRACT MANAGEMENT v. US                          11

(Fed. Cir. 2010). Whether a contract is a procurement
contract or a cooperative agreement is a question of law.
Maint. Eng’rs v. United States, 749 F.2d 724, 726 n.3
(Fed. Cir. 1984). On appeal, Appellants argue that the
Court of Federal Claims erred in holding that the
PBACCs at issue are cooperative agreements, as opposed
to procurement contracts. They also argue that, in any
event, the trial court erred by failing to address whether
the NOFA’s anticompetitive provisions are arbitrary and
capricious under the APA.
    With respect to Appellants’ first argument, this court
agrees with Appellants that the PBAACs are procurement
contracts and not cooperative agreements. Based on this
record, the primary purpose of the PBACCs is to procure
the services of the PBCAs to support HUD’s staff and
provide assistance to HUD with the oversight and moni-
toring of Section 8 housing assistance. For example, the
PBCA outsourcing program was created in response to
federal budget restraints and sought to “improve the
oversight of HUD’s project-based program.” J.A. 300/A.R.
253. HUD acknowledged its intention “to procure the
services of contract administrators to assume many of
these specific duties, in order to release HUD staff for
those duties that only government can perform and to
increase accountability for subsidy payments.” J.A.
300/A.R. 259 (emphasis added). HUD also acknowledged
that due to “major staff downsizing . . . HUD sought new
ways to conduct its business[,] such as the Request for
Proposals for outside contractors to administer HUD’s
portfolio of Section 8 contract[s].” J.A. 300/A.R. 3764
(emphasis added).
    The record in this case also shows that HUD’s 1999
RFP, which contains substantially similar terms as the
2011 and 2012 competitions, stated that it “pays billions
of dollars annually to [project owners and] seeks to im-
prove its performance of the management and operations
of this function through this RFP.” J.A 300/A.R. 428. The
12                       CMS CONTRACT MANAGEMENT v. US

RFP added that it would evaluate the proposals “to de-
termine which offerors represent the best overall val-
ue . . . to the Department.” J.A. 300/A.R. 442 (emphasis
added). And, as recently as 2013, HUD has acknowledged
that “PBCAs have helped make HUD a leader among
Federal agencies in reducing improper payments,” J.A.
300/A.R. 1963, and that “PBCAs are integral to the De-
partment’s efforts to be more effective and efficient in the
oversight and monitoring of this program.” J.A.300/A.R.
1960. HUD has also consistently described the role of the
PBCAs as “support” for HUD’s Field Staff. J.A. 300/A.R.
1964 (“Field Staff perform the following functions, with
support from PBCA’s, to administer the [program] . . . .”).
    The record belies HUD’s argument that the housing
assistance payments it makes to the PBCAs are a “thing
of a value” within the ambit of 31 U.S.C. § 6305. HUD
has a legal obligation to provide project owners with
housing assistance payments under the HAP contracts.
See J.A. 300/A.R. 2276. Transferring funds to the PBCAs
to transfer to the project owners is not conferring any-
thing of value on the PBCAs, especially where the PBCAs
have no rights to, or control over, those funds. Moreover,
the PBCAs must remit any excess funds and interest
earned back to HUD. J.A. 300/A.R. 2849.
    Likewise, the administrative fee paid to the PBCAs do
not constitute a “thing of value” either. While money can
be a “thing of value” under 31 U.S.C. § 6305 in certain
circumstances, the administrative fee here appears only
to cover the operating expenses of administering HAP
contracts on behalf of HUD.
    At most, HUD has merely created an intermediary re-
lationship with the PBCAs “[w]here the [PBCAs are] not
receiving assistance from the federal agency but [are]
merely used to provide a service to another entity which is
eligible for assistance.” S. Rep. No. 97-180, at 5 (1981).
“The fact that the product or service produced by the
CMS CONTRACT MANAGEMENT v. US                          13

intermediary may benefit another party is irrelevant.” Id.
In the case of an intermediary relationship, “the proper
instrument is a procurement contract.” Id.
                           V.
    Because the PBACCs at issue are procurement con-
tracts, and because HUD concedes it did not comply with
federal procurement laws, the decision of the Court of
Federal Claims must be reversed and remanded for
disposition consistent with this opinion. This court does
not reach Appellants’ argument that the PBACC’s anti-
competitive requirements are arbitrary and capricious
under the APA.
            REVERSED AND REMANDED