United States: Fed. Circ. To Decide Future Of Commercial Item Contracting

Last Updated: February 12 2018
Article by Nathaniel Castellano and Charles A. Blanchard

On Feb. 8, 2018, the United States Court of Appeals for the Federal Circuit heard oral argument in Palantir USG v. United States,1 that will decide the future of commercial item contracting, and perhaps determine how the government will purchase next-generation technology. More specifically, the Federal Circuit will decide the extent of the government's obligations under the Federal Acquisition Streamlining Act (FASA) to prioritize, to the maximum extent practicable, the acquisition of commercial and nondevelopmental solutions.

The decision could either: (1) breathe a new life into FASA's preference for purchasing commercial and nondevelopmental solutions, while also creating a powerful new protest ground and increasing agency documentation burdens, or (2) reinforce broad agency discretion to choose developmental approaches at a time when it is readily apparent that the United States' technological and battlefield superiority depend on its ability to harness technologies from the commercial sector and become a more commercial-friendly business partner.


Palantir concerns the U.S. Army's Distributed Common Ground

System ("DCGS-A") — pronounced "dee-sigs." DCGS-A is the Army's primary system for processing and disseminating multi-sensor intelligence and weather information.2 The Army intends to procure a system that combines all intelligence software and hardware capabilities into one program with the ability to access and beaccessed by, not only Army intelligence and command components, but also other members of the broader distributed common ground and surface system.3

A principal element of DCGS-A is its data management architecture. Palantir sells a commercial data management architecture called Gotham. While Gotham is successfully used in commercial and U.S. Department of Defense markets, the Army has consistently declined to purchase Gotham to satisfy DCGS-A program requirements.

There are, thus far, two increments of DCGS-A. The Army has already attempted to procure and field the first increment, referred to as DCGS-A1. In doing so, the Army adopted a developmental approach, which lasted nearly two decades, cost over $6 billion, and generated significant stakeholder complaints. Congressional scrutiny and criticism was plentiful, particularly regarding the Army's insistence on continued use of a developmental approach, despite cost overruns, performance problems, schedule delays, and strong end- user support for commercial options such as Palantir's Gotham platform.4

When the Army began to conduct market research and gather industry input to support its acquisition of the second increment of DCGS-A, referred to as DCGS-A2, Palantir encouraged the Army to procure its Gotham platform on a firm fixed price, commercial item basis, with additional modifications as needed to meet the full DCGS-A2 requirements.

However, the Army's "requests for information" and other industry outreach suggested that the Army was once again only interested in a developmental approach to DCGS-A2, procured on a cost-plus basis. Despite Palantir's repeated explanations that a commercial item approach would be preferable, the Army issued a DCGS-A2 solicitation that called for developmental solutions on a cost-plus basis. Palantir filed a pre-award bid protest at the Government Accountability Office challenging the terms of the DCGS-A2 solicitation.

At the GAO, Palantir's primary argument was that the Army failed to comply with its obligations under 10 U.S.C. § 2377, enacted as part of FASA, to conduct market research into and maximize use of commercial item and nondevelopmental solutions. Specifically, § 2377(b) requires an agency, "to the maximum extent practicable," to "acquire commercial items" "to meet the needs of the agency."5 To that end, § 2377(c)(1) requires an agency to "conduct market research appropriate to the circumstances" into the availability of commercial items. Then, § 2377(c)(2) requires the agency to "determine whether there are commercial items" that can (1) meet the agency's requirements; (2) be modified to meet the agency's requirements; or (3) meet the agency's requirements if those requirements were modified to a reasonable extent.

The GAO denied the protest, but not before holding an evidentiary hearing and receiving testimony from Army procurement officials. The GAO ultimately deferred to the Army's decision to adopt a developmental approach, particularly in light of findings that the Army determined: (1) no commercial item could meet all of the DCGS-A2 requirements, and (2) the best acquisition approach was selecting a single contractor to perform the noncommercial lead systems integrator (LSI) services of acquiring and integrating all components necessary to meet the DCGS-A2 requirements — i.e, shifting integration risk to the LSI.6

Undeterred, Palantir filed a protest at the United States Court of Federal Claims. Notably, one day after Palantir filed at the court, the Army issued a formal determination that DCGS- A2 is not a commercial item. This post-hoc documentation ultimately proved ineffective — if not detrimental.7 In a 100-plus page decision, Judge Marian Blank Horn held that the Army failed to meet its obligations under § 2377 and permanently enjoined any award under the solicitation.8 Recognizing that it was presented with an issue of first impression,9 the court carefully explored the statutory text, emphasizing the phrase "maximum extent practicable."10

After a detailed review of the administrative record, supplemented by expert testimony from both parties, the court determined that, even though there is no formal documentation requirement associated with § 2377, the Army's documented market research was insufficient. The decision was careful to state that it was not requiring the Army to procure a commercial item,11 but only holding that the Army "failed in its obligation under 10 U.S.C.

§ 2377 to fully investigate if Palantir, or any other potential offeror, could meet the requirements of the Army's procurement needs on a commercial basis, in part or in full."12

The court emphasized that the Army was repeatedly notified by Palantir that commercial items could meet its needs, yet the Army's market research appeared to be limited to developmental approaches, as if the Army had already decided that the DCGS-A2 solicitation would require a developmental solution. The court also found that there was no indication the Army considered how commercial items could be modified to meet the DCGS-

A2 requirements, or how those requirements could be reasonably modified to allow a commercial solution.13

The government appealed the Court of Federal Claims' decision to the United States Court of Appeals for the Federal Circuit, framing this as a case of first impression.14

Arguments on Appeal

The government's argument on appeal is two-pronged. First, the government argues that the Court of Federal Claims erred as a matter of law by adding to FASA a requirement that the government "fully investigate" availability of commercial items. Specifically, the government argues: "If the court's holding is left intact, it creates market research obligations beyond the statutory and regulatory language, and undermines the discretion afforded to agencies in conducting market research and deciding the most appropriate acquisition approach."15

The government's second argument is that the Army's market research and determinations were sufficient in this case.16 Specifically, the government argues that the Court of Federal Claims "plainly erred in jettisoning the presumption of regularity, and substituting the unsubstantiated inference that market research was premised on the Army's predetermination that the DCGS-A2 solicitation would be for a developmental/cost- reimbursement contract, and not a commercial item contract under FAR Part 12."17 To support its factual premise, the government contends the Army knew from the outset, based on its experience with DCGS-A1, that it wanted to use a lead systems integrator approach instead of assuming responsibility for integration of various commercial and government-unique software. According to the government — regardless of what any single document may demonstrate — the Army's market research was reasonable under the circumstances and satisfied FASA because the Army knew that no single commercial item could meet all of its needs, decided to take an LSI approach, and did not consider those LSI functions to be commercial.18 The government further emphasizes that it's decision to use a noncommercial LSI approach for the prime DCGS-A2 contract does not mean that the LSI chosen will not be required to conduct market research to maximize use of commercial items components, satisfying the spirit of FASA.19

The overarching theme of Palantir's response is that the government's legal position "makes a mockery of the statutes requirement that agencies 'acquire commercial items' to 'the maximum extent practicable.'"20 As a factual matter, Palantir asserts that the government cannot "escape the fact that the market research the Army did conduct was entirely focused on a developmental approach."21

Palantir's briefing proceeds to demonstrate that the government's market research failed to meet two, independent obligations of § 2377, either of which provides a sufficient basis to affirm the decision on appeal. First, Palantir argues that the government failed to conduct adequate market research into the availability of commercial item solutions. Second, Palantir argues that the government failed to determine whether commercial items could (1) meet the Army's requirements; (2) be modified to meet the Army's requirements; or (3) meet the Army's requirements if those requirements were modified to a reasonable extent.22

Technology Network, an association of chief executive officers and senior executive of leading technology companies from across the nation, submitted an amicus cuarae brief in support of Palantir.23 TechNet "believes that this case could have implications extending far beyond the interest of any single company and could jeopardize TechNet's goal of modernizing information technology systems throughout the federal government."24 TechNet's brief provides the circuit with thorough, useful context for the FASA provisions at issue and congressional scrutiny of the DCGS-A acquisition. With that context, TechNet asserts that the Army's approach to DCGS is product of a DOD culture predisposed to favor full development of government-unique solutions instead of relying on the commercial and nondevelopmental solutions that FASA directs agencies to favor.25

Oral arguments were held on Feb. 8, 2018.26 The panel consisted of Judges Pauline Newman, Haldane Robert Mayer and Kara Farnandez Stoll. Although full of interesting exchanges, the arguments did not provide meaningful clues as to how a majority of the panel might decide the case.

Potential Implications

If the Federal Circuit affirms, it could breathe a new life into FASA's requirements to favor nondevelopmental approaches. The GAO and the Court of Federal Claims routinely show great deference to agency decisions about how to structure an acquisition, but the Federal Circuit's decision in Palantir could open the gates for all manner of challenges to the adequacy of an agency's market research and the terms of a solicitation. Commercial companies that are wary of government-unique clauses requiring cost and pricing information or data rights, for example, may gain great leverage through Palantir in their efforts to convince agencies to make their solicitation's more friendly.

But such a rejuvenation of FASA may prove to be a double-edged sword. If Palantir's arguments on appeal are accepted as given, it would seem that any agency seeking to avoid pre-award protest would need to issue a pre-solicitation written determination describing its market research and supporting its determinations whether commercial items can (1) meet its requirements; (2) be modified to meet its requirements; or (3) meet its requirements if those requirements were modified to a reasonable extent. Even if sufficient documentation of those determinations exists for the agency to succeed on the merits of a pre-award protest, that does not protect the agency from defending itself in litigation at the Court of Federal Claims. In a market where many different companies are vying to influence the terms of a solicitation, such litigation could grow complex and unwieldy, particularly with respect to the scope of corrective action. These potential complications could limit the effectiveness of commercial item contacting. If the requirements associated with commercial item contracting (supposedly simplified compared to noncommercial contracting) become too onerous, it may fuel recent trends of moving acquisition to nonprocurement channels, particularly "other transactions," for which oversight and judicial review are less readily available.

Further issues could arise in a procurement where there are multiple potential government solutions in the commercial market. If the government has to determine how every potential commercial solution might be modified to meet its needs, and how its requirements might be modified to better accommodate each commercial solution, that decision making process could become very burdensome, particularly if subject to judicial review. Further, it would seem to create a scenario where agencies might begin to engage in source selection activities well before the solicitation is ever issued. In this respect, if the Federal Circuit's decision in Palantir interprets FASA's obligations too broadly, not only might market research become an overly burdensome process, but it could also begin to undermine the policies favoring competition enshrined in the Competition in Contracting Act.

The implications of reversal would depend greatly on the wording of the opinion. On one hand, the circuit could conceivably adopt Palantir's legal position, creating a legitimate enforcement mechanism for § 2377 compliance, while reversing the decision below for various reasons, which may or may not include a factual determination that the Army met its obligations in this case. On the other hand, a reversal based on blind deference to the Army's acquisition decisions could have detrimental impact, essentially enabling the government to continue to prioritize developmental work instead of catering its acquisition process to the commercial marketplace. It is no secret that the speed of technological innovation has long outpaced government acquisition cycles, and the bulk of modern innovation is occurring in commercial markets by companies who are not dependent on the federal government for revenue. Indeed, it is no longer novel to suggest that the United States' technological and battlefield superiority depend on the federal government's ability to attract commercial suppliers and harness their innovation. Given that context, and in the current political climate where congressional action is the exception, the best hope for enforcing FASA's mandate may be the Federal Circuit's opinion in Palantir.

Finally, the Palantir decision should be considered in context of the 809 panel's recommendations to streamline defense acquisitions. As the first volume of the panel's final report reveals, many of the recommendations are directed at reforming the commercial item acquisition process to make it more simple and effective.27 Any changes Congress may make in response to the 809 panel's recommendations should be made with Palantir in mind.


Through Palantir, the Federal Circuit has an opportunity to decide the future course of commercial item contracts, and perhaps even the extent to which the U.S. government will be able to harness the next generation of commercial innovation. Regardless of the outcome, this decision is sure to carry great implications for contractors, their counsel, and those responsible for shaping acquisition policy.


1 See Palantir USG, Inc. v. United States, No. 2017-1465.

2 See Palantir USG, Inc. v. United States, 129 Fed. Cl. 218, 222-23 (2016).

3 Id.

4 SeeTechNet Amicus Brief, No. 2017-1465 at 15-22 (detailing relevant congressional hearings).

5 10 U.S.C § 2377(b)

6 Palantir USG, Inc., B-412746, May 18, 2016, 2016 CPD ¶ 138.

7 Palantir USG, Inc. v. United States, 129 Fed. Cl. 218, 232 (2016).

8 Id.at 266-69.

9 Id.at 266.

10 Id.at 10 266-68.

11 Id.at 282.

12 Id.

13 Id.at 276-77.

14 United States Opening Br. at 29.

15 Id.at 32-33, 37-38.

16 Id.at 1-2.

17  Id.at 31. [18] 18 Id.32-33.

19 Id.30-31. The Government also challenges the Court of Federal Claims' decision to supplement the administrative record with testimony from Palantir and Government experts. Of course, such issues are reviewed under a highly deferential abuse of discretion standard. Nevertheless, in a recent decision cited as supplemental authority by the Government, the Federal Circuit did reverse the Court of Federal Claims based on the Claims Court's decision to supplement the record without providing adequate explanation for why supplementation was necessary.See AgustaWestland N. Am., Inc. v. United States,

F.3d. , 2018 WL 503540 (Fed. Cir. Jan. 23, 2018).

20 Palantir Response at 3.

21 Id.

22 Id.at 1, 3-4.

23 TechNet Amicus Brief at 2.

24 Id.at 3.

25 Id.at 4-5.

26 Recording available at http://www.cafc.uscourts.gov/oral-argument-recordings

27 Available at https://section809panel.org/

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions