The Federal Circuit last Friday issued a decision that is, as the dissent put it, “a very important government contract case.” In Percipient.ai v. United States, the Federal Circuit adopted a narrow construction of the FASA task order bar, which prohibits the Court of Federal Claims (“COFC”) from hearing a protest challenging the issuance of a task order. At the same time, the Federal Circuit held that under certain circumstances—such as in this case—potential subcontractors can challenge an agency’s violation of procurement law at the COFC.

The Federal Circuit effectively kicked down the drawbridge to the COFC. It increased the variety of cases the COFC can hear and the classes of government contractors—particularly subcontractors—that can bring those cases. Percipient.ai will have significant ramifications on the government contracting community.

Background

The National Geospatial-Intelligence Agency (“NGA”) issued a solicitation called SAFFIRE. SAFFIRE sought to award an Indefinite Delivery, Indefinite Quantity (“IDIQ”) contract to help the NGA improve its processes for obtaining and storing visual intelligence data. The NGA also issued a solicitation for Task Order 1, to be awarded pursuant to the SAFFIRE IDIQ contract. Task Order 1 called for a contractor to develop and deliver a computer vision (“CV”) artificial intelligence system.

Plaintiff Percipient.ai sells a CV platform called Mirage, which is used to analyze large data sets. Percipient could not bid on the SAFFIRE solicitation because it could not provide the full complement of technologies required under SAFFIRE. But Mirage could satisfy the NGA’s needs under Task Order 1. Hoping the NGA and the eventual SAFFIRE awardee, CACI, would consider purchasing Mirage under Task Order 1, Percipient did not bid on the SAFFIRE solicitation. Ultimately, CACI decided to develop its own CV platform in-house and refused to contract with Percipient. Percipient then filed a bid protest at COFC, arguing the NGA violated 10 U.S.C. § 3453, which requires that agencies purchase commercial products “to the maximum extent practicable.” Percipient sought to enjoin the NGA from violating Section 3453.

COFC dismissed Percipient’s complaint for lack of subject matter jurisdiction pursuant to the Federal Acquisition Streamlining Act of 1994 (“FASA”). FASA prohibits COFC from hearing a protest that is “in connection with the issuance or proposed issuance of a task or delivery order.” COFC reasoned Percipient’s complaint was “directly and causally related to” NGA’s issuance of Task Order 1 to CACI, and therefore barred by FASA.

The Federal Circuit’s Decision

The Federal Circuit reversed COFC’s dismissal of Percipient’s complaint. Its decision will have far-reaching implications for government contractors.

First, the Federal Circuit construed the FASA task order bar narrowly. It held that under FASA, a protest is barred only if “it challenges the issuance of the task order directly” or if it challenges “a government action (e.g., waiver of an organizational conflict of interest) whose wrongfulness would cause the task order’s issuance to be improper.” In other words, the FASA bar applies only if the protest seeks to halt the issuance of a task order. Percipient did not challenge Task Order 1 directly; instead, it challenged the NGA’s and CACI’s decision not to solicit commercial products pursuant to Task Order 1. Therefore, Percipient’s protest was not “in connection with the issuance or proposed issuance” of Task Order 1, and FASA did not bar Percipient’s protest.

Second, the Federal Circuit emphasized COFC’s broad bid protest jurisdiction. COFC has jurisdiction over “any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.” The Federal Circuit reiterated that the term “procurement” encompasses “all stages of the process of acquiring property or services,” starting with the “process for determining a need for property or services” and ending with “contract completion and closeout.” Therefore, COFC has jurisdiction over agency actions “between issuance of a contract award and contract completion.” This broad view of COFC’s jurisdiction means COFC has jurisdiction to adjudicate violations of law during contract performance. In Percipient’s case, the requirement that agencies solicit commercial items applies during contract performance and “can be violated well after the contract’s award.” So if a government contractor believes an agency violated federal law during contract performance—such as by not sufficiently preferring commercial products over in-house solutions—it can seek an injunction at COFC.

Third, and most significantly, the Federal Circuit sharply expanded the class of government contractors that have statutory standing to file bid protests at COFC. Traditionally, only contractors that are “actual or prospective bidders” and “whose direct economic interest would be affected by the award of the contract or failure to award the contract” have standing to file COFC bid protests. Under this test, Percipient lacked standing to pursue a bid protest, because Percipient was not an “actual or prospective offeror” on the SAFFIRE solicitation or Task Order 1.

In Percipient.ai, however, the Federal Circuit clarified that the narrower standing test applies only when a contractor protests (1) a solicitation or (2) a proposed award or award of a contract. However, when a contractor alleges a “violation of statute or regulation in connection with a procurement or a proposed procurement,” a different standing test applies. The Federal Circuit stated that Percipient had standing because “it offered a commercial product that had a substantial chance of being acquired to meet the needs of the agency had the violations not occurred.” In other words, Percipient had standing because it suffered economic injury due to the NGA’s and CACI’s failure to solicit commercial CV products under Task Order 1. While the Federal Circuit cabined its holding to cases involving 10 U.S.C. § 3453, it nonetheless opened the door to subcontractors pursuing injunctive relief based on violations of law during contract performance. As the dissent noted, the Federal Circuit’s holding “allows potential subcontractors, for the first time, to challenge government contracts under § 1491(b)(1).”

Takeaways

Percipient.ai is a monumental decision affecting COFC’s ability to hear challenges to federal procurements. The Federal Circuit opened the door for subcontractors—for the first time—to file bid protests and potentially enjoin the federal government from violating 10 U.S.C. § 3453. If a subcontractor can demonstrate an agency harmed its direct economic interest—at any time during contract performance—by refusing to consider commercial products, it may have standing to pursue a “bid protest” (a bit of a misnomer now, considering contractors can file protests well after bidding concludes) and seek injunctive relief, at COFC. It will be interesting to follow how judges on the COFC apply the Federal Circuit’s Percipient.ai decision, particularly whether they will permit subcontractors to allege other violations of law or regulation beyond Section 3453.

A word of caution, though: it is likely the full Federal Circuit will rehear the case en banc—i.e., with all judges participating and voting on the decision. As the dissent noted, Percipient.ai arguably overturned Federal Circuit precedent interpreting both the FASA task order bar and the “interested party” standing test under the Tucker Act. Three-judge panels normally cannot overrule the Federal Circuit’s prior decisions (as the dissent stressed on multiple occasions). A divided panel implementing a sea change in procurement law is likely to catch the eyes of the other judges on the Federal Circuit. Expect the Government to petition for rehearing en banc and ask the full Federal Circuit to overrule Percipient.ai and pull the COFC’s drawbridge back up.