Ignore our prior prediction—the U.S. Court of Federal Claims definitely is NOT remanding the protest by Medline Industries, Inc. (“Medline Protest’) to the agencies for corrective action.  In a surprisingly scathing opinion issued June 22, 2021 by Judge David A. Tapp, the court made one thing very clear—the Department of Veterans Affairs’ (“VA”) transfer of its Medical Surgical Prime Vendor (“MSPV 2.0”) requirements to the Defense Logistics Agency (“DLA”) is dead on arrival.  After issuing a brief order on June 17 denying remand to the agencies for corrective action, the court detailed its reasoning in an opinion issued in a parallel protest filed by Owens & Minor Distribution, Inc. challenging (slightly) different aspects of the shifting MSPV 2.0 procurement (“O&M Protest”).  The government had moved for remand in both protests, and because the Medline Protest and O&M Protest involved the same parties and many common operative facts, the court issued a single opinion denying remand in both—and telegraphing that the outlook for the government in both cases is grim.  Piling on, the court took a few shots at the government for its litigation conduct and (more generally) its lack of acquisition planning.

Despite the fact that the government represented in June 8 status reports in both protests that “the [VA] has cancelled the planned transfer [of MSPV to the DLA], and is reconsidering whether any future transfer will even occur, and if so on what grounds and timeline,” the court refused to let it go at that.  The court observed that the VA was changing course so frequently that any representations made about its future plans could simply not be trusted.  Given the VA’s unpredictability, the court expressed its intention to address the merits of the protest – a statement that no doubt gives the plaintiffs great courage.

Following a heavy dose of general awe and disapproval of how the government has mishandled basically everything thus far in the VA’s MSPV 2.0 program, the court set out to determine whether remand was justified as requested by the government.  The court applied a newly established three-prong test set forth in Keltner v. United States, 148 Fed. Cl. 552 (2020).  Under Keltner, an agency’s concerns are “substantial and legitimate,” where: (1) the agency provides a compelling justification for its remand request; (2) the need for finality does not outweigh the justification for voluntary remand presented by the agency; and (3) the scope of the agency’s remand request is appropriate.  Only where all three criteria are satisfied will the court consider remand, but even then remand is not guaranteed.

Here, the court held that the government failed to satisfy all three factors:

Factor 1 failed because the government’s motion for remand lacked both citations to the administrative record and affidavits from the agencies that would provide a compelling justification for remand.  Mere assertions by government counsel on behalf of the agencies were not sufficient to convince the court that the agency’s request was not “merely a litigation tactic.”

Factor 2 failed because the court found there was a strong need for finality in the VA’s deeply flawed plan. Specifically, the court pointed to a judicial admission made by the government during the June 4, 2021 hearing on the motion for remand in the Medline Protest.  During the hearing, the government conceded that the administrative record lacked the rational basis required to survive the protest, an admission that the court equated to meaning “the United States loses.”  This is not an issue, the court found, that needed to be drawn out over six more months so that the government could lose at a later date.  Giving finality now would allow the parties and the government better to plan for the future.

Factor 3 failed because the scope of the remand request was a problematic half-measure. Specifically, the remand request carved out the VA’s plans to continue with the transfer to DLA in Veteran Integrated Service Network (“VISN”) 6—a transfer that the VA (conveniently) completed only two days before requesting remand.  The court made clear that it did not approve of the VA sneaking VISN 6 in under the wire, so we would not be surprised to see the court eventually unwind that transfer in its final decision on the merits.

Normally, courts work hard to give the government deference.  But that’s not the case here—the court will not remand and the government does not seem likely to get what it wants in either protest.  In the words of the court, “A decision on the merits looms.”  And while many on the contractor side of may find it refreshing to see the government held accountable for a move that upset many vendors, one has to wonder what the practical difference is between a judgment finding the transfer from the VA to DLA is contrary to law (kicking it back to the agencies) versus a remand to allow the agencies to get their ducks in a row over the next six months.  Perhaps it means that the VA and DLA will be constrained on how and when they are able to exercise options under the existing MSPV contracts.  Still, either way, the VA knows now that it cannot plow through a transition to DLA with its head down, hoping for the best; the VA and DLA will have to time-consumingly, painstakingly cross their T’s and dot their I’s or be dragged back to court to answer for their errors.  Further, while there are some questions to work out through the protests, it looks like the MSPV 2.0 vendors will get to perform the contracts as planned, albeit with little expectation that the VA will exercise any option periods.  At the end of the day, industry players may be wise to get to know DLA if they do not already.  And the VA would be wise to figure out how it can legitimately improve the MSPV process, and not merely paper over the record to get where it wants to go.