Palantir lambastes Army over $206 million contract bidding

By LIZETTE CHAPMAN | Bloomberg | Published: June 21, 2016

Palantir Technologies Inc. sent a letter to the U.S. Army saying it intends to sue over the way the Army solicits bids for its data intelligence technology used on battlefields worldwide.

Palantir claims the Army's solicitation is "unlawful, irrational, arbitrary and capricious," according to the letter of intent Palantir sent to the U.S. Army and the Department of Justice, which was obtained by Bloomberg. The letter is a legal courtesy, which states Palantir will file a formal protest in the U.S. Court of Federal Claims next week and requests the Army delay awarding the first phase of the contract until litigation is resolved. The contract is slated to be awarded by the end of 2016.

Palantir declined to comment on the case, and the Army did not immediately respond to a request for comment.

Co-founded in 2004 by Peter Thiel, Palantir makes software that finds patterns in complex data to aid in decision making. The tools have been used to help detect human sex traffickers, analyze the cholera outbreak in Haiti and convict white collar criminals.

For Palantir, a private company valued at $20 billion, the suit would mark the bitter culmination of years of frustrated efforts to woo the largest branch of the U.S. military. Palantir won early funding from CIA venture arm In-Q-Tel and has sold its software to divisions of the Air Force, Marines and Navy, as well as to the FBI and Department of Homeland Security.

It has been unable to sell its data analytics and visualization software to the Army in any meaningful way. A few groups within the Army use Palantir, but adoption has been largely ad hoc, and in some cases, requests by soldiers seeking to use it have been denied.

The legal pressure comes as Defense Secretary Ash Carter calls for warmer relations between the military and Silicon Valley. It could also force the Army to defend criticism that the current system is overpriced and unreliable.

At stake is a potential $206 million contract, which is the first portion of what will likely be a multi-year, multi-billion dollar data gathering and visualization system that serves as the Army's intelligence hub. Such a win would be huge for Palantir. The company generated $420 million in revenue and spent more than $500 million in 2015, according to a report by BuzzFeed last month.

Winning the contract for the Army's intelligence system, called the Distributed Common Ground System-Army (DCGS-A), would help improve those numbers and make up for lost business from American Express, Coca-Cola and others. The DCGS has been evolving for more than a decade and has cost several billion dollars so far.

Designed by companies including Raytheon, Northrop Grumman and BAE Systems, DCGS pulls information from a range of sensors and databases to bring data about weather, terrain, enemy threat and other items into one spot for commanders to use in making decisions during combat. Critics including Representative Duncan Hunter, R-Calif., have publicly skewered DCGS for failing to provide accurate information about the location of land mines and a hospital in Afghanistan, resulting in potentially avoidable soldier and civilian deaths.

Now that the first phase of the system is complete, the Army has solicited bids for the second phase. Palantir is challenging how those requirements have been written, saying in its letter that the Army tilts the scales in favor of the incumbents and doesn't follow new federal guidelines.

Palantir formally escalated its complaints last month. The Palo Alto, Calif., company filed a protest with the Government Accountability Office saying the Army failed to consider commercially available technology. That protest was denied. Palantir wants these claims to be reconsidered because of new provisions tucked into the 2017 National Defense Authorization Act requiring commercial products be favored if they fulfill 80 percent or more of the system requirements.

While claims against the U.S. government and the way it awards contracts are common — more than 2,400 such protests were filed in 2015, according to the GAO — almost all of them challenge the way contacts were awarded after they had been granted, not before, as Palantir seeks to do.

Ed Tolchin, principal and chair of the government contracting group at law firm Offit Kurman, said such pre-award protests represent just 10 percent to 20 percent of total challenges. Of those, the majority fail because the burden of proof is heavy, he said.

Palantir law firm Boies, Schiller & Flexner did not respond to requests for comment.