New legal questions arise over ‘interested party’ status in bid protests

Terry Gerton: You’ve got a really interesting case for us this week that comes from the U.S. Court of Appeals for the Federal Circuit. Tell us about Percipient.

Dan Ramish: So, Terry, part of the proceeding that’s happening right now is an en banc rehearing in a bid protest case. This is a very unusual procedure. It means that the entire Court of Appeals for the Federal Circuit — 11 active judges — are reconsidering a case because there’s an important issue in the case. And the important issue that they chose to review was who can be an interested party to challenge an alleged violation of statute or regulation in connection with a procurement or proposed procurement. What that really means is they’re trying to decide whether a commercial subcontractor can bring a protest at the Court of Federal Claims even if they couldn’t have protested as a prime contractor.

Terry Gerton: So this is a really interesting twist because Percipient wasn’t the prime and they weren’t even a sub. So what entitled them to bring this case?

Dan Ramish: I guess a little bit more background on the original procurement and protest would be helpful. Percipient’s a commercial software company that provides computer vision software, and the National Geospatial-Intelligence Agency, or NGA, issued an IDIQ contract that had two parts to it: a repository for storing, managing and disseminating visual intelligence data, and then computer vision functions. But Percipient could only provide the computer vision function, so they were never able to bid the entire requirement. But they wanted to participate as a subcontractor. And so they pitched and demoed both to NGA and then also to CACI, which was the company that won the IDIQ contract, in order to try to promote the use of their commercial computer vision software.

And they felt that they didn’t get a fair shake — that their software wasn’t properly assessed, and that CACI really chose its own software because it was self-interested, of course. And they said, well, there’s a statutory commercial preference for commercial products and services, including software. And the agency didn’t follow its obligations, which include having prime contractors ensure that they also award to commercial product and services companies as much as possible. So that’s what led to this issue. And the question was, Percipient needed to be able to justify that they were eligible to bring the protest at the Court of Federal Claims.

Terry Gerton: So they failed the first round, but then they got to the Court of Federal Claims, and that court made an interesting ruling about who is an interested party in cases like this.

Dan Ramish: Yes. Well, so the original protest was at the Court of Federal Claims. That ruling had a number of issues that were then appealed to the Federal Circuit. And the Federal Circuit, when they first review a protest, have a three-judge panel. And so a three-judge panel a year ago — last June, 2024 — reviewed this case. And they said that the general interested party standard, which requires that the companies be an actual or prospective bidder or offeror, wasn’t appropriate for the kind of protest that Percipient was bringing. And that comes to, ultimately, the structure of the Court of Federal Claims’ jurisdiction, which has three different categories: Protesters can challenge a solicitation or an award or, as a third prong or category, an alleged violation of statute or regulation in connection with a procurement or proposed procurement.

And the Federal Circuit panel said Percipient here is bringing this third category, and that necessarily has to have a broader interested party standard than the first two categories. And so they found that Percipient was an interested party for purposes of having standing at the Court of Federal Claims, and it created a new kind of broader test that allowed for commercial services offerors to bring a protest where they weren’t challenging the solicitation or award but were only alleging a separate statutory or regulatory violation. So that kind of teed up where we are today.

Terry Gerton: I’m speaking with Dan Ramish. He’s a partner at Haynes Boone. So where are we today? What are the current lessons? And you attended the latest hearing — I want some updates there as well.

Dan Ramish: Yes. So back in November, the Federal Circuit Court of Appeals issued an order that said they were going to rehear the case en banc — meaning that all the active judges, 11 judges, were going to reconsider the case. And there hasn’t been an en banc decision that involved government contracts since actually 2012. So it’s very rare, as you say. And so the full court of 11 judges last week heard oral argument. That’s basically the parties did their briefing to address the issue of who should be an interested party. And then Percipient’s attorney, the government’s attorney and then a CACI attorney had the opportunity to present oral argument. And a lot of it really amounts to the 11 judges asking questions and interrupting a lot to kind of tease out the issues with the parties. So Percipient, in its argument, pointed out that the interested party standard should depend on what the alleged legal violation actually is. And they said that their proposed standard is designed so that a subcontractor, in order to be an interested party, has to be the party that’s directly affected and doesn’t just have a derivative interest of the prime contractor’s interest. They also said that if they didn’t have a separate standard for this third-prong protest alleging a violation of law or regulation relating to procurement, then that prong of the jurisdictional grant for the Court of Federal Claims wouldn’t have any meaning.

So the judges then talked to protesters’ counsel and raised some different concerns. Some of them were wondering, well, maybe it goes the other way — that if we grant Percipient’s test, which says that any legal violation that directly injures a plaintiff or protester by preventing them from meeting part of the government’s requirement allows them to have standing — that maybe that would basically swallow up the other two prongs. Then any subcontractor could use that prong rather than the first two prongs. So they were asking questions about: Does it matter if we’re only talking about third-prong challenges that allege violation of law or regulation without challenging the solicitation or contract? Does the protester get to decide that? Or is it based on what they could challenge if they chose to? So they were teasing out some of those issues, trying to think about how this would work in practice. And there were also concerns about an old Federal Circuit case called AFGE, which, 24 years old, had applied the Competition in Contracting Act interested party standard to the Court of Federal Claims’ jurisdiction. And they said, well, they weren’t convinced that was appropriate — to use the Competition in Contracting Act standard for these third-pronged protests, which couldn’t be brought under the Competition in Contracting Act at GAO. But they were worried about stare decisis — that they have to respect their own precedent, even though the en banc court has the ability to overturn the precedent.

Terry Gerton: So what is the timeline for the en banc decision, and what does it mean for contractors in the meantime?

Dan Ramish: So there isn’t a sort of an established timeline. There’ll be a period of months as the Federal Circuit works through this and comes back with the en banc decision. In the meantime, the previous panel decision was vacated. So we’re back technically to the state of affairs before the original Federal Circuit decision, and Percipient in the meantime stands pat.

And even if they win this, they’ll have to go back to the panel to address some other issues and then prove that they actually weren’t given a fair shake as a commercial software provider. But this is a really important case because it has such an impact on who can bring a protest at the Court of Federal Claims.

Terry Gerton: Well, it seems like as the Trump administration fleshes out its procurement policies across all of the agencies, it really does want to buy more commercial off-the-shelf software and hardware. So the Federal Circuit decision seems to be in line with the current administration’s policy. We’ll have to see how this all plays out.

In the meantime, what should contractors consider if they’re offering a commercial off-the-shelf product?

Dan Ramish: Well, this decision, though it’s pending, allows commercial product and services companies to hold out hope that they may have a new enforcement mechanism for ensuring that their products, services and software get fair consideration by the government and by prime contractors. And you’re exactly right that it’s really in line with the government’s current policies around commercial products and services.