It’s fascinating and challenging to focus on U.S. v. Booz Allen Hamilton about the company’s $440 million acquisition of EverWatch, which ended Friday.
Fascinatingly, antitrust cases involving one federal technology integrator buying another are rarer than antitrust cases involving manufacturers of defense platforms and systems.
Challenging because the incident involved part of the federal government as a litigator and regulator against clients who were contractors of other agencies.
For U.S. v. Booz Allen, that means the Justice Department’s antitrust division (as it argues) seeks to stop the deal on behalf of the NSA. Justice still believes the combination hurts competition and the markets involved.
Obviously, a lot depends on the definition of the word “market”. The judge overseeing the case found an error in the way the justice’s antitrust litigation team defined the term.
Maryland District Judge Catherine Blake was careful to make a blanket statement in her 27-page motion against a judicial motion to stop the takeover that a single contract is always a single market.
The court released her opinion within a week of it and directed lawyers for the parties to make recommendations on how to proceed with further litigation, even if the deal closes.
Black believes Justice is trying to define the market with a single contract, focusing the lawsuit on a five-year, $150 million NASA operational modeling and signals intelligence contract the companies are seeking. Booz Allen is looking to retain its current position, and EverWatch aims to take it away.
As Justice’s attorneys saw it, the implied warranty that Booz Allen would eventually win the contract and continue its two decades of work, no matter who wins the competition, creates a monopoly on that client.
In Black’s view, is there anything wrong with this argument? Modeling and simulation services are a “commodity” (her words, not mine) whose market is much broader than Justice’s view on contracts called Optimal Decisions.
We can concede that the NSA may be the single purchaser within the U.S. government, with enormous purchasing power and influence. For example, over the years, many in the industry have referred to USG as “Fortune One” in my conversations with me.
But the judge wrote that the status of the NSA and the specific services sought through the contract should not be confused with how the agency will use what it has purchased. Courts have long challenged the argument that a single contract equals a relevant market.
The opinion argues that even if the NSA uses these signals intelligence modeling and simulation services exclusively, how the NSA applies the aforementioned signals intelligence modeling and simulation services is not a unique market.
It seems that the NSA knows the market for these services is much larger than Booz Allen and EverWatch, even if they end up being the last two competitors.
Blake’s comments indicate that the NSA identified at least 100 companies as potential bidders for the Optimal Decision contract, and then received indications from 14 that were interested in becoming prime contractors.
From my reading of her comments: She didn’t give much thought to the fact that Booz Allen first won the SIGINT modeling job in 2002 and re-competed twice since.
It may not be the court’s job to help the NSA identify the right contractor, but the judge found the services involved here to be “reasonably interchangeable,” even though Booz Allen has been doing it for the agency for so long.
She also apparently doesn’t see much in the administration’s argument that the NSA’s requirement for knowledge of the signals intelligence domain negates the interchangeability of services.
Companies with domain knowledge will definitely work better. But in her view, Blake calls domain knowledge a “transferable feature” that is retained even if the competition fails again. Booz Allen will be hired to train the Optimal Decision winning contractor.
Booz Allen and EverWatch are working hard to bid, with an October deadline. 28. The current contract expires in March 2023, but the ruling acknowledged that the ruling on re-competition until then was “an open question”.
Meanwhile, EverWatch will operate as a subsidiary of Booz Allen, at least until a final judgment is made.
In her view, the judge acknowledged that EverWatch was in a predicament that sounded familiar:
“This deal frees the company from Goldilocks purgatory: too big to get small business opportunities, but too small to credibly challenge big corporations for lucrative contracts.”