On August 22, 2014, the U.S. Court of Federal Claims denied a challenge by incumbent Recovery Audit Contractor (RAC) CGI Federal, Inc. (CGI) to CMS’s plan to award new RAC contracts. Among other things, the Court found that CGI had not demonstrated that the new contracts unduly restricted competition or were arbitrary and capricious.

In the lawsuit, CGI argued that the new payment terms described in CMS’s RAC contract bid solicitation were inconsistent with customary commercial practices and unfairly restricted competition for the contract. Specifically, CGI contended that new payment terms where RACs would not receive contingency fees until after the second level of appeal would unreasonably delay payments to contractors beyond that which is customary in the commercial marketplace. CGI requested that the court enjoin CMS from awarding a contract under the existing solicitations and direct CMS to amend the payment terms so that they reflect customary commercial practice.

The Court found that CGI did not demonstrate the new payment terms unduly restricted competition. Although the Court agreed that the modified payment terms will “increase cost, reduce competition and appears to be a bit excessive,” the Court found that the new contracts do “not rise to the level of arbitrary and capricious conduct lacking a rational basis.” In addition, the Court reasoned that it “should not second guess” CMS’ financial judgment. Accordingly, the Court denied CGI’s request for injunctive relief.

As previously reported, CMS is hopeful that the new round of RAC contracts will be awarded this year.

The full decision is available here.