National Government Services v. United States , 923 F.3d 977 ( 2019 )

United States Court of Appeals
for the Federal Circuit
______________________
NATIONAL GOVERNMENT SERVICES, INC.,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2018-1927
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00200-MMS, Chief Judge Margaret M.
Sweeney.
______________________
Decided: May 2, 2019
______________________
MATTHEW HILLEL SOLOMSON, Federal Government So-
lutions, Anthem, Inc., Baltimore, MD, argued for plaintiff-
appellant. Also represented by MONICA ROSE STERLING,
ANUJ VOHRA, Crowell & Moring, LLP, Washington, DC.
WILLIAM PORTER RAYEL, Commercial Litigation
Branch, Civil Division, United States Department of Jus-
tice, Washington, DC, argued for defendant-appellee. Also
represented by ROBERT EDWARD KIRSCHMAN, JR., DOUGLAS
K. MICKLE, JOSEPH H. HUNT.
______________________
2 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
Before PROST, Chief Judge, MOORE and WALLACH,
Circuit Judges.
PROST, Chief Judge.
In this bid protest, National Government Services, Inc.
(“NGS”) appeals the decision of the Court of Federal Claims
(“Claims Court”) denying NGS’s pre-award bid protest.
Nat’l Gov’t Servs., Inc. v. United States, 137 Fed. Cl. 715(2018) (“Decision”). We reverse the decision of the Claims
Court and remand for further proceedings.
I
The Centers for Medicare & Medicaid Services (“CMS”)
is an agency of the U.S. Department of Health and Human
Services (“HHS”). CMS uses contractors to administer
claims and benefits related to the Medicare program.
From the inception of Medicare in 1965 until imple-
mentation of the Medicare Prescription Drug, Improve-
ment, and Modernization Act of 2003 (“Medicare
Modernization Act”), CMS procured contractors to admin-
ister Medicare claims and benefits through noncompetitive
contracts. Decision, at 2. In the Medicare Modernization
Act, however, Congress added Section 1874A to the Social
Security Act (Title XVIII) to create the Medicare adminis-
trative contractor (“MAC”) program. See Medicare Mod-
ernization Act, Pub. L. No. 108-173, § 911(a)(1), 117 Stat.
2066, 2378–83 (codified as amended at 42 U.S.C. § 1395kk-
1 (“the MAC Statute”)).
The companies that process Medicare claims on behalf
of CMS are called Medicare administrative contractors or
MACs. See 42 U.S.C. § 1395kk-1(a)(3). An “A/B” MAC pro-
vides services with respect to Medicare Parts A and B. See
42 U.S.C. § 1395kk-1(a)(4); see also id.
§§ 1395h(a), 1395u(a). The MAC Statute generally re-
quires CMS to “use competitive procedures when entering
into contracts with [M]edicare administrative contractors
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 3
[MACs] under this section, taking into account perfor-
mance quality as well as price and other factors.”
§ 1395kk-1(b)(1)(A).
The nationwide MAC contract market is currently di-
vided into twelve geographic jurisdictions: 5, 6, 8, and 15,
plus E, F, H, and J–N. Decision, at 3. For example, Juris-
diction H represents 13.5% of the current A/B Medicare
workload and covers Arkansas, Colorado, Louisiana, Mis-
sissippi, New Mexico, Oklahoma, and Texas. Meanwhile,
Jurisdiction 8 represents 5.9% of the current A/B Medicare
workload and covers Indiana and Michigan. Decision, at 3.
CMS solicits contracts for each jurisdiction.
B
In 2010, CMS began preparing for its second round of
solicitations to replace the original A/B MAC contracts as
they expired. 1 In July 2010, CMS issued a Request for In-
formation (“RFI”) that described changes to CMS’s ap-
proach to the A/B MAC procurements and provided an
opportunity for potential offerors to give input on those
changes. One of CMS’s proposed changes was to imple-
ment a contract award limit for the A/B MAC contracts to
be included in all A/B MAC solicitations. J.A. 11465 (RFI).
The purpose of this award limit was “to place a limit, in all
A/B MAC Round II solicitations, on the amount of A/B MAC
contract responsibility that any single entity can win . . . in
a ‘prime contractor’ capacity.” Decision, at 5 (quoting
J.A. 11465 (RFI)).
In August 2010, CMS issued another RFI regarding
this proposed award limitations policy (“Award Limita-
tions Policy” or “Policy”). See J.A. 11472–82 (RFI). CMS
indicated that this Policy would be included in all
1 Expiration of MAC contracts is staggered. See De-
cision, at 15 (listing the release date for the next solicita-
tion in each jurisdiction).
4 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
solicitations for the second round of MAC contracts. Deci-
sion, at 9 (citing J.A. 11478). After making some revisions
to the Policy, CMS included the Policy in the Jurisdiction
F solicitation, which CMS issued in October 2010. Accord-
ing to the Policy, CMS would not award more than 26% of
the national A/B Medicare workload to any single contrac-
tor or more than 40% of the national A/B Medicare work-
load to any one set of affiliates. Decision, at 10 (quoting the
Jurisdiction F solicitation).
CMS designed the Award Limitations Policy to address
two market concerns: (1) “business continuity concerns
with awarding an overly-large share of the Medicare claims
administration workload to any one entity (or set of affili-
ated entities)”; and (2) “maintain[ing] a dynamic, competi-
tive marketplace, where no single entity (or set of affiliated
entities) control/s so much of the agency’s MAC business
that all or most other players are driven from the market,
returning the agency to a less-than-competitive environ-
ment.” J.A. 11801 ¶ 7 (Klots Decl.).
C
CMS continued to incorporate the Award Limitations
Policy into solicitations for other jurisdictions, including
Jurisdiction H (“JH”). See J.A. 15546–48. As stated in the
JH solicitation, the Policy explains:
CMS will not award more than 26% of the national
A/B Medicare workload, in A/B MAC prime con-
tracts, to any single contractor (single corporate en-
tity). In addition, CMS will not award more than
40% of the national A/B Medicare workload, in A/B
MAC prime contracts, to any one (1) set of affili-
ates.
CMS is placing no limitation on the number of A/B
MAC prime contracts for which any entity, or enti-
ties, may submit proposals. As A/B MAC prime
contracts are awarded, the awardee’s Medicare
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 5
workload base will be appropriately adjusted,
thereby potentially impacting other pending pro-
posals.
J.A. 15546. 2 The workload percentages assigned to each
MAC jurisdiction are included in the solicitation.
J.A. 15548.
The JH solicitation explains that “CMS will determine
whether Offerors exceed the limitation on workload at the
time of award, and will exclude Offerors from consideration
on such basis at that time.” J.A. 15547. Moreover, the so-
licitation includes an “Exception,” which states:
In order to ensure continuity in Medicare Fee-for-
Service operations, CMS retains the discretion to
award a particular A/B MAC prime contract to a
particular contractor, even where doing so would
otherwise exceed the A/B MAC prime contract
Medicare workload allowed by this policy.
J.A. 15548. We refer to this exception as the “Continuity
Exception.”
NGS is an offeror for the JH solicitation. 3 NGS is also
the current contractor for Jurisdiction 6 (which represents
7.8% of the current A/B Medicare workload), as well as Ju-
risdiction K (which represents 12% of the current A/B Med-
icare workload). Based on the Award Limitations Policy
2 The same language was included in the Jurisdic-
tion 8 solicitation. See J.A. 10133–35.
3 At the time NGS filed its opening brief before this
court, NGS was an offeror for Jurisdictions F, 8, and H. No
award decisions had been announced for those jurisdictions
at that time. Since then, however, the Jurisdiction F con-
tract was awarded to a different MAC, and the parties
agree that this development rendered NGS’s appeal with
respect to the Jurisdiction 8 solicitation moot.
6 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
and NGS’s current contracts, NGS cannot win the MAC
contract for Jurisdiction H (which represents 13.5% of the
current A/B Medicare workload) because winning would
cause NGS to exceed the Policy’s workload caps.
D
In November 2017, NGS filed a pre-award protest with
the Government Accountability Office (“GAO”), arguing
that the Award Limitations Policy in the Jurisdiction 8 so-
licitation did not allow for full and open competition be-
cause it precludes a successful best value offeror from
receiving a MAC award where the contract award would
cause that offeror to exceed the Policy’s workload caps.
GAO denied the protest in January 2018.
NGS then filed suit in the Claims Court on February 8,
2018. Before the Claims Court, NGS challenged the Juris-
diction 8 solicitation as well as the Jurisdiction H solicita-
tion (which also included the Award Limitations Policy and
remains at issue in this appeal). The Claims Court rejected
NGS’s protest.
NGS timely appealed. We have jurisdiction under 28
U.S.C. § 1295(a)(3).
II
In reviewing a grant of judgment upon the administra-
tive record, we review the Claims Court’s determination
without deference, reapplying the same standard of review
applicable in the Claims Court. Weeks Marine, Inc. v.
United States, 575 F.3d 1352, 1358 (Fed. Cir. 2009) (citing
Bannum, Inc. v. United States, 404 F.3d 1346, 1351 (Fed.
Cir. 2005)). We therefore review the agency’s actions ac-
cording to the standards set forth in the Administrative
Procedure Act, 5 U.S.C. § 706. See 28 U.S.C. § 1491(b)(4).
Under that standard, we ask whether the agency’s action
was arbitrary, capricious, an abuse of discretion, or other-
wise not in accordance with law. 5 U.S.C. § 706(2).
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 7
In applying this standard of review, we determine
whether “(1) the procurement official’s decision lacked a ra-
tional basis; or (2) the procurement procedure involved a
violation of regulation or procedure.” Weeks Marine, 575
F.3d at 1358 (quoting PGBA, LLC v. United States, 389
F.3d 1219, 1225 (Fed. Cir. 2004)).
III
This appeal requires us to analyze the propriety of the
Award Limitations Policy included in the JH solicitation.
As explained above, CMS developed the Policy to include in
all MAC contract solicitations. It is not tailored to any so-
licitation. The rationale behind the Policy is two-fold.
First, the agency has business continuity concerns related
to overreliance on a particular MAC (i.e., that Medicare
claims operations will be put at risk if a MAC with many
contracts fails). Second, the agency has concerns about
maintaining a competitive, dynamic MAC marketplace
over the long term. The Award Limitations Policy at-
tempted to address these concerns by setting workload
caps so that a particular MAC cannot be awarded more
than a certain percentage of the total A/B Medicare mar-
ket.
As explained below, we reverse the Claims Court’s de-
cision in this case. In doing so, however, we find it im-
portant to delineate the bounds of what we do—and do
not—decide.
At the outset, we take no issue with the particular con-
cerns animating the Award Limitations Policy or with
CMS’s general ability to consider and address such con-
cerns. Indeed, NGS concedes that CMS may take appro-
priate steps to address those very concerns. Appellant’s
Br. 12; see also Oral Arg. at 12:29–12:48. In our view, the
issue presented is simply a procedural one—whether the
agency complied with the Competition in Contracting Act
(“CICA”) and the Federal Acquisition Regulation (“the
FAR”) when it attempted to address its concerns by
8 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
developing a blanket policy applicable to all MAC solicita-
tions that effectively excludes offerors from competing,
without documenting the need for such action in light of a
particular contract or a particular offeror. We do not hold
that agencies cannot consider market concerns and exclude
a particular source for such reasons. We conclude only that
in doing so the agency must follow the congressionally de-
signed procedure for addressing such concerns.
Importantly, we have no occasion to opine as to
whether the particular methodology used by the agency,
such as the particular workload cap percentages chosen,
are supportable under a rational basis review standard.
With this in mind, we turn to the specific arguments
raised in this case. We first address whether the JH solic-
itation provided for full and open competition in light of the
Award Limitations Policy contained therein. Because we
hold that the JH solicitation did not provide for full and
open competition, we then address whether the agency’s
approach was otherwise permissible.
A
CICA generally requires “full and open competition
through the use of competitive procedures.” 41 U.S.C.
§ 3301(a)(1). In full, § 3301(a) states:
(a) In general.—Except as provided in sections
3303, 3304(a), and 3305 of this title and except in
the case of procurement procedures otherwise ex-
pressly authorized by statute, an executive agency
in conducting a procurement for property or ser-
vices shall—
(1) obtain full and open competition
through the use of competitive procedures
in accordance with the requirements of this
division and the Federal Acquisition Regu-
lation; and
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 9
(2) use the competitive procedure or combi-
nation of competitive procedures that is
best suited under the circumstances of the
procurement.
41 U.S.C. § 3301(a). 4 As used in § 3301, “competitive pro-
cedures” is defined as “procedures under which an execu-
tive agency enters into a contract pursuant to full and open
competition.” 41 U.S.C. § 152.
The FAR explains that “41 U.S.C. [§] 3301 require[s],
with certain limited exceptions (see subparts 6.2 and
6.3), that contracting officers shall promote and provide for
full and open competition in soliciting offers and awarding
Government contracts.” FAR 6.101(a). 5 The FAR further
explains that “[c]ontracting officers shall provide for full
and open competition through use of the competitive pro-
cedure(s) contained in this subpart that are best suited to
the circumstances of the contract action and consistent
with the need to fulfill the Government’s requirements ef-
ficiently.” FAR 6.101(b) (citing 41 U.S.C. § 3301).
The parties in this case agree that CICA’s full and open
competition requirement applies to MAC procurements.
The parties rely on two provisions in the MAC Statute to
show that the MAC Statute requires the use of competitive
procedures and the application of the FAR to MAC con-
tracting. See 42 U.S.C. § 1395kk-1(a)(6) (“Except to the ex-
tent inconsistent with a specific requirement of this
section, the Federal Acquisition Regulation applies to con-
tracts under this section.”); 42 U.S.C. § 1395kk-1(b)(1)(A)
(“Except as provided in laws with general applicability to
Federal acquisition and procurement or in subparagraph
4 We note that 10 U.S.C. § 2304(a) substantially par-
allels 41 U.S.C. § 3301(a).
5 The FAR is codified in Chapter 1 of Title 48 of the
Code of Federal Regulations.
10 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
(B), the Secretary shall use competitive procedures when
entering into contracts with [MACs] under this section,
taking into account performance quality as well as price
and other factors.”). In light of the parties’ agreement that
full and open competition is required, we do not address
this proposition further.
B
We now turn to whether the JH solicitation provides
for full and open competition in light of the Award Limita-
tions Policy included therein. We conclude it does not.
NGS contends that the Award Limitations Policy vio-
lates CICA’s and the FAR’s requirements for full and open
competition. The government disagrees, maintaining that
the JH solicitation provides for full and open competition
because all responsible sources are permitted to submit
proposals. The government also contends that even if the
workload caps effectively make it impossible for certain of-
ferors to win an award, the workload caps are simply “eval-
uation criteria” used to determine which offeror represents
the best value to the government and are supportable if
they have a rational basis. Government’s Br. 17–18, 24–
30. We address the government’s arguments in turn below.
1
The government first contends that the JH solicitation
provides for full and open competition because an offeror
that would exceed the workload caps if awarded the JH so-
licitation may still submit a proposal. The Claims Court
agreed with the government on this point. Decision, at 25–
26 (“The Contract Award Limitations policy that NGS chal-
lenges does not prevent any potential offerors from submit-
ting bids. . . . Therefore, because no offerors are prevented
from submitting proposals in response to the Jurisdiction
8 and Jurisdiction H solicitations . . . the solicitations do
not run afoul of the CICA’s ‘full and open competition’ man-
date.”).
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 11
This focus on the ability to submit a proposal comes
from 41 U.S.C. § 107, which explains that “the term ‘full
and open competition’, when used with respect to a pro-
curement, means that all responsible sources are permit-
ted to submit sealed bids or competitive proposals on the
procurement.” In our view, however, the government’s
view of this statutory provision places too much signifi-
cance on the word “submit.” See FAR 2.101 (“Full and open
competition, when used with respect to a contract action,
means that all responsible sources are permitted to com-
pete.” (emphasis added)). We are unconvinced that the
mere ability to submit an offer qualifies as full and open
competition in this case, given that such a submission may
be entirely futile in light of the solicitation’s Award Limi-
tations Policy.
Recognizing this futility concern, the government con-
tends that submission may not always be meaningless be-
cause offerors that would exceed the workload caps at the
time of submission may nonetheless win an award in two
scenarios. Government’s Br. 24–26.
As to the first scenario, the government states that, be-
cause the workload caps are applied at the time of award,
an offeror that would exceed the workload caps at the time
of submission may not exceed those caps at the time of
award based on developments external to the pending so-
licitation (such as termination of a previously awarded
MAC contract). Government’s Br. 25; see also Decision, at
25–26. But this argument simply states the obvious—an
offeror’s ability to compete will not be limited by the work-
load caps if that offeror would not exceed the workload
caps. This does not assuage our concern that an offeror
who submits a proposal and remains affected by the work-
load caps throughout the MAC procurement will have sub-
mitted that proposal in vain.
The government’s second scenario fares no better. It
also fails to demonstrate that it would not be futile for an
12 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
offeror that would exceed the workload caps to submit a
proposal. The government points to the solicitation’s Con-
tinuity Exception, arguing that an offeror may be awarded
a contract even where such an award would cause the offe-
ror to exceed the workload caps if making that award is
necessary to ensure continuity. Government’s Br. 25 (cit-
ing J.A. 15548); see also Decision, at 26. But both parties
characterize this exception as applying only if no other
awardable proposal had been submitted (e.g., if the offeror
that exceeds the caps was the only responsible offeror). 6
See, e.g., Appellant’s Br. 11, 13, 20; Government’s Br. 25–
26 (stating that this exception permits CMS to award a con-
tract “to an offeror that would otherwise be ineligible, if the
offeror submitted the only otherwise awardable proposal
(e.g., it is the only responsible offeror to submit a proposal
in that procurement or there are multiple responsible offe-
rors but only one proposed a fair and reasonable price)”).
This appears to be CMS’s view of the Continuity Exception
as well, as illustrated by the agency’s response to a ques-
tion received after the Continuity Exception was included
in the Jurisdiction M solicitation. CMS explained:
[T]he [continuity] exception could be triggered if
only one offeror were to respond to the RFP, and
that single offeror would otherwise not qualify for
an additional A/B MAC prime contract award un-
der the policy. Similarly, the exception could apply
6 “Responsibility refers to an offeror’s apparent abil-
ity and capacity to perform all contract requirements and
is determined, not at proposal opening, but at any time
prior to award of the contract based on any information re-
ceived by the agency up to that time.” Centech Grp., Inc. v.
United States, 554 F.3d 1029, 1034 n.2 (Fed. Cir. 2009) (cit-
ing FAR 9.105-1 (2008)); see also FAR 9.104-1 (general re-
sponsibility standards).
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 13
if there were multiple offerors, but CMS found
them all (save for one) to be non-responsible.
Decision, at 26 (quoting J.A. 14860). Thus, the Continuity
Exception provides no assurance that submission of a pro-
posal by an offeror who would exceed the workload caps
would be anything other than futile, as long as one other
awardable offeror exists.
In short, despite the government’s efforts to show that
it would be meaningful for an offeror that would exceed the
workload caps to submit a proposal, we are unpersuaded.
In light of the Award Limitations Policy, a responsible of-
feror that would exceed the workload caps is not given the
same opportunity to win an award as other offerors that
submitted awardable proposals. And the fact that an offe-
ror that would exceed those caps was able to submit a pro-
posal does nothing to address this concern.
2
The government next contends that even if the Award
Limitations Policy effectively made it impossible for certain
offerors to obtain the award, this would not violate full and
open competition. Government’s Br. 26. The government
argues that the workload caps are merely evaluation crite-
ria, and “solicitation terms that result in particular offerors
being unable to win an award based upon their particular
circumstances do not violate CICA’s competition require-
ments, so long as the terms have a rational basis in light of
the agency’s needs.” Government’s Br. 28.
To support this argument, the government relies on
our decision in CHE Consulting, Inc. v. United States, 552
F.3d 1351 (Fed. Cir. 2008), as well as three decisions from
the Comptroller General. Government’s Br. 26–27. But
those decisions merely stand for the unremarkable propo-
sition that a solicitation requirement (such as a past expe-
rience requirement) is not necessarily objectionable simply
because that requirement has the effect of excluding
14 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
certain offerors who cannot satisfy that requirement. See
CHE Consulting, 552 F.3d at 1352 (regarding a require-
ment that a single contractor provide both hardware
maintenance and software maintenance for a particular
system); Armstrong Elevator Co., 2018 CPD ¶ 120, B-
415809, 2018 WL 1542123 (Comp. Gen. Mar. 28, 2018) (re-
garding a solicitation’s past experience requirements,
where the solicitation pertained to upgrading multiple ele-
vators and the agency included a requirement that the of-
feror have experience on projects with ten or more
elevators); Maersk Line, Ltd., 2012 CPD ¶ 200, B-406586,
2012 WL 2833687 (Comp. Gen. June 29, 2012) (regarding
a challenge to a solicitation’s requirement that the offeror
be a citizen of the United States where the solicitation at
issue implicated national security concerns); Am. Diesel
Eng’g Co., 92-1 CPD ¶ 79, B-245534, 1992 WL 15033(Comp. Gen. Jan. 16, 1992) (regarding the agency’s deci-
sion not to disclose to potential offerors data necessary for
proposal preparation where the agency’s right to distribute
such data was in question, even though broad distribution
of such data would have enhanced competition).
The Award Limitations Policy in this case is not com-
parable to the solicitation requirements at issue in the
cases cited by the government. At the outset, we have some
doubts as to whether the Policy should even be viewed as
an evaluation factor. See FAR 15.304. For example, alt-
hough the Policy is included as part of Section M (titled
“EVALUATION FACTORS FOR AWARD”), J.A. 15544, its
relative importance in the award decision is undisclosed,
see FAR 15.304(d) (requiring that “[a]ll factors and signifi-
cant subfactors that will affect contract award and their
relative importance shall be stated clearly in the solicita-
tion” (emphasis added)). Instead, the solicitation states
that “[a]s described in Section M, Evaluation Factors for
Award, the Government will evaluate Offerors’ proposals
based on cost and price and two (2) non-cost technical eval-
uation factors: Technical Approach and Past Performance.”
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 15
J.A. 15519. Conspicuously absent from this list of consid-
erations is any mention of the workload caps.
Moreover, even assuming the Policy is an evaluation
factor, it is unlike the requirements at issue in the cases
cited by the government. Unlike the requirements in those
cases, the workload caps contained in the solicitation’s
Award Limitations Policy here are not requirements tai-
lored to meet CMS’s needs for a particular procurement.
For example, in Armstrong Elevator, the solicitation re-
quired offerors to have experience on projects with ten or
more elevators because the solicitation’s statement of work
required replacement of at least eight elevators. 2018 WL
1542123, at *1–2. Here, instead of being tailored to the
needs of a particular contract, the workload caps are uni-
form parameters applicable to all MAC contracts. And alt-
hough the government contends that the workload caps are
tailored to each contract because the Policy reflects a need
for continuous service in each particular MAC jurisdiction,
we are not convinced. There is no indication that CMS had
concerns about continuity within a particular MAC juris-
diction. Instead, the Policy is designed to address continu-
ity concerns more generally by looking to the market as a
whole.
In short, the way the Policy effectively excludes offerors
is wholly unlike the way certain requirements effectively
excluded offerors in the cases cited by the government.
Here, the exclusion is not based on some capability or ex-
perience requirement, but is instead based on the agency’s
attempt to divvy up the MAC contracts in a way that en-
sures business continuity and helps maintain a competitive
MAC market. CICA allows for a particular source to be
excluded if doing so would “increase or maintain competi-
tion and likely result in reduced overall cost for the pro-
curement” or if doing so would “ensure the continuous
availability of a reliable source of supply of the property or
service.” 41 U.S.C. § 3303(a)(1)(A), (D). As discussed be-
low, however, CMS did not rely on this statutory exception
16 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
in effectively excluding sources, and that is where the
agency erred.
C
Having concluded that the Award Limitations Policy
precludes full and open competition and effectively ex-
cludes certain offerors from competition, we next consider
whether CMS’s actions can be otherwise justified.
Congress specifically outlined the circumstances un-
der which an agency may avoid CICA’s full and open com-
petition requirement. See § 3301(a). Here, the government
relies on just one exception, arguing that the workload caps
are “procurement procedures otherwise expressly author-
ized by statute.” § 3301(a). We first address that argument
and then address another exception, § 3303(a), that the
Claims Court used to uphold the Policy in this case.
1
The government contends that the workload caps are
“procurement procedures otherwise expressly authorized
by statute.” 41 U.S.C. § 3301(a). Government’s Br. 31–36.
Specifically, the government argues that two provisions in
the MAC Statute “expressly authorize[]” the Award Limi-
tations Policy.
First, the government argues that the workload caps
are merely an additional eligibility requirement under 42
U.S.C. § 1395kk-1(a)(2)(D). That provision reads:
(2) Eligibility of entities
An entity is eligible to enter into a contract with
respect to the performance of a particular function
described in paragraph (4) only if—
(A) the entity has demonstrated capability
to carry out such function;
(B) the entity complies with such conflict of
interest standards as are generally
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 17
applicable to Federal acquisition and pro-
curement;
(C) the entity has sufficient assets to finan-
cially support the performance of such
function; and
(D) the entity meets such other require-
ments as the Secretary may impose.
42 U.S.C. § 1395kk-1(a)(2) (emphasis added). 7 The second
provision the government relies on is 42 U.S.C. § 1395kk-
1(b)(2), which reads:
(2) Compliance with requirements
No contract under this section shall be entered into
with any [MAC] unless the Secretary finds that
such [MAC] will perform its obligations under the
contract efficiently and effectively and will meet
such requirements as to financial responsibility, le-
gal authority, quality of services provided, and
other matters as the Secretary finds pertinent.
42 U.S.C. § 1395kk-1(b)(2).
The Claims Court relied in part on these two provisions
to uphold the Award Limitations Policy. The court ex-
plained that the Award Limitations Policy “fits squarely
within these two authorizations” because “[a]n entity, or
set of affiliates, having too much work than it can reason-
ably manage certainly calls into question that entity’s ca-
pability to successfully perform the contract.” Decision, at
28. Moreover, the Claims Court explained that “[t]he
7 The Secretary of HHS has generally delegated the
authority within Title XVIII of the Social Security Act to
CMS. See Statement of Organization, Functions, and Del-
egations of Authority, 49 Fed. Reg. 35,247-01, 35,248 (Sept.
6, 1984).
18 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
potential of being overloaded is also inextricably tied to fi-
nancial wherewithal and the quality of services that would
be provided.” Id.With respect to the first provision, NGS contends that
the requirements enumerated in § 1395kk-1(a)(2) are
merely MAC-specific responsibility provisions and that the
workload caps are not responsibility criteria because they
do not speak to a particular offeror’s ability to perform a
particular MAC contract. As to the second provision, NGS
contends that it is a restriction on the agency itself that
precludes that agency from entering into a contract unless
certain requirements are met.
We need not address NGS’s arguments in detail be-
cause, as we explain next, we hold that the workload caps
are not “expressly authorized by statute.” Even assuming
that the workload caps are “procurement procedures” as
contemplated by 41 U.S.C. § 3301(a), and even assuming
they “fit[] squarely within” these provisions as the Claims
Court concluded, see Decision, at 28, in our view, the work-
load caps are not “expressly authorized” by those provi-
sions.
As a comparison, express authority for procurement
procedures otherwise permitted by statute is readily found
in another provision of the MAC Statute, namely 42 U.S.C.
§ 1395kk-1(b)(1)(B). That provision permits CMS to renew
a MAC contract without regard to “any other provision of
law requiring competition, if the [MAC] has met or ex-
ceeded the performance requirements applicable with re-
spect to the contract and contractor, except that the
Secretary shall provide for the application of competitive
procedures under such a contract not less frequently than
once every 10 years.” § 1395kk-1(b)(1)(B). And the MAC
Statute expressly lists this renewal procedure as an excep-
tion to the MAC Statute’s required use of competitive pro-
cedures. § 1395kk-1(b)(1)(A) (“Except as provided in laws
with general applicability to Federal acquisition and
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 19
procurement or in subparagraph (B), the Secretary shall
use competitive procedures when entering into contracts
with medicare administrative contractors under this sec-
tion . . . .” (emphasis added)); see also Rapides Reg’l Med.
Ctr. v. Sec’y, Dep’t of Veterans’ Affairs, 974 F.2d 565, 574
(5th Cir. 1992) (holding that a sharing program created by
statute that allowed the Department of Veterans Affairs to
enter into sharing agreements for the acquisition and joint
use of medical technology was “expressly authorized by
statute” within the meaning of CICA).
In short, the broad provisions cited by the government
cannot serve as the express authority necessary to meet
this exception. If these provisions could suffice to show
such express authorization, seemingly any requirement
could be justified regardless of its effect on full and open
competition. We therefore reject the government’s argu-
ment that the workload caps are “procurement procedures
otherwise expressly authorized by statute” under
§ 3301(a).
2
As noted above, the government has not relied on other
exceptions outlined in 41 U.S.C. § 3301(a), even though the
government admits that some of these provisions are “tools
that CMS could use to address its concerns regarding busi-
ness continuity and competitive dynamics in appropriate
circumstances.” Government’s Br. 30. But as explained
below, to accomplish the end result of the Award Limita-
tions Policy—i.e., excluding certain offerors from winning
the award—the agency was required to follow the proce-
dures outlined in § 3303(a) and the corresponding proce-
dures set out in FAR 6.202.
As relevant here, § 3303(a) provides:
(a) Exclusion of particular source.—
(1) Criteria for exclusion.—An executive
agency may provide for the procurement of
20 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
property or services covered by section
3301 of this title using competitive proce-
dures but excluding a particular source to
establish or maintain an alternative source
of supply for that property or service if the
agency head determines that to do so
would—
(A) increase or maintain competi-
tion and likely result in reduced
overall cost for the procurement, or
for an anticipated procurement, of
the property or services;
. . . [or]
(D) ensure the continuous availa-
bility of a reliable source of supply
of the property or service; . . . .
41 U.S.C. § 3303(a)(1). Section 3303(a)(2) makes clear that
a determination to exclude a source under § 3303(a)(1)
“may not be made for a class of purchases or contracts.” As
evident from the language of the statute, this exception en-
compasses the very concerns CMS sought to address in this
case—maintaining competition and ensuring the continu-
ous availability of a reliable source of Medicare services.
See § 3303(a)(1). 8
8 Exclusion based on “increas[ing] or maintain[ing]
competition” also requires the exclusion of a source to
“likely result in reduced overall cost for the procurement.”
§ 3303(a)(1)(A). Separately, we also note that § 3304 ad-
dresses a similar concern. Section 3304 allows for use of
noncompetitive procedures where “it is necessary to award
the contract to a particular source . . . to maintain a facility,
producer, manufacturer, or other supplier available for fur-
nishing property or services in case of a national
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 21
FAR Subpart 6.2 implements this statutory provision.
See FAR 6.200 (“This subpart prescribes policies and pro-
cedures for providing for full and open competition after
excluding one or more sources.”). Specifically, FAR
6.202(a) mirrors the language of § 3303(a)(1) regarding cri-
teria for excluding a particular source. Importantly, FAR
6.202(b)(1) requires that “[e]very proposed contract action
under the authority of paragraph (a) above shall be sup-
ported by a determination and findings (D&F) (see subpart
1.7) signed by the head of the agency or designee.” 9 FAR
6.202(b)(1) further explains that “[t]his D&F shall not be
made on a class basis.” And if the basis for excluding a
source is to increase or maintain competition, with the re-
sult being a likely reduction in overall costs, “the findings
shall include a description of the estimated reduction in
overall costs and how the estimate was derived.” FAR
6.202(b)(3).
The HHS Acquisition Regulations (“HHSAR”) directly
address FAR 6.202. 10 Specifically, “[t]he Senior
emergency or to achieve industrial mobilization.”
§ 3304(a)(3)(A). This section requires a written justifica-
tion and approval. § 3304(e).
9 “Determination and Findings (D&F) means a spe-
cial form of written approval by an authorized official that
is required by statute or regulation as a prerequisite to tak-
ing certain contract actions. The determination is a con-
clusion or decision supported by the findings. The findings
are statements of fact or rationale essential to support the
determination and must cover each requirement of the
statute or regulation.” FAR 1.701.
10 HHS’s acquisition regulations are found in Chapter
3 of Title 48 of the Code of Federal Regulations. HHSAR
301.103(c). The HHSAR establishes policies and proce-
dures “that implement and supplement the Federal Acqui-
sition Regulation (FAR).” HHSAR 301.101(a).
22 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
Procurement Executive (SPE) shall make the determina-
tion required in [FAR] 6.202(a),” HHSAR 306.202(a), and
“[t]he contracting officer shall prepare the required deter-
mination and findings (D&F)” under FAR 6.202(b)(1),
HHSAR 306.202(b)(1).
These statutory and regulatory procedures directly ad-
dress how an agency may exclude a source to address cer-
tain market concerns. Indeed, it is not surprising that the
Claims Court relied heavily on § 3303(a) to justify the
workload caps. J.A. 567. The Claims Court reasoned:
CMS is permitted to use “competitive procedures
but excluding a particular source” if it determines
that doing so would “increase or maintain competi-
tion and likely result in reduced overall cost for the
procurement, or for an anticipated procurement” or
to “ensure the continuous availability of a reliable
source or supply of the property or service.” 41
U.S.C. § 3303(a)(1)(A), (D). In other words, CMS
can exclude a particular source—i.e., a potential
successful offeror—from an A/B MAC competitive
procurement to increase competition for A/B MAC
services or to ensure that there will be a sufficient
number of capable A/B MAC contractors. The Con-
tract Award Limitations policy is designed to
achieve both results by preventing CMS’s overreli-
ance on one or a handful of contractors. . . . Fur-
ther, when there is such an individual
determination to exclude a particular source from
a competitive procurement to increase or maintain
competition or to ensure a continuous supply of ser-
vices, the justification and approval procedures
outlined in 41 U.S.C. § 3304(e)(1) for noncompeti-
tive procurements do not apply. Id. § 3303(c).
Decision, at 29.
But the Claims Court erred in relying on § 3303(a) to
justify CMS’s action in this case because even though
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 23
§ 3303(c) exempts this source-exclusion procedure from the
justification and approval procedures outlined in
§ 3304(e)(1), the FAR requires that every proposed contract
action under that authority be supported by a determina-
tion and findings signed by the head of the agency or de-
signee, see FAR 6.202. Thus, even if CMS had intended to
rely on § 3303(a), CMS violated the FAR in doing so by fail-
ing to supply a determination and findings. Indeed, there
may have been a reason CMS chose to structure the Award
Limitations Policy as a solicitation provision rather than
relying on § 3303(a). As the government’s brief tellingly
notes, during the time period when CMS used a case-by-
case approach to analyze business continuity and competi-
tion concerns (prior to development of the Award Limita-
tions Policy), “CMS had been unable to identify factors that
would ‘tip the scales’ for an offeror to lose an award and
found it difficult to justify a decision to deny an award
based upon business continuity and competition concerns
under those circumstances.” Government’s Br. 10 (quoting
J.A. 12073). But regardless of how difficult it may or may
not be to justify excluding a source from competition, this
justification is what the FAR requires. 11
11 The Claims Court also explained that the Award
Limitations Policy did not violate the prohibition on class
determinations under § 3303(a)(2) because “the [P]olicy is
only applied when there is a specific determination that the
apparent successful offeror in a particular procurement
would exceed the workload caps—it does not apply to a
class of contracts or a class of contractors generally.” Deci-
sion, at 29. Although we have some doubts about this rea-
soning, in light of our holding that the Award Limitations
Policy was effectively an exclusion of a source under
§ 3303(a), which required a determination and findings un-
der FAR 6.202, we do not address whether the blanket
24 NATIONAL GOVERNMENT SERVICES v. UNITED STATES
In sum, Congress has provided specific means by which
an agency may address general market concerns such as
those identified by CMS in this case. In other words, the
needs identified by the agency here are the exact needs con-
templated by § 3303(a)(1)(A). And while the government
admits that it could have relied on § 3303(a) and § 3304 to
accomplish its goals, it maintains that it need not have
done so. But allowing an agency to avoid the explanation
requirements relevant to § 3303(a) and § 3304 by simply
drafting a solicitation provision and labeling it an evalua-
tion criterion would nullify the statutory procedures Con-
gress put in place.
IV
In sum, the Award Limitations Policy precludes full
and open competition by effectively excluding an offeror
from winning an award, even if that offeror represents the
best value to the government. And while agencies may con-
sider market concerns and exclude a particular source for
such reasons, the agency did not follow the congressionally
designed procedure for doing so in this case.
As noted above, while we cannot uphold the procedure
CMS used to address its concerns regarding overreliance
and maintaining a competitive marketplace, we do not sug-
gest that those concerns are improper or that they lacked a
rational basis. Moreover, we do not suggest that the gen-
eral methodology used by CMS, such as the particular mar-
ket percentages employed, lacked a rational basis. Indeed,
CMS may be able to rely in part on the same methodology
to explain its rationale for excluding a particular offeror
source under 41 U.S.C. § 3303(a) and FAR 6.202. Thus,
although NGS has challenged the details of how the work-
load caps are structured as lacking a rational basis, we
Award Limitations Policy constituted an improper class de-
termination under § 3303(a)(2).
NATIONAL GOVERNMENT SERVICES v. UNITED STATES 25
leave those issues to be addressed in a case in which CMS
has followed the proper procedures to address its overarch-
ing market concerns.
For the foregoing reasons, we reverse the decision of
the Court of Federal Claims and remand for further pro-
ceedings.
REVERSED AND REMANDED