Agile Defense, Inc. v. United States ( 2020 )

Case: 19-1954 Document: 48 Page: 1 Filed: 06/02/2020
United States Court of Appeals
for the Federal Circuit
______________________
AGILE DEFENSE, INC.,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
FEDITC, LLC,
Defendant
______________________
2019-1954
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-01615-LAS, Senior Judge Loren A. Smith.
______________________
Decided: June 2, 2020
______________________
STEPHANIE WILSON, Berenzweig Leonard LLP,
McLean, VA, for plaintiff-appellant. Also represented by
TERRENCE O'CONNOR.
BARBARA E. THOMAS, Commercial Litigation Branch,
Civil Division, United States Department of Justice, Wash-
ington, DC, for defendant-appellee. Also represented by
JOSEPH H. HUNT, MARIANA TERESA ACEVEDO, WILLIAM
JAMES GRIMALDI, ROBERT EDWARD KIRSCHMAN, JR.,
DOUGLAS K. MICKLE.
Case: 19-1954 Document: 48 Page: 2 Filed: 06/02/2020
2 AGILE DEFENSE, INC. v. UNITED STATES
______________________
Before REYNA, MAYER, and TARANTO, Circuit Judges.
MAYER, Circuit Judge.
Agile Defense, Inc. (“Agile”) appeals the judgment of
the United States Court of Federal Claims granting the
government’s motion for judgment on the administrative
record and concluding that the United States Defense In-
formation Systems Agency (“DISA”) did not contravene the
terms of the solicitation when it reviewed the supporting
documentation for certain proposed cost-reimbursement
(“CR”) labor rates. See Agile Def., Inc. v. United States, 143
Fed. Cl. 10 (2019) (“Federal Claims Decision”). We affirm.
I. BACKGROUND
A. The Encore III Solicitation
On March 2, 2016, DISA issued a solicitation for En-
core III, a procurement designed to “provid[e] information
technology . . . solutions for the development, installation,
fielding, training, operation and life-cycle management of
components and systems in the operational environments
of Combatant Commands and their subordinate compo-
nents, the military services, Defense agencies, Office of the
Secretary of Defense . . . and other Federal agencies.”
A. 1145; see also A. 1132–43. The solicitation stated that
DISA would award a series of indefinite delivery/indefinite
quantity contracts, A. 1145, and that task orders issued un-
der the contracts would provide for payment on either a CR
or a fixed-price (“FP”) basis. A. 1142, 1145–47.
The solicitation identified 116 labor categories
(“LCATs”) that a contractor would likely be required to
staff in order to perform the various types of work required
by task orders issued under an Encore III contract.
A. 1263–65, 1282–313. DISA provided a description of the
duties associated with each of the 116 LCATs; it also set
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AGILE DEFENSE, INC. v. UNITED STATES 3
forth the minimum education and experience requirements
for each category. A. 1282–313.
The Encore III solicitation further provided that DISA
would make awards to the offerors of the lowest-priced,
technically-acceptable proposals after considering three
evaluation factors: (1) technical/management approach; (2)
past performance; and (3) cost/price. A. 1270–80. Each
prospective offeror was instructed to provide a “cost/price
volume” in its proposal. A. 1256. In this volume, the offe-
ror was required to include a “pricing template,” which
listed the estimated hourly costs for which the offeror ex-
pected to claim reimbursement under a CR task order for
the labor associated with each of the 116 LCATs. A. 1263.
Each offeror was also required to submit “supporting cost
information” for all proposed CR labor rates. A. 1263; see
also A. 1264 (“The offeror must provide the pricing meth-
odology and supporting cost information utilized in the de-
velopment of all CR rates.”).
The solicitation provided for the award of Encore III
contracts to two distinct sets or “suites” of twenty offerors.
A. 1252. One suite was open to offerors of any size, whereas
the other suite was limited to offerors who qualified as
small-business concerns. A. 1252.
B. The Cost Realism Analysis
The solicitation stated that DISA would “perform a cost
realism analysis on the proposed CR labor rates in accord-
ance with [Federal Acquisition Regulation (“FAR”)] 15.404-
1(d) to determine the Most Probable Cost for each Offeror.”
A. 1280. It further provided that:
The cost/price team will develop an average for
each CR labor rate utilizing the proposed CR rates
on the ‘CR Labor Rate Table’ tab from ALL com-
plete proposals within each suite (Full and Open
and Small Business). The team will then calculate
the standard deviation of the average for each CR
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4 AGILE DEFENSE, INC. v. UNITED STATES
labor rate. The Defense Procurement Acquisition
Policy Contract Pricing Reference Guidelines (Vol-
ume 2) detail the use of statistical analysis, includ-
ing standard deviation, to organize, summarize,
analyze, and interpret data for contract pricing.
Standard deviation quantifies the amount of varia-
tion amongst a set of data. In a normal distribu-
tion, 1 standard deviation will include the data that
is 34.1% below or above the average. Therefore,
with normal distribution, 68.2% of the data will be
within 1 standard deviation of the average. The
Government considers a rate that is 1 standard de-
viation below the average to be a realistic rate, sub-
ject to cost analysis techniques in accordance with
FAR 15.404. The initial calculations for [the] Av-
erage and Standard Deviation will be utilized for
the entirety of the evaluation and will not be recal-
culated if a competitive range is set.
If an offeror’s proposed CR labor rate is more
than 1 standard deviation below the average for
that labor rate, the Cost/Price Team will review the
submitted supporting documentation at the compo-
nent level for that rate. If it is determined that the
supporting documentation supports the realism of
the proposed rate, no adjustment will be made to
the offeror’s rate. If inadequate or no justification
is provided by the offeror for any component of that
rate . . . the Government will adjust the fully bur-
dened CR Labor rate to be equal to the average for
purposes of calculating the Most Probable Cost for
that offeror.
A. 1280 (emphasis omitted).
C. Evaluation of Agile’s Proposal
Agile submitted a proposal in the small-business suite.
On April 24, 2018, the Encore III contracting officer sent
letters to all small-business offerors, including Agile,
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AGILE DEFENSE, INC. v. UNITED STATES 5
announcing that the agency’s discussions with offerors had
concluded and that each offeror should provide its final pro-
posal revision (“FPR”) to the agency by May 2, 2018.
A. 2415–16. During its review of Agile’s FPR, DISA deter-
mined that many of its proposed CR rates fell more than
one standard deviation below average rates (“Below-Devi-
ation Labor Rates”). A. 2658–59. DISA further determined
that for these Below-Deviation Labor Rates Agile had
based its proposed rates on salaries paid to pools of workers
which included workers who did not meet minimum solici-
tation requirements. See, e.g., A. 298–99, 2439, 2658–60.
Concerned that Agile’s overall pricing methodology
might be defective, A. 2659–60, DISA expanded its review
to Agile’s proposed CR labor rates that fell within one
standard deviation of the average rates (“Within-Deviation
Labor Rates”). A. 2660, 2664–65, 2765–66. It sent Agile
an evaluation notice stating that the rates it proposed for
a total of sixty-six LCATs were based upon salaries paid to
pools of workers which included workers not meeting the
solicitation’s minimum education and experience require-
ments. A. 2765–67. In response, Agile submitted a second
FPR in which it indicated that it had “updated all the sal-
ary surveys for the labor categories the Government in-
cluded in” its evaluation notice. A. 2802.
In revising its proposal, Agile increased many of its
proposed CR rates. A. 2612–13, 3003–04. Ultimately, its
final proposal yielded a “total evaluated price” that was too
high to place it among the twenty lowest-priced, techni-
cally-acceptable offerors in the small-business suite.
A. 3106–07, 3118; see also A. 1281 (explaining that an offe-
ror’s “total evaluated price” would be calculated by adding
its proposed FP rates to its adjusted proposed CR rates).
Agile was therefore not selected for a contract award.
A. 3107.
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6 AGILE DEFENSE, INC. v. UNITED STATES
D. Agile’s Bid Protest
Agile filed a protest in the Court of Federal Claims on
October 18, 2018. A. 19. It argued that DISA violated the
terms of the solicitation by expanding “its cost realism
analysis to all labor rates in Agile’s [FPR], regardless of
whether they were more than one standard deviation below
the average.” Federal Claims Decision, 143 Fed. Cl. at 17
(citation and internal quotation marks omitted). The Court
of Federal Claims rejected this argument, however, con-
cluding that it was “clear from the Solicitation that the
Agency did not limit itself to only performing cost realism
analysis on labor rates that were more than one standard
deviation below the average.” Id. at 18. The court deter-
mined, moreover, that “the only limitation within the So-
licitation regarding cost realism analysis was the
requirement that the Agency perform cost realism analysis
on CR labor rates that were more than one standard devi-
ation below the average.” Id.
Agile then filed a timely appeal with this court. We
have jurisdiction under 28 U.S.C. § 1295(a)(3).
II. DISCUSSION
A. Standard of Review
“Interpretation of [a bid] solicitation is a question of
law that is reviewed de novo.” Per Aarsleff A/S v. United
States, 829 F.3d 1303, 1309 (Fed. Cir. 2016) (alteration in
the original) (citation and internal quotation marks omit-
ted). This court reviews the merits of a bid protest pursu-
ant to the standards of the Administrative Procedure Act
(“APA”). See 28 U.S.C. § 1491(b)(4) (citing 5 U.S.C. § 706);
AgustaWestland N. Am., Inc. v. United States, 880 F.3d
1326, 1331–32 (Fed. Cir. 2018). This means that “a bid
award may be set aside if either: (1) the procurement offi-
cial’s decision lacked a rational basis; or (2) the procure-
ment procedure involved a violation of regulation or
procedure.” Impresa Construzioni Geom. Domenico Garufi
Case: 19-1954 Document: 48 Page: 7 Filed: 06/02/2020
AGILE DEFENSE, INC. v. UNITED STATES 7
v. United States, 238 F.3d 1324, 1332 (Fed. Cir. 2001); see
also Banknote Corp. v. United States, 365 F.3d 1345, 1351
(Fed. Cir. 2004).
B. Cost Realism
The FAR defines a “[c]ost realism analysis” as “the pro-
cess of independently reviewing and evaluating specific el-
ements of each offeror’s proposed cost estimate to
determine whether the estimated proposed cost elements
are realistic for the work to be performed; reflect a clear
understanding of the requirements; and are consistent
with the unique methods of performance and materials de-
scribed in the offeror’s technical proposal.” 48 C.F.R.
§ 15.404-1(d)(1); see also id. § 2.101. An agency is required
to conduct a cost realism analysis on all CR contracts in
order “to determine the probable cost of performance for
each offeror.” 48 C.F.R. § 15.404-1(d)(2). As the Court of
Federal Claims has correctly recognized, “[p]rice reasona-
bleness generally addresses whether a price is too high,
whereas cost realism generally addresses whether a cost
estimate is too low.” First Enter. v. United States, 61 Fed.
Cl. 109, 123 (2004); see 48 C.F.R. § 15.404-1.
C. Scrutiny of Within-Deviation Labor Rates
Agile contends that DISA’s cost realism analysis “vio-
lated the express terms of the [Encore III solicitation].” Ap-
pellant Br. 18. In support, it argues that while the
solicitation required DISA to review and evaluate an offe-
ror’s supporting documentation for Below-Deviation Labor
Rates, it prohibited expanded scrutiny of an offeror’s
Within-Deviation Labor Rates. According to Agile, it would
have been selected for a contract award had DISA “adhered
to the Solicitation’s express terms and found [its Within-
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8 AGILE DEFENSE, INC. v. UNITED STATES
Deviation Labor Rates] realistic by virtue of being within
one standard deviation of the average.” Id. at 40–41. *
We do not find this argument persuasive. The Encore
III solicitation required DISA to assess each offeror’s pro-
posed CR rates “using one or more techniques defined in
FAR 15.404” in order to determine whether those rates
were “complete, reasonable, and realistic.” A. 1279. It also
instructed the agency to calculate, based upon an examina-
tion of all completed proposals in each suite of offerors, the
average proposed labor rate for each LCAT. A. 1280. Next,
the agency was directed to use statistical analysis to divide
each offeror’s estimated CR labor rates into two groups: Be-
low-Deviation Labor Rates, i.e., rates that were more than
one standard deviation below the average rates, and
Within-Deviation Labor Rates, i.e., rates that fell within
* “A bidder that challenges the terms of a solicitation
in the Court of Federal Claims generally must demonstrate
that it objected to those terms prior to the close of the bid-
ding process.” Bannum, Inc. v. United States, 779 F.3d
1376, 1380 (Fed. Cir. 2015) (citation and internal quotation
marks omitted). Here, the government makes a cursory
argument that Agile waived its right to argue that DISA
was prohibited, under the terms of the solicitation, from
analyzing the supporting documentation for its Within-De-
viation Labor Rates because it failed to seek clarification
on that issue prior to the submission of the last round of
proposals. See Appellee Br. 27. Because the government
fails to adequately develop this argument, however, we de-
cline to consider it on appeal. See SmithKline Beecham
Corp. v. Apotex Corp., 439 F.3d 1312, 1320 (Fed. Cir. 2006)
(concluding that an insufficiently developed argument was
waived); see also Kao Corp. v. Unilever U.S., Inc., 441 F.3d
963, 973 n.4 (Fed. Cir. 2006) (concluding that a litigant
waived an argument by failing to adequately address it in
the “argument section” of its brief).
Case: 19-1954 Document: 48 Page: 9 Filed: 06/02/2020
AGILE DEFENSE, INC. v. UNITED STATES 9
one standard deviation of the average rates. A. 1280. The
solicitation further stated that DISA was required to “re-
view the submitted supporting documentation” for each
Below-Deviation Labor Rate and, if the documentation pro-
vided “inadequate or no justification . . . for any component
of that rate,” the agency was directed to make adjustments
to that rate when calculating the “Most Probable Cost” for
each offeror. A. 1280.
Contrary to Agile’s assertions, however, nothing in the
Encore III solicitation prohibited DISA from evaluating an
offeror’s supporting documentation for Within-Deviation
Labor Rates. Agile’s argument that the agency was barred
from conducting an expanded cost realism analysis on its
Within-Deviation Labor Rates hinges on the following so-
licitation provision: “The Government considers a rate that
is 1 standard deviation below the average to be a realistic
rate, subject to cost analysis techniques in accordance with
FAR 15.404.” A. 1280. According to Agile, this statement
means that DISA was required to accept all Within-Devia-
tion Labor Rates as “realistic” and was therefore prohibited
from performing any further cost realism analysis on those
rates.
Agile’s truncated reading falls flat. The solicitation
does not state that Within-Deviation Labor Rates must be
deemed “realistic,” but rather that those rates will be con-
sidered “realistic . . . subject to cost analysis techniques in
accordance with FAR 15.404.” A. 1280 (emphasis added).
In other words, Within-Deviation Labor Rates are not per
se realistic, but instead may undergo additional cost real-
ism scrutiny pursuant to the various cost analysis methods
and procedures sanctioned by the FAR. See Federal Claims
Decision, 143 Fed. Cl. at 18–19 (“[T]he language in the So-
licitation was not so limited as to prevent the Agency from
performing cost realism analysis on labor rates that fell
within one standard deviation of the average.”).
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10 AGILE DEFENSE, INC. v. UNITED STATES
In this regard, the Encore III solicitation specifically
states that DISA was required to assess the “[CR] portion”
of each offeror’s proposal to determine whether it was “re-
alistic.” A. 1279. Agile points to nothing in the language
of the solicitation—or in the FAR—that limited DISA’s au-
thority to thoroughly assess the cost realism of the entire
“[CR] portion” of its proposal, including its Within-Devia-
tion Labor Rates.
Agile contends that because the solicitation explicitly
required DISA to review the supporting documentation for
Below-Deviation Labor Rates, it implicitly precluded the
agency from extending that review to other proposed rates.
See Appellant Br. 18–20, 26–29. We disagree. As we have
repeatedly recognized, “[c]ontracting officers are entitled to
exercise discretion upon a broad range of issues confront-
ing them in the procurement process.” Impresa, 238 F.3d
at 1332 (citation and internal quotation marks omitted);
see also Tinton Falls Lodging Realty, LLC v. United States,
800 F.3d 1353, 1358 (Fed. Cir. 2015); Savantage Fin.
Servs., Inc. v. United States, 595 F.3d 1282, 1286 (Fed. Cir.
2010). Agile cites to no authority suggesting that a solici-
tation, by instructing a contracting agency to perform a rig-
orous cost analysis on certain proposed rates, thereby
strips it of the power to conduct an expanded cost realism
analysis on other proposed rates. To the contrary, such a
rule would unduly circumscribe a contracting officer’s dis-
cretion and hamstring a contracting agency’s efforts to en-
sure that the “estimated proposed cost elements are
realistic for the work to be performed,” 48 C.F.R. § 15.404-
1(d)(1).
The regular view of the Court of Federal Claims, which
we approve, is that contracting agencies enjoy wide lati-
tude in conducting the cost realism analysis. See, e.g., Mis-
sion1st Grp., Inc. v. United States, 144 Fed. Cl. 200, 211
(2019) (“It is well established that contracting agencies
have broad discretion regarding the nature and extent of a
cost realism analysis, unless the agency commits itself to a
Case: 19-1954 Document: 48 Page: 11 Filed: 06/02/2020
AGILE DEFENSE, INC. v. UNITED STATES 11
particular methodology in a solicitation.” (citation and in-
ternal quotation marks omitted)); Dellew Corp. v. United
States, 128 Fed. Cl. 187, 194 (2016) (“The Agency has
demonstrated that it considered the information available
and did not make irrational assumptions or critical miscal-
culations. To require more would be infringing on the
Agency’s discretion in analyzing proposals for cost real-
ism.” (citation and internal quotation marks omitted));
United Payors & United Providers Health Servs., Inc. v.
United States, 55 Fed. Cl. 323, 329 (2003) (emphasizing
that the procuring “agency is in the best position to make
[the] cost realism determination” (citation and internal
quotation marks omitted)). Such an approach comports
with the FAR, which provides examples of cost analysis
techniques, but does not mandate the use of any specific
methodology. See 48 C.F.R. § 15.404-1(c). Instead, it in-
structs that “[t]he Government may use various cost anal-
ysis techniques and procedures to ensure a fair and
reasonable price, given the circumstances of the acquisi-
tion.” Id. § 15.404-1(c)(2); see also id. § 15.404-1(d)(2)(i) (ex-
plaining that a cost realism analysis “should reflect the
Government’s best estimate of the cost of any contract that
is most likely to result from the offeror’s proposal”).
D. Rational Basis Review
Finally, we reject Agile’s argument that a reading of
the solicitation that would allow DISA to conduct an ex-
panded cost realism analysis on Within-Deviation Labor
Rates would “lead to [an] inexplicable result” because it
would “permit[] DISA to subject a rate that is $0.01 below
the average rate to much higher scrutiny than a rate that
is significantly more than one standard deviation below the
average.” Appellant Br. 31. As noted previously, we ad-
here to APA standards when reviewing post-award bid pro-
tests, see 5 U.S.C. § 706, and must set aside a contract
award that does not evince rational reasoning. See, e.g.,
Savantage, 595 F.3d at 1285 (“In a bid protest case, an
agency’s action must be set aside if it is arbitrary,
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12 AGILE DEFENSE, INC. v. UNITED STATES
capricious, an abuse of discretion, or otherwise not in ac-
cordance with law.”). Because an agency’s procurement
evaluations are always subject to review under APA stand-
ards, there is no merit to Agile’s contention that permitting
DISA to analyze the supporting documentation for an offe-
ror’s Within-Deviation Labor Rates would give it free rein
to conduct a cost realism analysis that lacked a rational
basis or otherwise led to “inexplicable result[s],” Appellant
Br. 31.
III. CONCLUSION
We have considered Agile’s remaining arguments but
do not find them persuasive. Accordingly, the judgment of
the United States Court of Federal Claims is affirmed.
AFFIRMED