The Investment Company Act of 1940 prohibits a mutual fund from engaging in certain transactions in which there may be a conflict of interest between the manager of the fund and its shareholders.

Under rules issued by the Securities and Exchange Commission (SEC), however, a fund that meets certain conditions may engage in an otherwise prohibited transaction. In June 2004, the SEC added two new conditions. Regulations define clarifications as “limited exchanges.” In March 2001, the U.S. Air Force asked for bids on a contract. The winning contractor would examine, assess, and develop means of integrating national intelligence assets with the U.S.

Department of Defense space systems, to enhance capabilities of the Air Force’s Space Warfare Center.

Among the bidders were Information Technology and Applications Corp. (ITAC) and RS Information Systems, Inc. (RSIS). The Air Force asked the parties for more information on their subcontractors but did not allow them to change their proposals. Determining that there were weaknesses in ITAC’s bid, the Air Force awarded the contract to RSIS. ITAC filed a suit in the U.S. Court of Federal Claims against the government, contending that the postproposal requests to RSIS, and its responses, were improper “discussions.”

Should the court rule in ITAC’s favor? Why or why not?