A recent Delaware Court of Chancery decision rejected a challenge by an unsuccessful bidder to an award by the state of a professional services contract. This decision provides a helpful example of how difficult it remains to challenge such bid awards. Many thanks to Deputy Attorney General Larry Lewis for bringing this opinion to our attention. We are also grateful to Larry and his colleague, Deputy Attorney General John H. Taylor, for providing the following synopsis of their prevailing opinion in Protech Solutions, Inc. v. The Delaware Department of Health and Social Services et al., C.A. No. 2017-0642-TMR (Del. Ch. Nov. 30, 2017).

Background facts: In March 2017, the State of Delaware Department of Health and Social Services, Division of Child Support Services (the “Division” or the “State”) issued a Request for Proposal (“RFP”) for maintenance and operations (“M&O”) services for the Delaware Child Support System (the “System”). Ultimately, three vendors submitted bids in response to the RFP. Two of the vendors, Conduent State & Local Solutions, Inc. (“Conduent”) and Protech Solutions, Inc. (“Protech”), were the current contractor and subcontractor, respectively, for current State contract for M&O services for the System.  Protech’s staffing proposal was “significantly lower than the [Division’s] current staffing needs, from which the Division gave no indication it was considering deviating, and lower than both other bidders.”  (Mem. Op. at 16.)  Protech’s staffing proposal was based largely upon Protech’s analysis of nonpublic State data relating to the current M&O operations, which the Court determined was “in direct conflict with the information provided to the bidders by the Division.”  (Mem. Op. at 1.)

The Division ultimately rejected Protech’s bid in July 2017, and began contract negotiations with Conduent.  Protech then filed suit seeking an injunction in September 2017. Protech’s suit alleged, among other things, that the Division: (1) did not provide sufficiently definite and explicit requirements for personnel resources “such that vendors were unable to bid intelligently or on a common basis”; (2) provided Conduent with inside information about personnel resources; and (3) otherwise  acted “irrationally, arbitrarily, capriciously” by failing to put all vendors “on equal footing” with respect to the personnel resources needed for the contract.  (Petition ¶¶ 76-78.)

The parties agreed to a standstill, pending the Court’s resolution of Protech’s expedited request for preliminary injunctive relief. Oral argument was held on November 14, 2017, following completion of expedited discovery and briefing.

Holding: The Court of Chancery denied Protech’s Motion for Preliminary Injunction, holding that Protech “fail[ed] to demonstrate reasonable probability of success on the merits of any of [its] claims.”  (Mem. Op. at 20.)   Specifically, the Court found that Protech’s arguments were “based on a misunderstanding of Delaware procurement law, misconstruction of the facts, and rather ironic allegations of use of nonpublic information.”  (Mem. Op. at 5-6.)

Court’s Reasoning: The Court first declined Protech’s invitation to follow case law involving challenges to public works contracts under the Delaware Procurement Act, 29 Del. C. § 6901, et seq. (the “Procurement Code”), and instead, the Court relied on the sections of the Procurement Code governing professional services contracts (and case law interpreting these provisions).  Although it was uncontroverted that the M&O contract sought by the Division was a professional services contract, Protech claimed that public works cases requiring RFPs to include plans and specifications extended to require professional services RFPs to specify the exact number personnel resources sought.

The Court rejected that approach and noted that beyond certain discrete mandates, “the professional services negotiation subchapter establishes only general guidelines for the procurement process: agencies are granted great discretion to shape the process to meet their needs.”  Thus, the Court held that the Division was not mandated to specify the number of personnel resources for the M&O contract.

The Court also held that Protech failed to demonstrate a likelihood of success on its claims that the Division’s actions were arbitrary, capricious or in bad faith.  First, Protech’s claim that it was disadvantaged because Conduent had received inside information was rejected by the Court because the alleged inside information was largely consistent with publicly available information.  Moreover, the Court noted that “[t]he doctrine of unclean hands may bar Protech’s claims should this litigation advance” since Protech’s own staffing proposal was the product of Protech’s unauthorized use of a nonpublic State database.  (Mem. Op. at 15 n.54.)

Second, the Court rejected Protech’s claims that the Division failed to strictly follow the terms of its RFP, holding that Protech failed to allege any prejudice from the alleged procedural deficiencies.  Finally, the Court rejected Protech’s claim that Conduent’s bid was deficient – and thus its acceptance by the Division was improper – because the alleged deficiencies were found to be immaterial and subject to waiver by the Division based on the explicit terms of the RFP.