Arxium, Inc. v. United States ( 2023 )

In the United States Court of Federal Claims
No. 17-1407C
(Filed under seal January 24, 2023)
(Reissued February 1, 2023)†
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ARXIUM, INC., *
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Plaintiff, *
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v. *
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THE UNITED STATES, *
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Defendant, *
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and *
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INNOVATION *
ASSOCIATES, INC., *
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Defendant-Intervenor. *
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Fernand A. Lavallee, Jones Day, Washington, D.C., for plaintiff.
Michael D. Austin, Trial Attorney, Commercial Litigation Branch, Civil
Division, Department of Justice, Washington, D.C., for defendant.
David Y. Yang, K&L Gates, LLP, Washington D.C., for defendant-intervenor
Innovation Associates, Inc.
ORDER
WOLSKI, Senior Judge.
In this post-award bid protest, the Court had previously found that plaintiff
ARxIUM, the initial awardee, was arbitrarily excluded from the competitive range
† This order was initially filed under seal so that the parties could request
redactions. None having done so, the order is now reissued for publication.
when agency corrective action reinterpreted two latently ambiguous requirements
without issuing clarifying amendments and giving plaintiff the opportunity to
revise its proposal. ARxIUM, Inc. v. United States (ARxIUM I), 136 Fed. Cl. 188,
198–208 (2018). After the subsequent award was enjoined, see id. at 210–11, the
Defense Logistics Agency (DLA) amended the solicitation regarding one of the
requirements in a manner that precluded ARxIUM from competing for the award
without the assistance of incumbent intervenor Innovation Associates---which
denied plaintiff ’s requests. ARxIUM, Inc. v. United States (ARxIUM II), 139 Fed.
Cl. 85, 87 (2018). Consequently, the Court concluded that ARxIUM was entitled to
an award of bid preparation and proposal costs, as plaintiff “was unfairly induced to
enter a competition that could not be won without the aid of a competitor.” Id.(citing ARxIUM I, 136 Fed. Cl. at 200–01 (citing Centech Grp., Inc. v. United States,
79 Fed. Cl. 562, 564, 577 (2007); Concept Automation, Inc. v. United States, 41 Fed.
Cl. 361, 369–70 (1998)); see also Guzar Mirbachakot Transp. v. United States, 104
Fed. Cl. 53, 68 (2012) (holding that unnecessary bid proposal costs that were
arbitrarily induced may be recovered, in addition to injunctive relief).
Entry of judgment was deferred by the Court until the quantum of awarded
costs could be determined. ARxIUM II, 139 Fed. Cl. at 88. Plaintiff was ordered to
submit to the government a detailed reckoning of its bid preparation and proposal
costs. Id. If those two parties could not agree to a stipulated amount of costs, each
was ordered to file a paper detailing its position. Id. Since agreement proved
elusive, ARxIUM and the government each filed their separate papers. See Pl.’s
Position on Bid Prep. & Proposal Costs (Pl.’s Br.), ECF No. 66; Def.’s Opp’n to Pl.’s
Cost Subm’n (Def.’s Br.), ECF No. 65. The proper size of the award of bid
preparation and proposal costs is the matter presently before the Court.
In support of plaintiff ’s brief, plaintiff has attached multiple exhibits
detailing the cost breakdown for its proposal. Pl.’s Br. Exs. 1–8. Plaintiff has
provided declarations as to the accuracy of the submitted costs by Christine Ross,
the Director of Compliance & Contracting, and by Cathy Gregg, the Director of
Human Resources. Pl.’s Br. Ex. 1, ECF No 66-1 at 4–5 (Gregg Decl.), 9–12 (Ross
Decl.). Attached to the Gregg declaration were two tables calculating and depicting
the fully burdened hourly rate for each of the ARxIUM employees who worked on
plaintiff ’s proposal. Id., ECF No. 66-1 at 7–8. Attached to the Ross declaration are
five attachments labeled Exhibits A–E. Id., ECF No. 66-1 at 13–57. The first
exhibit includes descriptions of the time spent by ARxIUM employees in preparing
the proposal, such as entering data, drafting documents, reviewing messages, and
attending meetings. Id., ECF No. 66-1 at 15–30. It also includes time records for
outside counsel relating to analysis of the final solicitation amendments. Id., ECF
No. 66-1 at 31–33. Exhibits B and C to the Ross declaration contain documents
evincing some of the work performed in preparing the ARxIUM proposal. Id., ECF
No. 66-1 at 34–42. Exhibit D relates to a meeting held to discuss a response to the
final solicitation amendments. Id., ECF No. 66-1 at 44. Exhibit E contains
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correspondence between plaintiff and plaintiff ’s counsel detailing legal costs, with
most of the information redacted. Id., ECF No. 66-1 at 46–57.
Finally, plaintiff ’s Exhibits 2 to 8 contain correspondence between the
plaintiff and the government, encompassing their disagreements over various line
items and showing how ARxIUM reached the final cost figure submitted for award.
Pl.’s Br. Exs. 2–8. Plaintiff requests an award of $80,164.48 for bid preparation
costs broken down into the categories of costs for employee time and labor
($22,987.15), legal advice and counsel ($11,100.00), and opportunity costs
($46,077.33). Pl.’s Br. at 1, 6–9; Ex. 5 to id., ECF No. 66-5 at 10. The government
opposes the latter two categories of costs in their entirety and disputes $2,564.72 of
the costs associated with ARxIUM’s employee time and labor. Def.’s Br. at 1.
Under the Tucker Act, 28 U.S.C. § 1491, as amended by the Administrative
Dispute Resolution Act of 1996 (ADRA), Pub. L. No. 104-320, 110 Stat. 3870 (1996),
in a bid protest our court “may award any relief that the court considers proper,
including declaratory and injunctive relief except that any monetary relief shall be
limited to bid preparation and proposal costs.” 28 U.S.C. § 1491(b)(2). While bid
preparation and proposal costs are not statutorily defined, our court has turned to
the language in the Federal Acquisition Regulations (FAR), which interprets these
costs to include “costs incurred in preparing, submitting, and supporting bids and
proposals (whether or not solicited) on potential government or non-government
contracts.” Geo-Seis Helicopters, Inc. v. U.S., 79 Fed. Cl. 74, 80 (2007) (quoting 48
C.F.R. § 31.205-18(a)) (cleaned up); see also Beta Analytics Int’l, Inc. v. United
States, 75 Fed. Cl. 155, 160 (2007) (holding FAR provisions concerning bid
preparation and proposal costs were “useful guidance” but “not authoritative”).
The bid preparation and proposal costs associated with the employee hours of
plaintiff are for the most part well-explained, documented, and justified. Although
ARxIUM understandably did not keep time records like a law firm, records in this
form are not necessary to support a small business’s request for proposal costs.
Beta Analytics, 75 Fed. Cl. at 163. In her declaration, Ms. Ross, the manager of
ARxIUM’s proposal, explained her personal knowledge of the work performed and
the reasonable methodology she adopted to estimate the time taken to perform the
various tasks involved. See Ross Decl. ¶¶ 1, 3–9.
The government agrees with nearly ninety percent of the employee costs that
ARxIUM attributes to its proposal, objecting to just $2,564.72 of this portion of the
request. Def.’s Br. at 1. The bulk of these challenged costs concern work performed
after DLA amended the solicitation in response to the Court’s ruling on ARxIUM’s
protest. See id. at 10. As this work did not result in a revised proposal submission,
the government maintains that it cannot contribute to bid preparation and proposal
costs. Id. (citing Innovation Dev. Enters. Am., Inc. v. United States (IDEA), 600 F.
App’x 743, 746 (Fed. Cir. 2015)). Plaintiff argues that once the solicitation was
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amended, the proposal it previously submitted effectively became a draft proposal,
and that its efforts to comply with the amendments amounted to further work on
that draft proposal. Pl.’s Br. at 11–14. It relies on a string of cases stating that
awardable bid preparation costs include costs incurred in “preparing draft and
actual bids.” Id. at 12 (citing Lion Raisins, Inc. v. United States, 52 Fed. Cl. 629,
631 (2002); Couture Hotel Corp. v. United States, 138 Fed. Cl. 333, 341 (2018); Q
Integrated Cos., LLC v. United States, 133 Fed. Cl. 479, 487 (2017)); see also
Naplesyacht.com, Inc. v. United States, No. 04-252C, 2005 WL 6112642, at *1 (Fed.
Cl. March 31, 2005) (citing Lion Raisins, 52 Fed. Cl. at 631).
None of these cases cited by ARxIUM concerned drafting work that did not
ultimately result in a submitted proposal. One case, Couture Hotel, 138 Fed. Cl. at
341–42, involved neither a proposal nor any drafting work, but instead building
purchase and renovation costs that are clearly not awardable as bid preparation
and proposal costs. The others concerned work culminating in submitted proposals.
But, as plaintiff notes, see Pl.’s Br. at 13, in the non-precedential case relied upon by
the government, the Federal Circuit affirmed a decision of our court denying bid
preparation and proposal costs when a protester “did not submit or prepare a bid
proposal,” IDEA, 600 F. App’x at 746 (emphasis added), suggesting that mere
preparation of a bid or proposal might be enough.
But even if a prospective offeror might be able to recover preparation costs for
an unsubmitted proposal, plaintiff does not even allege that its employees’ efforts
following the Court’s injunctive relief resulted in a revised proposal. Rather, Ms.
Ross described this work as “its attempt to prepare a bid responsive to the final
revised RFQ at issue in this matter.” Ross Decl. ¶ 2 (emphasis added); see also Pl.’s
Br. at 14 (admitting that “completion and submission of a revised, final proposal”
was not accomplished) (emphasis added). There cannot be bid or proposal costs if
there is no bid or proposal. Nor can the post-injunction efforts be construed as
“supporting” the proposal that had previously been submitted, see 48 C.F.R. §
31.205-18(a), as the solicitation amendments necessitated a new submission. See
Pl.’s Mot. Entry J. Ex. 1, ECF No. 55-1 at 3, 7; cf. Coflexip & Servs., Inc. v. United
States, 961 F.2d 951, 954 (Fed. Cir. 1992) (pre-ADRA opinion finding “post-
submission costs pursuant to ongoing negotiations” concerning an existing proposal
may be proposal preparation costs).1
1 Moreover, the basis for the award of proposal costs was DLA’s decision to retain
its interpretation of a requirement that restricted the competition to offerors who
can access data from intervenor’s proprietary software. ARxIUM II, 139 Fed. Cl. at
87. Were ARxIUM to have expended resources on a revised proposal despite the
issuance of this patent disqualifier, it would have to challenge successfully the
legality of the amendment in order to receive an award of revised proposal costs.
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Accordingly, ARxIUM’s post-injunction employee costs may not properly be
considered awardable bid preparation and proposal costs. The government
maintains that $2,446.71 of claimed costs fall in this category. Def.’s Br. at 10 &
Ex. 4. After a line-by-line review of these entries, the Court concludes that twenty
minutes of Ms. Ross’s time were erroneously characterized by the government as
falling into this category.2 At her hourly rate of $60.92, see Pl.’s Br. Ex. 5, ECF No.
66-5 at 10, this totals $20.31. Thus, $2,426.40 in claimed costs are not awardable
for this reason.
The government also objects to a small amount of costs ($92.63) associated
with work performed by ARxIUM employees after the initial award of the contract
to plaintiff. This work concerned such things as the award document and stop work
orders. Def.’s Br. at 11; Ex. 4 to id., ECF No. 65-1 at 131–32. The Court agrees that
these costs concern contract administration and not the proposal, and thus cannot
be included in an award of proposal costs. Similarly, a few entries of Ms. Ross’s
time were identified by the government as falling within the time period of the
protest, see Def.’s Br. at 11; Ex. 4 to id., ECF No. 65-1 at 132, and thus do not
concern the creation of the proposal. Thus, these $25.38 in costs may not be
included in the award.
Plaintiff requests an award of certain legal fees, which it characterizes as
“legal advice and counsel provided during proposal preparation.” Pl.’s Br. at 15.3 In
opposing this portion of the request, the government argues categorically that legal
fees are only recoverable under the Equal Access to Justice Act, 28 U.S.C. § 2412,
relying on two cases that pre-date the ADRA and concern solely bid protest
litigation fees. Def.’s Br. at 8 (citing Coflexip & Servs., Inc. v. United States, 20 Cl.
Ct. 412, 415–16 (1990); AT & T Techs., Inc. v. United States, 18 Cl. Ct. 315, 325
(1989)). The Court is not persuaded that, under otherwise proper circumstances,
costs that an offeror demonstrates to have been incurred in the preparation of a
proposal could not be awarded merely because the employee or agent happened to
be an attorney. Nothing in 28 U.S.C. § 1491(b)(2) excludes such costs. But these
circumstances are not presented here, as the legal work in question was performed
after ARxIUM obtained its injunctive relief in this case. See Ross Decl. Ex. E, ECF
No. 66-1 at 49, 54. Thus, as explained above, it was not performed during the time
2 These twenty minutes were split between an entry described as “DLA answers to
our questions-for discussion on our call,” relating to clarification questions dated
January 20, 2017, and another entry entitled “FW DLA Air Force Bid-Bid Team
Meeting.” See Def.’s Br. Ex. 4, ECF No. 65-1 at 132.
3 Curiously, ARxIUM includes assistance in compiling its reckoning of proposal
costs, see Pl.’s Br. at 5, 14, which would clearly be litigation expenses and not bid
preparation and proposal costs.
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period when ARxIUM’s actual proposal was prepared, submitted, and supported.
Plaintiff is not entitled to the $11,100.00 it claims for legal costs.
Finally, plaintiff includes among its requested bid preparation costs an
amount representing the revenues ARxIUM allegedly would have generated had its
employees utilized their time consulting for plaintiff ’s clients instead of working on
the proposal. Pl.’s Br. at 15–16; Ex. 5 to id., ECF No. 66-5 at 10. Plaintiff ’s theory
is that economic and accounting literature recognize such “opportunity costs” as
relevant to business decisions. But just because the word “costs” is involved does
not make a concept a subset of bid preparation and proposal costs, any more than
“reputational costs” or “emotional costs” would be. Even if a rational business
would consider such opportunity costs in deciding whether to use its employees to
draft a proposal, such foregone revenues are by no means “costs incurred” in the
process, see 48 C.F.R. § 31.205-18(a)---less money coming in is not the same thing as
liabilities assumed in the creation of a proposal.4 And since ARxIUM is being
reimbursed for the cost of the time these employees spent on the proposal, the
opportunity to put them to work earning consulting fees is restored by the award. A
separate payment representing opportunity costs would thus result in a double
recovery. In any event, Congress has excluded lost, anticipated profits under the
contract at issue from the monetary relief available in bid protests. See 28 U.S.C.
§ 1491(b)(2). The Court does not see how this would allow an award for the lost
profits from other, unrelated contracts.5 Plaintiff is not entitled to the $46,077.33 of
claimed opportunity costs.
For the foregoing reasons, the Court has determined that plaintiff has proven
and is entitled to bid preparation and proposal costs totaling $20,442.74. The Clerk
of the Court shall enter judgment for plaintiff on its application for bid preparation
and proposal costs in the amount of $20,442.74.6
4 Moreover, as a factor in a choice between competing uses of resources, opportunity
cost is “purely subjective.” See JAMES M. BUCHANAN, COST AND CHOICE 41–42
(Liberty Fund, Inc. 1999) (1969).
5 The Court notes that ARxIUM’s inability to obtain lost profits was the basis for
the finding of irreparable injury sufficient for injunctive relief. See ARxIUM I, 136
Fed. Cl. at 208 (citing MORI Assocs., Inc. v. United States, 102 Fed. Cl. 503, 552
(2011)). An award of a portion of lost profits owing to opportunity costs would be
inconsistent with this prior ruling.
6 Intervenor’s motion to withdraw from the case, ECF No. 69, is DENIED as moot.
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IT IS SO ORDERED.
s/ Victor J. Wolski
VICTOR J. WOLSKI
Senior Judge
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