National Government Services, Inc. v. United States

United States Court of Appeals

for the Federal Circuit

______________________

NATIONAL GOVERNMENT SERVICES, INC.,

Plaintiff-Appellant

UNITED STATES,

Defendant-Appellee

______________________

2018-1927

______________________

Appeal from the United States Court of Federal Claims

in No. 1:18-cv-00200-MMS, Chief Judge Margaret M.

Sweeney.

______________________

Decided: May 2, 2019

______________________

MATTHEW HILLEL SOLOMSON, Federal Government So-

lutions, Anthem, Inc., Baltimore, MD, argued for plaintiff-

appellant. Also represented by MONICA ROSE STERLING,

ANUJ VOHRA, Crowell & Moring, LLP, Washington, DC.

WILLIAM PORTER RAYEL, Commercial Litigation

Branch, Civil Division, United States Department of Jus-

tice, Washington, DC, argued for defendant-appellee. Also

represented by ROBERT EDWARD KIRSCHMAN, JR., DOUGLAS

K. MICKLE, JOSEPH H. HUNT.

______________________

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

Before PROST, Chief Judge, MOORE and WALLACH,

Circuit Judges.

PROST, Chief Judge.

In this bid protest, National Government Services, Inc.

(“NGS”) appeals the decision of the Court of Federal Claims

(“Claims Court”) denying NGS’s pre-award bid protest.

Nat’l Gov’t Servs., Inc. v. United States, 137 Fed. Cl. 715

(2018) (“Decision”). We reverse the decision of the Claims

Court and remand for further proceedings.

The Centers for Medicare & Medicaid Services (“CMS”)

is an agency of the U.S. Department of Health and Human

Services (“HHS”). CMS uses contractors to administer

claims and benefits related to the Medicare program.

From the inception of Medicare in 1965 until imple-

mentation of the Medicare Prescription Drug, Improve-

ment, and Modernization Act of 2003 (“Medicare

Modernization Act”), CMS procured contractors to admin-

ister Medicare claims and benefits through noncompetitive

contracts. Decision, at 2. In the Medicare Modernization

Act, however, Congress added Section 1874A to the Social

Security Act (Title XVIII) to create the Medicare adminis-

trative contractor (“MAC”) program. See Medicare Mod-

ernization Act, Pub. L. No. 108-173, § 911(a)(1), 117 Stat.

2066, 2378–83 (codified as amended at 42 U.S.C. § 1395kk-

1 (“the MAC Statute”)).

The companies that process Medicare claims on behalf

of CMS are called Medicare administrative contractors or

MACs. See 42 U.S.C. § 1395kk-1(a)(3). An “A/B” MAC pro-

vides services with respect to Medicare Parts A and B. See

42 U.S.C. § 1395kk-1(a)(4); see also id.

§§ 1395h(a), 1395u(a). The MAC Statute generally re-

quires CMS to “use competitive procedures when entering

into contracts with [M]edicare administrative contractors

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

[MACs] under this section, taking into account perfor-

mance quality as well as price and other factors.”

§ 1395kk-1(b)(1)(A).

The nationwide MAC contract market is currently di-

vided into twelve geographic jurisdictions: 5, 6, 8, and 15,

plus E, F, H, and J–N. Decision, at 3. For example, Juris-

diction H represents 13.5% of the current A/B Medicare

workload and covers Arkansas, Colorado, Louisiana, Mis-

sissippi, New Mexico, Oklahoma, and Texas. Meanwhile,

Jurisdiction 8 represents 5.9% of the current A/B Medicare

workload and covers Indiana and Michigan. Decision, at 3.

CMS solicits contracts for each jurisdiction.

In 2010, CMS began preparing for its second round of

solicitations to replace the original A/B MAC contracts as

they expired.

In July 2010, CMS issued a Request for In-

formation (“RFI”) that described changes to CMS’s ap-

proach to the A/B MAC procurements and provided an

opportunity for potential offerors to give input on those

changes. One of CMS’s proposed changes was to imple-

ment a contract award limit for the A/B MAC contracts to

be included in all A/B MAC solicitations. J.A. 11465 (RFI).

The purpose of this award limit was “to place a limit, in all

A/B MAC Round II solicitations, on the amount of A/B MAC

contract responsibility that any single entity can win . . . in

a ‘prime contractor’ capacity.” Decision, at 5 (quoting

J.A. 11465 (RFI)).

In August 2010, CMS issued another RFI regarding

this proposed award limitations policy (“Award Limita-

tions Policy” or “Policy”). See J.A. 11472–82 (RFI). CMS

indicated that this Policy would be included in all

Expiration of MAC contracts is staggered. See De-

cision, at 15 (listing the release date for the next solicita-

tion in each jurisdiction).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

solicitations for the second round of MAC contracts. Deci-

sion, at 9 (citing J.A. 11478). After making some revisions

to the Policy, CMS included the Policy in the Jurisdiction

F solicitation, which CMS issued in October 2010. Accord-

ing to the Policy, CMS would not award more than 26% of

the national A/B Medicare workload to any single contrac-

tor or more than 40% of the national A/B Medicare work-

load to any one set of affiliates. Decision, at 10 (quoting the

Jurisdiction F solicitation).

CMS designed the Award Limitations Policy to address

two market concerns: (1) “business continuity concerns

with awarding an overly-large share of the Medicare claims

administration workload to any one entity (or set of affili-

ated entities)”; and (2) “maintain[ing] a dynamic, competi-

tive marketplace, where no single entity (or set of affiliated

entities) control/s so much of the agency’s MAC business

that all or most other players are driven from the market,

returning the agency to a less-than-competitive environ-

ment.” J.A. 11801 ¶ 7 (Klots Decl.).

CMS continued to incorporate the Award Limitations

Policy into solicitations for other jurisdictions, including

Jurisdiction H (“JH”). See J.A. 15546–48. As stated in the

JH solicitation, the Policy explains:

CMS will not award more than 26% of the national

A/B Medicare workload, in A/B MAC prime con-

tracts, to any single contractor (single corporate en-

tity). In addition, CMS will not award more than

40% of the national A/B Medicare workload, in A/B

MAC prime contracts, to any one (1) set of affili-

ates.

CMS is placing no limitation on the number of A/B

MAC prime contracts for which any entity, or enti-

ties, may submit proposals. As A/B MAC prime

contracts are awarded, the awardee’s Medicare

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

workload base will be appropriately adjusted,

thereby potentially impacting other pending pro-

posals.

J.A. 15546.

The workload percentages assigned to each

MAC jurisdiction are included in the solicitation.

J.A. 15548.

The JH solicitation explains that “CMS will determine

whether Offerors exceed the limitation on workload at the

time of award, and will exclude Offerors from consideration

on such basis at that time.” J.A. 15547. Moreover, the so-

licitation includes an “Exception,” which states:

In order to ensure continuity in Medicare Fee-for-

Service operations, CMS retains the discretion to

award a particular A/B MAC prime contract to a

particular contractor, even where doing so would

otherwise exceed the A/B MAC prime contract

Medicare workload allowed by this policy.

J.A. 15548. We refer to this exception as the “Continuity

Exception.”

NGS is an offeror for the JH solicitation.

NGS is also

the current contractor for Jurisdiction 6 (which represents

7.8% of the current A/B Medicare workload), as well as Ju-

risdiction K (which represents 12% of the current A/B Med-

icare workload). Based on the Award Limitations Policy

The same language was included in the Jurisdic-

tion 8 solicitation. See J.A. 10133–35.

At the time NGS filed its opening brief before this

court, NGS was an offeror for Jurisdictions F, 8, and H. No

award decisions had been announced for those jurisdictions

at that time. Since then, however, the Jurisdiction F con-

tract was awarded to a different MAC, and the parties

agree that this development rendered NGS’s appeal with

respect to the Jurisdiction 8 solicitation moot.

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

and NGS’s current contracts, NGS cannot win the MAC

contract for Jurisdiction H (which represents 13.5% of the

current A/B Medicare workload) because winning would

cause NGS to exceed the Policy’s workload caps.

In November 2017, NGS filed a pre-award protest with

the Government Accountability Office (“GAO”), arguing

that the Award Limitations Policy in the Jurisdiction 8 so-

licitation did not allow for full and open competition be-

cause it precludes a successful best value offeror from

receiving a MAC award where the contract award would

cause that offeror to exceed the Policy’s workload caps.

GAO denied the protest in January 2018.

NGS then filed suit in the Claims Court on February 8,

2018. Before the Claims Court, NGS challenged the Juris-

diction 8 solicitation as well as the Jurisdiction H solicita-

tion (which also included the Award Limitations Policy and

remains at issue in this appeal). The Claims Court rejected

NGS’s protest.

NGS timely appealed. We have jurisdiction under 28

U.S.C. § 1295(a)(3).

In reviewing a grant of judgment upon the administra-

tive record, we review the Claims Court’s determination

without deference, reapplying the same standard of review

applicable in the Claims Court. Weeks Marine, Inc. v.

United States, 575 F.3d 1352, 1358 (Fed. Cir. 2009) (citing

Bannum, Inc. v. United States, 404 F.3d 1346, 1351 (Fed.

Cir. 2005)). We therefore review the agency’s actions ac-

cording to the standards set forth in the Administrative

Procedure Act, 5 U.S.C. § 706. See 28 U.S.C. § 1491(b)(4).

Under that standard, we ask whether the agency’s action

was arbitrary, capricious, an abuse of discretion, or other-

wise not in accordance with law. 5 U.S.C. § 706(2).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

In applying this standard of review, we determine

whether “(1) the procurement official’s decision lacked a ra-

tional basis; or (2) the procurement procedure involved a

violation of regulation or procedure.” Weeks Marine, 575

F.3d at 1358 (quoting PGBA, LLC v. United States, 389

F.3d 1219, 1225 (Fed. Cir. 2004)).

III

This appeal requires us to analyze the propriety of the

Award Limitations Policy included in the JH solicitation.

As explained above, CMS developed the Policy to include in

all MAC contract solicitations. It is not tailored to any so-

licitation. The rationale behind the Policy is two-fold.

First, the agency has business continuity concerns related

to overreliance on a particular MAC (i.e., that Medicare

claims operations will be put at risk if a MAC with many

contracts fails). Second, the agency has concerns about

maintaining a competitive, dynamic MAC marketplace

over the long term. The Award Limitations Policy at-

tempted to address these concerns by setting workload

caps so that a particular MAC cannot be awarded more

than a certain percentage of the total A/B Medicare mar-

ket.

As explained below, we reverse the Claims Court’s de-

cision in this case. In doing so, however, we find it im-

portant to delineate the bounds of what we do—and do

not—decide.

At the outset, we take no issue with the particular con-

cerns animating the Award Limitations Policy or with

CMS’s general ability to consider and address such con-

cerns. Indeed, NGS concedes that CMS may take appro-

priate steps to address those very concerns. Appellant’s

Br. 12; see also Oral Arg. at 12:29–12:48. In our view, the

issue presented is simply a procedural one—whether the

agency complied with the Competition in Contracting Act

(“CICA”) and the Federal Acquisition Regulation (“the

FAR”) when it attempted to address its concerns by

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

developing a blanket policy applicable to all MAC solicita-

tions that effectively excludes offerors from competing,

without documenting the need for such action in light of a

particular contract or a particular offeror. We do not hold

that agencies cannot consider market concerns and exclude

a particular source for such reasons. We conclude only that

in doing so the agency must follow the congressionally de-

signed procedure for addressing such concerns.

Importantly, we have no occasion to opine as to

whether the particular methodology used by the agency,

such as the particular workload cap percentages chosen,

are supportable under a rational basis review standard.

With this in mind, we turn to the specific arguments

raised in this case. We first address whether the JH solic-

itation provided for full and open competition in light of the

Award Limitations Policy contained therein. Because we

hold that the JH solicitation did not provide for full and

open competition, we then address whether the agency’s

approach was otherwise permissible.

CICA generally requires “full and open competition

through the use of competitive procedures.” 41 U.S.C.

§ 3301(a)(1). In full, § 3301(a) states:

(a) In general.—Except as provided in sections

3303, 3304(a), and 3305 of this title and except in

the case of procurement procedures otherwise ex-

pressly authorized by statute, an executive agency

in conducting a procurement for property or ser-

vices shall—

(1) obtain full and open competition

through the use of competitive procedures

in accordance with the requirements of this

division and the Federal Acquisition Regu-

lation; and

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

(2) use the competitive procedure or combi-

nation of competitive procedures that is

best suited under the circumstances of the

procurement.

41 U.S.C. § 3301(a).

As used in § 3301, “competitive pro-

cedures” is defined as “procedures under which an execu-

tive agency enters into a contract pursuant to full and open

competition.” 41 U.S.C. § 152.

The FAR explains that “41 U.S.C. [§] 3301 require[s],

with certain limited exceptions (see subparts 6.2 and

6.3), that contracting officers shall promote and provide for

full and open competition in soliciting offers and awarding

Government contracts.” FAR 6.101(a).

The FAR further

explains that “[c]ontracting officers shall provide for full

and open competition through use of the competitive pro-

cedure(s) contained in this subpart that are best suited to

the circumstances of the contract action and consistent

with the need to fulfill the Government’s requirements ef-

ficiently.” FAR 6.101(b) (citing 41 U.S.C. § 3301).

The parties in this case agree that CICA’s full and open

competition requirement applies to MAC procurements.

The parties rely on two provisions in the MAC Statute to

show that the MAC Statute requires the use of competitive

procedures and the application of the FAR to MAC con-

tracting. See 42 U.S.C. § 1395kk-1(a)(6) (“Except to the ex-

tent inconsistent with a specific requirement of this

section, the Federal Acquisition Regulation applies to con-

tracts under this section.”); 42 U.S.C. § 1395kk-1(b)(1)(A)

(“Except as provided in laws with general applicability to

Federal acquisition and procurement or in subparagraph

We note that 10 U.S.C. § 2304(a) substantially par-

allels 41 U.S.C. § 3301(a).

The FAR is codified in Chapter 1 of Title 48 of the

Code of Federal Regulations.

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

(B), the Secretary shall use competitive procedures when

entering into contracts with [MACs] under this section,

taking into account performance quality as well as price

and other factors.”). In light of the parties’ agreement that

full and open competition is required, we do not address

this proposition further.

We now turn to whether the JH solicitation provides

for full and open competition in light of the Award Limita-

tions Policy included therein. We conclude it does not.

NGS contends that the Award Limitations Policy vio-

lates CICA’s and the FAR’s requirements for full and open

competition. The government disagrees, maintaining that

the JH solicitation provides for full and open competition

because all responsible sources are permitted to submit

proposals. The government also contends that even if the

workload caps effectively make it impossible for certain of-

ferors to win an award, the workload caps are simply “eval-

uation criteria” used to determine which offeror represents

the best value to the government and are supportable if

they have a rational basis. Government’s Br. 17–18, 24–

30. We address the government’s arguments in turn below.

The government first contends that the JH solicitation

provides for full and open competition because an offeror

that would exceed the workload caps if awarded the JH so-

licitation may still submit a proposal. The Claims Court

agreed with the government on this point. Decision, at 25–

26 (“The Contract Award Limitations policy that NGS chal-

lenges does not prevent any potential offerors from submit-

ting bids. . . . Therefore, because no offerors are prevented

from submitting proposals in response to the Jurisdiction

8 and Jurisdiction H solicitations . . . the solicitations do

not run afoul of the CICA’s ‘full and open competition’ man-

date.”).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

This focus on the ability to submit a proposal comes

from 41 U.S.C. § 107, which explains that “the term ‘full

and open competition’, when used with respect to a pro-

curement, means that all responsible sources are permit-

ted to submit sealed bids or competitive proposals on the

procurement.” In our view, however, the government’s

view of this statutory provision places too much signifi-

cance on the word “submit.” See FAR 2.101 (“Full and open

competition, when used with respect to a contract action,

means that all responsible sources are permitted to com-

pete.” (emphasis added)). We are unconvinced that the

mere ability to submit an offer qualifies as full and open

competition in this case, given that such a submission may

be entirely futile in light of the solicitation’s Award Limi-

tations Policy.

Recognizing this futility concern, the government con-

tends that submission may not always be meaningless be-

cause offerors that would exceed the workload caps at the

time of submission may nonetheless win an award in two

scenarios. Government’s Br. 24–26.

As to the first scenario, the government states that, be-

cause the workload caps are applied at the time of award,

an offeror that would exceed the workload caps at the time

of submission may not exceed those caps at the time of

award based on developments external to the pending so-

licitation (such as termination of a previously awarded

MAC contract). Government’s Br. 25; see also Decision, at

25–26. But this argument simply states the obvious—an

offeror’s ability to compete will not be limited by the work-

load caps if that offeror would not exceed the workload

caps. This does not assuage our concern that an offeror

who submits a proposal and remains affected by the work-

load caps throughout the MAC procurement will have sub-

mitted that proposal in vain.

The government’s second scenario fares no better. It

also fails to demonstrate that it would not be futile for an

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

offeror that would exceed the workload caps to submit a

proposal. The government points to the solicitation’s Con-

tinuity Exception, arguing that an offeror may be awarded

a contract even where such an award would cause the offe-

ror to exceed the workload caps if making that award is

necessary to ensure continuity. Government’s Br. 25 (cit-

ing J.A. 15548); see also Decision, at 26. But both parties

characterize this exception as applying only if no other

awardable proposal had been submitted (e.g., if the offeror

that exceeds the caps was the only responsible offeror).

See, e.g., Appellant’s Br. 11, 13, 20; Government’s Br. 25–

26 (stating that this exception permits CMS to award a con-

tract “to an offeror that would otherwise be ineligible, if the

offeror submitted the only otherwise awardable proposal

(e.g., it is the only responsible offeror to submit a proposal

in that procurement or there are multiple responsible offe-

rors but only one proposed a fair and reasonable price)”).

This appears to be CMS’s view of the Continuity Exception

as well, as illustrated by the agency’s response to a ques-

tion received after the Continuity Exception was included

in the Jurisdiction M solicitation. CMS explained:

[T]he [continuity] exception could be triggered if

only one offeror were to respond to the RFP, and

that single offeror would otherwise not qualify for

an additional A/B MAC prime contract award un-

der the policy. Similarly, the exception could apply

“Responsibility refers to an offeror’s apparent abil-

ity and capacity to perform all contract requirements and

is determined, not at proposal opening, but at any time

prior to award of the contract based on any information re-

ceived by the agency up to that time.” Centech Grp., Inc. v.

United States, 554 F.3d 1029, 1034 n.2 (Fed. Cir. 2009) (cit-

ing FAR 9.105-1 (2008)); see also FAR 9.104-1 (general re-

sponsibility standards).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

if there were multiple offerors, but CMS found

them all (save for one) to be non-responsible.

Decision, at 26 (quoting J.A. 14860). Thus, the Continuity

Exception provides no assurance that submission of a pro-

posal by an offeror who would exceed the workload caps

would be anything other than futile, as long as one other

awardable offeror exists.

In short, despite the government’s efforts to show that

it would be meaningful for an offeror that would exceed the

workload caps to submit a proposal, we are unpersuaded.

In light of the Award Limitations Policy, a responsible of-

feror that would exceed the workload caps is not given the

same opportunity to win an award as other offerors that

submitted awardable proposals. And the fact that an offe-

ror that would exceed those caps was able to submit a pro-

posal does nothing to address this concern.

The government next contends that even if the Award

Limitations Policy effectively made it impossible for certain

offerors to obtain the award, this would not violate full and

open competition. Government’s Br. 26. The government

argues that the workload caps are merely evaluation crite-

ria, and “solicitation terms that result in particular offerors

being unable to win an award based upon their particular

circumstances do not violate CICA’s competition require-

ments, so long as the terms have a rational basis in light of

the agency’s needs.” Government’s Br. 28.

To support this argument, the government relies on

our decision in CHE Consulting, Inc. v. United States, 552

F.3d 1351 (Fed. Cir. 2008), as well as three decisions from

the Comptroller General. Government’s Br. 26–27. But

those decisions merely stand for the unremarkable propo-

sition that a solicitation requirement (such as a past expe-

rience requirement) is not necessarily objectionable simply

because that requirement has the effect of excluding

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

certain offerors who cannot satisfy that requirement. See

CHE Consulting, 552 F.3d at 1352 (regarding a require-

ment that a single contractor provide both hardware

maintenance and software maintenance for a particular

system); Armstrong Elevator Co., 2018 CPD ¶ 120, B-

415809, 2018 WL 1542123 (Comp. Gen. Mar. 28, 2018) (re-

garding a solicitation’s past experience requirements,

where the solicitation pertained to upgrading multiple ele-

vators and the agency included a requirement that the of-

feror have experience on projects with ten or more

elevators); Maersk Line, Ltd., 2012 CPD ¶ 200, B-406586,

2012 WL 2833687 (Comp. Gen. June 29, 2012) (regarding

a challenge to a solicitation’s requirement that the offeror

be a citizen of the United States where the solicitation at

issue implicated national security concerns); Am. Diesel

Eng’g Co., 92-1 CPD ¶ 79, B-245534, 1992 WL 15033

(Comp. Gen. Jan. 16, 1992) (regarding the agency’s deci-

sion not to disclose to potential offerors data necessary for

proposal preparation where the agency’s right to distribute

such data was in question, even though broad distribution

of such data would have enhanced competition).

The Award Limitations Policy in this case is not com-

parable to the solicitation requirements at issue in the

cases cited by the government. At the outset, we have some

doubts as to whether the Policy should even be viewed as

an evaluation factor. See FAR 15.304. For example, alt-

hough the Policy is included as part of Section M (titled

“EVALUATION FACTORS FOR AWARD”), J.A. 15544, its

relative importance in the award decision is undisclosed,

see FAR 15.304(d) (requiring that “[a]ll factors and signifi-

cant subfactors that will affect contract award and their

relative importance shall be stated clearly in the solicita-

tion” (emphasis added)). Instead, the solicitation states

that “[a]s described in Section M, Evaluation Factors for

Award, the Government will evaluate Offerors’ proposals

based on cost and price and two (2) non-cost technical eval-

uation factors: Technical Approach and Past Performance.”

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

J.A. 15519. Conspicuously absent from this list of consid-

erations is any mention of the workload caps.

Moreover, even assuming the Policy is an evaluation

factor, it is unlike the requirements at issue in the cases

cited by the government. Unlike the requirements in those

cases, the workload caps contained in the solicitation’s

Award Limitations Policy here are not requirements tai-

lored to meet CMS’s needs for a particular procurement.

For example, in Armstrong Elevator, the solicitation re-

quired offerors to have experience on projects with ten or

more elevators because the solicitation’s statement of work

required replacement of at least eight elevators. 2018 WL

1542123, at *1–2. Here, instead of being tailored to the

needs of a particular contract, the workload caps are uni-

form parameters applicable to all MAC contracts. And alt-

hough the government contends that the workload caps are

tailored to each contract because the Policy reflects a need

for continuous service in each particular MAC jurisdiction,

we are not convinced. There is no indication that CMS had

concerns about continuity within a particular MAC juris-

diction. Instead, the Policy is designed to address continu-

ity concerns more generally by looking to the market as a

whole.

In short, the way the Policy effectively excludes offerors

is wholly unlike the way certain requirements effectively

excluded offerors in the cases cited by the government.

Here, the exclusion is not based on some capability or ex-

perience requirement, but is instead based on the agency’s

attempt to divvy up the MAC contracts in a way that en-

sures business continuity and helps maintain a competitive

MAC market. CICA allows for a particular source to be

excluded if doing so would “increase or maintain competi-

tion and likely result in reduced overall cost for the pro-

curement” or if doing so would “ensure the continuous

availability of a reliable source of supply of the property or

service.” 41 U.S.C. § 3303(a)(1)(A), (D). As discussed be-

low, however, CMS did not rely on this statutory exception

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

in effectively excluding sources, and that is where the

agency erred.

Having concluded that the Award Limitations Policy

precludes full and open competition and effectively ex-

cludes certain offerors from competition, we next consider

whether CMS’s actions can be otherwise justified.

Congress specifically outlined the circumstances un-

der which an agency may avoid CICA’s full and open com-

petition requirement. See § 3301(a). Here, the government

relies on just one exception, arguing that the workload caps

are “procurement procedures otherwise expressly author-

ized by statute.” § 3301(a). We first address that argument

and then address another exception, § 3303(a), that the

Claims Court used to uphold the Policy in this case.

The government contends that the workload caps are

“procurement procedures otherwise expressly authorized

by statute.” 41 U.S.C. § 3301(a). Government’s Br. 31–36.

Specifically, the government argues that two provisions in

the MAC Statute “expressly authorize[]” the Award Limi-

tations Policy.

First, the government argues that the workload caps

are merely an additional eligibility requirement under 42

U.S.C. § 1395kk-1(a)(2)(D). That provision reads:

(2) Eligibility of entities

An entity is eligible to enter into a contract with

respect to the performance of a particular function

described in paragraph (4) only if—

(A) the entity has demonstrated capability

to carry out such function;

(B) the entity complies with such conflict of

interest standards as are generally

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

applicable to Federal acquisition and pro-

curement;

cially support the performance of such

function; and

(D) the entity meets such other require-

ments as the Secretary may impose.

42 U.S.C. § 1395kk-1(a)(2) (emphasis added).

The second

provision the government relies on is 42 U.S.C. § 1395kk-

1(b)(2), which reads:

(2) Compliance with requirements

No contract under this section shall be entered into

with any [MAC] unless the Secretary finds that

such [MAC] will perform its obligations under the

contract efficiently and effectively and will meet

such requirements as to financial responsibility, le-

gal authority, quality of services provided, and

other matters as the Secretary finds pertinent.

42 U.S.C. § 1395kk-1(b)(2).

The Claims Court relied in part on these two provisions

to uphold the Award Limitations Policy. The court ex-

plained that the Award Limitations Policy “fits squarely

within these two authorizations” because “[a]n entity, or

set of affiliates, having too much work than it can reason-

ably manage certainly calls into question that entity’s ca-

pability to successfully perform the contract.” Decision, at

28. Moreover, the Claims Court explained that “[t]he

The Secretary of HHS has generally delegated the

authority within Title XVIII of the Social Security Act to

CMS. See Statement of Organization, Functions, and Del-

egations of Authority, 49 Fed. Reg. 35,247-01, 35,248 (Sept.

6, 1984).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

potential of being overloaded is also inextricably tied to fi-

nancial wherewithal and the quality of services that would

be provided.” Id.

With respect to the first provision, NGS contends that

the requirements enumerated in § 1395kk-1(a)(2) are

merely MAC-specific responsibility provisions and that the

workload caps are not responsibility criteria because they

do not speak to a particular offeror’s ability to perform a

particular MAC contract. As to the second provision, NGS

contends that it is a restriction on the agency itself that

precludes that agency from entering into a contract unless

certain requirements are met.

We need not address NGS’s arguments in detail be-

cause, as we explain next, we hold that the workload caps

are not “expressly authorized by statute.” Even assuming

that the workload caps are “procurement procedures” as

contemplated by 41 U.S.C. § 3301(a), and even assuming

they “fit[] squarely within” these provisions as the Claims

Court concluded, see Decision, at 28, in our view, the work-

load caps are not “expressly authorized” by those provi-

sions.

As a comparison, express authority for procurement

procedures otherwise permitted by statute is readily found

in another provision of the MAC Statute, namely 42 U.S.C.

§ 1395kk-1(b)(1)(B). That provision permits CMS to renew

a MAC contract without regard to “any other provision of

law requiring competition, if the [MAC] has met or ex-

ceeded the performance requirements applicable with re-

spect to the contract and contractor, except that the

Secretary shall provide for the application of competitive

procedures under such a contract not less frequently than

once every 10 years.” § 1395kk-1(b)(1)(B). And the MAC

Statute expressly lists this renewal procedure as an excep-

tion to the MAC Statute’s required use of competitive pro-

cedures. § 1395kk-1(b)(1)(A) (“Except as provided in laws

with general applicability to Federal acquisition and

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

procurement or in subparagraph (B), the Secretary shall

use competitive procedures when entering into contracts

with medicare administrative contractors under this sec-

tion . . . .” (emphasis added)); see also Rapides Reg’l Med.

Ctr. v. Sec’y, Dep’t of Veterans’ Affairs, 974 F.2d 565, 574

(5th Cir. 1992) (holding that a sharing program created by

statute that allowed the Department of Veterans Affairs to

enter into sharing agreements for the acquisition and joint

use of medical technology was “expressly authorized by

statute” within the meaning of CICA).

In short, the broad provisions cited by the government

cannot serve as the express authority necessary to meet

this exception. If these provisions could suffice to show

such express authorization, seemingly any requirement

could be justified regardless of its effect on full and open

competition. We therefore reject the government’s argu-

ment that the workload caps are “procurement procedures

otherwise expressly authorized by statute” under

§ 3301(a).

As noted above, the government has not relied on other

exceptions outlined in 41 U.S.C. § 3301(a), even though the

government admits that some of these provisions are “tools

that CMS could use to address its concerns regarding busi-

ness continuity and competitive dynamics in appropriate

circumstances.” Government’s Br. 30. But as explained

below, to accomplish the end result of the Award Limita-

tions Policy—i.e., excluding certain offerors from winning

the award—the agency was required to follow the proce-

dures outlined in § 3303(a) and the corresponding proce-

dures set out in FAR 6.202.

As relevant here, § 3303(a) provides:

(a) Exclusion of particular source.—

(1) Criteria for exclusion.—An executive

agency may provide for the procurement of

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

property or services covered by section

3301 of this title using competitive proce-

dures but excluding a particular source to

establish or maintain an alternative source

of supply for that property or service if the

agency head determines that to do so

would—

(A) increase or maintain competi-

tion and likely result in reduced

overall cost for the procurement, or

for an anticipated procurement, of

the property or services;

. . . [or]

(D) ensure the continuous availa-

bility of a reliable source of supply

of the property or service; . . . .

41 U.S.C. § 3303(a)(1). Section 3303(a)(2) makes clear that

a determination to exclude a source under § 3303(a)(1)

“may not be made for a class of purchases or contracts.” As

evident from the language of the statute, this exception en-

compasses the very concerns CMS sought to address in this

case—maintaining competition and ensuring the continu-

ous availability of a reliable source of Medicare services.

See § 3303(a)(1).

Exclusion based on “increas[ing] or maintain[ing]

competition” also requires the exclusion of a source to

“likely result in reduced overall cost for the procurement.”

§ 3303(a)(1)(A). Separately, we also note that § 3304 ad-

dresses a similar concern. Section 3304 allows for use of

noncompetitive procedures where “it is necessary to award

the contract to a particular source . . . to maintain a facility,

producer, manufacturer, or other supplier available for fur-

nishing property or services in case of a national

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

FAR Subpart 6.2 implements this statutory provision.

See FAR 6.200 (“This subpart prescribes policies and pro-

cedures for providing for full and open competition after

excluding one or more sources.”). Specifically, FAR

6.202(a) mirrors the language of § 3303(a)(1) regarding cri-

teria for excluding a particular source. Importantly, FAR

6.202(b)(1) requires that “[e]very proposed contract action

under the authority of paragraph (a) above shall be sup-

ported by a determination and findings (D&F) (see subpart

1.7) signed by the head of the agency or designee.”

FAR

6.202(b)(1) further explains that “[t]his D&F shall not be

made on a class basis.” And if the basis for excluding a

source is to increase or maintain competition, with the re-

sult being a likely reduction in overall costs, “the findings

shall include a description of the estimated reduction in

overall costs and how the estimate was derived.” FAR

6.202(b)(3).

The HHS Acquisition Regulations (“HHSAR”) directly

address FAR 6.202.

Specifically, “[t]he Senior

emergency or to achieve industrial mobilization.”

§ 3304(a)(3)(A). This section requires a written justifica-

tion and approval. § 3304(e).

“Determination and Findings (D&F) means a spe-

cial form of written approval by an authorized official that

is required by statute or regulation as a prerequisite to tak-

ing certain contract actions. The determination is a con-

clusion or decision supported by the findings. The findings

are statements of fact or rationale essential to support the

determination and must cover each requirement of the

statute or regulation.” FAR 1.701.

HHS’s acquisition regulations are found in Chapter

3 of Title 48 of the Code of Federal Regulations. HHSAR

301.103(c). The HHSAR establishes policies and proce-

dures “that implement and supplement the Federal Acqui-

sition Regulation (FAR).” HHSAR 301.101(a).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

Procurement Executive (SPE) shall make the determina-

tion required in [FAR] 6.202(a),” HHSAR 306.202(a), and

“[t]he contracting officer shall prepare the required deter-

mination and findings (D&F)” under FAR 6.202(b)(1),

HHSAR 306.202(b)(1).

These statutory and regulatory procedures directly ad-

dress how an agency may exclude a source to address cer-

tain market concerns. Indeed, it is not surprising that the

Claims Court relied heavily on § 3303(a) to justify the

workload caps. J.A. 567. The Claims Court reasoned:

CMS is permitted to use “competitive procedures

but excluding a particular source” if it determines

that doing so would “increase or maintain competi-

tion and likely result in reduced overall cost for the

procurement, or for an anticipated procurement” or

to “ensure the continuous availability of a reliable

source or supply of the property or service.” 41

U.S.C. § 3303(a)(1)(A), (D). In other words, CMS

can exclude a particular source—i.e., a potential

successful offeror—from an A/B MAC competitive

procurement to increase competition for A/B MAC

services or to ensure that there will be a sufficient

number of capable A/B MAC contractors. The Con-

tract Award Limitations policy is designed to

achieve both results by preventing CMS’s overreli-

ance on one or a handful of contractors. . . . Fur-

ther, when there is such an individual

determination to exclude a particular source from

a competitive procurement to increase or maintain

competition or to ensure a continuous supply of ser-

vices, the justification and approval procedures

outlined in 41 U.S.C. § 3304(e)(1) for noncompeti-

tive procurements do not apply. Id. § 3303(c).

Decision, at 29.

But the Claims Court erred in relying on § 3303(a) to

justify CMS’s action in this case because even though

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

§ 3303(c) exempts this source-exclusion procedure from the

justification and approval procedures outlined in

§ 3304(e)(1), the FAR requires that every proposed contract

action under that authority be supported by a determina-

tion and findings signed by the head of the agency or de-

signee, see FAR 6.202. Thus, even if CMS had intended to

rely on § 3303(a), CMS violated the FAR in doing so by fail-

ing to supply a determination and findings. Indeed, there

may have been a reason CMS chose to structure the Award

Limitations Policy as a solicitation provision rather than

relying on § 3303(a). As the government’s brief tellingly

notes, during the time period when CMS used a case-by-

case approach to analyze business continuity and competi-

tion concerns (prior to development of the Award Limita-

tions Policy), “CMS had been unable to identify factors that

would ‘tip the scales’ for an offeror to lose an award and

found it difficult to justify a decision to deny an award

based upon business continuity and competition concerns

under those circumstances.” Government’s Br. 10 (quoting

J.A. 12073). But regardless of how difficult it may or may

not be to justify excluding a source from competition, this

justification is what the FAR requires.

The Claims Court also explained that the Award

Limitations Policy did not violate the prohibition on class

determinations under § 3303(a)(2) because “the [P]olicy is

only applied when there is a specific determination that the

apparent successful offeror in a particular procurement

would exceed the workload caps—it does not apply to a

class of contracts or a class of contractors generally.” Deci-

sion, at 29. Although we have some doubts about this rea-

soning, in light of our holding that the Award Limitations

Policy was effectively an exclusion of a source under

§ 3303(a), which required a determination and findings un-

der FAR 6.202, we do not address whether the blanket

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

In sum, Congress has provided specific means by which

an agency may address general market concerns such as

those identified by CMS in this case. In other words, the

needs identified by the agency here are the exact needs con-

templated by § 3303(a)(1)(A). And while the government

admits that it could have relied on § 3303(a) and § 3304 to

accomplish its goals, it maintains that it need not have

done so. But allowing an agency to avoid the explanation

requirements relevant to § 3303(a) and § 3304 by simply

drafting a solicitation provision and labeling it an evalua-

tion criterion would nullify the statutory procedures Con-

gress put in place.

In sum, the Award Limitations Policy precludes full

and open competition by effectively excluding an offeror

from winning an award, even if that offeror represents the

best value to the government. And while agencies may con-

sider market concerns and exclude a particular source for

such reasons, the agency did not follow the congressionally

designed procedure for doing so in this case.

As noted above, while we cannot uphold the procedure

CMS used to address its concerns regarding overreliance

and maintaining a competitive marketplace, we do not sug-

gest that those concerns are improper or that they lacked a

rational basis. Moreover, we do not suggest that the gen-

eral methodology used by CMS, such as the particular mar-

ket percentages employed, lacked a rational basis. Indeed,

CMS may be able to rely in part on the same methodology

to explain its rationale for excluding a particular offeror

source under 41 U.S.C. § 3303(a) and FAR 6.202. Thus,

although NGS has challenged the details of how the work-

load caps are structured as lacking a rational basis, we

Award Limitations Policy constituted an improper class de-

termination under § 3303(a)(2).

NATIONAL GOVERNMENT SERVICES v. UNITED STATES

leave those issues to be addressed in a case in which CMS

has followed the proper procedures to address its overarch-

ing market concerns.

For the foregoing reasons, we reverse the decision of

the Court of Federal Claims and remand for further pro-

ceedings.

REVERSED AND REMANDED