Well, this will be interesting…
A threshold question in every bid protest is whether the company that files that protest is an “interested party.” If you’re not an interested party, you can’t pursue the protest.
The principle behind this requirement is that courts aren’t supposed to be forums for the airing of grievances. You can’t just sue because you’re disappointed in how the government does something. You need to have a dog in the hunt, an iron in the fire, some skin in the game. You need to have some … interest at stake.
We've talked a bit about this before, and the courts have interpreted the interested-party requirement to mean "an actual or prospective bidder or offeror whose direct economic interest would be affected by the award of a contract or the failure to award a contract."
Notably, to be an interested party, the general rule was that—at least—you had to actually intend to bid on a solicitation.
So, it was pretty safe to say that a subcontractor could not be an interested party. After all, a subcontractor doesn’t bid on a solicitation, only the prime does. The prime could be an interested party, but a subcontractor could not be.
But that was, like, so two weeks ago. Now we have Percipient.ai v. United States, and hoo-boy giddy up for a wild few years while the #govcon industry sorts this one out.
Percipient.ai—as you might guess from the domain name—sells an artificial-intelligence product called "Mirage,"[1] which does something related to computer vision and geospatial data. And, back in 2021, the National Geospatial-Intelligence Agency (NGA) made a $377 million award to CACI for analyzing geospatial data under a contract called SAFFIRE.
Relevant to our story, Percipient did not bid on the SAFFIRE contract because it couldn't meet all of SAFFIRE's requirements. Also relevant to our story is that Percipient is not actually a subcontractor to CACI despite its best efforts to be one.
According to Percipient, it approached both NGA and CACI to have CACI use Mirage. Also according to Percipient, both NGA and CACI thought, at various points, that Mirage could satisfy some of SAFFIRE's requirements. NGA nominally tested out Mirage, but according to Percipient, NGA "deliberately failed to evaluate Mirage’s ability" to meet the SAFFIRE requirements. So both NGA and CACI went on to build their own in-house computer vision tool.
Oh, but Percipient didn't just accept its fate, however. It sued the government, arguing that NGA and CACI violated 10 U.S.C. § 3453, which requires agencies to implement policies that create a preference for commercial services. Specifically, Percipient argued that NGA violated the provision that is intended to ensure that "procurement officials in that agency, to the maximum extent practicable [ensure that] prime contractors and subcontractors at all levels under the agency contracts to incorporate commercial services, commercial products, or nondevelopmental items other than commercial products as components of items supplied to the agency."
NGA argued that Percipient was not an interested party, that it lacked standing and that, anyway, because the relevant task order was under $25 million, you can’t protest under the “task order bar.” And, at the Court of Federal Claims, the government prevailed.
Now, though, on appeal at the Federal Circuit, Percipient won!
If you’re a lawyer who does government contracts things, you’re gonna need to read the whole thing. But the tl;dr is that two of the three judges on the court concluded that a company can be an interested party and sue if it is “an offeror of a commercial product or commercial service that had a substantial chance of being acquired to meet the needs of the agency had the violation not occurred.”
Here’s the bottom line from the court majority:
For all these reasons, we hold that, in the context of this case involving alleged violations of 10 U.S.C. § 3453 without challenging the contract, an interested party includes an offeror of commercial or nondevelopmental services or items whose direct economic interest would be affected by the alleged violation of the statute. Here, Defendants do not dispute Percipient’s direct economic interest. Percipient offers a commercial product that is plausibly alleged to satisfy the agency’s needs, has plausibly alleged inter alia that the agency violated the requirements of § 3453 by not evaluating its product for integration into the SAFFIRE procurement, has plausibly alleged that but for this violation of the statute its Mirage product would be incorporated into the SAFFIRE procurement, and has offered NGA and CACI its product. Under these facts, we hold that Percipient has standing to challenge the agency’s alleged violation of § 3453.
So, there you go. Not gonna pretend otherwise, I haven’t even begun to fully internalize the impact of all of this.
What I will also tell you is that a third judge vigorously dissented and raised some alarms. Here’s what he said:
But § 3453 and its sister statute 41 U.S.C. § 3307 apply to all government contracts for products and services, so it is fair to expect that potential subcontractors will soon flood the Claims Court with § 1491(b)(1) protests. Think of all the products and services that go into government contracts for a battleship, or airplane, or new headquarters for an agency, and the vast number of potential subcontractors who can so easily allege possession of a suitable off-the-shelf product or service and inadequate agency attention to § 3453’s requirements.
Think of all of the products and services, indeed!
Time will tell how this all plays out. The smart money is apparently that this will go to an en banc panel of the Federal Circuit.
In the meantime, though, Percipient got its day in court. And, if the majority is right that you can be a potential subcontractor and sue the government as an interested party, I think the dissenting judge will also be right that there are going to be a lot of companies out there ready to go to court.
They say that in a gold rush, you should sell shovels. After reading Percipient’s expansion of who can be interested in procurement litigation, maybe it’s time to open a popcorn stand.
[1] Look, I'm the first to admit that I'm not any good at naming things. But it's hard to think of too many names for software that leans more heavily into the zeitgeist but gets it entirely backward than Mirage for AI. Like, ok, I guess "Snake Oil" or "Slop" or "Deep Bias" would be worse. But Mirage is up there!