What is a “market” in the world of GovCon?
It has been fascinating and difficult to follow the “United States of America v. Booz Allen Hamilton” case regarding the company’s acquisition of EverWatch for $440 million which closed on Friday.
Fascinating because antitrust cases involving one federal technology integrator buying another are rare, unlike those involving manufacturers of defense platforms and systems.
Difficult because this event involves part of the federal government acting as litigator and regulator against a contractor whose clients are other agencies.
For USA v. Booz Allen, this meant that the Justice Department’s antitrust division was seeking the (perceived) name of the National Security Agency to stop the deal. Justice still believes that the combination harms competition and the relevant market.
Apparently, a lot depends on the definition of this word “market”. The judge assigned to this case found fault with the way the justice’s antitrust litigation team defined this word.
Maryland District Court Judge Catherine Blake was careful not to state broadly that a single contract is still a single bargain in her 27-page opinion against the court’s motion for a injunction to stop the acquisition.
The court unsealed that notice within a week of its publication and ordered attorneys for all parties to work on proposals on how to proceed, even in the midst of closing the deal.
Blake believes Justice is trying to define the market through a single contract by focusing its lawsuit on a five-year, $150 million NASA operational modeling and signals intelligence contract that the two companies are pursuing. Booz Allen is looking to keep his job and EverWatch is aiming to remove him.
As Justice’s lawyers saw, the implied guarantee that Booz Allen will end up with the contract and continue his two decades of work, regardless of who won the competition, creates a monopoly with that client.
The problem with this argument according to Blake? Modeling and simulation services are a “commodity” (his words, not mine) and the market for it is much larger than how Justice sees it regarding the contract called Optimal Decision.
We can recognize that the NSA can be a single buyer within the confines of a US government that has enormous buying power and leverage. Many people in the industry have referred to USG as “Fortune One” in conversations with me over the years, for example.
But the judge wrote so as not to confuse that NSA status and the specific services sought under the contract at issue here with how the agency will use what it buys. Courts have long questioned the thesis that a single contract equates to a relevant market.
How the NSA applies said signals intelligence modeling and simulation services is not a single market, even if the agency uses them exclusively, according to the opinion.
It seems the NSA knew the market for these services was much larger than Booz Allen and EverWatch, even though they ended up being the bottom two competitors.
Blake’s opinion states that the NSA identified at least 100 companies as potential bidders for the Optimal Decision contract and then received 14 indications of interest in being the prime contractor.
From my reading of her opinion: She didn’t pay much attention to the fact that Booz Allen first won the signals intelligence modeling job in 2002 and two subsequent re-competitions since.
It may not have been the court’s job to help the NSA identify the right contractor for the job, but the judge ruled that the services involved here were “reasonably interchangeable” even though Booz Allen did so for this agency for so long.
She also apparently saw little in the government’s argument that the NSA’s requirement for domain awareness in signals intelligence negates the interchangeability of services.
Companies with domain knowledge can be better at the job for sure. But Blake calls domain knowledge a “transferable trait” in his view that also remains in the event of a rematch loss. Booz Allen would have been hired to train the contractor who would win the optimal decision.
Booz Allen and EverWatch are working on their deals with an October 28 deadline. The current contract expires in March 2023, but the decision recognizes a reward on the contest before then as “an open question”.
EverWatch will operate as a subsidiary of Booz Allen in the interim, at least until a final judgment is rendered.
In his opinion, the judge recognizes a situation that seems familiar in which EverWatch finds itself:
“The deal offered the company an escape from a Goldilocks purgatory: too big to qualify for small business opportunities, but too small to credibly challenge big business for lucrative contracts.”