Counsel Commentary: Federal Circuit Opens the Door to Commercial Subcontracts Protests

The Federal Acquisition Streamlining Act of 1994 (FASA) requires that agencies, “to the maximum extent practicable,” procure commercial products and services. Agencies must then conduct market research and require their prime contractors and subcontractors at all levels of the supply chain to incorporate commercial solutions. 

In 2018, the U.S. Court of Appeals for the Federal Circuit issued a landmark decision on Palantir USG, Inc. v. United States, regarding FASA’s preference for commercial items. The Federal Circuit that the Army violated FASA by failing to reasonably determine whether its need for a Distributed Common Ground System could be met with Palantir’s commercial software. 

While the Palantir decision added grounds to FASA’s market research requirements and gave companies a path to argue that their commercial solutions must be reasonably considered for an agency’s prime contract requirements, it did not address whether a similar path would be available to a potential subcontractor that could offer its commercial product or service to meet only a portion of the agency’s requirements. 

In June 2024, a three-judge panel of the Federal Circuit answered this question during Percipient.ai, Inc. v. United States. The majority of the panel ruled that Percipient had standing to allege that the National Geospatial-Intelligence Agency (NGA) violated FASA. The panel narrowly interpreted FASA’s “task order bar” to expand the scope of protests related to task orders that may be brought to the Court of Federal Claims (COFC). The Federal Circuit also ruled, for the first time ever, that a potential subcontract could qualify as an “interested party” with standing to protest at the COFC under the Tucker Act. 

The Percipient decision is likely to have significant implications for agencies and all contractors in the supply chain. RJO shareholder Stephen L. Bacon discusses these implications in his monthly Contract Management Magazine column, “Federal Circuit Opens the Door to Commercial Subcontractor Protests.” He also explains how the Tucker Act impacts the standing of a protest and what this will mean to protestors. 

“While Palantir confirmed that FASA requires agencies to give reasonable consideration to commercial solutions, Percipient made clear that this requirement extends to all levels of the supply chain,” Bacon writes. “To avoid the risk of a protest in the wake of Percipient, agencies and their contractors will need to give careful consideration to commercial solutions that could meet a subset of their needs.”

The piece, which appears in the magazine’s August issue (subscription required), is an entry in Bacon’s monthly Counsel Commentary column and is published by the National Contract Management Association. It was used with permission.

Read Bacon’s latest Contract Management article here.