In Strategi Consulting LLC v. United States, the plaintiff alleged that the United States Air Force (“USAF” or “Agency”) improperly continued developing software derived from Strategi’s Phase II Small Business Innovation Research (“SBIR”) work through an affiliated agency organization rather than awarding Strategi a Phase III SBIR contract. The Court of Federal Claims denied the Government’s motion to dismiss for lack of jurisdiction, allowing the case to proceed. Although the court has not yet determined whether the USAF violated the SBIR statute, the decision underscores an important principle for SBIR participants and government contractors alike: the Court of Federal Claims possesses broad bid protest jurisdiction over agency actions connected to a procurement, enabling judicial review of a wide range of procurement-related decisions that agencies might otherwise contend are beyond the court’s reach. This blog analyzes the recent Court of Federal Claims decision confirming that certain Agency actions affecting Phase III SBIR opportunities may be subject to bid protest review.
Background
Strategi received a Phase II SBIR contract from Space Systems Command System Delta 10, a group in the Space Force, to develop their tactical surveillance software known as Voltron. According to the complaint, after successfully completing Phase II, the USAF identified a continued need for the technology but chose not to award Strategi the Phase III contract. Rather, the Agency allegedly continued developing substantially similar software known as Vigil through the Air Force Research Lab’s DRAGON (“Defense Readiness Agile Gaming Online Network”) Army.
The Government believed that it had strong grounds to dismiss this action. Specifically, they argued that (1) the court lacked jurisdiction because there was no procurement decision to review and (2) that the dispute involved task orders, which generally cannot be reviewed under the Federal Acquisition and Streamlining Act (“FASA”) of 1994.
Judge Carolyn N. Lerner disagreed on both grounds.
First, relying on Federal Circuit precedent, Judge Lerner emphasized that the term “procurement” extends beyond the mere award of a contract and encompasses agency decisions regarding how to fulfill a need for goods or services. Second, the court rejected the Government’s contention that the case amounted to an impermissible task-order protest. Strategi was not challenging the Agency’s use of task orders as a procurement vehicle. Rather, it alleged that the USAF was using those task orders to perform “improper de facto Phase III work” that should have been awarded to Strategi under the SBIR program’s Phase III preference. In other words, Strategi claimed that the Agency had assigned Phase III work to other contractors through task orders even though the disputed work fell outside the scope of those orders.
That distinction proved critical. The court explained that, even if the protest was viewed as connected to the issuance of the task orders, it still fell within the Court of Federal Claims’ jurisdiction because Strategi alleged that the work being performed exceeded the scope of the underlying contracts. Citing Global Computer Enterprises, Inc. v. United States, the court noted that a protest challenging out-of-scope work falls within FASA’s exception for task-order protests. By framing its challenge as an objection to the Agency’s alleged use of task orders to circumvent SBIR’s Phase III requirements, rather than as a challenge to the task orders themselves, Strategi successfully cleared the jurisdictional hurdle.
Readjusting the Scope of “Procurement”
Although the ruling only addressed jurisdiction, it carries significant implications for the Government and contractors participating in the SBIR Program alike.
First, agencies need to properly appreciate that their decisions to not issue a Phase III award to the original innovator are now likely subject to review. Importantly, this decision also suggests that procurement decisions generally may not be insulated from judicial review simply because the Government labels the work differently or uses an alternative acquisition vehicle. While the facts will certainly be different from case to case, Judge Lerner’s rationale that the “broad interpretation of procurement provides [COFC] jurisdiction to review certain denials of unsolicited proposals, as well as an agency’s decisions to insource work to government agencies,” may be adopted and even expanded upon by other judges.
Additionally, contractors should seize this win by taking proactive measures. For instance, contractors should actively monitor follow-on procurements after completing a phase of SBIR work, if not doing so already. If substantially similar development efforts appear to be moving away to another contractor or contract vehicle, understanding the Government’s acquisition strategy early may be critical in evaluating potential protest options. This decision also provides incentive to contractors that protesting at COFC may provide more favorable results.
Key Takeaways
- The Government’s acquisition strategy may be subject to review. This decision confirms that allegations of an agency effectively diverting Phase III work from the innovator can fall within COFC’s bid protest jurisdiction, even when the work is performed through existing contract vehicles. However, a win on jurisdiction is not a win on the merits, and contractors should keep this in mind when deciding how far to pursue or start litigation.
- Follow-on work can be protested. The court here emphasized that procurement includes decisions about how the Government chooses to satisfy its requirements. Agencies cannot avoid judicial review simply by characterizing follow-on development as task order work or internal efforts; in other words, the substance, not the form, is what matters.
As a final reminder, the court did not determine whether Strategi was entitled to a Phase III award. Instead, it held that the contractor’s allegations deserve to be heard on the merits. As agencies continue using flexible acquisition strategies for emerging technologies, this decision may become an important precedent for contractors seeking to protect their Phase III opportunities under the SBIR Program. Should you have questions regarding this case or the SBIR Program, please contact Lauren Brier, Adel Mansour, or another member of PilieroMazza’s Government Contracts practice group.
