Savantage Financial Services, Inc. v. United States , 595 F.3d 1282 ( 2010 )

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
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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.
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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
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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.
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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
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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
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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.
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