Federal Agencies Cannot Immunize Themselves with Short Termination Windows in Contracts

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In Springfield Parcel C, LLC v. United States, 124 Fed. Cl. 163 (Ct. Fed. Cl. 2015), the U.S. Court of Federal Claims considered the post-award protest of a contract by an unsuccessful offeror. The unsuccessful offeror was protesting the award of a real estate contract to lease new headquarters for the Transportation Security Administration (TSA) offered by the U.S. General Services Administration (GSA). The protestor, Springfield Parcel C, LLC, sought an injunction of the award to Eisenhower Real Estate Holdings, LLC, on the basis that the GSA’s award was unlawful. Springfield, Eisenhower, and two other entities responded to the request for lease proposals (RLP). After a year of negotiations, as well as an acknowledgement in an internal memorandum that Eisenhower’s proposal did not meet the requirements of the RLP, GSA awarded the lease to Eisenhower. Though the offerors had not known it at the time, the GSA memo had cautioned procurement officials against disqualifying Eisenhower on the basis of nonconformity to the rentable square feet limitation in the RLP. The memo writers warned that such a disqualification would lead to a pre-award bid protest by Eisenhower, which was projected to cause delays to GSA’s procurement. So, instead, GSA proceeded with evaluation on other factors and made an award to Eisenhower that was in excess of the clear limitations of the solicitation. The parties signed the lease on that day.

Two days after the award date, GSA informed Springfield that it had lost the competition, then sent Springfield a debriefing letter stating that, while Springfield had “submitted a responsive, technically acceptable offer” with no “significant weaknesses,” Springfield received only the second-lowest total evaluated price. Within days, Springfield filed an administrative protest with the U.S. Government Accountability Office (GAO). Coincidentally, Springfield soon received an anonymous letter stating that Eisenhower’s proposal did not meet the requirements of the RLP, which prompted Springfield to specifically raise the issue through a supplemental filing for its post-award protest. Concurrently, Springfield pursued a temporary restraining order (TRO) from the U.S. Court of Federal Claims to prevent the lease from going into effect. Springfield’s plea for a TRO was based on new knowledge that the awarded lease had a time-limited “termination-for-convenience” clause of 45 days after lease execution, which meant the government had only a short window to cancel the contract in the event Springfield’s protest were successful. The court held an emergency hearing with the parties on the same day and granted the TRO on the same day. The TRO held open the termination-for-convenience clause until a date on which the court could resolve the substantive issues Springfield raised in its protest. It appears the matter was then dropped from GAO review.

When the court was able to consider the merits of Springfield’s protest, the court applied the standard articulated in Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324 (Fed. Cir. 2001), which allows the court to set aside a procurement action when “(1) the procurement official’s decision lacked a rational basis; or (2) the procurement procedure involved a violation of regulation or procedure.” The court found that Springfield’s case fell squarely under scenario (2) because Springfield demonstrated a “clear and prejudicial” violation of both the Federal Acquisition Regulation (FAR) and the material provisions of the RLP. As a result, the court set aside the award to Eisenhower, enjoined GSA from proceeding with the lease, and declared the signed lease void. The court noted other issues raised in Springfield’s protest, but found that they would not have been material to the outcome. Springfield was awarded its lawsuit costs.

Here’s the bottom line, as the court so eloquently put it when it had to justify its injunction against the government’s award: “[E]vidence in the record shows that GSA knew it could face a post-award bid protest in this procurement, but dismissed the risk of that possibility. … Despite foreseeing a protest, GSA chose to execute the lease…. GSA now argues that its decision cannot be undone. If the court were to accept this argument, it would mean that GSA could immunize itself from post-award injunctive relief by signing flawed contracts and then claiming in court that the awards cannot be vacated. It would be inequitable to permit the government ‘to preserve its ill-gotten gain’ in such a manner.”