Veteran Shredding, LLC v. United States

In the United States Court of Federal Claims
No. 18-981
(Filed Under Seal: November 26, 2018)
(Reissued: December 6, 2018)
********************************** )
VETERAN SHREDDING, LLC, ) Pre-award bid protest; challenge to
) cancellation of a solicitation; standing;
Plaintiff, ) criteria applicable to delineating an
) “interested party” after opening of bids but
v. ) before any award of a procurement
) contract
UNITED STATES, )
)
Defendant, )
)
)
********************************** )
Joseph A. Whitcomb and Mark H. Wilson, Whitcomb, Selinsky, McAuliffe, PC, Denver,
Colorado, for plaintiff.
Igor Helman, Trial Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, Washington, D.C., for defendant. With him on the briefs were
Joseph H. Hunt, Assistant Attorney General, Civil Division, and Robert E. Kirschman, Jr.,
Director, and Allison Kidd-Miller, Assistant Director, Commercial Litigation Branch, Civil
Division, United States Department of Justice, Washington, D.C. Of counsel was Natica
Chapman Neely, Staff Attorney, District Contracting National Practice Group, Office of General
Counsel, United States Department of Veterans Affairs, Jackson, Mississippi.
OPINION AND ORDER1
LETTOW, Senior Judge.
Plaintiff Veteran Shredding, LLC (“Veteran Shredding”) has protested the pre-award
cancellation by the Department of Veteran Affairs (“VA”) of a solicitation for document
destruction services respecting which Veteran Shredding was one of five bidders. Veteran
Shredding requests that this court declare the cancellation to be arbitrary, capricious, or contrary
to law, order the VA to award the contract to Veteran Shredding, enjoin the VA from re-
1
Because of the protective order entered in this case, this opinion was initially filed under
seal. The parties were requested to review this decision and provide proposed redactions of any
confidential or proprietary information. The resulting redactions are shown by brackets
enclosing asterisks, e.g., “[***].”
soliciting the procurement, and declare improper the VA’s plan to resolicit using a veteran-
owned small business (“VOSB”) set-aside in place of the original service-disabled veteran-
owned small business (“SDVOSB”) set-aside. Compl. at 12.
After the administrative record was filed pursuant to Rule 52.1(a) of the Rules of the
Court of Federal Claims (“RCFC”), Veteran Shredding filed its motion for judgment on the
administrative record on September 17, 2018. See Pl. Veteran Shredding, LLC’s Mot. for
Judgment on the Admin. R. (“Pl.’s Mot.”), ECF No. 15. The United States (“the government”)
responded in opposition on October 9, 2018. See Def.’s Mot. to Dismiss, Cross-Mot. for
Judgment on the Admin. R., & Opp’n to Pl.’s Mot. for Judgment on the Admin. R. (“Def.’s
Cross-Mot.”), ECF No. 17. The government specifically challenged Veteran Shredding’s
standing to protest the cancellation of the solicitation. Upon completion of briefing, see Pl.’s
Reply to Def.’s Mot. to Dismiss & Cross-Mot. for Judgment on the Admin. R. (“Pl.’s Reply”),
ECF No. 19; Def.’s Reply in Supp. of its Mot. to Dismiss & Cross-Mot. for Judgment on the
Admin. R. (“Def.’s Reply”), ECF No. 20, a hearing was held on October 30, 2018.
This court concludes that Veteran Shredding lacks standing to pursue this bid protest.
Accordingly, the government’s motion to dismiss the complaint for lack of jurisdiction is
GRANTED. The plaintiff’s motion and government’s cross-motion for judgment on the
administrative record are both DENIED as moot.
FACTS2
A. The 2018 Minneapolis VA Shredding Solicitation
On February 12, 2018, VA issued a solicitation for document and media destruction
services for the Minneapolis Veterans Affairs Healthcare System (“Minneapolis VA”), which
operates seven locations in and around Minneapolis, Minnesota, and one location in nearby
Wisconsin. AR 52, 54, 122.3 The contract’s base period would run for one year starting on
April 1, 2018, with four subsequent one-year option periods. AR 59-60. VA advertised the
solicitation as a commercial-item acquisition using the simplified acquisition procedures of
Federal Acquisition Regulation (“FAR”) Part 13. AR 104. The Minneapolis VA estimated that
approximately 400,000 pounds of paper and 500 pounds of media would need to be disposed
annually, AR 54, and the solicitation described each location involved along with the number
and size of containers and the pick-up frequency, AR 122. Offers were due by February 26,
2018. AR 52.
2
The following recitations constitute findings of fact by the court from the administrative
record of the procurement filed pursuant to RCFC 52.1(a). See Bannum, Inc. v. United States,
404 F.3d 1346, 1356 (Fed. Cir. 2005) (specifying that bid protest proceedings “provide for trial
on a paper record, allowing fact-finding by the trial court”).
3
The Administrative Record is consecutively paginated, and citations to the record are
cited by page as “AR ___.”
2
VA proposed to award the contract to the lowest-priced technically acceptable offer. AR
52, 104. Bidders were required to provide separate quotes for the base year and each of the four
option years. AR 59-60. Non-price factors consisted of technical ability and past performance,
and were to be rated as either acceptable or unacceptable. AR 104. The solicitation specified a
100% SDVOSB set-aside. AR 52. Acquisition regulations required the contract awardee to
perform at least 50% of the work. E.g., AR 241.
The terms of the solicitation were based on VA’s prior experience with shredding
services in the Minneapolis area. In the four years prior to April 1, 2018, Shred-N-Go, Inc.
provided the Minneapolis VA’s document and media destruction services. AR 1. The
solicitation for the 2014 contract had estimated that 356,000 pounds of paper and media would
need to be destroyed annually, and required service at seven locations within and around
Minneapolis. AR 15.4 The 2014 solicitation was a 100% set-aside for small businesses. AR 1.
Shred-N-Go’s contract price was $96,360 for the base year (2014), and increased by exactly
$3,000 each year in three sequential option years. AR 1, 15-18. Shred-N-Go’s contract totaled
$403,440 over four years. AR 1, 15-18.5
On September 20, 2017, VA prepared a “Request, Turn-In, and Receipt for Property or
Services” form (“Request Form”), which allocated $[***] for “Shred-N-Go contract renewal
[for] FY18” to start on April 1, 2018, presumably for an identical scope of work. AR 32-33.
The Request Form listed contact information for the incumbent Shred-N-Go. AR 32. On
September 21, 2017, a day after VA allocated funds for the shredding contract, the Assistant
Chief of Environmental Management Services of the Minneapolis VA (“Assistant Chief”)
prepared a “Multi-Year Independent Government Cost Estimate (IGCE).” AR 34-35. The IGCE
estimated $[***] for “[w]hite paper shredding and multi media destruction services” for one year
beginning on April 1, 2018. AR 34-35. From this base, the projected annual cost increased by
exactly [***]% per year for four sequential option years,6 for a total of $[***] over five years.
AR 34-35. The IGCE did not specify quantity, location, frequency, or destruction criteria. AR
34-35. From a list of possible bases, the “basis for the IGCE” was shown as only “past contract
pricing;” other options such as “informal vendor quotes” and “other” were not selected. AR 35.
On September 22, 2017, after completing the IGCE, the Assistant Chief completed a
“Market Research Worksheet for Customers” (“Worksheet”). AR 36-39. The Worksheet is a
4
The 2018 solicitation did not disclose the quantity of materials Shred-N-Go had actually
destroyed under the 2014 contract, either on an annual basis or cumulatively over a period of
years.
5
Shred-N-Go also bid $0.514 per pound of media destroyed for each of the four years.
AR 15-18. This cost was not added to the total bid price nor reflected in the contract award
price. AR 1, 15-18. With the solicitation’s estimate of 300 pounds of media per year, AR 6, the
incremental cost would amount to $154.20 per year. It is not specified whether Shred-N-Go was
reimbursed for its actual cost of this service or whether it provided this service without additional
charges.
6
Annual estimate costs were increased by [***]% per year, rounded down to the nearest
dollar. The rationale for using [***]% increase is not readily apparent from the IGCE.
3
standardized form and shows that the Minneapolis VA contacted three local document
destruction companies: Shred-N-Go, Pro Shred, and Shred-It, AR 37, “[m]ainly . . . to know if
they can handle a facility this size twice a week with a full service program,” AR 38. No price
quotes appear. AR 36-39. The Assistant Chief included one further narrative comment: “[b]ased
on my research and interaction with our current [s]mall business veteran owned contractor[, i.e.,
Shred-N-Go], I feel they have done an excellent job covering our needs.” AR 38 (emphasis
added). In actuality, Shred-N-Go is not veteran-owned. Def.’s Cross-Mot. App. at 1, 8-9
(Shred-N-Go’s certification in the government’s System for Award Management of February 13,
2018 represents that Shred-N-Go is a small business, but is not veteran-owned). Otherwise,
Worksheet fields were left blank or contained cursory remarks, AR 36-39, apart from a notation
that the scope of the work is “outlined in the SOW,” AR 36, presumably referring to the
“statement of work” that appears in the 2014 contract, see AR 6-9.
The timing of these steps is a mystery. Although $[***] for the first contract year was
allotted on September 20, the Minneapolis VA did not complete its IGCE until the following
day. And, although the Minneapolis VA prepared the IGCE on September 21, it did not finish
market research until the following day.
A VA contracting specialist completed a “Simplified Market Research Report” on
December 14, 2017. AR 40. The report identified 466 SDVOSB vendors nationwide that could
potentially perform the contract, with 19 in Minnesota. AR 40. The Contracting Specialist
determined to set-aside the contract for SDVOSBs. AR 40.
B. Responses to Solicitation and the Government’s Evaluation
The VA received five offers, all from SDVOSBs. See AR 337, 348, 357, 451-452, 551.
The initial offer prices, cumulative of the base year and the four option years, ranged from
approximately $[***] to $[***]. AR 624. Veteran Shredding offered the highest price among
the initial offers. AR 624.
On February 27, 2018, the Contracting Specialist advised each of the five offerors to
“take note of the previous contract [with Shred-N-Go] and provide [a] best and final quote” by
the following afternoon. AR 625. Veteran Shredding responded with two “major concerns;” it
found the estimated paper weight “unusually low” and questioned whether the incumbent was
actually servicing the number of bins identified in the 2014 solicitation, as “at these numbers
[Shred-N-Go] was doing this for a loss.” AR 628. [***] also remarked that “the incumbent
contractor . . . is probably losing money on this project, since its inception.” AR 769. Finally,
[***] provided a detailed defense of its pricing and remarked that “in comparison [to the prior
contract] our pricing appears high,” but that without information showing the actual number of
bins serviced at each location, “the best we could do is make some conservative guesses which
might lower our pricing.” AR 771-72.
All five bidders responded to the call for best and final offers. [***] lowered its price to
$[***]. AR 786, 858. [***] re-offered $[***]. AR 852, 858. Veteran Shredding lowered its
price to $[***], AR 642, 858, making it now the third lowest bidder, AR 858. [***] re-offered
$[***]. AR 624, 849, 858. [***] re-offered $[***]. AR 855, 858. The day after Veteran
4
Shredding submitted its revised bid, it again expressed to the Contracting Specialist that it
believed the incumbent “grossly underestimated” the paper to be disposed and offered to justify
its bid in detail. AR 859.
C. Cancellation of the Solicitation & Veteran Shredding’s Protest to GAO
On March 1, 2018, the Contracting Specialist prepared a memorandum that analyzed the
offers received. AR 863. He noted that “the lowest priced offer . . . is approximately [***]%
above the IGCE,” but the “only change [between the solicitation and the previous contract] was
the inclusion of two alternate locations for pick-up[, which] would not . . . justify an [***]%
increase in price.” AR 863. “Based on the significant difference between the lowest priced
offeror and the ICGE, [the offers] could not be determined to be [] fair and reasonable.” AR 863
(emphasis omitted). Accordingly, he determined to cancel the original 100% SDVOSB
solicitation and to re-issue a solicitation with a 100% VOSB set-aside. AR 863. That same day,
the Contracting Specialist notified the five bidders that because their quotes were not fair and
reasonable, the VA would cancel the solicitation and “open[] it up to additional competition.”
AR 865.
Following the cancellation, [***] made a “formal request for either an oral or written
debrief,” AR 870, and Veteran Shredding also requested a debriefing, AR 874-75.7 These
debriefings occurred on March 5, 2018, with both the Contracting Specialist and the Contracting
Officer present. AR 880-81. According to the meeting summaries prepared by the Contracting
Officer, the Contracting Specialist began the debriefings by notifying each bidder that since the
solicitation occurred under FAR Part 13, the debriefing was not a formal debriefing. AR 880-
81.
On March 15, 2018, Veteran Shredding filed a protest with the Government
Accountability Office (“GAO”). AR 883. On June 4, 2018, GAO dismissed the protest as
untimely. AR 1123. GAO held that because the procurement did not require a debriefing, the
10-day window for filing a protest commenced on March 1, 2018, when Veteran Shredding
received the notice of cancellation. AR 1124-25.
Eight days after GAO’s dismissal, and five days after Veteran Shredding filed a bid
protest pre-filing notice, the Contracting Officer gave acceptable technical ratings in the now-
cancelled solicitation to Veteran Shredding’s proposal and the two lower priced proposals. AR
1127-29, 1163-65, 1202-04; see also Def.’s Cross-Mot. at 8. The record does not show whether
the Contracting Officer gave technical ratings to the two higher-priced proposals.
The VA has yet to resolicit the contract. Def.’s Reply at 6 & n.3.
JURISDICTION
The Tucker Act, 28 U.S.C. § 1491, vests this court with jurisdiction to “render judgment
on an action by an interested party objecting to a solicitation by a [f]ederal agency for bids or
7
Additionally, [***] later reiterated its concerns that without historic data, it was difficult
to understand the scope of the work and bid appropriately. AR 866.
5
proposals for a proposed contract or to a proposed award or . . . any alleged violation of statute or
regulation in connection with a procurement or a proposed procurement.” 28 U.S.C. §
1491(b)(1).
A threshold issue is whether Veteran Shredding, the third lowest bidder on the cancelled
solicitation, has standing to challenge the cancellation. Veteran Shredding, as plaintiff, bears the
burden of establishing standing. See, e.g., Myers Investigative & Sec. Servs. Inc. v. United
States, 275 F.3d 1366, 1369 (Fed. Cir. 2002) (quoting Lujan v. Defenders of Wildlife, 504 U.S.
555, 561 (1992)). To demonstrate standing under 28 U.S.C. § 1491(b)(1), a plaintiff must show
that it is an “interested party” who suffered prejudice from a significant procurement error. E.g.,
CliniComp Int’l, Inc. v. United States, 904 F.3d, 1353, 1358 (Fed. Cir. 2018); Weeks Marine, Inc.
v. United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009).
Interested parties are “actual or prospective bidders or offerors whose direct economic
interest would be affected by the award of the contract or by the failure to award the contract.”
Weeks Marine, 575 F.3d at 1359 (quoting American Fed’n of Gov’t Emps. v. United States, 258
F.3d 1294, 1302 (Fed. Cir. 2001)); accord CliniComp, 904 F.3d at 1358; Hyperion, Inc. v.
United States, 115 Fed. Cl. 541, 550 (2014) (quoting Orion Tech., Inc. v. United States, 704 F.3d
1344, 1348 (Fed. Cir. 2013)). Veteran Shredding was an actual bidder. See, e.g., AR 863
(summarizing offers received). The salient question then becomes whether it had a direct
economic interest.
The government argues that a direct economic interest requires showing a “substantial
chance” at winning the contract. Def.’s Cross-Mot. at 8, 12-13; Def.’s Reply at 3. As the
government would have it, because two other technically acceptable proposals were lower than
that of Veteran Shredding and Veteran Shredding’s allegations would not undermine those lower
bids, if the court set aside the cancellation, VA presumably would award the contract to someone
other than Veteran Shredding. Def.’s Cross-Mot. at 8, 12-14; Def.’s Reply at 3; see also AR
863, 1127-29, 1163-65, 1202-04.
Veteran Shredding nonetheless argues that in a pre-award context, “the ‘substantial
chance’ test does not apply.” Pl.’s Reply at 4. Rather, Veteran Shredding avers that it need only
show “a non-trivial competitive injury which can be redressed by judicial relief” to demonstrate
a direct economic interest. Id. at 3 (quoting Weeks Marine, 575 F.3d at 1360). The non-trivial
competitive injury it cites is “the loss of a federal contract for which it was a prospective bidder
submitting a reasonable price.” Id. at 4. And, if the VA re-solicits without the “service-
disabled” qualifier, Veteran Shredding must then re-compete against a larger pool of bidders,
whether VOSBs or small-businesses in general. Id. at 4 n.2.
To show a direct economic interest, courts have used either the “substantial chance” of
award standard or the less rigorous “non-trivial competitive injury” standard. Ordinarily, the
choice between these standards turns on whether the protest is pre-award or post-award, but the
question can also arise whether there is sufficient factual development in a pre-award protest to
apply the primary “substantial chance” standard. E.g., Orion Tech., 704 F.3d at 1348-49
(“Weeks Marine [] set out an exception to the general standing test [of substantial chance] in the
case of pre-bid, pre-award protests. . . ,” but ultimately finding in that post-proposal,
6
preevaluation case an “adequate factual predicate to [use] the traditional ‘substantial chance’
standard.”) (emphasis added); Veterans Elec., LLC v. United States, 138 Fed. Cl. 781, 788 (2018)
(same); Omran Holding Grp. v. United States, 128 Fed. Cl. 273, 280, 284 (2016) (applying the
“substantial chance” standard to a pre-award protest where an offeror’s proposal was excluded as
nonresponsive); see also Acetris Health, LLC v. United States, 138 Fed. Cl. 579, 593-95 (2015)
(listing several cases “in which the ‘substantial chance’ test has been applied in pre[-]award bid
protests”). But see, e.g., System Application & Techs., Inc. v. United States, 691 F.3d 1374, 1382
(2012) (commenting that Weeks Marine “reject[ed] the proposition that the ‘substantial chance’
requirement applies outside of the postaward context.”); Cleveland Assets, LLC v. United States,
132 Fed. Cl. 264, 273 (2017) (applying the “non-trivial competitive injury” standard to a pre-
award protest); SOS Int’l LLC v. United States, 127 Fed. Cl. 576, 586 (2016) (“A protestor must
demonstrate prejudice [through a non-trivial competitive injury] to prove a direct economic
interest in a pre-award bid protest matter.”).
Given these precedents, Veteran Shredding errs in asserting that the “non-trivial
competitive injury” standard governs all pre-award protests. Instead, that standard provides an
alternative to the primary “substantial chance” standard when there is a lack of a bid or other
factual basis to evaluate a protestor’s chance at an award. A number of pre-award cases have
applied the “substantial chance” standard, post-bid. E.g., Orion Tech., 704 F.3d 1344 (post-bid);
Veterans Elec., 138 Fed. Cl. 781 (post-bid); Omran Holding Grp., 128 Fed. Cl. 273 (post-bid).
Therefore, in light of the factual post-bid posture of this case, Veteran Shredding must
demonstrate “a substantial chance of winning the contract” even though it is protesting pre-
award.
The factual setting distinguishes this protest from that in Weeks Marine. Weeks protested
the Army’s decision to change procurement methods, arguing the change lacked a rational basis.
Weeks Marine, 575 F.3d at 1356, 1360-61. The court noted the difficulty in applying the
“substantial chance” test pre-award to show prejudice because, “in a case such as this, there have
been neither bids/offers, nor a contract award [and] [h]ence, there is no factual foundation for a
‘but for’ prejudice analysis.” Id. at 1361 (emphasis added). But because “Weeks [must] make a
showing of some prejudice,” the court allowed it to do so by demonstrating a “non-trivial
competitive injury.” Id. at 1361-62 (emphasis in original).
Evaluating prejudice can be important in applying the “substantial chance” standard. A
protestor’s substantial chance at an award may only emerge when considering the potential effect
of the government’s alleged errors. See, e.g., Hyperion, 115 Fed. Cl. at 550 (finding that the
fourth highest bidder had standing when the protest alleged that competitors on the face of their
bids would not comply with a subcontracting limitation). Despite the potential relevance of
prejudice in determining substantial chance, direct economic interest should still be evaluated
separately from prejudice. E.g., CliniComp, 904 F.3d at 1358-59 (“Although the inquires may be
similar, prejudice must be shown either as part of, or in addition to, showing a direct economic
interest,” noting that otherwise even a minor procurement error could be prejudicial so long as
the party was an interested party) (citations omitted); Universal Marine Co. K.S.C. v. United
States, 120 Fed. Cl. 240, 248 (2015) (“[A] proper standing inquiry must not conflate the
requirement of ‘direct economic interest’ with prejudicial error.”) (citing Labatt Food Serv., Inc.
v. United States, 577 F.3d 1375, 1380 (Fed. Cir. 2009)). A party can have a substantial chance at
7
award and still not be prejudiced where, e.g., the error is minor or affects all parties equally. See,
e.g., CliniComp, 904 F.3d at 1358; Labatt, 577 F.3d at 1380-81. But, a party cannot be
prejudiced unless it first has a substantial chance of award.
The VA received five offers for its lowest priced technically acceptable solicitation, three
of which were technically-acceptable. Veteran Shredding was among the group which had
technically acceptable proposals, but its price was the highest of that trio. And, the claims of
error it makes in this protest focus primarily on VA’s price reasonableness determination, which
allegation of error would affect each of the three technically acceptable proposals equally. Had
the VA found Veteran Shredding’s offer fair and reasonable, it would have also found the two
lower bids fair and reasonable. See, e.g., Universal Marine, 120 Fed. Cl. at 248-49 (finding no
standing when the protest of the fourth highest bidder did not challenge the eligibility of two
lower-priced offers). In sum, because Veteran Shredding offered the third highest technically
acceptable bid, the court concludes that Veteran Shredding lacked a substantial chance at award.
Therefore, Veteran Shredding cannot show a direct economic interest in the protest, and thus
cannot be an interested party.
CONCLUSION
For the foregoing reasons, the court finds that Veteran Shredding lacks standing to protest
the cancellation of the pertinent solicitation. Accordingly, the government’s motion to dismiss is
GRANTED. Veteran Shredding’s and the government’s motions for judgment on the
administrative record are therefore both DENIED as moot. The clerk shall enter judgment
accordingly.
No costs.
It is so ORDERED.
s/ Charles F. Lettow
Charles F. Lettow
Senior Judge
8