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Do Hearings Make a Difference?
Confusion about the standard for determining prejudice vel non in protest proceedings is put to bed in Advanced Data Concepts, Inc. v. United States, No. 99-5064 (Fed.
Cir. June 9, 2000), 2000 U.S. App. LEXIS 12730, a decision affirming a decision of the United States Court of Federal Claims, Advanced Data Concepts, Inc. v. United States, 43 Fed. Cl. 410 (1999), on a procurement selection affirmed post-award by the United States General Accounting Office (GAO) on the record,
without a hearing, Advanced Data Concepts, Inc., B-277801.4, June 1, 1998,
98-1 CPD ¶ 145. Here the United States Court of Appeals for the Federal Circuit adopts a strict standard for relief when a protester demonstrates
procurement errors, a requirement that a protester show that these errors were “significant” and “prejudicial,” such that if they had not occurred, “there was a reasonable likelihood that [it] . . . would have been awarded the contract.” Id., slip op. at 5. We’ll explain just how this standard is stricter than that followed in federal district court reviews of procurement selections, and we’ll also examine a distinction raised in Advanced Data that so far has not been thoroughly examined—how might the result change if a selection is examined upon a hearing, rather than just reviewed on the record?
We’ll start with the easy part. The standard for etermining prejudice vel non in federal district court reviews is established in Kentron Hawaii, Limited v. Warner, 480 F.2d 1166, 1180-81 (D.C. Cir. 1973), a case proceeding under Scanwell Laboratories, Inc. v. Shaffer, 424 F.2d 859, 868-73 (D.C. Cir. 1970), and the Administrative Procedure Act, 5 U.S.C. § 706. The Kentron Hawaii court held:
We conclude that the Navy’s neglect of its duty to forward information could not have been casually related to Mr. Hall’s refusal to issue a wage determination. . . .
Appellants claim that, once any Navy error was shown, the Government should have borne the burden of showing that the Labor Department’s decision complained of would not have been affected. To the contrary, even if such a burden might eventually have shifted to the Government, it would not have done so until the appellants had shown that Hall’s decision could have been influenced by the unforwarded data. One complaining of procedural irregularity in the procurement process must first show that the alleged error at least potentially affected the substantive result. . . .51
Kentron, 480 F.2d, at 1181 (emphasis as in original text).
The United States Court of Appeals for the District of Columbia Circuit has most recently affirmed the Kentron formulation in Scheduled Airline Traffic Offices, Inc. v. Department of Defense, 87 F.3d 1356, 1361 (D.C. Cir. 1996). The Kentron formulation has been adopted in the Eleventh Circuit by Latecore International, Inc. v. U.S. Department of Navy, 19 F.3d 1342, 1356 (11th Cir. 1994); and by Choctaw Manufacturing Company, Inc. v. United States, 761 F.2d 609, 616-19 (11th Cir. 1985). Newport News Shipbuilding and Dry Dock Co. v. General Dynamics Corp., 960 F.2d 386, 392 (4th Cir. 1992), adopts the Kentron formulation in the Fourth Circuit. Smith & Wesson, Division of Bangor Punta Corp. v. United States, 782 F.2d 1074, 1078-79 (1st Cir. 1986), adopts the Kentron formulation in the First Circuit.
Princeton Combustion Research Laboratories, Inc. v. McCarthy, 674 F.2d 1016, 1021-22 (3d Cir. 1982), adopts the Kentron formulation in the Third Circuit. The Kentron formulation has been adopted in the Fifth Circuit by Bayou State Security Services, Inc. v. Dravo Utility Constructors, Inc., 674 F.2d 325, 329 (5th Cir. 1982); by Kinnett Dairies, Inc. v. Farrow, 580 F.2d 1260, 1271-72 (5th Cir. 1978); and by Hayes International Corp. v. McLucas, 509 F.2d 247, 257-58 (5th Cir. 1975).
But Advanced Data rejects this rule, in many district courts, that prejudice may be established by proof of procurement errors that at least potentially affected the election decision, a standard much lower than the significant and prejudicial, reasonable likelihood of award standard affirmed in Advanced Data. This said, Advanced Data suggests another approach, and perhaps, a different result, if procurement process errors are shown upon a hearing and yet the protester is denied relief.
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Understanding this difference requires that we return to the Administrative Procedure Act, 5 U.S.C. § 706, the substantive review criteria for the protest jurisdiction of the Court of Federal Claims under 28 U.S.C. § 1491(b)(4). Ramcor Services Group, Inc. v. United States, 185 F.3d 1286, 1288-89 (Fed. Cir. 1999). Where agency discretion is at issue, there are two Administrative Procedure Act standards for review of selections: “arbitrary or capricious” for selections reviewed on an existing record, 5 U.S.C. § 706(2)(A), and “substantial evidence” for selections reviewed upon a hearing, 5 U.S.C. § 706(2)(E). Camp v. Pitts, 411 U.S. 138, 141 (1973).
Note that the topic here is review of an exercise of agency discretion, e.g., a “best value” selection. If the gravamen of the action is agency violation of statute, 5 U.S.C. § 706(2)(C), then, as we will shortly see, review is “de novo.” Pender Peanut Corp. v. United States, 20 Cl. Ct. 447, 452-53 (1990).
Is there a difference between the arbitrary or capricious and substantial evidence review standards? Some decisions, e.g., Association of Data Processing Service Organizations, Inc. v. Board of Governors of Federal Reserve System, 745 F.2d 677 (D.C. Cir. 1984) suggest that:
When the arbitrary or capricious standard is performing the function of assuring factual support, there is no substantive difference between what it requires and what would be required by the substantial evidence test, since it is impossible to conceive of a “nonarbitrary” factual judgment supported only by evidence that is not substantial in the APA sense. . . .
Id., at 683-84. Other decisions, notably, non-binding precedent in the Federal Circuit, suppose that it makes a difference, explaining that available standards of review, “de novo,” “clearly erroneous,” “supported by substantial evidence,” and “arbitrary or capricious,” establish an “increasingly narrow focus.” SSIH Equipment, S.A. v. U.S. International Trade Commission, 718 F.2d 365, 379-83 (Fed. Cir. 1983) (additional views of Circuit Judge Nies).
SSIH Equipment explains that the “de novo” standard presents wide latitude, a standard where there may be independent judgment and weighing of a new record, and that the next, narrower standard in the review hierarchy, “clearly erroneous,” demands respect for an existing record, and only allows a tribunal to disregard an existing record if, on the entire evidence, it is “left with the definite and firm conviction that a mistake has been committed.” Id., at 381 (citing United States v. United States Gypsum Co., 333 U.S. 364, 395 (1948)).
A review on “substantial evidence” is even narrower, allowing a tribunal to set aside selections only when “it cannot conscientiously find that the evidence supporting the decision is substantial, when viewed in the light that the existing record in its entirety furnishes, including the body of evidence opposed. . . .” Id., at 382 (citing Universal Camera Corp. v. NLRB, 340 U.S. 474, 488 (1951)). Narrowest of all is “arbitrary or capricious.” Here, the selection must be sustained if an existing record evinces “rational reasoning and consideration of relevant factors.” Advanced Data Concepts, 2000 U.S. App. LEXIS, slip op. at 9; SSIH Equipment, 718 F.2d, at 383 (citing Citizens to Protect Overton Park v. Volpe, 401 U.S. 402, 416 (1971) (“whether the decision was based on relevant factors and whether there has been a clear error of judgment”)).
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Hearings on procurement selections are available both before GAO, and in the Court of Federal Claims. Typically, hearings are convened when a record is incomplete. See, e.g., Future-Tec Management Systems, Inc., Computer & Hi-Tech Management, Inc., B-283793.5; B-283793.6, March 20th, 2000, at 7; Meir Dubinsky v. United States, 43 Fed. Cl. 243, 252 (1999), appeal dismissed, 1999 U.S. App. LEXIS 21870 (Fed. Cir. Aug. 25, 1999).
Broader review of procurement selections when a hearing is needed to examine a nonexistent or incomplete record is appropriate—if the agency hasn’t the good sense to make a complete record supporting its selection, then nonexpert factfinding appropriately calls for review on a #8220;substantial evidence” standard, there being no agency action that is entitled to deference as a result of internal agency review or application of agency expertise. Dickinson v. Zurko, 527 U.S. 150, 162-64 (1999). This broader review standard is not unlike the permissible adverse inference drawn by nonexpert factfinders when a party fails to produce timely evidence within that party’s control.
Day & Zimmerman Services v. United States,
38 Fed. Cl. 591, 601-02 (1997). If there’s not a complete and comprehensive administrative record, then the agency’s selection is not entitled to review on the narrower and highly deferential “arbitrary or capricious” standard.
— Cy Phillips
Copyright © 2000 Cyrus E. Phillips, IV. All rights reserved.
Republished from Government Contractor Insights, Volume 7, Number 1, Summer 2000.
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