THOMAS C. WHEELER, Judge.
This post-award bid protest arises from a competitive acquisition by the Central Intelligence Agency ("the agency") for cloud computing services ("C2S"). At issue is the agency's decision to take corrective action by inviting a new round of final proposal revisions from Plaintiff Amazon Web Services, Inc. ("AWS," or "Amazon") and Defendant-Intervenor IBM U.S. Federal ("IBM"). Previously, in its original evaluation of proposals, the agency had found AWS's proposal to be far superior to IBM's proposal, even though AWS had proposed a higher price. In a "best value" award decision, the agency determined that the higher price it would pay to AWS was justified. The agency awarded the C2S contract to AWS on February 14, 2013.
After an agency debriefing, IBM filed a bid protest at the Government Accountability Office ("GAO") on February 26, 2013 challenging various aspects of the agency's procurement including the evaluation process. The agency initially stopped AWS's contract performance pursuant to the automatic stay provisions of the Competition in Contracting Act, 31 U.S.C. § 3553(d)(3) ("CICA"), but later issued an override of the stay on March 15, 2003 to allow AWS's performance to proceed. The GAO bid protest was sharply contested. After its initial protest, IBM filed three supplemental bid protests, and the parties submitted multiple legal briefs and comments during April and May 2013. The GAO conducted a lengthy evidentiary hearing on May 14, 2013 (505 transcript pages).
On June 6, 2013, the GAO sustained IBM's protest in part, and recommended that the agency take corrective action by reopening negotiations with offerors, amending the solicitation if necessary, and making a new award decision.
Defendant filed an extensive administrative record with the Court on August 7, 2013 (supplemented on September 9, 2013), consisting of 14 volumes and 13,048 pages. The administrative record contains the agency's initial and second market survey documents, the solicitation documents including amendments, proposals, and agency evaluation records, the post-award bid protest documents, the contract implementation documents, the corrective action documents, and miscellaneous correspondence. Thereafter, the Court received the parties' cross-motions for judgment on the administrative record, as well as response briefs and reply briefs. The Court heard oral argument on October 7, 2013. At the conclusion of the oral argument, due to the urgency and importance of the C2S contract, the Court issued a bench ruling in AWS's favor that would allow the agency to go forward with the contract originally awarded to AWS on February 14, 2013. The Court outlined the reasons for its bench ruling, but stated that it would issue this formal opinion as promptly as possible.
In assessing the reasonableness of the agency's corrective action, the Court's task is "to evaluate the rationality of the GAO's decision."
Moreover, as the Court will explain, the GAO failed to address the way in which IBM manipulated its pricing to create a bid protest issue. IBM appears to have intentionally manufactured a protest argument relating to the Scenario 5 pricing requirement, which it hoped to pursue if it lost the C2S competition with AWS. Knowing full well from its pre-proposal questions what the Scenario 5 requirements were, IBM drastically departed from the approach followed in its initial proposal when it came to submitting its final proposal revision. If it did not win the award, IBM could argue that the agency did not evaluate Scenario 5 prices on a common basis. IBM was the only offeror who appeared to "misunderstand" the Scenario 5 pricing requirements, as the other offerors all interpreted Scenario 5 in the same way. IBM strongly disagrees that it manipulated the procurement in this manner, but the Court does not see any other explanation for IBM's final pricing strategy. The GAO made no mention of IBM's manipulation of the procurement process, but instead sustained the protest allegedly for lack of a common basis to evaluate the offerors' Scenario 5 prices. Even if the proposals from AWS and IBM presented a closer "best value" award decision, the Court could not justify rewarding IBM with another chance of competing for the C2S contract under these circumstances.
The second ground for sustaining IBM's protest relates to an alleged relaxation of requirements for AWS in waiving a clause certifying the absence of any virus in the software provided by subcontractors. The agency considered this clause redundant, and the Court agrees. As in the case of the Scenario 5 pricing issue, the Court sees no sound reason to afford corrective action through a new round of proposals where IBM suffered no prejudice and lacks standing. The agency conducted a proper procurement, and should be permitted to go forward with the contract previously awarded to AWS eight months ago.
As a remedy, since the agency and AWS reportedly are now proceeding with the performance of the C2S contract, and have been complying with the Court's October 7, 2013 bench ruling, declaratory relief should suffice here. Although Defendant asked for the entry of an injunctive relief order, the Court does not see a need for entry of an injunction.
The agency issued a request for proposals ("RFP") on June 15, 2012 in contemplation of awarding a single indefinite delivery, indefinite quantity ("IDIQ") cloud computing contract. Administrative Record ("AR") 1332, 1392, 1398. The agency issued the RFP after an extensive market survey involving communications with industry, and the circulation of a draft solicitation. In general, the RFP called for an established cloud service provider to build a custom clone of its public cloud for the agency. AR 1337-38. Although a number of companies expressed an interest in competing for this contract, and some of them submitted proposals, the agency's evaluation ultimately came down to the proposals of two offerors, AWS and IBM. The agency found AWS to be the clear winner in this evaluation, and awarded a contract to AWS on February 14, 2013. AR 5090. The potential period of contract performance was ten years, with an initial five-year ordering period, a three-year option, and a two-year option. AR 1332, 1392, 1400.
The RFP provided that award would be made on a "best value" basis. AR 1458. Initially, the agency performed a pass/fail mandatory qualification evaluation to verify that an offeror was an established commercial cloud service provider with an existing, large-scale public offering. AR 1458-59. Following pass/fail evaluation, the agency applied four evaluation factors: (1) technical/management, including subfactors for technical approach (evaluated under a demonstration/oral presentation element and a written element), service level agreements, and management; (2) past performance; (3) security; and (4) price. AR 1459-63. Of these factors, price was "slightly less important than the other areas combined." AR 1462. However, "as the relative difference in non-price discriminators decreases," price would become "more of a discriminator."
The agency intended to evaluate price for completeness and reasonableness.
In the evaluation of the non-price evaluation factors, the agency deemed Amazon's proposal superior to IBM's proposal in every category except management, and except for "security" where each proposal received a "pass" rating. AR 5061. A summary of the agency's evaluation of the Amazon and IBM proposals is contained in the following chart:
In the price evaluation, Amazon had a higher price, but the agency determined that Amazon's technical proposal was sufficiently superior to IBM's proposal to warrant a significant price premium. AR 5068. In the Source Selection Authority's trade-off analysis, the SSA reached the conclusion that Amazon offered the best value to the Government, noting Amazon's "superior overall approach, which will lower barriers to entry for [cloud computing] users and increase the likelihood of adoption."
Much of the controversy in this protest centers on the pricing of Scenario 5, one of the six hypothetical scenarios described in the price template. The RFP's Scenario 5 requirement stated in part:
AR 1943.
Prior to initial proposal submission, IBM had internal discussions regarding the meaning of the Scenario 5 requirements. AR 10513, GAO Hearing, Rhoades Test. ("[T]here were many [IBM] opinions of what scenario 5 meant."). One IBM representative interpreted the 100% duty cycle instruction as requiring the data analytics tools to process continuously for a full year. AR 6300, IBM 6/26/12 email ("I don't believe these can possibly be orders to run jobs . . . esp. with the requirement for 100% duty cycle."). Another IBM representative disagreed, calling Scenario 5 "ambiguous."
IBM also requested Scenario 5 specifications, including the data size and "anticipated average number of instantiations/runs of each scenario type (daily, monthly, etc.?)." AR 1716 (Question 50). The agency declined this request, reiterating its 100% duty cycle instruction, identifying the orders as simultaneous, and soliciting "commercial best practices."
On October 24, 2012, the SSA established a competitive range of AWS, IBM, and one other offeror. AR 2991. Thereafter, the agency conducted written and oral discussions with these three offerors. AR Tabs 36-38, 41-43. During discussions with IBM, the agency identified each instance in which IBM failed to follow the pricing scenario directions. However, the evaluators did not identify any issue regarding IBM's approach to Scenario 5, because IBM had offered a solution operating at a 100% duty cycle for 12 months, and IBM's proposed price was consistent with the prices of the other offerors. AR 10388, Holloway Test.; AR 3120 (noting issues with IBM scenario pricing assumptions, but not Scenario 5). The agency thus effectively conveyed to IBM that it had correctly followed the Scenario 5 instructions.
On November 20, 2012, the agency issued RFP Amendment 4, calling for the submittal of final proposal revisions ("FPRs"). AR 1899. The agency permitted offerors to submit further questions prior to the FPR deadline, and while IBM did submit six questions, it did not raise any questions regarding Scenario 5. AR 1948-49. The agency then received FPRs on December 20, 2012 from the offerors within the competitive range.
In the pricing portion of the FPRs, AWS and the third offeror consistently interpreted Scenario 5's 100% duty cycle instruction as requiring continuous data analytic operations for the full year. AR 3817, 4532. IBM continued to price Scenarios 1 through 4, which also specified a 100% duty cycle, based on the continuous operation of the called-for servers for the year. AR 4443, 4445-47. However, IBM adopted a dramatically different interpretation for Scenario 5. In its FPR, IBM interpreted Scenario 5 as soliciting data analytics tools to perform a single 100 TB processing run, thereby slashing its Scenario 5 price from approximately $[. . .] to $[. . .]. AR 4449. There is no explanation in the record for this drastic IBM pricing change.
The agency's Price Evaluation Team ("PET") evaluated the offerors' FPRs for reasonableness, completeness, and risk in accordance with the RFP. AR 4594-4614. With regard to IBM's Scenario 5 solution, the evaluators noted:
AR 5014. The agency's calculation using IBM's catalog pricing and Scenario 5 technical solution yielded a price of approximately $[. . .], nearly the same as IBM's Scenario 5 price in its initial proposal.
AWS's total evaluated price was $148,061,628 and IBM's total evaluated price was $93,917,785. AR 5067. However, there were two pricing nuances that the agency thought were significant. First, IBM proposed a guaranteed minimum of $39 million, as compared to AWS's guaranteed minimum of $25 million. AR 5061. IBM's guaranteed minimum was nearly double the anticipated Year 1 amount for IBM's services, meaning that the agency likely would need to make a large year-end payment to IBM. AR 5069. Second, the agency noted that IBM's proposed contract terms would allow IBM to request restructuring of the entire agreement after Year 2 if the service price in that year did not exceed the guaranteed minimum. AR 4827-28, 5069. These terms allowed IBM to propose a low price for the agency's proposal evaluation purposes, but then to argue for negotiation of a higher price in the later years of performance.
The agency's SSA performed a best value trade-off analysis and selected AWS for award of the contract. The agency and AWS executed the contract document on February 14, 2013.
In bid protest cases, courts review agency actions under the "arbitrary and capricious" standard.
Where the issue is "an agency's decision to follow a GAO recommendation, . . . [the] agency's decision lacks a rational basis if it implements a GAO recommendation that is itself irrational."
"[B]ecause the question of prejudice goes directly to the question of standing, the prejudice issue must be reached before addressing the merits."
In deciding whether a protestor would have had a substantial chance of securing the contract, it is necessary to show proper deference to the views of the procuring agency, for "[i]t is well settled that COs are given broad discretion in their evaluation of bids. When an officer's decision is reasonable, neither a court nor the GAO may substitute its judgment for that of the agency."
Here, based on the Source Selection Evaluation Team's ratings, the Source Selection Authority determined that AWS "clearly" offered the best value:
AR 5068-69. In sum, AWS's offer was superior in virtually every way but price, and IBM's advantage in that area was likely not as great as IBM attempted to make it appear.
Nevertheless, the GAO sustained IBM's protest on two grounds: (1) the agency's Scenario 5 price evaluation lacked a common basis and was therefore unreasonable; and
(2) the agency materially relaxed a solicitation requirement for AWS, but not for the other offerors.
Regarding the Scenario 5 price evaluation, the GAO found that, unlike IBM's solution, "there was no way" to ascertain the speed of AWS's solution, and therefore "there [was] no basis for concluding that Amazon was evaluated for scenario 5 using the same or otherwise comparable level of performance as included in IBM's adjusted price." AR 10709-10. However, at the GAO hearing, the agency's C2S experts testified that speed was purposely not specified as a performance metric in Scenario 5 because performance depended on a wide variety of factors. M. Jason Holloway, the chair of the agency's Technical/Management Evaluation Team and advisor to its Price Evaluation Team, explained that "Scenario 5 is a platform service that is very specific to each offeror's individual capabilities," and many variables could influence the approach any one offeror might take. AR 10430-31, Holloway Test. Because the agency was "interested in taking advantage of the expertise that [the offerors] could provide," it intentionally left performance characteristics, such as speed, unspecified. AR 10372-74. Instead, the agency stated only the function to be performed and allowed each offeror the flexibility to propose and price its best commercial practice. Mr. Holloway explained:
AR 10437, Holloway Test. Thus, once the agency validated each of the proposed Scenario 5 solutions for reasonableness—"[a]nd each of the offerors met that requirement," AR 10436, Holloway Test.—it compared those solutions based on the same duty cycle (100%) and duration (one year). Given the agency's emphasis on commercial best practices and recognition of a variety of performance metrics, it is impossible to see how the agency's decision not to reduce the Scenario 5 comparison to a simple price-to-speed calculation prejudiced IBM.
Regarding the material relaxation of a solicitation requirement, the GAO accepted IBM's assertion that the result of this relaxation was "sufficient to establish prejudice." AR 10712 n.4,
The bottom line is that IBM did not lose the competition because of the Scenario 5 price evaluation or AWS's post-solicitation negotiations, but because of the overall inferiority of its proposal. This proposal contained numerous weaknesses, including some "significant" weaknesses, a technical deficiency, and an overall high risk rating. AR 4638-69; AR 5065-67 (describing "multiple weaknesses," a technical "deficiency," and "multiple concerns" creating a high price risk). For example, the Technical/Management Evaluation Team determined that IBM "[did] not demonstrate the capability to auto-scale all required services" and therefore "fail[ed] to meet the [auto-scaling] requirement." AR 4644-45. This inability was "in direct conflict with the [agency's] C2S goal `to deliver scalable, balanced, and fault tolerant solutions,'" and thus was deemed "unacceptable." AR 4645. Although IBM protested that rating, the GAO denied this part of IBM's protest, stating, "We see no basis to question the reasonableness of the agency's concerns (expressed as a deficiency and a significant weakness under the technical approach subfactor) . . . ." AR 10715. The GAO also affirmed the agency's consideration of IBM's guaranteed minimum price, which contributed to the overall high risk rating.
"[S]tanding is a threshold jurisdictional issue," and "prejudice (or injury) is a necessary element of standing."
Timeliness, like prejudice, is a threshold issue that must be addressed prior to reaching the merits of a bid protest.
"As an initial matter, [the GAO found] untimely IBM's challenge to the agency's interpretation that scenario 5 called for repeated 100 TB data runs throughout the year, rather than a single run under each order." AR 10707. The GAO explained:
AR 10708 (citations omitted). This portion of the GAO's analysis was correct, and the analysis should have ended there. As the Federal Circuit has explained:
Prior to the submission of its initial proposal, IBM had an internal disagreement regarding the meaning of Scenario 5.
After reducing the competitive range to AWS, IBM, and a third offeror, the agency conducted written and oral discussions. AR Tabs 36-38, 41-43. During these discussions, the agency identified questions and concerns about the offerors' initial proposals. AR 10381-82. The agency did not identify any concerns with IBM's initial approach to Scenario 5, which the agency found "consistent" with the other proposals, AR 10388, Holloway Test., thereby effectively conveying to IBM that it had correctly followed the Scenario 5 instructions.
Then, in its FPR, IBM suddenly deviated from its initial Scenario 5 proposal. IBM changed its solution from one that processed 100 TB of data continuously throughout the year to one that performed a single 100 TB processing run in a 36-hour period, thereby reducing its price from approximately $[. . .] to $[. . .]. AR 4449. Because IBM was the only offeror that deviated from its initial proposal in such a manner, the agency extended IBM's FPR Scenario 5 solution from a single run to a full year.
Given the absence of a rational alternative explanation, it is obvious that when IBM deviated from its initial approach, it did so as a way to manipulate the situation in its favor. If the agency accepted IBM's "gross[ly] under-priced dollar figure for Scenario 5," AR 5014, then IBM would gain almost a $[. . .] advantage over its properly priced solution. If, however, the agency normalized IBM's price (and IBM lost the competition), then it could protest such normalization by arguing the lack of a common basis, whether it be speed or some other intentionally unspecified performance metric. When the agency made the latter choice, IBM filed its protest and feigned ignorance of the reasons for the agency's actions, pretending not to understand why "the agency determined that the solution should be available throughout the year." AR 5961-62. In reality, IBM was well aware that the agency had made this determination long before its final price evaluation. Such gamesmanship undermines the integrity of the procurement process and should not be rewarded with circumvention of the timeliness requirement.
IBM's post-selection challenge to AWS's revision of RFP Commercial Clause § 152.204-706(a) was also untimely. This clause provided for each offeror to "certif[y] that it will undertake to ensure that any software to be provided . . . under [the] contract will be provided . . . free from computer virus." AR 1409. During post-selection negotiations, AWS proposed, and the agency accepted, a revision stating that "[u]nder AWS Terms and Conditions, only software developed and provided by AWS would be subject to this requirement." AR 5074. IBM protested, arguing that "[a]voiding the requirement to certify third party software and returned government software reduces the burden of compliance, and the risk of non-compliance," AR 9606, and the GAO agreed, AR 10713.
The challenged actions, however, were clearly contemplated by the RFP, which provided:
AR 1787;
These rules were made explicitly clear to IBM, but IBM did not challenge them prior to the award. On the contrary, IBM itself took advantage of the opportunity to propose revised terms and conditions, even proposing terms limiting its own responsibility for third-party software,
Although contracting officers are given "broad discretion to take corrective action where the agency determines that such action is necessary to ensure fair and impartial competition,"
In this case, the GAO "recommend[ed] that the agency reopen the competition and amend the RFP as necessary" based on its identification of two discrete defects, AR 10717, and the agency followed that recommendation, AR 12679. Neither defect, however, warranted reopening the entire competitive process. With respect to the first defect, the GAO identified a price evaluation error affecting only Scenario 5: "the agency's uncertainty regarding just what performance (e.g., number of 100 TB data runs) was included in each evaluated price." AR 10710. Given the narrowness of this finding, reopening the competition to include unaffected scenarios and proposal areas would be overbroad.
Second, the GAO found that "waiving a material term of the solicitation for one of [the offerors], after the selection decision was made, was improper." AR 10712 n.4. As above, targeted correction of this defect would not require reopening the entire competition, but only addressing the affected aspects of the offerors' proposals. Nonetheless, the agency did not stop with merely reopening the competition. On the contrary, in soliciting new offers from AWS and IBM, the agency "elected to use this as an opportunity to amend other aspects of the solicitation," AR 12686, despite the fact that no "other aspects" were at issue. Such corrective action is inherently overbroad.
When flaws occur during the evaluation of properly submitted proposals, "a reevaluation of the proposals may be warranted, but a resolicitation of the proposals compromises the integrity of the procurement system, especially where the winning price has been disclosed."
The Tucker Act grants the Court broad discretion to "award any relief that the court considers proper, including declaratory and injunctive relief." 28 U.S.C. § 1491(b)(2);
Because the Court issued a bench ruling on October 7, 2013, allowing the agency and AWS to continue performance of the C2S contract, it is unnecessary to grant injunctive relief in this instance. Specifically, regarding the second factor, it is clear that an absence of injunctive relief will not cause AWS to suffer irreparable harm. AWS has received the contract award and is now performing under that contract. Consequently, the Court finds that declaratory relief is sufficient and proper.
There is no such thing as a perfect procurement. Thus, a bid protestor must show prejudice, not mere error, for "[n]ot every error compels the rejection of an award."
Indeed, if there has been any prejudice in this process, it has been to AWS, for improper corrective action in the form of reopening competition is not harmless. The unfairness inherent in such an action is that the winner must resubmit a new proposal with the information from its original offer already disclosed. In effect, AWS would have to bid against its own winning proposal. This Court will not allow such an unjust result.
For the reasons set forth above, Plaintiff's motion for judgment on the administrative record is GRANTED. Defendant's motion for judgment on the administrative record is DENIED, and Defendant-Intervenor's motion for judgment on the administrative record is DENIED.
IT IS SO ORDERED.