POSTSCRIPT MARKET RESEARCH

37 Nash & Cibinic Rep. NL ¶ 44

Nash & Cibinic Report | July 2023

The Nash & Cibinic Report

Acquisition Planning

Ralph C. Nash

¶ 44. POSTSCRIPT: MARKET RESEARCH

In Market Research: A Rare Challenge, 37 NCRNL ¶ 2, we applauded the thorough market research done by the Department of Veterans Affairs in determining that a service was commercially available. See Cellco Partnership dba Verizon Wireless, Comp. Gen. Dec. B-420911, 2022 CPD ¶ 268, 2022 WL 16710590. That inspired us to take another look at the Federal Acquisition Regulation rules on market research. The initial requirement is in FAR 7.102:

(a) Agencies shall perform acquisition planning and conduct market research (see [FAR] part 10) for all acquisitions in order to promote and provide for—

(1) Acquisition of commercial products or commercial services, or to the extent that commercial products suitable to meet the agency’s needs are not available, nondevelopmental items, to the maximum extent practicable (10 U.S.C. 3453 and 41 U.S.C. 3307);

(2) Full and open competition (see [FAR] part 6) or, when full and open competition is not required in accordance with [FAR] part 6, to obtain competition to the maximum extent practicable, with due regard to the nature of the supplies or services to be acquired (10 U.S.C. 3206(a)(1) and 41 U.S.C. 3306(a)(1));

(3) Selection of appropriate contract type in accordance with [FAR] part 16; and

(4) Appropriate consideration of the use of pre-existing contracts, including interagency and intra-agency contracts, to fulfill the requirement, before awarding new contracts. (See [FAR] 8.002 through 8.004 and [FAR] subpart 17.5).

The FAR Part 10 Guidance

Reading FAR Part 10 we find that the guidance on when to conduct market research differs from the above mandatory rule. FAR 10.001 states the following policy regarding market research:

(a) Agencies shall—

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(3) Use the results of market research to—

(i) Determine if sources capable of satisfying the agency’s requirements exist;

(ii) Determine if commercial products or commercial services, or, to the extent commercial products suitable to meet the agency’s needs are not available, nondevelopmental items are available that—

(A) Meet the agency’s requirements;

(B) Could be modified to meet the agency’s requirements; or

(C) Could meet the agency’s requirements if those requirements were modified to a reasonable extent;

(iii) Determine the extent to which commercial products or nondevelopmental items could be incorporated at the component level;

(iv) Determine the practices of firms engaged in producing, distributing, and supporting commercial products or commercial services, such as type of contract, terms for warranties, buyer financing, maintenance and packaging, and marking;

(v) Ensure maximum practicable use of recovered materials (see [FAR] subpart 23.4) and promote energy conservation and efficiency;

(vi) Determine whether consolidation is necessary and justified (see [FAR] 7.107-2) (15 U.S.C. 657q);

(vii) Determine whether bundling is necessary and justified (see [FAR] 7.107-3) (15 U.S.C. 644(e)(2)(A));

(viii) Determine whether the acquisition should utilize any of the small business programs in accordance with [FAR] part 19; and

(ix) Assess the availability of supplies or services that meet all or part of the applicable information and communication technology accessibility standards at 36 CFR 1194.1 (see [FAR] subpart 39.2).

Note that the early uses are focused on determining whether commercial products or services are available—furthering the policy of making maximum use of them. But when we get to (v) we encounter some new uses:

1. 1. Promote energy conservation and efficiency.
2. 2. Assess the impact of consolidation or bundling.
3. 3. Look for small businesses.
4. 4. Look for supplies or services that meet all or part of the applicable information and communication technology accessibility standards.

Interestingly, the market research procedures described in FAR 10.002 ignore these uses and focus in FAR 10.002(b)(1) and FAR 10.002(c) and (d) on implementing the policy of obtaining commercial products and services. The balance of the procedural guidance in FAR 10.002(b)(2) contains a list of the techniques that can be used to conduct market research.

Using Commercial Products Or Services

The landmark decision on the adequacy of market research to maximize the use of commercial products or services is Palantir USG, Inc. v. U.S., 129 Fed. Cl. 218 (2016), 58 GC ¶ 430 aff’d, 904 F.3d 980 (Fed. Cir. 2018), 60 GC ¶ 287. There, the agency had conducted market research seeking contractors capable of developing software to meet its requirements. In response to inquiries, it had later considered, but rejected, the use of a commercial product. In granting the protest, the U.S. Court of Federal Claims held that the market research was inadequate, stating:

The limited information included in the Requests for Information, the Market Research Report, or even in the July 1, 2016 Determination, does not meet the minimal requirement of demonstrating that the defendant conducted a genuine inquiry that could enable it to reach a rational conclusion not to consider commercial items, even after Palantir had urged the Army to consider its product as a commercially available alternative. The statute at 10 U.S.C. § 2377 requires “[t]he head of an agency shall use the results of market research to determine whether there are commercial items.” As noted above, the Market Research Report only stated that “[s]ignificant portions of the anticipated Increment 2 scope of work such as Data Fusion, Intelligence Support to Cyber, and DIB [Integrated Backbone] upgrade are not available as a commercial product. As such, the DCGS-A Increment 2 development effort cannot be procured as a commercial product.” This language in the Market Research Report is conclusory, and without any examples or support for the conclusions. The Market Research Report does not identify which respondents indicated commercial items were available, that Palantir had repeatedly tried to inform the Army of its capabilities to provide a commercial item, or that Palantir did, in fact, provide commercial items to other Department of Defense agencies. [Footnote omitted.]

In affirming, the U.S. Court of Appeals for the Federal Circuit commented on the need for documentation to support the decision that there was no available commercial product, as follows:

We acknowledge that there is no statutory or regulatory requirement for agencies to document their determinations pertaining to [10 U.S.C.A.] § 2377 and FAR Part 10. See Advanced Am. Constr., Inc. v. United States, 111 Fed. Cl. 205, 227 (2013) (“[T]he language of [FAR] 10.002(e) is precatory in nature and does not establish any mandatory documentation requirement. That section states that agencies ‘should’ document the results of their market research; it does not state that those agencies ‘shall’ do so.”). Nevertheless, the record must be sufficient to permit meaningful judicial review consistent with the Administrative Procedure Act, 5 U.S.C. § 706. See Motor Vehicle Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43, 103 S. Ct. 2856, 77 L. Ed. 2d 443 (1983) (“[T]he agency must examine the relevant data and articulate a satisfactory explanation for its action including a ‘rational connection between the facts found and the choice made.’” (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 83 S. Ct. 239, 9 L. Ed. 2d 207 (1962))); see also Sierra Club v. Gorsuch, 715 F.2d 653, 660–61, 230 U.S. App. D.C. 179 (D.C. Cir. 1983) (“If there is reasoned decisionmaking lurking behind such agency behavior, it is yet to be articulated. For agency action to be upheld, it must not only be explainable; it must also be explained.”); Bagdonas v. Dep’t of Treasury, 93 F.3d 422, 426 (7th Cir. 1996) (“The statement of reasons need not include detailed findings of fact but must inform the court and the petitioner of the grounds of decision and the essential facts upon which the administrative decision was based.” (citing Kitchens v. Dep’t of Treasury, 535 F.2d 1197, 1199–1200 (9th Cir. 1976))); Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1338 (Fed. Cir. 2001) (“Garufi”) (citing Supreme Court decisions establishing that, even if the agency is not obligated to provide reasons, a court may nonetheless order the agency to provide explanation if such an explanation is required for meaningful judicial review). Here, the administrative record plainly shows that the Army was on notice that Palantir’s product might be a commercial item that would satisfy its requirements, whether as-is or with modifications. Despite that notice, the Army’s ultimate determination regarding its market research excluded commercial items from consideration in a conclusory fashion. On this record, we conclude that the Army did not rationally use its market research results to determine whether there are available commercial items that: “(A) meet the agency’s requirements; (B) could be modified to meet the agency’s requirements; or (C) could meet the agency’s requirements if those requirements were modified to a reasonable extent.” [10 U.S.C.A.] § 2377(c)(2); FAR 10.001(a)(3)(ii).

Subsequent decisions have refused to overcome a determination that there was no commercial product or service available when the agency has conducted thorough market research. See Analytical Graphics, Inc. v. U.S., 135 Fed. Cl. 378 (2017), denying a protest where extensive market research had revealed that 71% of the requirement could be met be a commercial product but the agency decided that it was important not to sever the requirements. Interestingly, one of the justifications accepted by the court for the need for a noncommercial product was that commercial vendors did not give the agency Government-purpose rights to their data and the agency had no time to negotiate for such rights.

C3.ai, Inc., Comp. Gen. Dec. B-418676, 2020 CPD ¶ 256, is another decision finding that an agency decision, after market research, to consolidate commercial and noncommercial work was a rational application of the commercial product rule.

mLINQS, LLC v. U.S., No. 22-1351, 2023 WL 2366654 (Fed. Cl. Mar. 6, 2023), which we discussed in Postscript: Mandatory Consideration of Commercial Products, 37 NCRNL ¶ 38, demonstrates sound market research. There, the initial market research found that there was a product that had the potential to meet the agency’s needs and the agency awarded a contract to that company. After three years the agency determined that the product was not performing and conducted additional market research which indicated that there was no commercial product available. The court ruled that the agency was rational in stopping its work with the protester and moving on to a competition for a noncommercial solution.

Obtaining Competition

The second policy requirement in FAR 7.102 is to conduct market research in order to meet the statutory requirements for obtaining competition. When an agency uses one of the statutory exceptions to obtaining competition, it must justify that action in writing and that justification and approval is subject to scrutiny during litigation. See, for example, Harmonia Holdings Group, LLC v. U.S., 145 Fed. Cl. 583 (2019), where the court denied a protest of the award of a follow-on contract to the incumbent contractor. Because the initial award had been made under the Federal Supply Schedule, the agency had relied upon FAR 8.405-6(a)(1)(i)(C), which allows an agency to limit the sources it considers where “the new work is a logical follow-on to an original Federal Supply Schedule order” and doing so is “[i]n the interest of economy and efficiency.” The court rejected Harmonia’s argument that the sole-source determination was based on inadequate market research, describing the market research as follows:

In this case, the market research report the agency finalized in October of 2018 explains that its market research efforts included performing searches of the internet and [General Services Administration] Schedule IT 70 to identify companies that performed applications development work. In addition, the agency reviewed “[h]istorical acquisition information, including the current contract and similar contracts.” Further, the agency conferred with its own experts who had “personal knowledge of the applications, content, processes and the time it took for MIL Corp to acclimate and understand the [International Trade Administration] environment.”

The record also reveals that after the agency tentatively decided to sole source the contract to MIL Corp in October of 2018, it took the extra step of issuing a notice of its intent to do so, even though such advanced notice was not required by the applicable FAR provision. See FAR 8.405-6(a)(2)(i) (specifying that an agency must post notice of an order supported by a limited-sources justification “[w]ithin 14 days after placing an order”). In that notice, the agency solicited comments and capabilities statements from interested parties. It then engaged with a rather hostile Harmonia by email, explaining the reasons why it was not inclined to consider other contractors, but nonetheless supplying Harmonia with additional information and inviting it to submit a capabilities statement, which Harmonia ultimately did.

This is another example of good market research.

In contrast in AGMA Securitv Services v. U.S., 152 Fed. Cl. 706 (2021), the court enjoined the award of a bridge contract to the incumbent contractor because the J&A did not meet the rational basis standard. The court reasoned that the fact that many of AGMA’s employees had been screened when it had been awarded the initial follow-on contract (before protests resulted in the termination of that contract) made it a potentially viable competitor for the bridge contract even though the agency had only 10 days to award it after it lost a second protest.

The agency in AGMA didn’t have to actively seek competition because it knew there were two companies vying for the award. But what if the agency finds through its market research that there appears to be only one viable source? Does it have an obligation to take steps to find competitors? The few decisions finding such an obligation generally deal with situations where the sole source is because of the Government’s lack of access to proprietary data. See Sabreliner Corp., Comp. Gen. Dec. B-288030, 2001 CPD ¶ 170, 43 GC ¶ 420, and HEROS, Inc., Comp. Gen. Dec. B-292043, 2003 CPD ¶ 111, 45 GC ¶ 286, sustaining protests that the Army had performed inadequate market research and advanced planning in determining that only the original equipment manufacturer or its licensees had the necessary data to perform overhaul work. The protesters showed that there was commercial information available to allow other owners of the product to obtain competition for this work. In HEROS, the Government Accountability Office stated:

[C]ontracting officials must act affirmatively to obtain and safeguard competition; they cannot take a passive approach and remain in a sole-source situation when they could reasonably take steps to enhance competition.

See also RBC Bearings Inc., Comp. Gen. Dec. B-401661, 2009 CPD ¶ 207, 51 GC ¶ 424, sustaining a protest because the agency failed to work with the protester to qualify its product over a 10-year period.

Other decisions have found that the agency’s market research justified a sole-source award. See Chase Defense Partners, Comp. Gen. Dec. B-421411, 2023 CPD ¶ 93, 2023 WL 3055195 (proper to limit competition to single approved source); Acme Products & Engineering Inc., Comp. Gen. Dec. B-419495, 2021 CPD ¶ 210, 2021 WL 2327513 (protester had produced product using drawings agency had created by reverse engineering proprietary product but protester’s product failed when put to use); Potomac Electric Corp., Comp. Gen. Dec. B-418908, 2020 CPD ¶ 328, 2020 WL 6118740 (protester failed to follow agency procedures to qualify a product to compete with a product protected by proprietary data); WorldWide Language Resources, Inc., Comp. Gen. Dec. B-299315.7, 2010 CPD ¶ 208, 2010 WL 3523741 (modification of existing contract until work could be recompeted supported by extensive communications with potential vendors).

There is also one decision ruling on a protest contesting the agency’s actions to develop competition. See BAE Systems Norfolk Ship Repair, Inc. v. U.S., 163 Fed. Cl. 217 (2022), denying a protest of the agency’s decision to cancel a solicitation where only one contractor had responded in order to relax the specification when a second contractor told the agency it could compete for the work with that specification revision. The court analyzed the issue as to whether the agency had complied with the cancellation provision in FAR 5.206(e) as follows:

[T]he Court finds that there was sufficient market research to inform the contracting officer’s judgment that cancellation was necessary. FAR § 2.101 defines “market research” as “collecting and analyzing information about capabilities within the market to satisfy agency needs.” 48 C.F.R. § 2.101. Nothing in the FAR’s definition prescribes or limits the way in which an agency may collect information. Furthermore, FAR 10.002 provides that “market research may include…[c]ontacting knowledgeable individuals in Government and industry regarding market capabilities to meet requirements.” 48 C.F.R. § 10.002(b)(2)(i). It also states that “[t]he extent of market research will vary, depending on such factors as urgency, estimated dollar value, complexity, and past experience.”

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[T]he administrative record contains market research sufficient to support a finding that the contracting officer had a reasonable basis for the exercise of her judgment in cancelling the First Solicitation[.] [Footnote omitted.]

This is a good example of an agency taking a proactive role to create competition.

Our Conclusion

From this survey of protest decisions it appears that agencies are doing a good job using their existing tools to seek commercial products or services or to find potential competitors. Agencies issue requests for information on the System for Award Management (SAM) website and usually try to work with vendors that have expressed an interest in competing for the work. But there is not much evidence that they vigorously make a proactive effort to reach out beyond the pool of normal Government contractors. After all, how many commercial companies monitor SAM? We’ve read about the efforts of the Defense Innovation Unit to actively search for commercial companies with potentially useful technology but that seems to be the exception rather than the rule.

The biggest failing this survey displays is the numerous failures to qualify a competitor for a sole-source product. The military services seem to be locked into dealing with a single source for spare parts even though one of their weapon systems is going to be in service for many years. Here, market research should be used to find the most qualified company to develop a competitive part and then funds should be provided to support that company in meeting any qualification requirements. Spending money in the short run can save a lot of money in the long run. RCN

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