GovCon Blog: Offerer Needs Own FSS Contract to be Eligible for FSS BPA

October 1, 2014

The Court of Federal Claims recently held that a company could not rely on its affiliate’s Federal Supply Schedule (FSS) contractor status in order to comply with the solicitation. The procurement at issue involved the purchase of glucose test strips from an FSS contract. The Federal Acquisition Regulation (FAR) and the solicitation prohibited entering into the FSS blanket purchase agreement (BPA) with a non-schedule contractor. However, the Defense Health Agency (DHA) awarded the BPA to Abbott Diabetes Care Sales Corp. (Abbott), who did not have the required FSS contract but its affiliate Abbott Laboratories Inc. (ALI) did. Arkray (the protester) argued that Abbott improperly relied on the FSS of its corporate affiliate to provide the strips.

The court had previously remanded the case to the DHA to determine whether Abbott could “properly hold itself out as” having an FSS as required by the solicitation. On remand, the DHA decided to proceed with the BPA award because it concluded Abbott was either acting as ALI’s agent under its FSS contract or the companies were sufficiently closely related enough to allow Abbott to rely on ALI’s FSS contract to satisfy the terms of the solicitation.

Judge Firestone rejected the government’s argument that Abbott was acting on behalf of ALI stating that “the mere fact that [Abbott] listed ALI’s FSS contract number in its bid is insufficient to show that [Abbott’s representative] entered into a BPA as an agent on behalf of ALI or that [Abbott] held an FSS contract.” Judge Firestone further rejected the government’s alternative rationale, because Abbott’s reliance on ALI’s FSS contract was “clearly prohibited” by both the FAR and the plain language of the solicitation. Judge Firestone acknowledged the line of cases allowing procurement official’s general discretion to allow offerors to rely on their affiliates’ performance history or expertise to meet solicitation requirements but distinguished those cases due to the fact that the “Contracting Officer in this case did not have discretion to ignore the clear regulatory requirements in the FAR or terms of the solicitation.” Thus, “the fact that [Abbott] is authorized to offer supplies from the ALI FSS contract and that ALI will agree to the price [Abbott] offered does not eliminate the legal defect in the BPA award.”

The court concluded DHA’s award of the BPA to Abbott prejudiced Arkray, therefore entitling the company to injunctive relief. Given that Arkray’s tests strips were the second highest rated and the second most cost-effective test strips after Abbott, the court reasoned the company was prejudiced because Arkray’s strips would have had a reasonable chance of receiving the BPA. The government predicted a cost savings of $64.8 million a year using Abbott’s strips but the court found any cost savings were due to the government’s own mistakes in the procurement process. Furthermore, the court determined because test strips were still available to DHA patients from other suppliers, though at a higher price, the overriding public interest in preserving the integrity of the procurement process favored Arkray.

See ARKRAY USA, Inc. v. United States, No. 14-233C (Sept. 9, 2014)(Firestone, J.)

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