On May 4, 2009, in Axiom Resource Mgmt., Inc. v. United States, the Federal Circuit issued a decision that provides clear guidance regarding the ability of parties to supplement the agency record in protests before the Court of Federal Claims (COFC) and solidifies the applicable standard of review in bid protests.

Axiom had repeatedly protested at GAO the Army's award of a TRICARE health care contract to Lockheed Martin, contending that Lockheed had an organizational conflict of interest (OCI) that was not adequately mitigated. After GAO eventually upheld the award, Axiom filed the same protest at the COFC. There, the court permitted wide supplementation of the record, including declarations of Axiom employees and from consultants Axiom retained in the course of the litigation, reasoning that the court would not know what evidence was relevant until all of the record evidence was before it. On the merits, the COFC ultimately enjoined the contract award to Lockheed when the Government refused to accept the court's remedy of requiring an independent auditor to monitor the enforcement of Lockheed's OCI mitigation plan.

Both the Government and Lockheed appealed to the Federal Circuit, challenging the COFC's decision to permit supplementation of the record and the standard of review the COFC applied. With respect to supplementation of the agency record, the Federal Circuit reversed the COFC and held that, consistent with the standard of review prescribed by the Administrative Procedure Act (APA) that is applicable to bid protests, the parties' ability to supplement the administrative record is limited, and that the proper role of the court is to review the agency decision "based on the record the agency presents to the reviewing court." The court further explained that "[t]he purpose of limiting review to the record before the agency is to guard against courts using new evidence to 'convert the "arbitrary and capricious" standard into effectively de novo review.'"

Moreover, the court rejected the COFC's reliance on the D.C. Circuit's decision in Esch v. Yeutter, 876 F.2d 976 (D.C. Cir. 1989,) and its eight "exceptions" to the rule against supplementation of the administrative record in APA review cases, which the COFC has routinely cited in determining whether to allow supplementation of the record. The court identified two problems with Esch. First, the Esch exceptions originated in a law review article intended to provide a guide to attorneys challenging agency determinations and seeking to introduce extra-record evidence, and the reference in Esch to the exceptions was not necessary to decide the case. Second, even the D.C. Circuit had questioned the validity of Esch in light of recent precedent that adopts a more restrictive approach to supplementation of the agency record. "For these reasons," the court declared, "insofar as Esch departs from fundamental principles of administrative law as articulated by the Supreme Court . . . , it is not the law of this circuit." Consistent with these administrative law principles, the court held that supplementation of the record should be permitted only "if the existing record is insufficient to permit meaningful review consistent with the APA."

Next, the court addressed the applicable standard of review. The COFC had held that it was not confined to evaluating the award decision of the contracting officer (CO) under the "arbitrary and capricious" standard, reasoning that where there was a concern that the CO had violated the FAR, its task was to determine whether the violation had occurred and, if so, evaluate whether the mitigation plan was an actual remedy. The Federal Circuit, however, held that this standard was inconsistent with the considerable discretion given to COs to identify OCIs and evaluate mitigation plans:

Under the trial court's rationale, courts might never review a CO's OCI determination under the 'arbitrary and capricious' standard because every instance in which the court disagreed with the CO's decision could be fashioned as a violation of FAR § 9.504 that triggers de novo review. This result would be inconsistent with the discretion given the CO by FAR § 9.505 and the principles underlying the APA.

Declining to rely on the declarations of Axiom's experts that Lockheed's OCI could not be mitigated, the court next concluded that the CO's award decision was not arbitrary and capricious. The court noted that the CO had analyzed Lockheed's mitigation plan and determined that its processes and procedures were sufficient to mitigate alleged conflicts, and, therefore, the CO had acted reasonably. Moreover, the court held that the COFC erred in requiring an independent auditor as a condition of permitting the Army to proceed with the contract award:

While we doubt that it would ever be appropriate for the court to interfere with the performance of a contract based solely on its belief or suspicion that the CO cannot be trusted, court interference is certainly inappropriate in this case because the CO did not act arbitrarily or capriciously in evaluating the mitigation efforts.

Axiom Resource Mgmt. provides clear guidance to the COFC that the precedent it has often used to allow supplementation of the administrative record is no longer valid and that supplementation may occur only in those limited circumstances where judicial review would otherwise be frustrated. The decision also re-emphasizes the "arbitrary and capricious" standard of review that applies in protests.