A recent decision, Independent Rough Terrain Center, LLC v. United States (“IRTC”),[1] confirms the U.S. Court of Federal Claims has jurisdiction over bid protests related to follow-on production contracts arising out of other transaction (“OTs”) for Department of Defense prototype projects. The court’s holding in this respect is consistent with past cases and relatively unremarkable. But the legal framework the court adopts is quite noteworthy and may even chart a path for expanded jurisdiction over protests of initial prototype OT solicitations and awards.
First, a brief introduction (or reminder) on OTs. Most federally funded agreements in the United States take one of three forms: a procurement contract, where the government is acquiring goods or services for its direct benefit or use, or a grant or cooperative agreement, where the government provides funding (or something else of value) to carry out some public purpose. Congress has further authorized some agencies to enter into other types of agreements in certain circumstances. For DoD, this includes the award of OTs to carry out prototype projects that meet the statutory criteria set forth in 10 U.S.C. § 4022, and the award of sole source follow-on production OTs or contracts upon their successful completion. In many ways, DoD’s prototype OTs look and feel and act a lot like a procurement contract – they are, after all, contracts for prototypes or prototyping services – but they are, by design, not subject to most procurement laws and regulations, including the Competition in Contracting Act (CICA), the Federal Acquisition Regulation (FAR), or the DoD FAR Supplement (DFARS). This affords greater flexibility and speed in the acquisition process. It also raises questions around traditional means of oversight, including the availability of independent review through bid protests.
A general rule has emerged in federal courts: If a prototype OT solicitation or award contemplates follow-on production, the Court of Federal Claims has exclusive jurisdiction to hear related bid protests. If, on the other hand, the prototype OT stands independent from any future production award, then any protest must be brought in a federal district court of general jurisdiction. We have discussed this rule in greater detail elsewhere: e.g., Another Piece to the Puzzle: Court of Federal Claims Has Jurisdiction over Bid Protest Where the Disputed Other Transaction Could Lead to a Follow-on Production Contract and Where Can You Protest an Other Transaction Award? Insights from Kinemetrics.[2]
Through this lens, the court’s decision to take jurisdiction in IRTC makes perfect sense: not only did the solicitation at issue contemplate follow-on production, it was for follow-on production. Specifically, the protester challenged actions of the U.S. Army Materiel Command in connection with determining which of two prototype OT recipients would receive a follow-on production contract. That the Court of Federal Claims has jurisdiction over such protests is a natural application of the court’s jurisdictional mandate, DoD’s OT statute, and past case law.
More interesting, though, is how the court reached its conclusion. Yes, the court acknowledged the prior cases and rule, noting the Court of Federal Claims has claimed jurisdiction when a prototype OT award “initiated an acquisition process that led to, or at least contemplated, the eventual award of a follow-on production contract.” But before reaching those cases, the court pinpointed a different, higher-level question guiding its analysis. According to IRTC, “the relevant inquiry requires the Court to look at what the Government is seeking through the solicitation of proposals.” If the purpose is “acquiring property or services,” then the solicitation is a “procurement” properly within the court’s jurisdiction.[3] Because in IRTC “the Solicitation at issue [was] to acquire for the benefit of the Army the goods and services proposed” by the prototype OT performers, exclusive jurisdiction properly sat with the Court of Federal Claims.
The court distinguished this from its prior decision in Space Exploration Technologies Corp. v. United States (“SpaceX”),[4] where it transferred a prototype OT bid protest to the Central District of California because the government had no intent to award direct follow-on production contracts. In that case, the U.S. Air Force issued prototype OTs as investments in developing the commercial space launch industry, from which the Government would procure services in the future through full-and-open commercial services competitions that were “separate and distinct” from the OTs. Thus, the OTs were not a procurement because, according to the court, they “did not involve the procurement of any goods or services” by the agency. The court concluded that, “[i]n this way, a solicitation for a follow-on production contract is materially distinguishable from a solicitation issued during the OT prototype phase.”
That may arguably be true for the OTs at issue in SpaceX, but it is too broad a stroke to apply to all prototype OTs. In fact, one could reasonable estimate that most prototype OTs involve the acquisition of property or services in some form or another, whether through the delivery of prototype hardware or software or related design documents, or provision of R&D or prototyping services. Indeed, DoD has even admitted, in historical (and admittedly outdated) versions of its Other Transactions Guide, that prototype OTs are “acquisition instruments” that are “intended to provide DoD a direct benefit.”[5] In that case, it seems logical to extend the court’s definition of a “procurement,” and its holding in IRTC, to give it jurisdiction over OT bid protests even where the initial prototype OT solicitation does not contemplate a follow-on production award, but nevertheless involves the acquisition of prototypes or prototyping services.
There is a good public policy rationale to support this result. Keep in mind the alternative if the Court of Federal Claims declines jurisdiction: it is not a total bar to judicial review, but rather jurisdiction in one of the man federal district courts of general jurisdiction, before a judge who is unlikely to be as familiar with bid protests or government contracting as the specialized judges at the Court of Federal Claims.
We will watch with interest to see whether IRTC is in fact a harbinger of expanded OT bid protest jurisdiction at the Court of Federal Claims, much like we are watching to see if GAO will expand its own jurisdiction over OT bid protests involving follow-on production awards, as we wrote about recently in Has The GAO Opened the Door to Certain Other Transaction (OT) Bid Protests?.
[1] No. 24-160 (Fed. Cl. July 1, 2024).
[2] For discussions of GAO’s OT jurisdiction, see, e.g., Has The GAO Opened the Door to Certain Other Transaction (OT) Bid Protests? and GAO Sharpening Its Blade [Strategies] on OTA Review
[3] Ironically, this definition, based in Federal Circuit precedent, is pulled from 41 U.S.C. § 111, a section of the U.S. Code comprising the very procurement laws from which OTs have been exempted.
[4] 144 Fed. Cl. 433 (2019).
[5] Dep’t of Def., Other Transactions Guide for Prototype Projects, Version 1.2.0 at 1-2 (Jan. 2017); see also USD (AT&L), “Other Transactions” (OT) Guide for Prototype Projects § C1.6 (Dec. 21, 2000) (“OT prototype authority may be used only to carry out prototype projects that are directly relevant to weapons or weapon systems proposed to be acquired or developed by the Department. As such, any resulting OT awards are acquisition instruments since the government is acquiring something for its direct benefit.”).