RECOVERING PRINCIPLES: PROVIDING A BID PROTEST FORUM FOR STIMULUS-FUNDED CONTRACTORS TO IMPROVE ACCOUNTABILITY AND TRANSPARENCY

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1 RECOVERING PRINCIPLES: PROVIDING A BID PROTEST FORUM FOR STIMULUS-FUNDED CONTRACTORS TO IMPROVE ACCOUNTABILITY AND TRANSPARENCY Jeffrey Lowry I. Introduction II. Background A. Recovery Act Background B. History and Purpose of Bid Protest Jurisdiction III. Problem: Oversight Without Teeth A. One Board, Two Hundred Thousand Contracts B. One Law, Fifty Interpretations C. One Principle, Two Reasons to Avoid It IV. Solution: A Bid Protest Forum with Bite A. Four Avenues The Original Path GAO The New Path The Recovery Accountability and Transparency Board The Statutory Path The Court of Federal Claims a. The Purchasing Agent Theory 1491(b) Jurisdiction b. The Implied Contract 1491(a) Jurisdiction The Constitutional Path The District Court a. A Federal Interest Federal Question Jurisdiction b. A Property Interest Due Process Jurisdiction B. Three Purposes A Reliable Enforcer A Uniform Application of Law An Incentive to Follow Principles V. Conclusion I. INTRODUCTION On February 17, 2009, the $787 billion American Recovery and Reinvestment Act (the Recovery Act or stimulus ) was signed into law by newly Jeffrey Lowry ( jlowry@law.gwu.edu) received his J.D. degree from The George Washington University Law School in May 2011 and was a member of the Public Contract Law Journal. 1019

2 1020 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 inaugurated President Barack Obama. 1 The purpose of the law was to stimulate a troubled economy through a variety of federal expenditures. 2 In his signing statement, President Obama touted that the Recovery Act would create or save 3.5 million jobs over two years. 3 In addition, the President stated that a major goal of the Recovery Act was to ensure that its funds be disseminated in an accountable and transparent manner. 4 In order to provide some level of accountability and transparency, the Recovery Act mandated the establishment of the recovery.gov website. 5 Additionally, the Recovery Act requires that its funds be used in a manner that maximizes economic and job growth, follows competitive procedures, and ensures that stimulus-funded workers receive prevailing wages. 6 However, as the $282 billion allocated to state agencies disperses to contractors, 7 the Federal Government s ability to ensure accountability and transparency diminishes. 8 This Note will discuss how the Recovery Act s goals of accountability and transparency would be better served if disappointed bidders on stimulus-funded state contract awards were permitted to protest in a federal forum in a manner similar to that available to disappointed bidders on federal contract awards. 1. See American Recovery and Reinvestment Act (the Recovery Act or stimulus ) of 2009, Pub. L. No , 3, 123 Stat. 115, (2009). 2. In order to achieve this stimulus, the Recovery Act was designed to preserve and create jobs; promote economic recovery; assist those most impacted by the recession; provide investments needed to increase economic efficiency by spurring technological advances in science and health; invest in transportation, environmental protection, and other infrastructure; and stabilize state and local government budgets. Id. 3. Presidential Statement on Signing the American Recovery and Reinvestment Act of 2009, 1 Pub. Papers 109 (Feb. 17, 2009). 4. Id. 5. See Recovery Act 1526, 123 Stat. at 293; see also discussion infra Part III.A. 6. See infra notes U.S. Gov t Accountability Office, GAO , Recovery Act: One Year Later, States and Localities Uses of Funds and Opportunities to Strengthen Accountability 1 (2010) [hereinafter One Year Later Report], available at d10437.pdf. Of the $282 billion allocated for administration by state and local government, GAO reported that $154 billion had been paid out by the Federal Government. U.S. Gov t Accountability Office, GAO , Recovery Act: Opportunities to Improve Management and Strengthen Accountability over States and Localities Uses of Funds 1 (2010) [hereinafter Opportunities to Improve Management Report], available at gao.gov/new.items/d10999.pdf. For a point of reference, in 2008 federal procurement was roughly a $540 billion a year industry. See Office of Mgmt. & Budget, Exec. Office of the President, Acquisition and Contract Improvement Plans and Pilots 1 (2009), available at http : // improvement.pdf. 8. See Recovery Act 1512, 123 Stat. at 287. Recovery.gov reveals which federal and state agencies initially receive stimulus grants, but the Recovery Act does not require agencies and contractors who secondarily receive stimulus funds from those initial grantees to report how they use such funds. The responsibility to monitor secondary spending is left to the initial recipients. See id. As a result, the Recovery Board cannot always trace spending to its end recipients. See Chairman s Corner, Recovery Accountability & Transparency Bd. (Feb. 8, 2011),

3 Bid Protest Forum for Stimulus-Funded Contractors 1021 Part II of this Note briefly surveys the Recovery Act s catalysts and its current provisions. Part III discusses why the Recovery Act is unable to achieve accountability and transparency at the state contractor level. Currently there is no strong enforcement mechanism in the Recovery Act to ensure that state procuring agencies and state contracts are following the Act s provisions. Additionally, because most state bid protests are subjected to state forums, unpredictable and diverse state-level decisions will not meet the federal priorities of accountability and transparency. Finally, this part addresses why certain provisions in the Recovery Act, such as the quick-start requirement, may create the risk that federal agencies funnel stimulus funds through states simply to avoid cumbersome federal procurement requirements. Given that transparency and accountability at the state contract level are not provided for by the Recovery Act, Part IV posits that one way to fill these gaps is to apply federal procurement principles and uniform federal law to state stimulus contracts in federal bid protest forums. This part first looks to the potential forums available to state contractors seeking to enforce the Recovery Act s provisions, including the U.S. Government Accountability Office (GAO), the U.S. Recovery Accountability and Transparency Board (Recovery Board), the Court of Federal Claims (the COFC), and federal district courts. Part IV then explains why allowing bid protests of stimulusfunded state contracts into federal forums results in greater accountability and transparency. A. Recovery Act Background II. BACKGROUND At the end of 2008, it was clear that the U.S. economy was in a period of recession. 9 Caught in the bursting housing price bubble, a number of large financial institutions either collapsed or were rescued through the intervention of the Federal Government. 10 When President Obama took office at the end of January 2009, the gross domestic product was decreasing and unemployment numbers were increasing. 11 The Recovery Act was designed to combat these problems of great national importance. The Recovery Act is broken up into two major parts: Division A, Appropriations Provisions; and Division B, Tax, Unemployment, Health, State Fiscal Relief, and Other Provisions Kim Coghill & Claudia Parsons, More Economic Pain Seen in 2009, but Some Hope Too, Reuters (Dec. 31, 2008), Id. 11. David Weiss & Beth Ann Bovino, A Deep and Long Recession, BusinessWeek, Jan. 23, 2009, id=rss_null. 12. See generally American Recovery and Reinvestment Act of 2009, Pub. L. No , 123 Stat. 115 (2009). This Note will deal exclusively with the state grants and contracts given out through Division A and the requirements Division A imposes on states use of these funds. When

4 1022 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 Division A contains sections that direct funds to executive agencies for use at the federal and state levels. 13 In addition to its money-granting sections, Division A also sets forth a number of requirements and limitations on the use of stimulus money. 14 For example, the section entitled Accountability and Transparency provides that stimulus-funded contracts must use fixed-price contracts and competitive procedures [t]o the maximum extent possible. 15 Section 1602, referred to as the quick-start provision, mandates that preference be given to activities that can be started and completed expeditiously. 16 Additional sections require states to report how they are using their stimulus funds and the number of jobs created as a result. 17 Additionally the governor of each state must certify that stimulus funds are being used to create jobs and promote economic growth. 18 While there are other limitations on the use of stimulus funds, 19 this Note is primarily concerned with the competition and quick-start requirements described above. B. History and Purpose of Bid Protest Jurisdiction For over half a century, the Federal Government has allowed disappointed bidders on government contracts to protest contract award decisions. Originally the U.S. Supreme Court held that disappointed bidders for federal contracts did not have standing to sue the Federal Government because the procurement statutes that contractors sought to enforce were for the benefit of the Government and not the private sector. 20 However, since the U.S. District Court for the District of Columbia s 1970 decision in Scanwell Laboratories, Inc. v. Shaffer, courts have generally recognized that a federal bid protestor has standing to sue the Federal Government. 21 The D.C. Circuit understood that a disappointed bidder using the term contracts, this Note refers to those contracts that are awarded by state agencies using federal stimulus grants. In general, the Recovery Act includes federal contracts, federal grants, and federal loans. This Note is primarily focused on federal grants to state agencies as opposed to federal grants to private entities. 13. See generally id. 14. See id , 123 Stat. at See id. 1554, 123 Stat. at 302 ( To the maximum extent possible, contracts funded under this Act shall be awarded as fixed-price contracts through the use of competitive procedures. A summary of any contract awarded with such funds that is not fixed-price and not awarded using competitive procedures shall be posted in a special section of the website established in section ). Competitive procedures are generally those procedures, such as sealed bidding or competitive negotiation, that provide for full and open competition in the procurement process. See 10 U.S.C. 2304(a)(2) (2006); Ralph C. Nash Jr. et al., The Government Contracts Reference Book 112 (3d ed. 2007). 16. See Recovery Act 1602, 123 Stat. at 302 [hereinafter referred to as the quick-start provision ]. 17. See id. 1512, 123 Stat. at See id. 1551, 123 Stat. at For example, section 1605 requires that public buildings and public works use only iron, steel, and manufactured goods that are produced in the United States and section 1606 requires the payment of prevailing wage rates. Id , 123 Stat. at Perkins v. Lukens Steel Co., 310 U.S. 113, 126 (1940). 21. See 424 F.2d 859, (D.C. Cir. 1970); see also, e.g., Merriam v. Kunzig, 476 F.2d 1233, (3d Cir. 1973).

5 Bid Protest Forum for Stimulus-Funded Contractors 1023 was effectively a public prosecutor and that bid protest actions would benefit the public by ensuring government agents acted within their statutory authority. 22 The bid protestor is now essential to promoting integrity and providing transparency in the modern federal procurement system. 23 III. PROBLEM: OVERSIGHT WITHOUT TEETH A. One Board, Two Hundred Thousand Contracts The Recovery Act provides for oversight by directing inspector generals (IGs) to review agency spending 24 and by establishing the Recovery Board. 25 While GAO has listed the many ways in which oversight is accomplished under the Recovery Act, current oversight measures are concerned primarily with fraud, either generally or in relation to the job-reporting requirements. 26 GAO also reported that the Recovery Board has initiated a number of oversight actions in conjunction with the twenty-nine IGs who oversee the Recovery Act. 27 Yet one year after the passage of the $750 billion Recovery Act, at which time $282 billion was already spent, the Recovery Board was still assessing the capacity of the federal workforce to manage the Recovery Act. 28 Even though the number of oversight actions have increased to date, 29 it is unlikely that federal agencies will be able to provide sound oversight of 22. Scanwell, 424 F.2d at The court also recognized that the passage of the Administrative Procedure Act (APA) was a factor in the judicial recognition of bid protestors standing. Id. at 865. Additionally the Sixth Circuit, as one of the last circuits to recognize such standing, noted in Diebold that a major goal of the procurement regulations remained ensuring that the Government received the best possible value. Diebold v. United States, 947 F.2d 787, 804 (6th Cir. 1991). For additional information about the history of bid protest jurisdiction, see Frederick W. Claybrook, The Initial Experience of the Court of Federal Claims in Applying the Administrative Procedure Act in Bid Protest Actions Learning Lessons All Over Again, 29 Pub. Cont. L.J. 1 (1999). 23. See Steven L. Schooner, Desiderata: Objectives for a System of Government Contract Law, 2002 Pub. Procurement L. Rev. 103, (2002). 24. Section 1514 provides that [a]ny inspector general of a Federal department or executive agency shall review, as appropriate, any concerns raised by the public about specific investments using funds made available in this Act. Recovery Act 1514(a), 123 Stat. at See id. 1521, 123 Stat. at 289. In a fact sheet issued by the Office of Speaker Nancy Pelosi on the Recovery Act, the speaker declared that the Recovery Board would review management of recovery dollars and provide early warning of problems and that GAO would be provided with additional funding and access for special review of Recovery funding. Office of Speaker Nancy Pelosi, Fact Sheet: Conference Report on American Recovery and Reinvestment Act, Preliminary Overview (Feb. 11, 2009), recoveryactfactsheet doc. 26. One Year Later Report, supra note 7. The Recovery.gov website lists those recipients that fail to meet the Recovery Act reporting requirements. See Non-Compliers, Recovery Accountability & Transparency Bd., noncompliers.aspx (last updated May 16, 2011). The Recovery Act also contains a provision to protect whistleblowers. Recovery Act 1553, 123 Stat. at 297. This provision allows for both civil and criminal remedies in the case of a violation. Id. 27. Id. 28. One Year Later Report, supra note 7, at Compare id. at 1, with Oversight Actions, Recovery Accountability & Transparency Bd., (last accessed Apr. 18, 2010).

6 1024 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 state contract awards compliance with competitive procedures. 30 For example, GAO attempted to examine whether state contracts were being competitively awarded; it was only able to examine 208 such contracts and its examinations relied solely on discussions with state agencies. 31 Furthermore, the chairman of the Recovery Board specifically noted that the size and scope of the Recovery Act presented a serious challenge to the Recovery Board s oversight efforts. 32 Therefore, although the Recovery Board, GAO, and the twenty-nine IGs form a federal workforce in place to monitor stimulus spending, this workforce is not sufficient to monitor the funds already spent on 254,126 contracts, grants, and loans and the potential hundreds of thousands of contracts, grants, and loans yet to be awarded with the $500 billion in remaining funds. 33 As of August 2009, the Recovery Board had managed to review only 4,000 of 254,126 contracts and there is currently no practical way for the Board to identify and address spending that violates competitive procedure requirements. B. One Law, Fifty Interpretations The proper administration of stimulus money is a national priority. Although a large portion of this money is allocated to the states, the unmatched size and nature of the Recovery Act distinguish it from those federal grants that states may spend at their full discretion. The Recovery Act directs money to numerous federal agencies, 34 which, in turn, distribute the funds to most of the fifty states. The Recovery Act also imposes a set of requirements on how states may use stimulus funds. For example, the Recovery Act requires states to use competitive procedures for all state contracts funded by the stimulus. 35 Additionally, the stimu- 30. See One Year Later Report, supra note 7, at Opportunities to Improve Management Report, supra note 7, at Recovery Accountability & Transparency Bd., 2009 Performance and Accountability Report 5 (2009) [hereinafter Recovery Board Performance Report], available at ability%20report.pdf. 33. See Recipient Reported Awards Map, Recovery Accountability & Transparency Bd., aspx (last updated Apr. 30, 2011). 34. See infra note See American Recovery and Reinvestment Act of 2009, Pub. L. No , 1554, 123 Stat. 115, 302 (2009). Whether or not the competitive procedures apply to state contracts funded under the Recovery Act or simply apply to federal contracts remains a valid question. It is clear that the Recovery Act considers grants, loans, and contracts to be separate and distinct. See id. 1512, 123 Stat. at 287 (requiring reports on the use of stimulus funds received through grant, loan, or contract ). However, the language in section 1554 is quite broad and simply refers to contracts funded under this Act and is not expressly limited to federal contracts. While the definition could be limited to a federal procurement as opposed to a state procurement, a number of states and federal agencies understand this term to mean any procurement funded by the Recovery Act. See Div. of Local Assistance, Cal. Dep t of Transp., Office Bulletin: Use of ARRA Funding for Force Account Work 1 3 (Aug. 31, 2009), available at hq/localprograms/dla_ob/dla-ob% %20use%20of%20arra%20funding%20

7 Bid Protest Forum for Stimulus-Funded Contractors 1025 lus created a single federal agency, the Recovery Board, to ensure that the Federal Government s objectives were met. The Recovery Act also empowered agency IGs to review states stimulus fund expenditures 36 authorizing IGs to open the records and interview the employees of state contractors and subcontractors funded by the stimulus. 37 In 1943 in Clearfield Trust Co. v. United States, the U.S. Supreme Court first set forth the rule that federal law should take precedence over state law when the legal issue involves a federal program of national concern and the application of state law... would subject the rights and duties of the United States to exceptional uncertainty or would lead to great diversity in results by making identical transactions subject to the vagaries of the laws of the several states. 38 The administration of the stimulus program implicates the concerns of the Clearfield court. First, as discussed above, the Recovery Act is a program of national concern because it aims to revitalize the national economy with an unprecedented amount and nature of funds. Second, the bill has limited but uniform requirements, such as the competition requirement, 39 and applying a state-by-state approach to the application of these requirements would leave the rights and duties of federal agencies under the bill uncertain. For%20Force%20Account%20Work.pdf; Fed. Highway Admin., Dep t of Transp., Questions & Answers on American Recovery and Reinvestment Act of 2009 (ARRA) Issues Raised by State DOTs (Dec. 2009), Mich. Recovery Office, Guidance to State Agencies Regarding the Use of Funds Received Under the American Recovery and Reinvestment Act 6, 9 (Apr. 2009), available at ( All contracts, both new and existing, involving the use of ARRA funds must include provisions like those in this [s]ection.... Recipient, to the maximum extent possible shall award any subcontracts funded, in whole or in part, with Recovery Act funds as fixed-price contracts through the use of competitive procedures. ). In addition, these states understand themselves to be bound by the requirement of competitive bidding as well as the reporting requirement when competitive bidding is not used. See Fed. Highway Admin., supra. Even so, there are some state agencies that understand contract as used in section 1554 to be limited to federal procurement. See Alaska Dep t of Envtl. Conservation, ARRA Related Davis-Bacon Implementation Questions 2 (Sept. 8, 2009), (basing this understanding on a lack of direction from the EPA to provide otherwise). 36. See supra notes 24, See Recovery Act 1515, 123 Stat. at U.S. 363, (1943). Clearfield Trust is especially on point for concerns arising out of the Recovery Act because the holding addressed the issuance of a check by the Works Progress Administration, a Depression Era jobs program. Id. at 364. In contrast to Clearfield Trust, in United States v. Kimbell the Court held that a federal loan program was subject to state law because Congress had not provided a federal rule for lien priority. 440 U.S. 715, 728 (1979) (citations omitted) ( [W]hether to adopt state law or to fashion a nationwide federal rule is a matter of judicial policy dependent upon a variety of considerations always relevant to the nature of the specific governmental interests and to the effects upon them of applying state law. ). 39. See supra note 15. The Recovery Act s use of the term competitive procedures creates this requirement. Competitive procedures have long been understood as those procedures providing for full and open competition. See 10 U.S.C. 2302(2) (2006). A similar provision is contained in the Federal Property and Administrative Services Act, 41 U.S.C. 253(a) (2006) ( an executive agency... shall obtain full and open competition through the use of competitive procedures... ).

8 1026 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 Whether or not a state agency is using competitive procedures in the award of public contracts is ultimately a question of federal law, and leaving challenges of such awards to state agencies and courts will subject this question to fifty or more possible interpretations. 40 If a contract is awarded under stimulus funds without using competitive procedures, there is little guarantee that state law will provide an adequate remedy for this violation. 41 While most states provide a process to enforce competitive procedures, these processes vary widely 42 and if they deviate from the federal requirements, the performance of the contract could be well underway before one of the few federal reviewing authorities is able to scrutinize the award. 43 Fifty different states applying their individual laws and policy considerations is simply not an effective way to guarantee accountability and transparency in the application of the stimulus. C. One Principle, Two Reasons to Avoid It The stimulus aims to deliver a quick financial injection into the economy, thereby creating jobs and promoting economic growth. 44 The Government s intent to distribute funds at a rapid pace is apparent both from how quickly the mammoth stimulus legislation passed 45 and from provisions in the stimulus such as the quick-start provision, 46 which mandates expedited delivery of taxpayer funds for various shovel ready projects. 47 While the Government s desire to quickly rehabilitate the economy is understandable, it must ensure that the methods used to deliver stimulus funds do not sacrifice competition Previous versions of the bill considered actually applying the Federal Acquisition Regulations (FAR) directly to those contracts receiving stimulus dollars. See, e.g., H.R. Rep. No , at ( Contracts let with recovery dollars must comply with [FAR]. ). 40. See Opportunities to Improve Management Report, supra note 7, at 176 n.182 ( The states and the District of Columbia have varying definitions and procedures relating to competition and contract types. ). 41. See discussion supra Part III.A regarding GAO s reliance on state agencies representations as to whether or not contracts were awarded competitively. 42. For example, a number of states allow disappointed bidders to protest an award only if they are a taxpayer in that state. See Randall L. Erickson, State Bid Protests, Crowell Moring LLP (Fall 2001), While there are thousands of contracts, grants, and loans with many potential problems, only twenty-nine inspector generals (IGs) and one limited Recovery Board oversee this stimulus funding. See One Year Later Report, supra note 7, at See generally American Recovery and Reinvestment Act of 2009, Pub. L. No , 3, 123 Stat. 115, (2009). 45. The bill was signed on February 17, 2009, less than a month after President Obama was sworn into office. See Brian Knowlton, Obama Tries to Speed Passage of His Economic Plan, N.Y. Times (Feb. 2, 2009), html. 46. Recovery Act 1602, 123 Stat. at See id.; American Recovery and Reinvestment Act of 2009 Shovel-Ready Projects Challenges and Strategic Opportunities, Bull. (Bryan Cave LLP), Mar. 5, 2009, at 1, available at bryancave.com/files/publication/8402ba8c-7b04-4c57-a66f-148d703e65a4/presentation/ PublicationAttachment/26d21fbd-c50f-46a3-ba5c-15d581b2243a/GovernmentContracts Bulletin pdf.

9 Bid Protest Forum for Stimulus-Funded Contractors 1027 and other government objectives solely to avoid the relatively slow pace of the federal procurement process. In Motor Coach Industries, Inc. v. Dole, the Federal Aviation Administration (FAA) was challenged in federal court for its creation of the Air Carriers Trust Fund (the Trust) to procure transportation services for Dulles International Airport. 48 While the Trust was not technically a part of the FAA, the court looked to the agency s decisions to determine that the Trust was created for a public purpose and that the FAA s use of the Trust to meet its procurement objectives impaired the integrity of the procurement process by failing to adhere to federal procurement rules. 49 This same concern is present in the expenditure of the Recovery Act funds. The appropriations provisions in Division A of the stimulus provide funds to numerous federal agencies for federal and state grants. 50 It is well within federal agency authority to distribute funding to those state agencies that follow federal law. However, the stimulus s goal to spend funds quickly 51 and its preference for shovel-ready projects create incentives for agencies to circumvent the potentially time-consuming competitive procedures federal law requires. One option for federal agencies facing these incentives is to prioritize the allocation of stimulus funds to state agencies when state agencies will be able to develop contracts more quickly than federal agencies. A second option is to allocate stimulus funds either to states that already have contracts in place, regardless of the availability of competitive procedures, or to states whose procurement laws require the fewest competitive procedures and thus whose procurements are likely to proceed most quickly. As the Accountability and Transparency section of the stimulus provides only limited oversight, 52 there are no effective enforcement mechanisms to ensure agencies properly balance the quick-start and competitive procedure requirements. IV. SOLUTION: A BID PROTEST FORUM WITH BITE One way to ensure accountability and transparency in the procurement of stimulus-funded state contracts is to apply the time-tested solution of allowing disappointed bidders to protest violations of the law in one of four possible forums: GAO, the Recovery Board, the COFC, or the district court F.2d 958, 960 (4th Cir. 1984). 49. Id. at Subsections direct funds to the Departments of Agriculture, Rural Development, Commerce, Justice, Science, Defense, Energy and Water Development, Financials Services, Homeland Security, Interior, Environment, Labor, Health and Human Services, Education, Transportation, and State; the FDA; and numerous other agencies. See generally Recovery Act 2, 123 Stat. at This goal not only appears in the speeches of the President and the preamble to the bill, but also is woven throughout the bill. See, e.g., Recover Act 3, 123 Stat. at 115; Presidential Statement on Signing the American Recovery and Reinvestment Act, supra note See discussion supra Part III.A.

10 1028 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 In a federal protest forum, interested and invested parties bring violations of law and misuse of stimulus dollars to the Government s attention. This is an alternative to requiring the twelve-member Recovery Board either to wade through thousands of contracts to search for these problems or to rely on complaints from the general public. A federal forum would also provide for a more uniform application of federal law and the enforcement of federal competition principles would help to ensure that agencies did not avoid federal procurement laws in an effort to utilize stimulus funds as quickly as possible. This Part will first address the current availability of federal bid protest jurisdiction over stimulus-funded disappointed bidders. It will then discuss why the availability of such a forum would help advance the goals of accountability and transparency set forth in the stimulus. A. Four Avenues 1. The Original Path GAO GAO, as one of the two current forums for federal bid protests, 53 is well situated to hear bid protests filed by stimulus contractors. There are two potential sources of jurisdiction for GAO to review stimulus bid protests: (1) the historical and statutory ability of GAO to settle the accounts of the Federal Government, as recognized prior to the enactment of the Competition in Contracting Act of 1984 (CICA); 54 and (2) the CICA codification of GAO authority to review bid protests of contracts by or for a federal agency. 55 This subpart will only address the first potential source of GAO s jurisdiction. 56 An important function of GAO and the Comptroller General is to settle the accounts of the Federal Government. 57 This authority, beginning in the early part of the twentieth century, was expanded to include bid protest review. 58 While GAO s ability to enforce its bid protest recommendations prior to CICA was limited, it remained the only federal bid protest forum avail- 53. See 31 U.S.C (2006) The other forum is the Court of Federal Claims (COFC). See 28 U.S.C. 1491(b) (2006) U.S.C (2006). 55. See Baron Servs., Inc., B , 2009 WL , at *2 (Comp. Gen. Dec. 24, 2009). 56. This section will only address the first area of jurisdiction because the second area parallels the implied-in-fact Tucker Act jurisdiction of the Court of Federal Claims (COFC). See id. at *2. GAO recently engaged in an analysis of this latter type of jurisdiction when a federal subcontractor brought a protest asserting that the subcontract had been awarded by or for the Government and had failed to follow Recovery Act competition requirements. Id. at *1 2. GAO denied standing, concluding that it applied to only awards essentially [] awarded by the government. Id. at *3. For further discussion of what is needed to make this implied-in-fact contract, see Part IV.A U.S.C Today the authority to hear federal bid protests is more clearly stated in 31 U.S.C ( A protest concerning an alleged violation of a procurement statute or regulation shall be decided by the Comptroller General.... ). 58. Alex D. Tomaszczuk & John E. Jensen, The Adjudicatory Arm of Congress The GAO s Sixty-Year Role in Deciding Government Contract Bid Protests Comes Under Renewed Attack by the Department of Justice, 29 Harv. J. on Legis. 399, (1992).

11 Bid Protest Forum for Stimulus-Funded Contractors 1029 able to federal contractors until the Scanwell decision s interpretation of the Administrative Procedure Act (APA). 59 In 1975, five years after Scanwell, the Comptroller General issued a notice that GAO would begin to hear protests by disappointed bidders on state procurements that were funded in whole or in large part by federal grant money. 60 The notice cited the ever-increasing growth of federal grant money ($56 billion at the time), its frequent use for contracts, and the need to ensure that such contracts were created using competitive procedures and other procedures required by the grant. 61 The Comptroller General s notice as well as a GAO decision issued one month earlier in August 1975 emphasized that bid protest procedures for federally funded state contracts would differ from traditional federal bid protest procedures because the Federal Government did not originate the former. 62 Although federally funded state contracts did not need to follow federal procurement regulations, such contracts did need to follow certain basic principles of federal procurement when required by conditions of the grant. 63 Subsequent decisions applied these basic principles of federal procurement to enforce grant stipulations and competitive procedure requirements. 64 In Thomas Construction Co., GAO reviewed the protest of the low bidder on a transportation complex construction contract funded by a U.S. Department of Transportation grant to the Kansas City Area Transportation Authority (KCATA). 65 The decision held that the low bidder was improperly rejected as nonresponsive where KCATA s solicitation failed to provide the bidder with the basis for evaluation of the bidder s plans to use minority subcontractors. 66 Additionally, GAO recommended that if the contractor was found responsible, the original contract should be terminated and the award should go to Thomas Construction Robert Metzger & Daniel A. Lyons, A Critical Reassessment of the GAO Bid-Protest Mechanism, 2007 Wis. L. Rev. 1225, (2007). See also discussion supra Part II.B. 60. Gen. Accounting Office Public Notice, Review of Complaints Concerning Contracts Under Federal Grants, 40 Fed. Reg. 42, (Sept. 12, 1975). 61. Id. 62. See Thomas Constr. Co., 55 Comp. Gen. 139, (1987); Review of Complaints Concerning Contracts Under Federal Grants, 40 Fed. Reg. at 42, See Review of Complaints Concerning Contracts Under Federal Grants, 40 Fed. Reg. at 42, See Thomas Constr. Co., 55 Comp. Gen. at 146; Raj Constr., Inc. ( Raj II ), B , 79-1 CPD 140, at 2 (Comp. Gen. Mar. 1, 1979); Raj Constr., Inc., 57 Comp. Gen. 872, at 874 (1978); Trinity Servs., Inc., B , 76-2 CPD 527, at 2 (Comp. Gen. Dec. 23, 1976). 65. Thomas Constr. Co., 55 Comp. Gen. at Kansas City Area Transportation Authority (KCATA) rejected the bid as nonresponsive because Thomas Construction was unable to prove at the time the bid was opened that it could meet the minority subcontractor requirements. Id. at 141. GAO looked to its prior bid protest decisions to determine that the bid was responsive when the contractor submitted the required affidavit stating its commitment to hiring the appropriate minority subcontractors. Id. at Id. at 147.

12 1030 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 A similar protest was brought in Trinity Services, Inc. 68 In Trinity Services, the Department of Health, Education, and Welfare (HEW) issued a grant for nutritional services under Title VII of the Older Americans Act of 1965 to Florida, which then distributed the funds to a number of cities within the state. 69 The subgrantee-cities then used the money from the state to award contracts to private nutritional services. 70 The initial grant to the State of Florida stipulated that the grant funds were to be awarded in a manner consistent with certain federal procurement policies and that a fair proportion of the grant funds was to be awarded to minority firms. 71 HEW argued that its oversight authority stopped at the state level. 72 GAO disagreed, determining that it was the responsibility of both the State of Florida and HEW to ensure that the competitive procedures and minority requirements were followed. 73 Until 1984 GAO continued to review bid protests of contracts funded by federal grants. 74 This review process was more than cursory and vigorously applied federal procurement principles. 75 Even so, in 1985 GAO issued a notice that it would no longer hear such cases. 76 While this was not long after the passage of CICA, the notice was not based on the statutory changes to GAO s federal contract bid protest jurisdiction. 77 Instead, the Comptroller General cited a decreasing number of complaints and an improvement in state review procedures. 78 Although state bid protest rules have certainly changed, it is not so certain that these procedures resolve GAO s original concern with ensuring that federal grant requirements are followed. Without providing a forum to hear state bid protests, GAO has only a limited ability to ensure that the requirements of the stimulus are followed. 79 Additionally, while CICA may have effectively narrowed GAO s bid protest review of federal contracts to those interested parties defined in CICA, 80 CICA was not intended to remove GAO s authority. Instead its pur- 68. Trinity Servs., Inc., 76-2 CPD Id. at Id. 71. Id. 72. Id. 73. Id. at See supra note See, e.g., Raj Constr., Inc. ( Raj II ), B , 79-1 CPD 140, at 2 (Comp. Gen. Mar. 1, 1979). 76. Gen. Accounting Office, Notice, Discontinuance of Review of Complaints Concerning Contracts Under Federal Grants, 50 Fed. Reg ( Jan. 29, 1985). 77. CICA codified GAO s bid protest authority and provided jurisdiction over an interested party to the procurement, an interested party being an actual or prospective bidder for a contract solicited by a federal agency. See 31 U.S.C. 3551; Polycon Corp., 64 Comp. Gen. 523, (1985). 78. Discontinuance of Review of Complaints Concerning Contracts Under Federal Grants, 50 Fed. Reg. at See discussion supra Part III and infra Part IV.B. 80. See, e.g., Sprint Commc ns Co., Comp. Gen. B et al., 94-1 CPD 300, at 3 (Comp. Gen. May 9, 1994).

13 Bid Protest Forum for Stimulus-Funded Contractors 1031 pose was in part to codif[y] and strengthen the bid protest function currently in operation at the General Accounting Office. 81 Given that it was GAO s decision to stop hearing protests from disappointed bidders on state contracts funded under federal grants, GAO has discretion to change course and to hear similar protests from disappointed bidders on stimulus-funded state contracts. 2. The New Path The Recovery Accountability and Transparency Board A second possible forum for a disappointed bidder under a stimulusfunded state contract is the Recovery Board. The stimulus established the Recovery Board to coordinate and conduct oversight of covered funds to prevent fraud, waste, and abuse. 82 The Recovery Board is composed of a chairperson appointed by the President and twelve IGs from various federal agencies. 83 The Recovery Board is specifically tasked with (A) reviewing whether the reporting of contracts and grants using covered funds meets applicable standards and specifies the purpose of the contract or grant and measures of performance; (B) reviewing whether competition requirements applicable to contracts and grants using covered funds have been satisfied; [and] (C) auditing or reviewing covered funds to determine whether wasteful spending, poor contract or grant management, or other abuses are occurring and referring matters it considers appropriate for investigation to the inspector general for the agency that disbursed the covered funds. 84 It also has the authority to conduct audits and reviews, subpoena witnesses, and hold public hearings. 85 Currently, the Recovery Board s oversight relies heavily on the IGs and on preventative outreach programs. 86 It also looks to citizens to provide information about fraud or waste. 87 Given the Recovery Board s broad review powers, however, it could establish a pseudo bid protest forum in the same vein as GAO s bid protest jurisdiction for federal contracts. Just as GAO issues nonbinding recommendations, so too could the Recovery Board. Disappointed bidders would have a strong incentive to act as private attorneys general for 81. H.R. Rep. No , at 1435 (1984) (Conf. Rep.). 82. American Recovery and Reinvestment Act of 2009, Pub. L. No , 1521, 123 Stat. 115, 289 (2009). 83. Id The IGs on the Recovery Board include IGs from the Departments of Agriculture, Commerce, Education, Energy, Health and Human Services, Homeland Security, Justice, Transportation, and Treasury; the Treasury IG for Tax Administration; and any other [IG] as designated by the President from any agency that expends or obligates covered funds. Id. 84. Id. 1523, 123 Stat. at 290. The Board also reviews whether there are sufficient personnel overseeing funds, whether personnel receive adequate training, and whether there is appropriate interagency collaboration and coordination. Id. 85. Id. 1524, 123 Stat. at Recovery Board Performance Report, supra note 32, at To facilitate this, the Recovery Board established a Recovery Board Hotline. Id. at 32.

14 1032 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 stimulus-funded contracts. Such a procedure would also allow the limited Recovery Board to identify problems in the implementation of the stimulus without having to actively seek out such problems. While the Recovery Board remains a potential forum for stimulus bid protests in the traditional sense, it remains to be seen whether it will become such a forum. As it stands, disappointed bidders are only able to bring their protests to the Recovery Board in the same manner as citizen complaints. 3. The Statutory Path The Court of Federal Claims Along with GAO, the Court of Federal Claims is one of the two forums available to disappointed federal contractors seeking to bring a bid protest. 88 Under the Tucker Act, it may also be possible for disappointed bidders on stimulus-funded state contracts to bring a claim or a protest in this forum. 89 The COFC has jurisdiction over any protest of a violation of a regulation in connection with procurement. 90 The COFC may also hear any claim based on an express or implied-in-fact contract with the United States. 91 To bring a protest under the first ground for jurisdiction, a bidder on a stimulus-funded state contract would essentially need to show that the state agency was acting on behalf of the Federal Government in making a procurement award. 92 To bring a claim under the second ground for jurisdiction, the bidder would need to show a breach of an implied contract between the Federal Government and the disappointed bidder. 93 a. The Purchasing Agent Theory 1491(b) Jurisdiction A disappointed bidder s ability to protest a state agency award decision on a stimulus-funded contract depends on whether the protestor was an interested party and whether the state agency was acting as a procurement agent of the Federal Government. 94 The COFC recognizes two avenues for a successful agency claim: (1) where the state agency or other purchasing party is subject to day-to-day supervision by the Federal Government or (2) where that party is the Government s purchasing agent. 95 Finally, the purchase made on behalf of the Government must constitute a procurement U.S.C. 1491(b)(1). 89. See id. 1491(a)(1). 90. Id. 1491(b)(1). 91. Id. 1491(a)(1). 92. See discussion infra Part IV.A.3.a. 93. See discussion infra Part IV.A.3.b. 94. See Blue Water Envtl., Inc. v. United States, 60 Fed. Cl. 48, 51 (2004). 95. Id. at 51, 53. As the day-to-day supervision of state agency procurement is probably less likely to occur, this section focuses mainly on situations in which an agency claims it is the Government s purchasing agent. 96. Project Lake Pleasant, LLC v. McDonald, 609 F. Supp. 2d 895, (D. Ariz. 2009). This case reviewed the jurisdictional issue here in order to determine if the protest before it should have gone to the Court of Federal Claims. Id. at 901.

15 Bid Protest Forum for Stimulus-Funded Contractors 1033 The COFC has found a third party to be a purchasing agent for the Federal Government when the agency places express limitations on a third-party solicitation and where the solicitation was for the benefit of the Government. 97 In Alatech Healthcare, LLC v. United States, a prime contractor was a procuring agent for the Government when it was awarded an indefinite quantity contract by the U.S. Agency for International Development (USAID) that included purchasing condoms as part of providing international direct health-related services. 98 A domestic condom manufacturer brought the protest claiming that the prime contractor s subsequent award of a subcontract violated a statutory requirement that condom awards be awarded to domestic manufacturers to the maximum extent feasible. 99 An agency relationship also existed because the Government took a role in planning and defining the process and procedure of the procurement. 100 Similar to the domestic preference law in Alatech, the stimulus places numerous mandates on states that receive federal grant funds. It requires states to favor quick-start programs and to spend the money not for the sole benefit of the state, but rather to create jobs and economic growth. 101 The governor of the state must certify, prior to authorizing the use of stimulus funds for infrastructure spending, that such spending is an appropriate use of taxpayer dollars. 102 States also must use fixed-priced contracts and competitive procedures to the maximum extent possible. 103 In order to establish the COFC s jurisdiction, a state contractor would have to show that these federal requirements effectively mandated the process and procedure for state agency solicitations. However, persuading the court that the contract at issue is a procurement for the benefit of the Federal Government makes the claim more difficult. 104 b. The Implied Contract 1491(a) Jurisdiction Even if a stimulus contract is not deemed a federal procurement under Tucker Act 1491(b)(1), it may be possible for a disappointed bidder to allege a breach of an implied contract under section 1491(a)(1). Although the 97. See Alatech Healthcare v. United States, 89 Fed. Cl. 750, (2009) (holding agency s active role in planning and overseeing prime contractor s awards to subcontractors qualified subcontract award as a procurement sufficient to invoke Tucker Act jurisdiction); Project Lake Pleasant, 609 F. Supp. 2d at 911 (finding contract was not a procurement because Government did not acquire anything for its own use) Fed. Cl. at Id. at Id. at American Recovery and Reinvestment Act of 2009, Pub. L. No , 1602, 123 Stat. 115, 302 (2009) Id. 1511, 123 Stat. at Id. 1554, 123 Stat. at See Project Lake Pleasant, LLC v. McDonald, 609 F. Supp. 2d 895, 911 (D. Ariz. 2009). In this case the court noted that the definition of procurement is ambiguous but can include public works as understood by FAR 2.101(b)(2). Id. The court ultimately deemed the award at issue not a procurement contract because it did not require an expenditure of funds by the Government. Id. at 912.

16 1034 Public Contract Law Journal Vol. 40, No. 4 Summer 2011 Administrative Dispute Resolution Act of 1996 disallowed an implied contract claim for disappointed bidders of federal procurement contracts, the U.S. Court of Appeals for the Federal Circuit recently held that the COFC could still hear claims of a breach of implied-in-fact contracts for non-procurement solicitations. Essentially, the claim would need to allege that (1) the state acted as an agent of the Federal Government 105 and (2) there existed an implied contract to fairly and honestly consider an offer. 106 If the disappointed bidder met the high burden of showing an agency relationship, 107 then the implied contract of fair dealing could more easily be met The Constitutional Path The District Court Although CICA included a sunset provision divesting district courts of federal bid protest jurisdiction, 109 there are at least two avenues a state contractor could use to protest that federal or state agencies failed to comply with the requirements of the stimulus bill. The stipulations in the stimulus bill, and a failure to follow them, might present a Federal Question. 110 A state contractor also could present a claim that it was denied its due process rights when it was improperly denied a contract award funded under the stimulus. 111 a. A Federal Interest Federal Question Jurisdiction Whether or not a state contractor can bring a bid protest in the district court simply in light of the stimulus competition requirements depends on whether or not the court has subject-matter jurisdiction. In order to find Federal Question subject-matter jurisdiction, it is not enough that there is a federal issue intertwined with a state issue; there also must be a substantial federal interest. 112 A number of district court decisions have differed on the question of whether or not there is a federal interest in state agencies applying state procurement policy while using federal funds. In Giannetti Bros. Construction Corp. v. Lee County, Florida, the District Court for the Middle District of Florida reviewed a claim by a contractor against the county under a contract funded, in part, by Environmental Protection Agency 105. See Cent. Freight Lines, Inc. v. United States., 87 Fed. Cl. 104, (2009) See Res. Conservation Grp., LLC v. United States, 597 F.3d 1238, 1242, 1246 (Fed. Cir. 2010) See discussion supra Part IV.A.3.a See Res. Conservation Grp., 597 F.3d at Competition in Contracting Act (CICA) of 1984, Pub. L. No , 12(d), 110 Stat. 3870, 3875 ( The jurisdiction of the district courts of the United States over the actions described in section 1491(b)(1) of title 28, United States Code (as amended by subsection (a) of this section) shall terminate on January 1, 2001 unless extended by Congress. ) See discussion infra Part IV.A.4.a See discussion infra Part IV.A.4.b San Jose Constr. Grp., Inc. v. Metro. Wash. Airport Auth., 415 F. Supp. 2d 643, (E.D. Va. 2006) (citing Merrell Dow Pharm., Inc. v. Thompson, 478 U.S. 804, n.12 (1986)).