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Limitations Imposed by Administrative Procedure Act Review

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Two recent decisions by the United States Court of Appeals for the Federal Circuit concern the limited standard of review imposed on Protests, i.e., challenges to Solicitations, else challenges to particular Contracts.

The first, The second, Axiom Resource Management, Inc. v. United States, Fed. Cir. No. 2008-5072, -5073, May 4, 2009 is a reversal of a decision of the United States Court of Federal Claims which had precluded the Army from exercising an option for renewed performance of a program management support Contract, there after the Court of Federal Claims concluded that the Army Contracting Officer had unlawfully failed to mitigate a potential organizational conflict of interest.

In both decisions the Federal Circuit applied, as required by 28 U.S.C. § 1491(b)(4), the Administrative Procedure Act standard of review set out in 5 U.S.C. § 706(2)(A). Generally, this review standard requires: (1) that the Court look only at the record (the facts) as they were before the Contracting Officer, Florida Power & Light Company v. Lorion, 470 U.S. 729, 743-744 (1985); and (2) that the reviewing Court judge the Contracting Officer’s actions solely by the grounds invoked by the Contracting Officer, and not by substituting what the Court considers to be a more adequate, or a better, basis, OMV Medical, Incorporated v. United States, 219 F.3d 1337, 1344 (Fed. Cir. 2000) (applying SEC v. Chenery Corporation, 332 U.S. 194, 196 (1947)).

This Administrative Procedure Act standard of review is narrow, this reflecting a concern that Courts not interfere with matters entrusted to the judgment of Contracting Officers. A different regime prevails under the Contract Disputes Act, 41 U.S.C. §§ 7101-7109. There a de novo standard of review is imposed, 41 U.S.C. § 7104(b)(4), and the Court conducts an independent examination of the relevant facts.

The problem with Axiom Resource Management, per the Federal Circuit, was that the Court below admitted extra-record evidence, freely allowing the parties to supplement the record “with whatever they want,” without first making a threshold determination whether this extra-record evidence was necessary. Doing so, the Court of Federal Claims admitted the declarations of two expert witnesses, and then the Court relied on these declarations to conclude that the Contracting Officer’s efforts to mitigate a potential organizational conflict of interest were unreasonable. This, the Federal Circuit observed, was de novo review, not Administrative Procedure Act review, and was “inconsistent” with the discretion given the Army Contracting Officer and with administrative law principles.

The Federal Circuit’s affirmance in Tip Top Construction is less obvious than the Federal Circuit’s reversal in Axiom Resource Management.

The Tip Top Construction Contracting Officer had rejected the proffered individual surety as nonresponsible because, reasoned the Contracting Officer, marketable coal was a “speculative” asset, this per Federal Acquisition Regulation 28.203-2(c). But other, nonetheless acceptable assets which may be pledged by individual sureties are likewise “speculative,” i.e., stocks and bonds traded on national U.S. security exchanges or real property owned in fee simple, Federal Acquisition Regulation 28.203-2(b).

This reality was enough of a problem for the Court of Federal Claims that the Court expressly found the Contracting Officer’s nonresponsibility determination reasonable not on the grounds invoked by the Contracting Officer, but rather because assets pledged by an individual surety, whether or not “speculative,” must, per Federal Acquisition Regulation 28.203-1(b), be secured by deposit into an escrow account, else secured by a recorded lien on real property. And a pile of coal, although it has a readily ascertainable value, cannot be deposited into escrow.

The Federal Circuit explicitly ignores this disconnect, simply holding in Tip Top Construction that the Contracting Officer’s nonresponsibility determination “is sustainable on the ground articulated by the contracting officer—namely, that the pledged coal was not the type of asset that is acceptable under the FAR as a bid bond asset.” Yet in OMV Medical, the Federal Circuit returned a price reasonableness determination to the Court of Federal Claims for further proceedings, an express recognition of the rule in Chenery, when it turned out that the Court below in fact had affirmed that price reasonableness determination on a ground not considered by the Contracting Officer.

The affirmance in Tip Top Construction appears to be a bow to practicality rather than an acknowledgment of administrative law principles. Axiom Resource Management, on the other hand, demands “by the book” adherence to the narrow Administrative Procedure Act standard of review.