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Mandatory Preference for HubZone Set-Asides

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The GAO has sustained the following protest B-401057, Mission Critical Solutions, May 4, 2009, in which GAO decided that the Dept. of the Army improperly awarded a contract to an 8(a) firm before determining whether the acquisition could be set aside for HUBZone small businesses. This ruling seems to enforce GAO?s belief that set-asides under the HubZone program take precedence over all other small business set-asides. This is the second such protest decision in which GAO has ruled against the assertions of the Small Business Administration (SBA) that ?parity? exists amongst its set-aside programs for 8(a), HubZone, and Service Disabled Veteran Owned small businesses (SDVOSB). The prior ruling was B-400278, International Program Group, Inc., September 19, 2008, where GAO ruled that HubZone set-asides took precedence over SDVOSB set-asides. There is a great discussion of this case in the Wifcon archives: http://www.wifcon.com/discus/messages/8524/10352.html.

GAO?s new ruling again places priority on the ?mandatory language? of HubZone set-asides over all other types of SB set-asides, including those already in the 8(a) Program. That mandatory language is found at 15 U.S.C. sect. 657a(B)(2)(B):

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?Notwithstanding any other provision of law a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to qualified HUBZone small business concerns if the contracting officer has a reasonable expectation that not less than 2 qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price.?

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This interpretation seems to enforce the idea that a consideration of HubZone small businesses must be made at the very onset of the acquisition process, apparently even before the decision to resubmit a recurring requirement to SBA for continued acceptance in the 8(a) Program. In this decision, GAO writes:

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?The HUBZone statute requires that a ?contract opportunity? be awarded on the basis of competition restricted to HUBZone small business concerns when the enumerated conditions are met, and, in our view, a separate ?contract opportunity? arises every time an agency prepares to award a new contract. Our view is supported by SBA?s regulations, which define a ?contract opportunity? as a situation in which ?a requirement for a procurement exists.?

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If that?s the case, where is the line? ?Notwithstanding any other provision of law? is pretty strong language? Must a HubZone set-aside be considered before ordering from required sources (AbilityOne, JWOD, FPI)? What about contemplated orders against agency established IDIQ contracts, GWACs, and GSA Schedules?

Clearly GAO and SBA have not been on the same page for a while now. But what should a CO do? GAO is sustaining protests from HubZone firms on contracts that were not set-aside for HubZone small businesses.

This decision seems like a pretty big deal.

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Even with the exclusions in FAR 19.1304, the mandate for HUBZone has always been strong.

"19.1304 Exclusions.

This subpart does not apply to?

(a) Requirements that can be satisfied through award to?

(1) Federal Prison Industries, Inc. (see Subpart 8.6); or

(2) Javits-Wagner-O?Day Act participating non-profit agencies for the blind or severely disabled (see Subpart 8.7);

(b ) Orders under indefinite delivery contracts (see Subpart 16.5);

(c ) Orders against Federal Supply Schedules (see Subpart 8.4);

(d) Requirements currently being performed by an 8(a) participant or requirements SBA has accepted for performance under the authority of the 8(a) Program, unless SBA has consented to release the requirements from the 8(a) Program;

(e) Requirements that do not exceed the micro-purchase threshold; or

(f) Requirements for commissary or exchange resale items."

I don't recall ever going back to read the actual law,

but this is looking like another case where the agency responsible for writing the FAR (GSA) has written it in a way not faithful to the underlying law in order to protect their FSS scam.

There is no basis in law that I know of for the part of FAR 19.502-1(b ) that exempts FSS buys from the requirements of Part 19. That is just an unneeded agency feathering its own nest at the expense of good business practice. Under law, Small Biz preference should apply to "optional" FSS (and mandatory FSS.) Having GSA responsible for the writing of the FAR evokes for me images of foxes protecting egg-laying operations.

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To briefly revisit this topic, I noticed on FedBizOpps the following sources sought announcement from the Army's CCE in which they appear to now be giving a stated preference to HubZone small businesses in their research for potential set-asides: June 15, 2009.

QUOTE: "The US Army Contracting Command, Contracting Center of Excellence (CCE) at the Pentagon, on behalf of Office of the Judge Advocate General (OTJAG), Department of the Army, intends to procure IT support services using a HUBZone certified small business set-aside, small business set-aside, or under full and open procedures."

The CCE's first sources sought that gives a stated preference to HubZone SBs was dated May 11, 2009... 7 days after the Mission Critical Solutions decision came out: May 11, 2009. Prior to that, the CCE posted sources sought with no stated preference among SBs, like the latest one found on March 24, 2009... this was about 6 weeks before the MCS decision: March, 24, 2009.

This may be just the Army choosing to be "better safe than sorry", but either way it looks like GAO's position is beginning to take root. Now may be a good time to relocate your business to a HubZone!

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I too, am very confused about these two decisions.

In accordance with ?FAR 19.800 (e): BEFORE deciding to set aside an acquisition in accordance with subpart 19.5, 19.13, or 19.14 the contracting officer should review the acquisition for offering under the 8(a) Program. If the acquisition is offered to the SBA, SBA regulations (13 CFR 126.607(B)) give first priority to HUBZone 8(a) concerns.? So you don?t have to look them up, 19.5 (Set-asides for Small Business) 19.13 (HubZone Program) 19.14 (Service-Disabled Veteran-Owned Small Business Procurement Program). Therefore, FAR 19.8 specifically states that the Contracting Officer should review the acquisition for offering under the 8(a) Program FIRST. Remember, HUBZone is mentioned here, AFTER offering the acquisition to SBA which would mean under the 8(a) program, 8(a) HUBZones would be considered for the 8(a) set-aside first before non HUBZone 8(a)?s. Isn?t that what this says here? I guess the word ?before? is confusing me.

?19.501 ? General (a) The purpose of small business set-asides is to award certain acquisitions exclusively to small business concerns. A ?set-aside for small business? is the reserving of an acquisition exclusively for participation by small business concerns.? Therefore, when you are setting aside for small business, except under noncompetitive HUBZone or SDVOB, we are talking about competitive solicitations, not contracts awarded under the 8(a) statutory authority.

I have a perhaps different interpretation of 19.1304 Exclusions. Going back to FAR 19.800(e), if a Contracting Officer has reviewed the acquisition, and has determined in should be offered under the 8(a) program, then (remember, directly from 19.1304 Exclusions), (d) Requirements currently being performed by an 8(a) participant or ?requirements SBA has accepted for performance under the authority of the 8(a) Program? (I take this to mean current 8(a) contracts and new requirements that have been offered to SBA), unless SBA has consented to release the requirements from the 8(a) Program;?, if, the SBA has accepted for performance under the authority of the 8(a) Program, then under SubPart 19.13, an 8(a) requirement is EXCLUDED from Subpart 19.13, the HUBZone Program. Why? Because under FAR 19.800(e), you have offered the acquisition under the 8(a) Program, and that is BEFORE considering this for any other set-aside program.

From VBus?s comment: GAO?s new ruling again places priority on the ?mandatory language? of HubZone set-asides over all other types of SB set-asides, including those already in the 8(a) Program. That mandatory language is found at 15 U.S.C. sect. 657a(B)(2)(B):

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?Notwithstanding any other provision of law a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to qualified HUBZone small business concerns if the contracting officer has a reasonable expectation that not less than 2 qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price.?

Again, 15 U.S.C sect. 657a(B)(2)(B) refers to basis of competition. If you are setting aside an acquisition for an 8(a) firm under statutory authority, you are not in a competitive situation.

Thoughts? I am totally off base with my interpretation? Are we in need of a FAR rewrite here?

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The FAR does need to be re-written. The basic problem is that the regulations in the FAR, as well as the SBA's regulations in Title 13 of the CFR, as they relate to this question, are not fully in conformance with the statutes as passed by Congress. If a regulation is in conflict with a statute, the statute takes precedence.

If you remain confused, you should seek guidance/explanation from your agency counsel and/or your procurement policy office.

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I had this issue come up a couple of years ago. A HUBZONE protested a small business set aside and I cancelled the solicitation and reissued as HUBZONE setaside based on the guidance for my legal advisor. It did not take GAO to tell us the FAR says it trumps 8a or other small business.

It would seem to me that about 80% of all solictations should be initially restricted to hubzone. There are so many HUBZONE firms that almost anything in normal usage is available from two or more. Unless advertised how can any CO make the determination that they do not exist. If every CO restricted most of their solicitations properly, there would be such cry from other businesses that Congress would change the law. Just look at the cry about Alaskan Native Corporations now.

While GSA FSS is a way out for us normal COs I have never understood how GSA can award FSS without following all the same rules the rest of us go by.

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While GSA FSS is a way out for us normal COs I have never understood how GSA can award FSS without following all the same rules the rest of us go by.

GSA FSS is awarded on the basis of full and open competition. Any responsible source that meets certain criteria such as offeroring commercial items at prices to the government "equal or more better than the most favored customers" can receive an award. They are awarded through any setaside provision. Agencies can limit sources solicited to certain categories such as small businesses or can make socioeconomic status an evaluation factors.

Take a look at CICA and how it addresses GSA.

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I wasn't aware CICA mentioned GSA. What does it say about GSA?

Poor choice of words on my part. My point was GSA Schedules and the ordering process complies with CICA (provided the procedures of FAR 8.405 are followed)

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Poor choice of words on my part. My point was GSA Schedules and the ordering process complies with CICA (provided the procedures of FAR 8.405 are followed)

Ffed, note that DFARS mandates inefficient procedures for FSS actions > $100k.

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It did not take GAO to tell us the FAR says it trumps 8a or other small business.

Boof,

Where in the FAR does it say that HUBZone set-asides "trump" 8(a)? FAR 19.800(e) actually states:

Before deciding to set aside an acquisition in accordance with Subpart 19.5, 19.13, or 19.14, the contracting officer should review the acquisition for offering under the 8(a) Program.

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Yes. The CO in that case did their homework.

I'm amazed how often set-asides and bundling issues are challenged and the CO's haven't given any prior thought to it. Here it looks like the CO not only had the issues well thought out but analyzed and their position documented.

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OMB overrides GAO on small business contracting - OMB issued memo on Friday, July 10, 2009, see here:

http://www.federaltimes.com/index.php?S=4184560

http://federaltimes.com/content/static/memoranda071309.pdf

The article says, "Agencies are not bound by two GAO rulings (Mission Critical Solutions and International Program Group, Inc.) that contradict federal regulatiosn regarding how to award work to small businesses."

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