Case: 21-1469 Document: 67 Page: 1 Filed: 12/30/2021
United States Court of Appeals
for the Federal Circuit
______________________
SYSTEM STUDIES & SIMULATION, INC.,
Plaintiff-Appellant
L3 DOSS AVIATION, INC.,
Plaintiff
v.
UNITED STATES, CAE USA INC.,
Defendants-Appellees
______________________
2021-1469
______________________
Appeal from the United States Court of Federal Claims
in Nos. 1:20-cv-00575-MMS, 1:20-cv-00609-MMS, Senior
Judge Margaret M. Sweeney.
______________________
Decided: December 30, 2021
______________________
WALTER BRAD ENGLISH, Maynard, Cooper & Gale, PC,
Huntsville, AL, argued for System Studies & Simulation,
Inc. Also represented by EMILY J. CHANCEY, JON DAVIDSON
LEVIN; MICHAEL W. RICH, Burr & Forman LLP, Mobile, AL.
EVAN WISSER, Commercial Litigation Branch, Civil Di-
vision, United States Department of Justice, Washington,
DC, argued for United States. Also represented by BRIAN
M. BOYNTON, MARTIN F. HOCKEY, JR., ELIZABETH MARIE
Case: 21-1469 Document: 67 Page: 2 Filed: 12/30/2021
2 SYSTEM STUDIES & SIMULATION v. US
HOSFOR; NICHOLAS ANDREW LUCCHETTI, Contract and Fis-
cal Law Division, United States Army Legal Service
Agency, Fort Belvoir, VA.
ALEXANDER B. GINSBERG, Pillsbury Winthrop Shaw
Pittman LLP, McLean, VA, argued for CAE USA Inc. Also
represented by JAMES MATTHEW CARTER, KEVIN REZA
MASSOUDI, Los Angeles, CA.
______________________
Before NEWMAN, PROST, and TARANTO, Circuit Judges.
Opinion for the court filed by Circuit Judge TARANTO.
Circuit Judge NEWMAN dissents without opinion.
TARANTO, Circuit Judge.
System Studies & Simulation, Inc. (S3), an unsuccess-
ful bidder for a government contract, filed a bid-protest ac-
tion in the Court of Federal Claims (Claims Court). The
Claims Court concluded that the federal contracting
agency had acted arbitrarily and capriciously in one aspect
of its decision. But the court nevertheless denied S3 relief
on the ground that the deficient aspect of the decision did
not prejudice S3, in that the contract award would have
been the same regardless. System Studies & Simulation,
Inc. v. United States,
152 Fed. Cl. 74 (2020) (CFC Opinion);
System Studies & Simulation, Inc. v. United States,
152
Fed. Cl. 20 (2020) (Reconsideration Opinion).
S3 argues on appeal that there is a presumption of prej-
udice whenever the Claims Court determines that the
agency acted irrationally in making an award decision. We
reject that contention. And we see no clear error in the
Claims Court’s determination that there was no prejudice
in this case. We therefore affirm.
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SYSTEM STUDIES & SIMULATION v. US 3
I
In 2018, the United States Department of the Army,
Mission and Installation Contracting Command (Agency)
requested bids to provide the Agency with advanced heli-
copter flight training services. In September 2019, the
Agency awarded the contract to L3 Doss Aviation, Inc. But
in a bid-protest action filed by disappointed bidder S3 un-
der
28 U.S.C. § 1491(b), the Claims Court set aside the
award. System Studies & Simulation, Inc. v. United States,
146 Fed. Cl. 186, 204 (2019).
The Agency then reevaluated the bids, and in May
2020 it awarded the contract to CAE USA Inc. A few days
later, S3 filed another bid-protest action in the Claims
Court, arguing on numerous grounds that the decision to
award the contract to CAE was arbitrary and capricious.
The Claims Court rejected most of S3’s arguments, but it
agreed with one of them, concerning the assignment by the
Agency’s source selection authority (SSA) of a certain
“strength” to CAE when evaluating CAE’s bid proposal.
Specifically, S3 argued that the assignment was arbitrary
and capricious because that strength, which purported to
provide a “significant cost savings benefit” to the Agency,
would result in only small and unpredictable savings, if
any. See CFC Opinion, 152 Fed. Cl. at 91–92. The Claims
Court agreed, determining that it was irrational to classify
that aspect of CAE’s proposal as a strength. Id.
Nevertheless, the Claims Court upheld the decision to
award the contract to CAE because there was no prejudice
to S3 from the identified error. Id. at 95–96. The Claims
Court observed that the erroneously found strength had
been treated as falling within a non-price-factor category
for which CAE’s proposal had been “clearly superior,” an
assessment that would not be altered by the loss of a
strength for which the only possible benefit could be mone-
tary. Id. at 95. Moreover, when explicitly comparing the
added benefits of the CAE proposal with its higher price in
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4 SYSTEM STUDIES & SIMULATION v. US
the best-value tradeoff analysis, the SSA had not made any
adjustment to CAE’s price based on a cost saving from the
strength. Id. Thus, the Claims Court found that S3 had
not been prejudiced by the error, and it granted judgment
for the government and CAE. Id. at 96–97. The court sub-
sequently denied reconsideration, reiterating its analysis
and specifically rejecting S3’s argument that it was entitled
to a presumption of prejudice. Reconsideration Opinion,
152 Fed. Cl. at 26–32.
S3 appeals. We have jurisdiction under
28 U.S.C.
§ 1295(a)(3).
II
A
S3’s principal contention is that when the Claims Court
determines in a bid-protest action that an aspect of the
agency’s decision was arbitrary and capricious, the defect
in the agency’s decision must be presumed to be prejudi-
cial. We reject that contention.
The standards of the Administrative Procedure Act
(APA) set forth in 5 U.S.C § 706 govern judicial review of
agency action in bid protests.
28 U.S.C. § 1491(b)(4). The
APA provision mandates that when a court reviews agency
action for being “arbitrary, capricious, an abuse of discre-
tion, or otherwise not in accordance with law,” “due account
shall be taken of the rule of prejudicial error.”
5 U.S.C.
§ 706. The Supreme Court has explained that the prejudi-
cial-error rule applies the harmless-error standard to re-
view of administrative agency action. Shinseki v. Sanders,
556 U.S. 396, 406–07 (2009). In particular, the challenger
of agency action generally bears the burden of showing that
an error was harmful—that is, that it was prejudicial.
Id.
at 409–10.
Our precedent accords with the APA mandate. We
have prescribed a two-step process when deciding whether
to set aside a contract award, covering both irrationality
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SYSTEM STUDIES & SIMULATION v. US 5
errors and legal errors. We first ask “whether the agency’s
actions were ‘arbitrary, capricious, an abuse of discretion,
or otherwise not in accordance with law’”; if so, we ask
whether the error was “prejudicial.” Office Design Group
v. United States,
951 F.3d 1366, 1371 (Fed. Cir. 2020)
(quoting Glenn Defense Marine (ASIA), PTE Ltd. v. United
States,
720 F.3d 901, 907 (Fed. Cir. 2013)); see also Ban-
num, Inc. v. United States,
404 F.3d 1346, 1351 (Fed. Cir.
2005). Recently, we reiterated that the second step is al-
ways required before setting aside a bid award, regardless
of whether the error identified at the first step was arbi-
trary and capricious action or, instead, a violation of law.
See DynCorp Int’l, LLC v. United States,
10 F.4th 1300,
1308 n.6 (Fed. Cir. 2021) (“The APA does not provide an
exception to the prejudicial-error rule for arbitrary and ca-
pricious action.”). And we have specifically ruled that “[t]o
prevail in a bid protest case, the protestor must show that
it was prejudiced by the government’s actions,” so stating
in a case where the alleged error was an irrational (hence
arbitrary and capricious) rating. Glenn Defense Marine,
720 F.3d at 912 (citing Bannum,
404 F.3d at 1351).
The APA and our precedents are therefore inconsistent
with the presumption of prejudice that S3 urges us to
adopt. S3 argues for a contrary conclusion based on our
decision in Impresa Construzioni Geom. Domenico Garufi
v. United States,
238 F.3d 1324 (Fed. Cir. 2001) (Garufi),
where we said:
[A] bid award may be set aside if either: (1) the pro-
curement official’s decision lacked a rational basis;
or (2) the procurement procedure involved a viola-
tion of regulation or procedure. See Kentron Ha-
waii, Ltd. v. Warner,
480 F.2d 1166, 1169 (D.C. Cir.
1973); [other citations omitted]. When a challenge
is brought on the first ground, the courts have rec-
ognized that contracting officers are “entitled to ex-
ercise discretion upon a broad range of issues
confronting them” in the procurement process.
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6 SYSTEM STUDIES & SIMULATION v. US
Latecoere Int’l, Inc. v. U.S. Dep’t of Navy,
19 F.3d
1342, 1356 (11th Cir. 1994). Accordingly, the test
for reviewing courts is to determine whether “the
contracting agency provided a coherent and reason-
able explanation of its exercise of discretion,”
id.,
and the “disappointed bidder bears a ‘heavy bur-
den’ of showing that the award decision ‘had no ra-
tional basis.’” Saratoga Dev. Corp. v. United
States,
21 F.3d 445, 456 (D.C. Cir. 1994). When a
challenge is brought on the second ground, the dis-
appointed bidder must show “a clear and prejudi-
cial violation of applicable statutes or regulations.”
Kentron,
480 F.2d at 1169; Latecoere,
19 F.3d at
1356.
Id. at 1332–33. But S3 makes more of that language than
is proper given the APA and our precedents.
All the Garufi passage does is expressly acknowledge
the prejudice-showing requirement where a “violation of a
regulation or procedure” is at issue while omitting refer-
ence to prejudice where the absence of “a rational basis” is
at issue. The passage does not disclaim a prejudice re-
quirement for the latter situation, and the court in Garufi
did not proceed to presume prejudice. We conclude that
Garufi cannot be taken as implicitly establishing a pre-
sumption of prejudice for cases of irrationality given our
contrary precedents and the APA law those precedents fol-
low. To the extent that there has been uncertainty on this
point in the Claims Court, see, e.g., Textron, Inc. v. United
States,
74 Fed. Cl. 277, 327–29 (2006); Caddell Constr. Co.
v. United States,
125 Fed. Cl. 30, 50 (2016); DynCorp Int’l
LLC v. United States,
148 Fed. Cl. 568, 584–85 (2020), we
now reject the interpretation of Garufi on which the uncer-
tainty rests.
We hold that there is no presumption of prejudice when
a protestor demonstrates irrationality in an agency deci-
sion. The protestor must show prejudice under the usual
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SYSTEM STUDIES & SIMULATION v. US 7
standard. The Supreme Court has noted that, at least in
some contexts, prejudice will be easily shown because the
circumstances will make prejudice readily apparent.
Shinseki,
556 U.S. at 410. But even if that may sometimes
be true in particular bid-protest cases, there is no starting
point of presumed prejudice.
B
S3 also challenges the Claims Court’s particular find-
ing of no demonstrated prejudice in this case. To demon-
strate prejudice, S3 needed to show “that there was a
‘substantial chance’ it would have received the contract
award but for” the inclusion of the erroneous strength.
Bannum,
404 F.3d at 1353. While we review the legal
standard for prejudice de novo, we review the Claims
Court’s factual findings underlying the prejudice determi-
nation for clear error. WellPoint Military Care Corp. v.
United States,
953 F.3d 1373, 1377 (Fed. Cir. 2020) (citing
Bannum,
404 F.3d at 1353–54).
We see no departure from the correct legal standard in
the Claims Court’s prejudice analysis. CFC Opinion, 152
Fed. Cl. at 87; Reconsideration Opinion, 152 Fed. Cl. at 26–
28. And we see no clear error in the Claims Court’s factual
determinations. The court appropriately considered how
the elimination of a speculative, price-based strength
would affect a best-value tradeoff analysis that explicitly
compared the full price of the proposal with the non-price
benefits of that proposal, and the court’s finding that “loss
of the [] strength would not have disturbed CAE’s lead” was
not clearly erroneous. CFC Opinion, 152 Fed. Cl. at 95.
The court indicated that the invalidation of one of the qual-
itative strengths might have required a new analysis, see
Reconsideration Opinion, 152 Fed. Cl. at 31, but it reason-
ably explained why what occurred here was importantly
different. The strength at issue here had no non-price ben-
efits, and it could only have affected the cost side of the
SSA’s best-value tradeoff analysis, but the SSA had not in
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8 SYSTEM STUDIES & SIMULATION v. US
fact discounted CAE’s proposed price based on this
strength at all. Additionally, the SSA had “repeatedly em-
phasized” other non-price aspects of CAE’s proposal, which
were independent of the irrationally assigned strength.
CFC Opinion, 152 Fed. Cl. at 95. In these circumstances,
we conclude that the Claims Court did not err when it de-
termined that the irrational assignment of the particular
strength at issue to CAE was harmless error.
III
We have considered S3’s remaining arguments and
find them unpersuasive. For the foregoing reasons, we af-
firm the decision of the Claims Court.
AFFIRMED
