On July 27, 2016, the U.S. Court of Federal Claims held that the U.S. Department of Health and Human Services (HHS) was unreasonable in cancelling its solicitation for on-site operational support for the HHS Unified Financial Managements System (UFMS). The decision, Starry Associates, Inc. v. United States, is unusual, given that the Government Accountability Office (GAO) and the Court of Federal Claims are typically reluctant to oppose an agency’s decision to cancel a solicitation. The decision serves as a useful reminder that such discretion is not unfettered and will be overturned where it is arbitrary and capricious.

The case involved a Request for Quotations (RFQ) issued by HHS’s Program for Support Center (PSC) on November 13, 2014. In December 2014, the contract was awarded to Intellizant after HHS found Intellizant to be the lowest priced, technically acceptable offeror. Following the award to Intellizant, Starry Associates, the incumbent contractor, filed its first GAO protest, arguing that Intellizant was unqualified and did not have the key personnel necessary to support to the program. Starry also claimed that the award was tainted by the fact that HHS’s Accounting Services Division Manager, John Davis, was previously employed by Intellizant.

In January 2015, HHS assured Starry and GAO that the agency would take corrective action and reevaluate Intellizant’s technical qualifications. The second review took over four months and again resulted in award to Intellizant. Starry then filed a second GAO protest in May 2015, maintaining that Intellizant’s personnel could not meet the requirements of the solicitation. GAO agreed, finding in an August 2015 decision that HHS failed to properly evaluate whether Intellizant could provide key personnel to carry out the support requested in the RFQ. GAO rejected claims that the award was biased but ordered a new evaluation of the contractor, recommending that Intellizant’s award be revoked if its proposal was technically unacceptable and that the next lowest price bidder be evaluated.

Instead of revaluating Intellizant’s proposal in accordance with GAO’s decision, HHS cancelled the solicitation based on advice from HHS counsel that the agency could cancel the solicitation rather than following GAO’s recommendation. In September 2015, Starry filed a third GAO protest challenging the cancellation. In response to the third protest, HHS took the position that it no longer needed support for two of the three systems included in the original solicitation – the two systems Intellizant apparently did not have the ability to support. On that basis, GAO found the cancellation decision to be reasonable and denied the protest, citing a host of protest decisions discussing the broad discretion agencies are given to cancel solicitations.

Starry then filed a protest at the Court of Federal Claims arguing that the procurement was prejudicially tainted by Davis and that the agency’s decision to cancel the solicitation was irrational. The Court declined to address the issue of bias, because it ultimately agreed with Starry regarding HHS’s decision to cancel. In reviewing an agency’s decision to cancel a solicitation, or any action taken in connection with a procurement, the Court will determine whether the agency’s decision “lacked a rational basis” or “involved a violation of regulation or procedure.” If the agency makes a reasonable examination of the relevant data, and articulates a satisfactory conclusion, the Court will defer to the agency’s discretion. However, the Court will overturn an agency’s procurement decision where it fails to conduct a reasonable examination, or does so but does not document its review.

Based on the evidence presented in this case, which included depositions of HHS staff, the Court found no proof that HHS made any reasonable effort to properly evaluate Intellizant’s technical qualifications. Instead, the Court found that HHS made multiple misrepresentations to GAO and Starry regarding its efforts to revise its analysis of Intellizant’s capabilities, as well as Davis’s recusal from the procurement. As a result, the Court held that HHS’s decision to cancel the solicitation was unreasonable and warranted injunctive relief.

The decision concluded that the efforts of HHS to preserve procurement integrity were “depressing” and irreparably harmful to the plaintiff. Further, the judge found no evidence in the record indicating any meaningful rationale for the decision to cancel the solicitation and revise it to remove two of the three support requirements. Instead, the Court held that the decision to cancel the solicitation was “arbitrary and capricious” and ordered that the cancellation be set aside, that Davis and the technical evaluation panel be removed from the procurement process for this RFQ, and that the agency proceed with the procurement as it was after the second GAO protest.