Last month, the Federal Circuit held an en banc session to hear oral argument in Percipient.AI v. United States. In this government contract case, the court is considering “who can be ‘an interested party objecting to . . . any alleged violation of statute or regulation in connection with a procurement or a proposed procurement’ under 28 U.S.C. § 1491(b)(1)?” This is our argument recap.
Hamish P.M. Hume argued for Percipient.AI. He began by asserting that a “party is an interested party under the third prong of section 1491 . . . where the alleged legal violation prevents that party from offering its goods or services to meet the procurement needs of the government agency.” He argued “[t]his definition logically follows from the plain text of section 1491.” Moreover, he said, the determination of who is an interested party in a challenge of “an alleged violation necessarily must be measured by what that violation is.” According to Hume, “where the violation manifests itself in a solicitation or a contract award . . . an interested party is an actual or prospective bidder.”
A judge asked whether, if the court allows “subcontractors to have standing under the last part of the sentence, . . . it somehow foreclose them having standing under the first part.” Hume responded by arguing that, “if the subcontractor’s interest is derivative of the prime contractor, . . . then they don’t get to bring a case because they are only derivatively interested, and this court has wanted only the most directly interested party.” Judge Hughes then posed a hypothetical in which a subcontractor’s product is excluded from a solicitation. He asked, “[w]on’t they have an interest in challenging the terms of that solicitation because the exclusion of those commercial items would have a direct economic impact?” According to Hume, subcontractors have standing “if they can show they’re the most directly injured party and that their challenge is to action by the government.”
Judge Stoll asked, “even though prong three is more broadly written, . . . how could it be that somebody could then say they have a prong one and a prong three charge?” Hume clarified his position by explaining that Percipient is presenting “a claim that can only be brought under prong three because it is not challenging a solicitation or a contract.”
A judge then brought up a prior case. According to Hume, government employees in the prior case would not have standing to sue because in that case “there was a challenge to a contract award” and “the legal violation . . . manifested itself in a contract award.” As a result, he said, “they were not actual, prospective bidders.” The judge followed up, asking “why wouldn’t they meet your understanding of what’s required under prong three?” Hume responded by pointing out that “the legal violation manifested itself in a contract award . . . and they were not able, nor did they submit . . . a bid for that contract award.” A judge followed up, asking “[w]hat does that have to do with the meaning of ‘interested party’ in 1491(b)(1)?” In response, Hume suggested “the whole definition of interested party . . . is with respect to a contract award or solicitation” and “so it does not apply to a claim that is not challenging” those.
Finally, a judge asked about whether Percipient “ever consider[ed] challenging the conduct of the prime contractor here instead” of the government. Hume answered, “[n]o, we did not file a separate lawsuit” because the Court of Federal Claims “has no jurisdiction over private parties.”
Galina I. Fomenkova argued on behalf of the United States. First, she stated, “the term ‘interested party’ in 28 U.S.C. § 1491(b)(1) has a settled meaning . . . [and] refers to an actual or prospective bidder with a direct economic interest in the procurement.” She argued this “definition applies uniformly across the entire sentence, including all three types of claims—those challenging a solicitation, an award, or a violation ‘in connection with a procurement.'” She said “Percipient has offered no special justification necessary to uproot these settled definitions.” She also argued that, since the court’s earlier precedent on point, Congressional action and inaction “only further reinforced that Congress deliberately transplanted the ‘interested party’ term of art,” and it should apply to all bid protests in the Court of Federal Claims.
A judge then challenged her reasoning, stating that “in this case, when [the statute] defines ‘interested party’, it very specifically says, in the definition itself, ‘with respect to a contract, or a solicitation, or other requests for offers.’ So, the judge continued, “it is not a definition for interested party for all circumstances, but just expressly for” those stated in the beginning of the sentence. In response, Fomenkova argued that this phrasing was necessary to understand “what your direct economic interest has to be connected to” for standing.
Fomenkova then addressed Percipient’s argument that under her position prong three would be rendered a null set. She argued “that is just not true” because “it clarifies that the Court of Federal Claims can address alleged violations of statute and regulation.”
One of the judges followed up by asking how prong three expanded the statute. Fomenkova pointed out that, although prong three expanded the types of challenges that can be brought in the Court of Federal Claims, it is “not a reasonable inference that when Congress took the same ‘interested party’ term . . . Congress meant to expand who can bring them.” The judge, however, suggested the definition provided by Congress included explicit language that the “interested party” definition applies only to prong one and prong two challenges to agency action. Fomenkova, however, suggested that the reasonable inference is that “when Congress used a known term of art in the exact same context . . Congress intended to apply the definition that it took the time to expressly provide.” A judge challenged this argument, suggesting “it’s not the exact same context . . . [because] the language is different in prong three.” Fomenkova, however, maintained “it is not the identical language, but it is the identical context.” She argued the context is the same because “both are about the ability to bring a bid protest.”
A judge asked Fomenkova if “the interested party differs depending on whether you are looking at prong one . . . or prong two?” Fomenkova answered, “as a practical matter, yes.” The judge then asked, “since the words ‘interested party’ have different meanings, as applied to who can bring a challenge to a solicitation and totally different meanings depending on who can bring a challenge to an award, then why couldn’t it have a different meaning . . . for the third prong?” Fomenkova responded that “there’d be no basis Congress has ever said to do that” and, “ultimately, it comes down to fairness” as to who can have standing.
Fomenkova then addressed the fact that Percipient did not bring a suit against the prime contractor and stated that it was upset that that entity “did not find their product sufficiently appealing.” A judge then brought up Percipient’s argument that it “did not like the idea of the government spending a gazillion dollars developing something on its own that it could easily buy at Home Depot.” Fomenkova pointed out that “there is a clause in this contract that requires” the contractor, “to the maximum extent practicable, to use commercial solutions.”
Fomenkova argued that, “even if we assume that . . . this expanded definition of standing only applies to this one statute, that already opens up protests to an unbounded universe of plaintiffs.”
Toward the end of her argument, she pointed out that Percipient “did not reach out . . . until after the contract was awarded and performance began. Morevoer, she said, Percipient “did not engage with the solicitation.”
Anne B. Perry argued for CACI, Inc., the contractor. She began by stating that, “even if this court were to narrow the definition of standing . . . to allow for potential subcontractors to file a protest challenging the government’s administration of a contract, that opens up and unbounded amount of protests.” She explained that, “if a subcontractor at any point in that process can go in and protest a decision to not give the contract to that subcontractor, that will stop the process and cause duplicative costs.” She argued that this approach will cause “more harm to the procurement system then had ever been envisioned.” Moreover, she said, “if Percipient believed that it had a product that met all of the [relevant] requirements, . . . it should have protested the solicitation.”
A judge followed up by asking about what standing Percipient would have had. Perry responded that Percipient “would have had standing to argue that the solicitation was unduly restrictive of competition” and it “could have gone to the [Government Accountability Office] or the Court of Federal Claims.” She argued that it would have met the definition of “interested party” in that circumstance because it “would argue” it was “trying to get a direct contract with the government.” Perry argued Percipient would have had standing under prong one of the statute because it would have been a prospective offerer if it had challenged the solicitation.
During his rebuttal, Hume argued the Federal Circuit “and the Court of Federal Claims have recognized repeatedly . . . the need for a flexible application of the [standing] test that depends on the nature of the violation being alleged.” Hume argued that Percipient does not have a prong one claim available, in reference to what Perry suggested, because “there is no law that required the government to split apart . . . and no law that required Percipient to argue that they should split apart” the contract. He argued “the statute had not yet been violated,” and “therefore [there was] no viable protest.”
In response to a question, Hume suggested that Congress “used capricious language” in the statute.
Hume addressed a judge’s concern about the text of the statute and legislative history being “muddy” and the burden the Percipient has to prove its argument. Hume argued “the texture of each case dictates whether the person has a direct interest.” And, he stated, “the incredible breadth of flexibility in which [the statute] has been applied shows that it needs to be broadened to make sure that it captures the full texture of cases and doesn’t unwittingly eliminate an entire body of cases.”
In the end, Hume asserted that Percipient has standing, not as a prospective bidder on the contract, but because it is “challenging the violation of the laws that apply after that award–to do market research into the availability of commercial items like ours.”
We will continue monitoring this case and report on developments.