Companies Must Understand the Court’s Standard of Review in Government Contracting Under 5 USC 706 Administrative Procedure Act.

What is Arbitrary and Capricious in Government ContractingWhen government contractors file cases with the various courts, understanding arbitrary and capricious definition and meaning and the standard of review in government contracting is essential to planning on the outcome of their case.

When companies litigate cases on appeal, the arbitrary and capricious definition for challenging an agency action is critical but often forgotten.

What is the arbitrary and capricious definition under the Administrative Procedure Act?

Bid protest litigation

When courts review bid protest cases under the Administrative Procedure Act,, the standard of review is to rule on whether the agency’s action was arbitrary and capricious. Most common, is when a court reviews a motion for judgment upon the administrative record. Galen Med. Assocs., Inc. v. United States, 369 F.3d 1324, 1329 (Fed. Cir. 2004). In a bid protest case, the Federal Circuit Court of Appeals stated that a court’s inquiry is whether the agency’s action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law and, if so, whether the error is prejudicial. 28 USC 1491(b)(4) (adopting the standard of 5 USC 706); see Bannum, Inc. v. United States, 404 F.3d 1346, 1351 (Fed. Cir. 2005).

A sound approach to appellate cases in government contracting is to address all aspects of the court’s inquiry. The arbitrary and capricious standard (referred to as the Chevron arbitrary and capricious test) applicable in bid protest cases has a highly deferential standard of review. Advanced Data Concepts, Inc. v. United States, 216 F.3d 1054, 1058 (Fed. Cir. 2000). A ruling is arbitrary and capricious when it is unsupported by substantial evidence

AGENCY DISCRETION 

When looking at the Court’s standard of review and with the arbitrary and capricious test , it is common knowledge in administrative law that contracting officers have great discretion upon a broad range of issues confronting them in the procurement process. Impresa Construzioni Geom. Domenico Garufi v. United States, 238 F.3d 1324, 1332 (Fed. Cir. 2001)

Government contractors should avoid focusing on what the court considers de minimis errors in the procurement process to justify relief. Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 1000 (Fed. Cir. 1996).

BURDEN OF PROOF 

As a protestor, under federal laws and under the Administrative Procedure Act, you have the legal burden of proving that a significant error jeopardized the procurement in question. When you are protesting a negotiated procurement then the standard is higher because the contracting agency has a lot more discretion. This is especially true with government contracts small business set-asides. “[T]he greater the discretion granted to a contracting officer, the more difficult it will be to prove the decision was arbitrary and capricious.”

5 USC 706 Chevron Arbitrary and Capricious Meaning and Standard of Review

There are four elements to the Chevron“Arbitrary and Capricious” definition, meaning and standard of review when challenging the agency action. The United States Supreme Court stated that an agency decision would be arbitrary and capricious if the agency has [1] relied on factors which Congress has not intended it to consider, [2] entirely failed to consider an important aspect of the problem, [3] offered an explanation for its decision that runs counter to the evidence before the agency, or [4] is so implausible that it could not be ascribed to a difference in view or the product of agency expertise.

Administrative Procedure Act 5 USC 706 de novo review

The following language is taken from the Administrative Procedure Act, 5 USC 701-706.

To the extent necessary to decision and when presented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action. The reviewing court shall—

  1.  compel agency action unlawfully withheld or unreasonably delayed; and
  2.  hold unlawful and set aside agency action, findings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law;

(B) contrary to constitutional right, power, privilege, or immunity;

(C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right;

(D) without observance of procedure required by law;

(E) unsupported by substantial evidence in a case subject to sections 556 and 557 of this title or otherwise reviewed on the record of an agency hearing provided by statute; or

(F) unwarranted by the facts to the extent that the facts are subject to trial de novo review by the reviewing court.

In making the foregoing determinations, the court shall review the whole record or those parts of it cited by a party, and due account shall be taken of the rule of prejudicial error.

Arbitrary Meaning and Definition Under the Administrative Procedure Act

When an agency’s decision is arbitrary, it means that the decision was not based on reasonable judgment. In  termination for default cases, for example, an arbitrary decision by the contracting officer could be found where the record shows ample evidence that the default termination was not caused by the contractor’s actions.

An arbitrary decision under the Administrative Procedure Act could also be found where the government contracting office failed to follow mandatory FAR requirements when making an adverse decision. Note that a ruling is arbitrary and capricious when it is unsupported by substantial evidence.

Capricious Meaning and Definition 

In government contracting, the capricious meaning is applied when the record shows that the agency has no reasonable explanation for its actions or decisions. Since government contracting is considered Administrative law, an appellate court, applying its standard of review under federal laws, will decide whether the agency has a reasonable basis for its actions.

When litigating a government contracting case, the result turns heavily on the standard of review. Government contractor lawyers must balance the very low agency standard when arguing whether the agency’s actions were arbitrary and capricious.

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