Source or sue: when procurement shortcuts lead to legal ramifications

Nathan Miceli

“Starship is the first rocket with the potential to make life multiplanetary.”

This is one of many quotes in which Elon Musk clearly outlines his ultimate goal: getting humanity to Mars. On October 13, 2024, SpaceX achieved the seemingly impossible by launching and catching the Starship booster — a major milestone demonstrating the reusability of the largest and most powerful rocket ever made.

This was also a critical step in their $4 billion contract with NASA.

But, before we can get to Mars, NASA, through the Artemis program, has contracted SpaceX to put humans back on the Moon first. SpaceX won this contract through a competitive bid / RFP sourcing process, beating out the likes of Blue Origin, Dynetics, and major subcontractors like Boeing and Northrop Grumman.

In the field of space exploration, where “millions” is often too small of a unit of measure, big contracts and big companies frequently mean big procurement disputes. After Blue Origin lost the bid to SpaceX, it filed a lawsuit against NASA, claiming there were “fundamental issues with NASA’s decision.” The lawsuit argued that SpaceX had failed to meet Flight Readiness Review (FRR) requirements and therefore should not have been eligible to win. However, the claim didn’t hold water. Less than six months after filing, the Government Accountability Office (GAO) dismissed the case, allowing NASA and SpaceX to proceed.

For perspective, here are the approximate sourcing bids from each competing vendor:

  • SpaceX: $2.2 billion
  • Dynetics: $5.2 billion
  • Blue Origin: $10.2 billion

If you were the procurement manager for this government sourcing event, which option would catch your attention? While a high-tech project like landing people on the Moon can’t be judged on price alone, an $8 billion difference is hard to ignore.

This case underscores the importance of proper procurement compliance and sourcing protocols. NASA, as a federal agency, is typically required to run RFPs for significant purchases. The      Federal Acquisition Regulation (FAR) mandates competitive bids to ensure the best value for taxpayers. In a sense, that makes all of us “stakeholders” in the Artemis Project.

Procurement sourcing missteps with legal consequences

There are many other examples where poor sourcing procedures led to significant legal consequences.

  • A standout case of corruption occurred in 2015 when Chicago Public Schools (CPS) bypassed a competitive bid process and awarded a $23 million contract to SUPES Academy. The then-CEO of CPS had direct ties as a consultant to the Academy and was even accepting bribes from SUPES. This extreme example actually landed the CEO in jail.
  • Similarly, in 2007, the New York Department of Education awarded a $1 billion technology contract without proper competition, resulting in a $10 million penalty and a requirement to overhaul its procurement processes. The result was a hefty fine, an increased contractual rate, and some unfavorable PR.

These examples illustrate “nightmare” scenarios for most sourcing professionals. While running proper, fair, competitive sourcing events may take more time, it can also keep you and your team out of jail.

Key sourcing regulations every procurement team must follow

If you’re a sourcing manager or team member working for a federally funded entity, there are a few key regulations you should know:

  • Federal Acquisition Regulation (FAR): The primary rulebook for federal procurement, mandating open competition and clear evaluation criteria.
  • Competition in Contracting Act (CICA): Requires full and open competition for federal contracts, with sole sourcing allowed only under strict justifications.
  • Small Business Act: Sets contracting goals for small, minority-owned, and veteran-owned businesses to ensure fair participation.
  • Service Contract Act (SCA): Mandates federal contractors to pay prevailing wages for federal service contracts, supporting fair labor standards.
  • Buy American Act (BAA): Requires preference for American-made products in federal procurement, with exceptions under specific conditions.
  • Anti-Kickback Act: Prohibits offering or accepting kickbacks in federal contracting to maintain ethical standards.
  • Freedom of Information Act (FOIA): Allows public access to procurement records, promoting transparency in federal contracting.
  • False Claims Act (FCA): Combats fraud in federal contracting by allowing whistleblowers to report fraudulent claims.

A good procurement standard operating procedure (SOP) will ensure that all these regulations are covered. Whether working in the federal space or the private sector, good sourcing governance is always a smart strategy. The time spent running a competitive RFP bid is almost always recouped on the back end through improved relationships, better purchasing decisions, and peace of mind. Save yourself the headache (and potentially jail time) and run an RFP.

Don’t let a missed step in your procurement process turn into a headline

Whether you’re navigating FAR, juggling vendor bids, or just trying to stay out of a GAO report, procurement sourcing compliance isn’t optional, it’s operational intelligence. At Corcentric, we can help you build sourcing strategies that stand up to scrutiny and scale with your business. Let’s talk about making your sourcing smarter.