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US Navy told to do a 'supplemental' integrity investigation of $2.5b Dell deal

Email about pricing from rival seller of Microsoft licensing and software under spotlight

The US Navy must start a "supplemental investigation" into allegations Dell had inside information on a rival's pricing for a $2.5 billion software deal, a federal claims judge has ruled, after the sea forces "failed to fully comply" with an earlier order.

That rival was Insight Public Sector Inc, which made a post-award bid protest challenging the decision of the Navy to hand a Blanket Purchase Agreement (BPA) to Dell Marketing.

Under the BPA, the awardee was to be the Navy's exclusive provider of Microsoft software licenses, software maintenance, and user-based subscriptions for a one-year base period with a further four one-year options.

The software deal is currently valued at "approximately $2.5 billion", according to court filings, with the government estimating (but not guaranteeing) a $3.4 billion spend through the contract's term.

Under the case, in which the court is examining claims that Dell Marketing LP had violated the Procurement Integrity Act (PIA), Insight has alleged that Dell Marketing emailed the Navy on May 27, 2021 relating to "certain allegedly mispriced Contract Line Item Numbers in Insight's bid."

According to court filings, Insight claims the information contained in the email "potentially indicates a Procurement Integrity Act violation occurred."

The Navy had already performed a PIA investigation in January, and "found that the alleged PIA violation did not occur and did not impact the award to Dell Marketing."

However, as Judge Eleni Roumel noted in the order, handed down on Monday [PDF], the Navy had only "selectively complied" with her earlier order, made on December 9, 2021 [made public in its redacted form a week later – PDF], which she said it had "acknowledged ... in briefing and during oral argument."

The judge said that the Navy had decided to "intentionally [limit] the scope of its own personnel's declarations to May 21, 2021, rather than to May 27, 2021, as the Court clearly ordered."

Counsel for Defendant confirmed during oral argument that the Navy did not investigate to the full extent ordered by this Court because it does not believe a PIA violation could occur after May 21, 2021:
THE COURT: But why not do that for the Navy declarations as well? Why did [the Navy] just stop [its personnel's declarations] at [May] 21st?

MR. RAYEL [the DoJ's William Rayel, for the US government]: Well, I think there are a couple of reasons, and, you know, one, whether the Court agrees or not, it is the Navy's position that no PIA violation was possible in that time period between May 21st and 27th.

The judge also noted that Dell Marketing and its lawyers had "ensured on the Navy's behalf that the investigation of Dell Marketing employees covered the full period ordered by the Court."

This is not the first dispute over the multibillion dollar Microsoft contract. According to the December filing, the Navy initially awarded the BPA to Insight, stating Insight's "overall price was $27,321,330 less than Dell Federal System's [sic] submission."

Subsequently, however, the Navy suspended the award and "reopened bidding after Dell Marketing alleged that Insight may not have fully and accurately priced certain required products following price changes from their shared supplier, Microsoft."

The Navy then made a final award of the BPA to Dell Marketing, which Insight alleged violated several statutes and regulations. Some of these claims were dismissed, but the PIA allegation is still under consideration.

The order said that a ruling would likely be issued during a scheduled telephonic conference during the first or second week of May 2022.

Insight said it was unable to comment about an "ongoing matter". Dell declined to comment on a legal matter. ®

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