Government procurement contracts versus government contests

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Publication December 2016

Over the past few years, government agencies have been engaging with the public in some interesting new ways:  sponsoring hackathons and contests, for example.  Sometimes, the winner receives recognition and other times the winner can receive a prize, such as $50,000, for submitting the winning idea.  Although contests and sweepstakes are frequently offered to the public by the private sector, when the sponsor is a government agency offering a substantial sum in exchange for a perpetual license to the winning idea, do the contest rules become a government procurement contract?

On December 1, 2016, the Court of Appeals for the Federal Circuit considered this question of first impression and ruled that a contest is not a government procurement contract.

Facts

In 2012, the Federal Trade Commission (FTC) announced the "Robocall Challenge," a contest "seeking innovative solution to block robocalls." The FTC has regulatory responsibilities under the Telephone Consumer Protection Act of 1991, and the FTC has promulgated regulations regarding use of automated marketing calls to consumers ("robocalls"). The purpose of the contest was to obtain ideas on how to block robocalls in a practical ways for consumer to implement.

Because this challenge was a skill contest (and not a random-draw sweepstakes), the contest rules described the judging criteria for the submissions:  50% for a solution that would successfully block robocalls; 25% for consumers' ease of use; and 25% on feasibility of implementation.  The entry with the "highest overall score" would be awarded $50,000.  The contest rules specified that each entrant granted the FTC an irrevocable, worldwide license to use the submitted solutions, and released the FTC from liability in connection with the prizes and the entrant's participation in the contest.

The rules also required that the judges be impartial, and they evaluate submissions based on the criteria identified in the rules.  The FTC informed the judges that they did not need to provide a numerical score for each entry, which became a very practical point because the FTC received almost 800 submissions.  After a preliminary review, the submissions were culled to 266.  With those 266 entries, the judges decided that most proposals could not feasibly be implemented (criteria #3), and that the entries that were frontrunners used "filtering as a service" technology.  The contest ended with two winning entries, who received tie scores.

The Lawsuit

One entrant, whose submission did not propose filtering as a service, filed a lawsuit, asking the court to order the FTC to re-score the contest entries and to pay him money damages.  Because the plaintiff was proceeding pro se, the Court of Federal Claims construed his first request as a "bid protest" requesting injunctive relief, and his second request as a breach of contract claim.

The Court of Federal Claims dismissed the first claim, for failure to state a claim upon which relief could be granted, but permitted discovery on the breach of contract claim.  During discovery, the plaintiff learned that one judge had scored his submission and gave it the same score as the winning entries. 

Nevertheless, the Court of Federal Claims ruled that the plaintiff had not established "any fraud, bad faith, gross mistake, or dishonesty on the part of the judge."  As a result, the court granted the government's summary judgment motion.  The plaintiff appealed.

The Appeal

The Court of Appeals for the Federal Circuit began its opinion by pointing out that the parties did not dispute that the plaintiff and the FTC had a binding contract with the contract rules.  The plaintiff claimed that it was a contract in connection with a procurement of goods or services (the license of the technology), giving him standing to contest the award to the two winners.  The government urged the court to consider some annual reporting requirements in the law permitting "Prize Competitions" that differentiated between prizes and contracts:  "An analysis of why the utilization of the authority in subsection (b) [authority to award prizes competitively] was the preferable method of achieving the goals described in subparagraph (A) as opposed to other authorities available to the agency, such as contracts, grants, and cooperative agreements."  15 U.S.C. § 3719(p(2)(B).

The Court of Appeals found that the term contract was ambiguous in this context, and felt that Congress intended contracts to be different from prize competitions, because they were separately listed in the statute.  Therefore, the court reasoned, the plaintiff lacked standing to challenge the award as a bid protest of an award of a government procurement contract.

With respect to the breach of contract claim, the court found that the rules were silent as to whether the judges were required to score each and every entry.  Except for the scoring weights, "the judges had discretion to proceed in the manner they thought best."  As a result, the plaintiff did not show "fraud, irregularity, international misconduct, gross mistake, or lack of good faith involved in the contest."  Therefore, the plaintiff's breach of contract claim was barred by the contest rules' limitation of liability/release clause.

Conclusion

In addition to clarifying the definition of a government procurement contract, this case also serves as a reminder of the importance of contest rules.


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