Doctrine of Exhaustion of Administrative Remedies - Part 2

Last week we discussed the "Doctrine of Exhaustion of Administrative Remedies" which holds that Government contractors must exhaust all reasonable administrative remedies for settling a dispute before filing a lawsuit. Today we will discuss a recent case where this doctrine was applied.

The case involves a pre-award bid protest. In February 2014, the NIH (National Institute of Health) issued an RFP (Request for Proposal) as a small-business set-aside under NAICS (North American Industry Classification System) Code 541712 which limited offerors to small businesses of 500 employees or fewer. A prospective offeror appealed the NAICS designation to the SBA (Small Business Administration) who ordered the contracting officer to amend the solicitation to change the NAICS Code from 541712 to 541611, presumably allowing more companies the opportunity to bid.

Palladian Partners filed suit in the Court of Federal Claims seeking declaratory and injuctive relief to prevent NIH from accepting and evaluating proposals under the new code, which rendered Palladian ineligible to compete. The Court of Federal Claims granted Palladian's motion for judgment finding that the contracting officer's NAICS code amendment was arbitrary and capricious. Specifically, the court found that NAICS code 541611 did not best describe the statement of work for the solicitation. Based on this conclusion, the court remanded for NIH to make a proper NAICS code selection, given the current statement of work, or to determine who other wise to proceed.

NIH appealed the Court of Federal Claims judgment to the Court of Appeals for the Federal Circuit. Among other things, the Government argued that the Court of Federal Claims should have dismissed Palladian's suit for failure to exhaust administrative remedies with OMB (specifically OMB's Office of Hearings and Appeals or OHA). The Court of Appeals agreed that Palladian failed to exhaust its administrative remedies and because that failure warrants dismissal of Palladian's protest, the Court of Appeals reversed the Claims Court's decision.

When the first potential offeror appealed the NAICS Code assignment, Palladian had the opportunity to intervene and participate in that proceeding. Palladian did not do so. By regulation, when SBA issued its NAICS code determination for the solicitation, it became a final decision. Therefore, by not participating in the code determination process, Palladian lost the opportunity to file suit.

You may read the decision in its entirety by clicking here.