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FAR 19.13 HUBZone

Comptroller General - Key Excerpts

Planet Depos, which is not a HUBZone small business, argues that the OCC’s decision to set aside the procurement exclusively for HUBZone small businesses was unreasonable. The protester alleges that the agency could not have expected to receive offers from at least two or more HUBZone small businesses, and the agency cannot expect to make an award at a fair market price, because only one of the five companies identified in the OCC’s market research is actually capable of performing the requirement.

Under FAR § 19.502-2(b), a procurement with an anticipated dollar value of more than $150,000, such as the one here, shall be set aside for exclusive small business participation when there is a reasonable expectation that offers will be received from at least two responsible small business concerns and that award will be made at fair market prices. No particular method of assessing the availability of capable small businesses is required; rather, the assessment must be based on sufficient facts so as to establish its reasonableness. Mountain West Helicopters, LLC; Trans Aero, Ltd., B-408150, B-408150.2, July 1, 2013 CPD ¶ 152 at 3. The decision whether to set aside a procurement may be based on an analysis of factors such as the prior procurement history, the recommendations of appropriate small business specialists, and market surveys that include responses to sources sought announcements. Commonwealth Home Health Care, Inc., B-400163, July 24, 2008, 2008 CPD ¶ 140 at 3. In making set-aside decisions, agencies need not make actual determinations of responsibility; rather, they need only make an informed business judgement that there is a reasonable expectation of receiving acceptably priced offers from small business concerns that are capable of performing the contract. Ceradyne, Inc., B-402281, Feb. 17, 2010, 2010 CPD ¶ 70 at 4.

Because a decision whether to set aside a procurement is a matter of business judgement within the contracting officer’s discretion, our review generally is limited to ascertaining whether that official abused his or her discretion. Information Ventures, Inc., B-400604, Dec. 22, 2008, 2008 CPD ¶ 232 at 3. We will not question an agency’s small business determination where the record shows that the evidence before the contracting officer was adequate to support the reasonableness of the conclusion that small business competition reasonably could be expected. Commonwealth Home Health Care, Inc., supra.

Here, the agency’s set-aside determination is unobjectionable. The record demonstrates that the agency conducted ample market research in connection with its decision to set aside the acquisition for HUBZone small businesses. In this regard, the agency reviewed information from the prior procurement, which was set aside for HUBZone small businesses, the GSA FSS, SAM, the SBA’s dynamic small business system, conducted additional internet research, and made phone calls to potential offerors. We find that the record before the contracting officer contained evidence that was adequate to support the reasonableness of the conclusion that HUBZone small business competition reasonably could be expected and see no basis to sustain Planet Depos’ protest that the agency improperly set aside the procurement. Commonwealth Home Health Care, Inc., supra.

While the protester alleges that only one of the five HUBZone small businesses is capable of performing the solicitation requirements, the market research conducted by the agency indicates otherwise. AR, Tab 2, Market Research Report Mem., (Dec. 15, 2014), at 1-3; Tab 3, Market Research, at 1-11. The agency directly contacted each of the six companies initially identified in the OCC’s market research to determine their interest in the requirement; five responded affirmatively. CO Statement at 1-2. Three of the five subsequently submitted offerors in response to the solicitation. The agency’s initial technical evaluation concluded that all three met the RFP’s requirements. Id. at 3. As such, we find that the record does not support Planet Depos’ allegations challenging the technical capability of the firms that were identified in the agency’s market research. Emax Financial & Real Estate Advisory Servs., LLC, B‑408260, July 2, 2013, 2013 CPD ¶ 180; citing York Int’l Corp., B-244748, Sept. 30, 1991, 91-2 CPD ¶ 282 at 7 (receipt of offers from small businesses supports an agency’s determination to set aside a procurement for small businesses.)

Finally, Planet Depos asserts that the agency did not analyze whether the HUBZone small businesses could offer fair market prices. In response the agency argues that it had a reasonable expectation of fair market prices because its market research concluded that five HUBZone small businesses had interest in competing for the requirement. AR at 2-3; CO Statement at 3. We agree with the agency that it was reasonable for the OCC to anticipate adequate price competition, and that, as a result of that price competition, award would be made at a fair market price under the set-aside procurement. Walden Security, B-407022, B-407022.2, Oct. 10, 2012, 2012 CPD ¶ 291 at 7. (A contracting officer may reasonably rely on an expectation that there will be adequate price competition to conclude that the competition will result in a fair market price). Moreover, the agency’s assumption of adequate price competition appears to be validated by the fact that it received offers from three small businesses that have initially been determined to meet the requirements of the RFP.

The protest is denied.  (Planet Depos LLC B-411142: May 26, 2015)  (pdf)

Wakan complains that DLA did not apply the HUBZone price evaluation preference in its favor as required by FAR § 19.307 and FAR clause 52.219-4. Wakan states that the agency confirmed during the evaluation of proposals that Wakan was a certified HUBZone small business and was aware that Wakan was relying upon receiving the evaluation preference. Wakan Comments at 2. Wakan contends that, had the preference been applied, Wakan would have been the lowest-priced offeror and thus been awarded the contract. Protest at 5-6.

In reviewing a protest against an agency’s evaluation of proposals, our Office will not reevaluate proposals, but instead will examine the record to determine whether the agency’s judgment was reasonable and consistent with the stated evaluation criteria and applicable procurement statutes and regulations. Shumaker Trucking & Excavating Contractors, Inc., B-290732, Sept. 25, 2002, 2002 CPD ¶ 169 at 3. An agency must follow the ground rules of the competition set forth in a solicitation. General Dynamics Info. Tech., B-299873, Sept. 19, 2007, 2007 CPD ¶ 194 at 6.

Here, the solicitation provided for a 10-percent evaluation preference for HUBZone small business concerns by incorporating FAR clause 52.219-4. That clause required, however, that a HUBZone small business would receive the evaluation preference only where it also agreed to certain conditions, such as applicable here in a contract for supplies, that at least 50 percent of the cost of manufacturing (excluding the cost of supplies) would be performed by the HUBZone small business or other HUBZone small business concerns. See FAR clause 52.219‑4(d)(2). DLA found that Wakan had not agreed to this condition and was thus not eligible to receive the evaluation preference.

Wakan disagrees that its proposal indicated that Wakan or another HUBZone small business concern would not perform at least 50 percent of the cost of manufacturing. In this regard, Wakan states that its proposal did not indicate that [Deleted], a small business, would be Wakan’s subcontractor, only that the place of performance would be at [Deleted] plant. See Wakan Comments at 2, 5. In this regard, Wakan argues that it was merely leasing a portion of [Deleted] facilities and employees to perform the contract. Wakan Comments at 2.

DLA responds that Wakan’s identification of [Deleted] plant as the place of performance indicated to the agency that Wakan was proposing to supply the products of a non-HUBZone small business. See AR at 4-5; see also DLA Response to Small Business Administration (SBA) Views, at 3 n.2. DLA also notes that Wakan’s proposal provided no information concerning its purported business arrangement with [Deleted], other than the identification of [Deleted] plant as the place of performance. AR at 7.

We agree with DLA that Wakan’s proposal reasonably indicated that Wakan was proposing to supply the products of [Deleted], a non-HUBZone small business. Although Wakan disagrees with this judgment, it is an offeror’s responsibility to submit a well-written proposal with adequately detailed information to demonstrate compliance with the solicitation and to allow for a meaningful review by the procuring agency. Mike Kesler Enters., B-401633, Oct. 23, 2009, 2009 CPD ¶ 205 at 2-3. Here, literally the only information in Wakan’s proposal addressing its performance of the contract was that performance would occur at [Deleted] plant; no further explanation of that performance at [Deleted] was provided. We find that the identification of [Deleted] plant as the place of performance without further information reasonably led DLA to conclude that Wakan was proposing to supply the products of a non-HUBZone small business. On this basis, DLA reasonably concluded that Wakan was not entitled to application of the HUBZone evaluation preference.

During the development of the protest record, we sought SBA’s views concerning the protest. SBA contends that DLA violated the Small Business Act and the FAR by failing to apply the HUBZone 10-percent evaluation preference. See SBA Views, Apr. 24, 2014, at 1. SBA argues that the Small Business Act requires the application of the 10-percent evaluation preference in any instance where a contract will be awarded on the basis of full and open competition. Id. at 3. SBA further argues that neither the Small Business Act nor the FAR allow a contracting officer to determine whether HUBZone small businesses are “entitled” to application of the evaluation preference. Id. at 2-3.

Although we accord considerable deference to SBA’s views concerning the application of the HUBZone evaluation preference, we do not agree that Wakan was entitled to the benefit of the preference here. As noted above, the solicitation incorporated by reference FAR clause 52.291-4, which required that HUBZone small businesses perform in accordance with certain requirements. This condition of the application of the evaluation preference, which was not timely challenged, is a material part of the solicitation, with which a HUBZone offeror must comply to receive the evaluation preference in this procurement. Here, as noted above,

Wakan’s proposal did not demonstrate its agreement to perform in accordance with this solicitation condition. 

The protest is denied.  (Wakan, LLC, B-408535.2: Jun 19, 2014)  (pdf)
 


Tennier asserts that [Federal Prison Industries, Inc.] FPI should not have been permitted to compete under this solicitation. According to the protester, allowing FPI to compete defeats the purpose of the Historically Underutilized Business (HUBZone) Act of 1997, which is to provide federal contracting assistance for qualified small business concerns located in historically underutilized business zones. Federal Acquisition Regulation (FAR) § 19.1301(b).

Based on our review of the relevant statutes and regulations, as well as the submissions of the parties and the Small Business Administration (SBA), we conclude that DLA’s decision to permit FPI to compete under the solicitation did not violate a procurement statute or regulation.

Agencies are encouraged to purchase FPI supplies and services to the maximum extent practicable. FAR § 8.601(e). In this regard, under the relevant regulations, agencies are generally required to purchase supplies listed on the FPI Schedule where, after conducting market research, the agency determines that the supplies produced by FPI are comparable to those available from the private sector in terms of price, quality, and time of delivery. FAR § 8.602(a). For items that are not comparable in one or more of the areas of price, quality, or time of delivery, agencies are to acquire the item using fully competitive procedures (e.g. the procedures in FAR § 6.102, the small-business set-aside procedures in FAR Subpart 19.5, or competition conducted in accordance with FAR Part 13), or procedures that provide a “fair opportunity” to compete under multiple award delivery-order contracts. FAR § 8.602(a)(4). However, when conducting such a competition, the agency shall include FPI in the solicitation process and consider a timely offer from FPI in accordance with the item description or specifications and the evaluation factors provided in the solicitation. FAR § 8.602(a)(4)(ii); see 10 U.S.C. § 2410n(a) (2009 Supp.).

In addition, the Department of Defense (DOD) must also use competitive procedures to purchase a product listed on the FPI Schedule if FPI has a significant market share, that is, where FPI’s share of the DOD market for that particular category of products is greater than 5 percent. 10 U.S.C. § 2410n(b). (The Director of Defense Procurement Acquisition Policy and Strategic Sourcing (DPAP) issues a yearly memorandum identifying those FSCs for which FPI will be treated as having a significant market share.) When conducting such a competition, the agency shall include FPI in the solicitation process and consider a timely offer from FPI. Id.

Here, the March 19, 2010 DPAP memorandum, which was applicable at the time the solicitation was issued, identified FCS 8415 as a product category for which FPI’s share of DOD’s market was greater than 5 percent, and therefore, any DOD acquisition for these items had to be a competitive acquisition. Agency Report (AR), Tab 9, DPAP Memorandum, March 19, 2010, at 5. Again, however, DLA was required to include FPI in the competition. 10 U.S.C. § 2410n(b). Accordingly, we find nothing improper with FPI’s participation in the procurement.

Tennier argues that FPI will not provide products manufactured by a HUBZone small business concern as required under the HUBZone program. Specifically, the regulations implementing the HUBZone program, set forth at FAR Subpart 19.13, require that a procurement, as here, set aside for HUBZone small business concerns, include FAR § 52.219-3, Notice of HubZone Set-Aside or Sole Source Award. FAR § 19.1309(a). This provision, which was included in the RFP, provides as follows:

A HUBZone small business concern agrees that in the performance of the contract for. . . [s]upplies (other than acquisition from a nonmanufacturer of the supplies), at least 50 percent of the cost of manufacturing, excluding the cost of materials, will be performed by the concern or other HUBZone small business concerns.

FAR § 52.219-3(d). Since neither FPI nor its proposed subcontractor is a HUBZone small business concern, Tennier argues that FPI will not comply with the subcontracting provision cited above.

We find no basis to conclude that FPI is required to comply with the HUBZone subcontracting provision. COS at 11; SBA Report at 6. In this regard, we agree with the SBA that, because FPI is not a HUBZone, nor indeed a small business concern, limitations imposed under FAR § 52.219-3 on subcontracting by a “HUBZone small business concern” do not apply to FPI.

Tennier asserts, and the SBA agrees, that a HUBZone price evaluation preference should be applied in this procurement because FPI, an other-than-small business, was permitted to compete with a HUBZone small business. In this regard, FAR § 19.1307(a) provides that a price evaluation preference for HUBZone small businesses shall be used in acquisitions “conducted using full and open competition.” DLA denies that it was required to include a HUBZone price evaluation preference in a solicitation set aside for HUBZone small businesses. We need not resolve this dispute. Since the solicitation in fact did not include a HUBZone price evaluation preference, the agency has not violated the terms of the solicitation or otherwise acted improperly by failing to apply the preference here. Goel Services, Inc., B-310822.2, May 23, 2008, 2008 CPD ¶ 99 at 3; see Ironclad Services, Inc., B-406037, Jan. 11, 2012, 2012 CPD ¶ 23 at 3.  (Tennier Industries, Inc., B-403946.2, Jun 29, 2012)  (pdf)


Argos argues that GSA is required by statute to include the HUBZone price preference in the solicitation. In addition, Argos contends that GSA is required by FAR § 19.1302 and clause 52.219-4 to include the HUBZone price preference language in the solicitation. Protest at 2. GSA responds that HUBZone Act does not apply to lease procurements, and instead applies exclusively to goods and services. GSA Memorandum of Law at 2-6. In addition, GSA contends that the FAR does not apply to leasehold interests in real property.

As a threshold matter, we agree with GSA that the FAR does not apply to the acquisition of real property leasehold interests. The FAR, by its terms, only applies to the acquisition of supplies or services, whereas the subject procurement concerns GSA's acquisition of a real property lease. See FAR §§ 1.104 and 4.601. The inapplicability of the FAR, however, does not end our inquiry.

Under the Competition in Contracting Act of 1984 (CICA) and our Office's Bid Protest Regulations, GAO reviews protests concerning alleged violations of procurement statutes or regulations by federal agencies in the award of contracts for procurement of property or services. 31 U.S.C. § 3551(A); 4 C.F.R § 21.1(a).[1] Therefore, notwithstanding protester's misplaced reliance upon the FAR, the fundamental issue is whether the HUBZone Act mandates the inclusion of the 10 percent preference in federal procurements that involve full and open competition, including procurements of real property.

In 1997, Congress established the HUBZone program as part of the HUBZone Act, Pub. L. No. 105-135, § 601-607, 111 Stat. 2592, 2627-36. The purpose of the HUBZone program is to:

[e]ncourage investment in low income metropolitan and rural areas where poverty and unemployment are very important concerns . . . . The goal of HUBZones is to encourage small businesses to relocate and employ people in low income, economically distressed areas by allowing these businesses to receive a special preference or set aside in bidding on federal government contracts.

See S. Rep. No. 105-62, at 67, 105th Cong., 1st Sess. (1997) (statement of Sen. Christopher Bond, Chairman, Senate Committee on Small Business). To be an eligible HUBZone firm, a small business concern must have its principal office located in a HUBZone and at least 35 percent of its employees must be from one or more HUBZones. 15 U.S.C. § 632(p)(5)(A)(i)(I)(aa).

The HubZone Act provides three mutually exclusive measures to assist HUBZone businesses with obtaining federal contracts: (1) HUBZone sole source awards; (2) HUBZone set-asides; and (3) HUBZone price evaluation preferences in full and open competitions. HUBZone Act, 15 U.S.C. §§ 657a(b)(2)(A), 657a(b)(2)(B) and 657a(b)(3)(B). The last of these states that:

(B) . . . [I]n any case in which a contract is to be awarded on the basis of full and open competition, the price offered by a qualified HUBZone small business concern shall be deemed as being lower than the price offered by another offeror (other than another small business concern), if the price offered by the qualified HUBZone small business concern is not more than 10 percent higher than the price offered by the otherwise lowest, responsive, and responsible offeror.

15 U.S.C. § 657a(b)(3)(B).

We note first that the HUBZone Act, on its face, does not limit the type of "contract" to which it applies. As a result, we conclude that the Act broadly applies to all federal contracts that involve full and open competition. 15 U.S.C. § 657a.

Secondly, there is little dispute that a real property lease is a "contract." The Supreme Court has viewed a lease as a "contract or other obligation" that is subject to the Antideficiency Act. Leiter v. United States, 271 U.S. 204, 206-07 (1926). In addition, under the Contract Disputes Act, 41 U.S.C. § 602, the boards of contract appeals, the Court of Federal Claims, and the Federal Circuit have held that disputes arising from federal property leases fall within the jurisdiction of those courts and boards of contract appeals over contracts for the "procurement of property other than real property in being." See, e.g., Forman v. United States, 767 F.2d 875,879 n.4 (Fed. Cir. 1985); Jackson .v USPS, 799 F.2d 1018, 1022 (5th Cir. 1986); Modeer v, United States, 68 Fed. Cl. 131, 136 (2005); 801 Market Street Holdings v. GSA, CBCA No. 425, 08-1 B.C.A. ¶ 33853 (2008).

Finally, we see no affirmative authority that omits HUBZone Act requirements from procurements of leasehold interests in real property. Therefore, we find that the HUBZone Act applies to acquisition of leasehold interests in real property.

While the analysis above answers GSA's contention that the HUBZone Act applies only to procurements of goods and services, GSA also contends that the price preference section of the HUBZone Act applies only to sealed bid procurements because of the inclusion of the word "responsive" in the statute. In this regard, GSA notes that the HUBZone Act requires a price preference when the price of the HUBZone offeror is not more than 10 percent higher than the price of the otherwise "lowest, responsive, and responsible offeror." Memorandum of Law at 4. GSA's argument is not persuasive.

While GSA is correct that the statute uses the term "responsive," and correct in noting that the term "responsive" is often used in the context of sealed bid procurements, GSA's argument overlooks the statute's use of the term "offeror" within the same phrase. The term "offeror" is generally not used in sealed bid procurements, and is generally used in connection with procurements conducted using negotiated procedures. Moreover, implementing regulations and case law have widely applied the price preference in the HUBZone Act to negotiated procurements. See, e.g., FAR § 19.1307(b); 13 C.F.R. §126.613(a)(1); Explo Systems, Inc., B-404952, B-404952.2, July 8, 2011, 2011 CPD ¶ 127 at 9; Delaney Constr. Corp. v. United States, 56 Fed. Cl. 470 (2003). Finally, nothing in the legislative history of the HUBZone Act suggests that Congress intended to limit the application of the HUBZone Act to sealed bids.  (The Argos Group, LLC, B-406040, Jan 24, 2012)  (pdf)

See (General Services Administration--Reconsideration, B-406040.2, Oct 24, 2012.)  (pdf)


HUBZone Price Preference

The protester argues that the Army improperly failed to apply the HUBZone price evaluation preference provided for in 15 U.S.C. sect. 657a(b)(3)(A) (2006), as implemented in various regulations and incorporated into the RFP, in making its best value selection decision. The protester asserts that this preference was required because the awardee is a large business and the protester is a HUBZone concern.

Section 657a(b)(3)(A) of 15 U.S.C. provides that:

Subject to subparagraph (B), in any case in which a contract is to be awarded on the basis of full and open competition, the price offered by a qualified HUBZone small business concern shall be deemed as being lower than the price offered by another offeror (other than another small business concern), if the price offered by the qualified HUBZone small business concern is not more than 10 percent higher than the price offered by the otherwise lowest, responsive, and responsible offeror.

To implement this statute, FAR sect. 19.1307 provides that agencies "shall give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10 percent to all offers," except for offers from HUBZone small business concerns that have not waived the evaluation preference, or otherwise successful offers from small business concerns. Id.; see also 13 C.F.R. sect. 126.613(a)(1) ("For a best value procurement, the [contracting officer] must apply the 10 [percent] preference to the otherwise successful offer of a large business and then determine which offeror represents the best value to the Government, in accordance with the terms of the solicitation."). Consistent with this FAR provision, and as required by FAR sect. 19.1309(b), the solicitation incorporated FAR clause 52.219-4, titled Notice of Price Evaluation Preference for HUBZone Small Business Concerns, which states as follows:

(b)(1) Offers will be evaluated by adding a factor of 10 percent to the price of all offers, except--

(1) Offers from HUBZone small business concerns that have not waived the evaluation preference; or

(2) Otherwise successful offers from small business concerns.

As noted above, the Army did not apply the price evaluation preference here.

It is well-settled that an agency must follow the ground rules of the competition set forth in the solicitation, and deviation from those stated ground rules is grounds to sustain the protest. General Dynamics Info. Tech., B-299873, Sept. 19, 2007, 2007 CPD para. 194 at 6. Here, the unambiguous language of the solicitation required that the agency apply "a factor of 10 percent to the price of all offers" other than certain HUBZone or small business offers. The Army failed to do so here, and we sustain the protest on this ground.

The Army maintains that it properly did not apply the HUBZone price preference in making its best value selection decision because Explo already submitted the lowest priced offer. AR, Legal Analysis Memo, at 1. The Small Business Administration (SBA), from whom we solicited comments, agrees with the Army. Both agencies contend that the language of 15 U.S.C. sect. 657a(b)(3)(A), quoted above, only requires that a price evaluation preference be applied where the HUBZone offer is priced higher than the large business offer; the preference does not apply when a HUBZone offer is priced lower than the large business offer. SBA Comments, May 12, 2011, at 4; SBA Supp. Comments, July 6, 2011, at 1; AR, Legal Analysis Memo, at 1-3; Letter from Army to GAO, July 6, 2011, at 1-2. Both agencies also argue that, to the extent the FAR requires that a price evaluation preference be applied to all offers (even when a HUBZone offer is priced lower than those offers), the FAR exceeds or departs from what is required by 15 U.S.C. sect. 657a(b)(3)(A), and therefore the FAR should not be enforced. Letter from Army to GAO, July 6, 2011, at 2; SBA Supp. Comments, July 7, 2011, at 2. The SBA also asserts that the FAR provisions are inconsistent with applicable SBA regulations and that the SBA regulations should be given greater deference. SBA Supp. Comments, July 7, 2011, at 2-3.

We are not persuaded by these arguments. We find nothing in the plain language of the statute, or the legislative history of the statute, that expressly limits that application of a price preference in the manner argued by the agencies. Rather, the statute only identifies when a HUBZone offer must be considered lower in price--i.e., when the HUBZone offer is "not more than 10 percent higher" than the large business offer. In the context of a best value procurement where a cost/technical tradeoff is required, this statutory language can reasonably be interpreted to include HUBZone offers lower in price, since those offers are "not more than 10 percent higher" than the large business offer. The FAR regulation and solicitation provision (FAR sect. 19.1307 and FAR clause 52.219‑4), which implement the statute, appear to adopt a similar view since the provisions make clear that the HUBZone price evaluation preference must be applied to "all" large business offers, not just those that are lower in price than the HUBZone offer. Based on our analysis, we view the FAR provisions as articulating a reasonable and permissible implementation of 15 U.S.C. sect. 657a(b)(3)(A).

We find no support for the agencies' assertions that the FAR provisions are not enforceable under the facts presented here. We note that the FAR provisions were finalized only after notice and public comment, and we have been presented no evidence that the Army or SBA (or any commenter) asserted that the FAR provisions were unlawful either during the notice and comment period, or at any time since. See 64 Fed. Reg. 51830-01 (Sept. 24, 1999). Both FAR provisions have been in effect for many years,[3] and our review of case law confirms that both FAR provisions have been routinely recognized, by the U.S. Court of Federal Claims and our Office, as implementing 15 U.S.C. sect. 657a(b)(3)(A), including in procurements where the solicitation contemplated the performance of a best value tradeoff. See, e.g., DynCorp Int'l, LLC v. United States, 76 Fed. Cl. 528, 535 (2007); Gulf Group, Inc. v. United States, 61 Fed. Cl. 338, 361-62 (2004); Carmon Constr., Inc., B292387, B‑292387.3, Sept. 5, 2003, 2003 CPD para. 158 at 2‑3. Neither the Army nor the SBA have cited, and we have not found, any case law or other authority to support the agencies' position that the HUBZone price evaluation preference need not be applied in a best value procurement when the HUBZone offer is priced lower than the large business offer. In sum, the Army and SBA have not provided any persuasive arguments or authority to suggest that the plain language of the solicitation can be ignored.

We also are not persuaded by the agencies' arguments that the SBA regulation, 13 C.F.R. sect. 126.613(a)(1), limits the provisions of the FAR. Indeed, the plain language of 13 C.F.R. sect. 126.613(a)(1) appears consistent with our interpretation above, since the SBA regulation expressly provides that "[f]or a best value procurement, the [contracting officer] must apply the 10 [percent] preference to the otherwise successful offer of a large business and then determine which offer represents the best value to the Government, in accordance with the terms of the solicitation." Although the agencies maintain that this language was not intended to require application of the price evaluation preference in situations where the HUBZone offer is priced lower than the large business offer, the plain language of the regulation does not support the agencies' arguments. In short, the SBA regulation does not state that the HUBZone price evaluation is inapplicable in a best value procurement when the HUBZone offer is priced lower than the large business offer, which would be expected if the SBA intended to restrict or limit the application of the clear language of the FAR. Furthermore, nothing in the Federal Register notice publishing 13 C.F.R. sect. 126.613(a)(1) suggests that the SBA intended to limit the application of the FAR. See 69 Fed. Reg. 29411-01 (May 24, 2004).

We also are not persuaded by the Army's argument that there is "no reason to apply any 10 [percent] factor to the offer of a large business when the HUBZone concern's offer is lower in price." AR, Legal Analysis Memo, at 2. Although this may be true in a low cost/technically acceptable procurement, such rationale seems illogical when a best value tradeoff is required, because the agency must consider whether technical advantages of one offer outweigh a particular price differential. In a procurement requiring a best value tradeoff, the HUBZone concern is entitled to receive the benefit of a price evaluation preference in the manner set forth in the FAR, especially where, as here, the solicitation requires it. See also Delaney Constr. Corp. v. United States, 56 Fed. Cl. 470, 475 (2003) (HUBZone price evaluation preference mandated notwithstanding omission of FAR clause 52.219-4).

In sum, we find that the Army deviated from the solicitation requirement to apply the HUBZone price evaluation preference before performing its best value tradeoff, and we sustain the protest on this ground.  (Explo Systems, Inc., B-404952; B-404952.2, July 8, 2011)  (pdf)


Rice Services, Inc., of Smithville, Tennessee, a Historically Underutilized Business Zone (HUBZone) small business concern, protests the terms of solicitation No. FA4800-10-R-0003, issued by the Department of the Air Force for mess attendant services at Langley Air Force Base, Virginia.

We sustain the protest.

The Air Force issued the solicitation on August 16, 2010, as a set-aside for competition among section 8(a) small business concerns. Rice Services filed this protest on August 31, arguing that the procurement should instead be set aside for competition limited to HUBZone small business concerns. In this regard, Rice Services asserts that the conditions for a mandatory HUBZone set-aside exist, citing the HUBZone statute, 15 U.S.C. sect. 657a, Federal Acquisition Regulation (FAR) sect. 19.1305(a), and our decision in DGR Assocs., Inc., B-402494, May 14, 2010, 2010 CPD para. 115.

Our Office has considered this issue in several prior protests, including DGR Assocs., Inc., supra (which also involved a procurement by the Air Force); Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93, recon. denied, Small Business Admin.--Recon., B-401057.2, July 6, 2009, 2009 CPD para. 148; and International Program Group, Inc., B-400278, B-400308, Sept. 19, 2008, 2008 CPD para. 172. In each decision, our Office has concluded that the HUBZone statute requires procuring agencies to set aside procurements for HUBZone small business concerns when the conditions set forth in the statute are met.

In our most recent decision on this issue, DGR Assocs., Inc., the Air Force explained that it had decided not to set aside the procurement for HUBZone small business concerns in reliance on a Memorandum Opinion by the Office of the Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice (DOJ), stating disagreement with our decisions and concluding that the Small Business Act does not require the prioritization of the HUBZone program in the manner that our Office has determined. See DOJ Memorandum Opinion, Aug. 21, 2009, at 2. The DOJ Memorandum states that "the SBA's regulations [creating parity between the HUBZone program and other small business set-aside programs] . . . are reasonable [and are] binding on all Executive Branch agencies, notwithstanding any GAO decisions to the contrary." Id. at 13.

The DOJ Memorandum notwithstanding, our Office concluded in DGR Assocs., Inc., as in prior decisions, that the plain language of the HUBZone statute requires an agency to set aside an acquisition for competition restricted to qualified HUBZone small business concerns where the conditions set forth in the HUBZone statute are met. We also advised that, going forward, protests raising the sole issue of HUBZone set-aside priority would be addressed in an "expedited and summary manner" where the agency acted contrary to our decisions in reliance on the DOJ Memorandum Opinion. DGR Assocs., Inc., supra, at 4.

Accordingly, after Rice Services filed its current protest, we requested that the Air Force inform our Office whether it had acted in reliance on the DOJ Memorandum Opinion. The Air Force responded that "[consistent] with our prior position, the Air Force intends to follow the Memorandum Opinion issued by the Office of the Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice, concluding that there is no statutory requirement to prioritize the HUBZone small business program." Air Force Letter to GAO, Sept. 10, 2010, at 1.

As explained in our prior decisions, we read the plain language of the HUBZone statute as requiring an agency to set aside an acquisition for competition restricted to qualified HUBZone small business concerns where it has a reasonable expectation that not less than two qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price. See also Mission Critical Solutions v. United States, No. 09-864C (Fed. Cl. Mar. 2, 2010), appeal docketed, No. 2010-5099 (Fed. Cir. Apr. 2, 2010) (rejecting DOJ's interpretation of the HUBZone statute and concluding, consistent with our decision in Mission Critical Solutions, B-401057, supra, that the language of the HUBZone statute is mandatory, such that a contract opportunity must be set aside for competition among qualified HUBZone small business concerns whenever the criteria set out in 15 U.S.C. sect. 657a are met). Thus, we conclude that the Air Force was required to consider whether the conditions for setting aside a procurement for HUBZone small business concerns were met, and if so, to set aside the procurement for HUBZone small businesses. Because the agency did not perform this mandatory step, we conclude that it was improper for the agency to proceed with this procurement as an 8(a) set-aside.  (Rice Services, Inc., B-403746, September 16, 2010)  (pdf)


Rice Services, Inc., of Smithville, Tennessee, a Historically Underutilized Business Zone (HUBZone) small business concern, protests the terms of solicitation No. HDEC08-10-R-0018, issued as a set-aside for service-disabled veteran-owned small business concerns (SDVOSBC) by the Defense Commissary Agency (DeCA) for shelf stocking and custodial services at the Davis-Monthan Air Force Base Commissary.

We sustain the protest.

DeCA issued the solicitation on July 30, 2010, as a total set-aside for SDVOSBCs. Rice Services filed this protest on August 16, arguing that the procurement should instead be set aside for competition limited to HUBZone small business concerns. In this regard, Rice Services asserts that the conditions for a mandatory HUBZone set-aside exist, citing the HUBZone statute, 15 U.S.C. sect. 657a, Federal Acquisition Regulation (FAR) sect. 19.1305(a), and our decision in DGR Assocs., Inc., B-402494, May 14, 2010, 2010 CPD para. 115.

Our Office has considered this issue in several prior protests, including DGR Assocs., Inc., supra; Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93, recon. denied, Small Business Admin.--Recon., B-401057.2, July 6, 2009, 2009 CPD para. 148; and International Program Group, Inc., B-400278, B-400308, Sept. 19, 2008, 2008 CPD para. 172. In each decision, our Office has concluded that the HUBZone statute requires procuring agencies to set aside procurements for HUBZone small business concerns when the conditions set forth in the statute are met.

In our most recent decision on this issue, DGR Assocs., Inc., the agency explained that it had decided not to set aside the procurement for HUBZone small business concerns in reliance on a Memorandum Opinion by the Office of the Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice (DOJ), stating disagreement with our decisions and concluding that the Small Business Act does not require the prioritization of the HUBZone program in the manner that our Office has determined. See DOJ Memorandum Opinion, Aug. 21, 2009, at 2. The DOJ Memorandum states that "the SBA's regulations [creating parity between the HUBZone program and other small business set-aside programs] . . . are reasonable [and are] binding on all Executive Branch agencies, notwithstanding any GAO decisions to the contrary." Id. at 13.

The DOJ Memorandum notwithstanding, our Office concluded in DGR Assocs., Inc., as in prior decisions, that the plain language of the HUBZone statute requires an agency to set aside an acquisition for competition restricted to qualified HUBZone small business concerns where the conditions set forth in the HUBZone statute are met. We also advised that, going forward, protests raising the sole issue of HUBZone set-aside priority would be addressed in an "expedited and summary manner" where the agency acted contrary to our decisions in reliance on the DOJ Memorandum Opinion. DGR Assocs., Inc., supra, at 4.

Accordingly, after Rice Services filed its current protest, we requested that DeCA inform our Office whether it had acted in reliance on the DOJ Memorandum Opinion. DeCA responded that "[i]n issuing the solicitation for SDVOSBC, the Agency [acted] in reliance on the Memorandum Opinion issued by the Office of the Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice, which concluded that there is no statutory requirement to prioritize the HUBZone program." DeCA Response, Aug. 18, 2010, at 1.

As explained in our prior decision, we read the plain language of the HUBZone statute as requiring an agency to set aside an acquisition for competition restricted to qualified HUBZone small business concerns where it has a reasonable expectation that not less than two qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price. See also Mission Critical Solutions v. United States, No. 09-864C (Fed. Cl. Mar. 2, 2010), appeal docketed, No. 2010-5099 (Fed. Cir. Apr. 2, 2010) (rejecting DOJ's interpretation of the HUBZone statute and concluding, consistent with our decision in Mission Critical Solutions, B-401057, supra, that the language of the HUBZone statute is mandatory, such that a contract opportunity must be set aside for competition among qualified HUBZone small business concerns whenever the criteria set out in 15 U.S.C. sect. 657a are met). Thus, we conclude that DeCA was required to consider whether the conditions for setting aside a procurement for HUBZone small business concerns were met, and if so, to set aside the procurement for HUBZone small businesses. Because the agency did not perform this mandatory step, we conclude that it was improper for the agency to proceed with this procurement as an SDVOSBC set-aside.  (Rice Services, Inc., B-402966.2, September 16, 2010) (pdf)


DGR argues that the agency's decision to set aside the procurement for 8(a) small businesses was improper, and that the agency instead was required to set aside the procurement for HUBZone small businesses. In this regard, DGR cites several decisions issued by our Office interpreting the applicable statutes as requiring an agency to set aside a solicitation for HUBZone small business concerns where the standards of that program are satisfied. As explained in our decisions, the plain language of the statute authorizing the HUBZone program is mandatory and requires that an agency set aside a procurement when certain criteria are met (specifically, where the agency has a reasonable expectation of receiving offers from at least two qualified HUBZone small business concerns and where the award can be made at a fair market price), whereas the plain language of the authorizing statute for the 8(a) program leaves the agency with discretion to set aside the procurement. See Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93 at 3-8, recon. denied, Small Business Admin.--Recon., B‑401057.2, July 6, 2009, 2009 CPD para. 148 at 5.

The Air Force acknowledges our decisions, but contends that its actions are consistent with a Memorandum Opinion by the Office of the Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice (DOJ), stating its disagreement with our decisions and concluding that the Small Business Act "does not compel SBA [the Small Business Administration] to prioritize the HUBZone Program in the manner GAO determined to be required." DOJ Memorandum Opinion, Aug. 21, 2009, at 2. This memorandum directs Executive Branch agencies to follow SBA's regulations placing the different categories of small businesses on an equal footing for the competition and award of contracts. In this regard, the DOJ Memorandum expressly instructs that "the SBA's regulations . . . are reasonable [and are] binding on all Executive Branch agencies, notwithstanding any GAO decisions to the contrary," and reminds agencies that GAO decisions are not binding on the Executive Branch. Id. at 13.

The DOJ opinion notwithstanding, we continue to read the plain language of the HUBZone statute as requiring an agency to set aside an acquisition for competition restricted to qualified HUBZone small business concerns where it has a reasonable expectation that not less than two qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price. See also Mission Critical Solutions v. United States, No. 09-864C (Fed. Cl. Mar. 2, 2010), appeal docketed, No. 2010-5099 (Fed. Cir. Apr. 2, 2010) (rejecting DOJ's interpretation of the HUBZone statute and concluding, consistent with our decisions in Mission Critical Solutions, B-401057, supra, that the language of the HUBZone statute is mandatory, such that a contract opportunity must be set aside for competition among qualified HUBZone small business concerns whenever the criteria set out in 15 U.S.C. sect. 657a are met). Thus, we conclude that the Air Force was required to first consider whether the conditions for setting aside a procurement for HUBZone businesses were met, and if so, to set aside the procurement for HUBZone small businesses. Because the agency did not perform this mandatory step, we conclude that it was improper for the agency to proceed with this procurement as an 8(a) set-aside, and we sustain the protest.  (DGR Associates, Inc., B-402494, May 14, 2010)  (pdf)


FESI challenges the agency’s decision not to set the procurement aside for HUBZone small business concerns. Specifically, FESI asserts that the agency’s FedBizOpps notice for the industry day was insufficient because the notice stated that the agency was looking for a contractor “to lead the anticipated multi-billion dollar [D&D] project,” which a HUBZone small business would likely not be qualified to handle. Supplemental Protest at 2. FESI also contends that the agency failed to conduct sufficient market research prior to issuing the RFP because, while the CO states that she contacted another CO who had procured similar services at a similar site, the CO failed to contact government facilities in adjacent states who may have also procured similar services. Protest at 3. Finally, the protester asserts that the SBA would not have concurred with the agency’s decision to post the solicitation as a small business set aside, had the SBA PRC known of these alleged flaws in the agency’s market research. In response, the agency argues that its market research was reasonable, and that the validity of its market research is supported by the fact that no HUBZone small business submitted a proposal in response to the solicitation.

Acquisitions must be set aside for HUBZone small business concerns if the agency determines that there is a reasonable expectation that offers will be received from two or more HUBZone small business concerns, and that award will be made at a fair market price. Federal Acquisition Regulation (FAR) sect. 19.1305(a), (b). Generally, our Office regards such a determination as a matter of business judgment within the agency’s discretion, which we will not disturb absent a clear showing that it has been abused. Global Solutions Network, Inc., B-292568, Oct. 3, 2003, 2003 CPD para. 174 at 3. An agency must make reasonable efforts to ascertain whether it will receive offers from at least two HUBZone small business concerns with the capability to perform the work, and we will review a protest to determine whether the agency has done so. Id. at 3. The use of any particular method of assessing the availability of HUBZone small businesses is not required, and measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement. American Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD para. 188 at 3.

As noted above, the CO performed database searches using both the applicable NAICS code and keywords. In addition, the CO consulted with another CO who had procured similar services at a similar DOE site. The CO also consulted with the SBA representative regarding the possibility of setting aside the procurement for HUBZone small businesses. The CO determined, based on all of these findings, plus her knowledge of the site’s current contractors and the site’s procurement history, that there was no reasonable expectation that the agency would receive two or more offers from HUBZone firms in response to the RFP.

While the protester focuses on the insufficiency of the FedBizOpps notice for the industry day, we think that the CO’s research with regard to this particular procurement--database searches, consultation with another CO and with the SBA representative, and consideration of current contractors at the site and the site’s procurement history--was reasonable. In view of the foregoing considerations, we have no basis to question the agency’s judgment not to set aside this requirement for HUBZone concerns.  (Family Entertainment Services, Inc., B-401693; B-401693.2,  October 20, 2009) (pdf)

Note:  In the Conference Report for the National Defense Authorization for Fiscal Year 2010, the conferees said:

The conferees direct the Secretary of Defense to continue to administer the HUBZone program in a manner consistent with the Department of Justice opinion.  See this at "Small business contracting programs parity."

The Office of Legal Counsel within the Department of Justice has ruled:

that the Small Business Administration's regulations are reasonable is binding on all Executive Branch agencies.  See See Permissibility of Small Business Administration Regulations Implementing The Historically Underutilized Business Zone, 8(A) Business Development, And Service-Disabled Veteran-Owned Small Business Concern Programs.  (pdf) 

In a July 10, 2009 memo, OMB questions GAO decisions: Mission Critical Solutions, of May 4, 2009 (B-401057, 2009 CPD 93), and International Program Group, Inc., of September 19, 2008 (B–400278, B–400308, 2008 CPD 172).  See the memo at whitehouse.gov. (pdf)

The Small Business Administration (SBA) asks that we reconsider our decision in Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD para. 93, in which we concluded that, prior to the award of a contract to an Alaska Native Corporation on a sole-source basis, the statute authorizing a preference for Historically Underutilized Business Zone (HUBZone) small businesses requires a contracting agency to first consider whether two or more qualified HUBZone small businesses could be expected to submit offers and whether award could be made at a fair price. The SBA argues that our decision erred in concluding that the HUBZone statute creates a mandatory preference for HUBZone small businesses over the preference for 8(a) businesses.

(Sections deleted)

Our Bid Protest Regulations require that a party requesting reconsideration “must show that our prior decision contains errors of either fact or law, or must present information not previously considered that warrants reversal or modification of our decision.” 4 C.F.R. sect. 21.14(a) (2009). Our Office will not consider “a request for reconsideration based on repetition of arguments previously raised.” Id.

The SBA’s request for reconsideration primarily states its disagreement with our legal analysis regarding the statutory requirements for HUBZone set-asides. Much of the agency’s request addresses matters that were raised during the protest and discussed in our decision; those issues need not be addressed again.

We discuss below, however, the following three arguments raised by the SBA: (1) that the decision overstepped the statutory authority granted to the Government Accountability Office (GAO) to decide bid protests by “invalidating,” in the SBA’s view, a regulation properly promulgated by the executive branch agency charged with administering and interpreting the Small Business Act; (2) that the decision erred, as a matter of law, in its interpretation of the phrase “notwithstanding any other provision of law” found in the HUBZone statute; and (3) that the decision incorrectly stated the trial and appellate court holdings in Contract Management, Inc. v. Rumsfeld, (291 F. Supp. 2d 1166 (D. Hawaii 2003), and 434 F.3d 1145 (9th Cir. 2006), respectively), which discussed the statutory provisions for the HUBZone and 8(a) programs. As set forth more fully below, we think none of these contentions provides a basis to grant this request for reconsideration.

GAO’s Statutory Authority to Decide Bid Protests

First, the SBA argues that our decision improperly concluded that its regulations concerning HUBZone set-asides are inconsistent with the HUBZone statute because “[i]t is not within GAO’s authority to decide whether an agency’s regulation is reasonable and void an agency’s regulations.” Request for Reconsideration at 5. We think that the SBA mischaracterizes the holding of our decision, and that the decision was consistent with our statutory authority.

The jurisdiction of our Office to hear bid protests is established by the Competition in Contracting Act of 1984 (CICA), 31 U.S.C. sections 3551-3556 (2006). Under CICA, our Office has the authority to “determine whether [a] solicitation, proposed award, or award complies with statute and regulation.” 31 U.S.C. sect. 3554(b)(1). As the SBA notes, bid protest decisions by our Office--an independent, nonpartisan, legislative branch agency--are not binding on executive branch agencies. See Bowsher v. Synar, 478 U.S. 714, 727-32.

Instead, our authorizing statute requires that if we conclude that an agency action violates a procurement law or regulation, we “shall recommend that the Federal agency” take actions such as “terminat[ing] the contract,” or “award[ing] a contract consistent with the requirements of such statute and regulation.” 31 U.S.C. sect. 3554(c). Upon receipt of such a recommendation from our Office, the executive branch agency is required to advise the Comptroller General by letter if the agency does not implement our recommendation. Id. The Comptroller General is required to report to the cognizant congressional committees each instance in which a federal agency did not implement our recommendation. 31 U.S.C. sect. 3554(e).

Our decision held that the plain meaning of the HUBZone statute creates a mandatory preference for HUBZone small business concerns when the enumerated conditions of the statute are met. Mission Critical Solutions, supra, at 7. Both the district court and the appellate court decisions cited by the SBA, and discussed in detail below, reached precisely the same conclusion. 291 F. Supp. 2d at 1166; 434 F.3d at 1149.

With respect to the SBA’s concerns about its regulation, we acknowledged in our decision that our conclusions regarding the HUBZone statute were “inconsistent with the views of the SBA, as argued in connection with this protest and as implemented through its regulations,” specifically, 13 C.F.R. sections 126.605, 126.606, and 126.607. Id. at 5. Nonetheless, as we also explained, while an agency’s interpretation of a statute it is responsible for implementing is entitled to substantial deference--and, if reasonable, should be upheld--an agency interpretation that is unreasonable is not entitled to deference. Id. (citing Blue Rock Structures, Inc., B‑293134, Feb. 6, 2004, 2004 CPD para. 63 at 8). In sum, we conclude that our decision, and the recommendation within it, were consistent with our statutory jurisdiction.

Effect of “Notwithstanding” Language on Other Small Business Programs

Next, the SBA provides new information regarding its argument that the phrase in the HUBZone statute, “notwithstanding any other provision of law,” should not be interpreted literally. During the course of the underlying protest, the SBA argued that this phrase should not be given its literal meaning because to do so would conflict with--and by implication repeal, in the SBA’s view--the goals set under the Small Business Act for contracting with various categories of small businesses. See 15 U.S.C. sect. 644(g)(1). Specifically, the SBA contends that our decision would require contracting agencies to give priority to HUBZone small business concerns for all small business set-asides, and would hinder contracting agencies’ ability to meet their goals for contracting with other types of small businesses, such as 8(a) firms.

We addressed this argument in our decision, noting that the SBA had not provided information to support its position. Mission Critical Support, supra, at 6 n.7. Further, we noted that the SBA’s argument ignores the plain language of the HUBZone statute, which distinguishes that program from others, such as the 8(a) program, which have non-mandatory set-aside requirements. Id.

In its request for reconsideration, the SBA provided data which show that there are more registered HUBZone small business concerns than 8(a) participants for the construction and computer services industries. Request for Reconsideration at 14. The agency again contends that our decision will prevent executive branch agencies from meeting their contracting goals, because all requirements will be awarded to HUBZone small business concerns, instead of the other contractors.

We think the SBA’s data about the numbers of different types of HUBZone and 8(a) businesses do not establish that respecting the plain language of the HUBZone statute will effectively “repeal” the Small Business Act’s contracting goals. In any event, even if that impact were established, we would not see a basis to interpret the “notwithstanding” language in a way that does not give effect to its plain meaning.

The Contract Management Decisions

Finally, the SBA contends that our decision misinterpreted the holdings of the two Contract Management decisions. Specifically, the SBA argues that the district court agreed with the agency’s view “that HUBZone set-asides are not mandatory in every case and the court did not rule that HUBZone set asides take priority over the 8(a) [business development] or [the service-disabled veteran-owned small business concern] programs.” Request for Reconsideration at 15. We stand by our view that these decisions support our conclusion that a HUBZone set aside is mandatory where the statute’s enumerated conditions are met. See Mission Critical Solutions, supra, at 6 n.6, 7.

As a preliminary matter, the SBA seems to overlook the fact that the two Contract Management decisions addressed a challenge to an agency’s decision to set aside a procurement for HUBZone small business concerns, rather than small business concerns, and the fact that, in both cases the courts rejected the argument that the HUBZone program should be viewed as providing for discretionary set-asides for small businesses, similar to the 8(a) program. In addition, both courts expressly concluded that the statutory language concerning the HUBZone program was mandatory, and therefore took precedence over a small business set-aside. In so doing, both courts distinguished between the HUBZone program’s mandatory language, and the 8(a) program’s discretionary language. 291 F. Supp. 2d at 1176; 434 F.3d at 1149.

Despite the underlying holdings of these decisions, the SBA correctly observes that the district court also stated that the SBA’s regulations “sufficiently promote the congressional objective of parity between the HUBZone and 8(a) programs.” 291 F. Supp. 2d at 1176-77. The SBA argues that our decision ignored the court’s conclusion that its regulations were reasonable implementations of congressional intent that the two programs be given parity.

In our view, the district court’s discussion of the SBA’s regulations concerning the 8(a) program--as distinct from the statutes governing the HUBZone and 8(a) programs--was ancillary to the court’s primary holding concerning the mandatory requirements of the HUBZone statute. As mentioned above, however, both the appellate court and district court ultimately concluded, in no uncertain terms, that the HUBZone statute mandates a set-aside, while the statutory language authorizing the 8(a) program is discretionary. 434 F.3d at 1148-49; 291 F. Supp. 2d at 1176. Accordingly, we think our decision is consistent with both of the Contract Management decisions. To the extent the SBA continues to argue that our decision was in error, we find no basis to reconsider our decision.  (Small Business Administration--Reconsideration, B-401057.2,  July 6, 2009)  (pdf)


The statutory language authorizing the 8(a) program differs from the language authorizing the HUBZone program in that it gives the contracting agency the discretion to decide whether to offer a contracting opportunity to SBA for the 8(a) program. In this connection, the statute provides in relevant part as follows:

In any case in which [SBA] certifies to any officer of the Government having procurement powers that [SBA] is competent and responsible to perform any specific Government procurement contract to be let by any such officer, such officer shall be authorized in his discretion to let such procurement contract to [SBA] upon such terms and conditions as may be agreed upon between [SBA] and the procurement officer.

15 U.S.C. sect. 637(a)(1)(A) (2006).

In a case regarding the HUBZone program, the Ninth Circuit distinguished the mandatory language of the HUBZone statute from the discretionary language of the 8(a) statute as follows:

[A]s the district court noted, “Congress has used the term ‘shall’ to mandate that certain contracting opportunities be set aside for competition restricted to HUBZone small businesses. With regard to the 8(a) program … Congress has … le[ft] to agency discretion the initial offer and acceptance of contracts into the 8(a) Program.” [Citation omitted.] The text of the Section 8(a) Program is materially different from that of the HUBZone Program. Accordingly, the discretionary nature of the Section 8(a) Program cannot be imported into the HUBZone Program thereby eliminating the mandatory aspect of the HUBZone Program.

Contract Mgmt. Indus., Inc. v. Rumsfeld, 434 F.3d 1145, 1149 (9th Cir. 2006). Similarly, our Office concluded in International Program Group, Inc., supra, that the discretion granted a contracting officer under a program that permits, but does not require, the setting aside of an acquisition for a particular subgroup of small businesses (in that case, the service-disabled veteran-owned (SDVO) small business program) does not supersede the mandatory nature of the HUBZone set-aside program. In view of the mandatory nature of the language in the HUBZone statute, and the discretionary nature of the statutory language authorizing the 8(a) program, we conclude that it was improper for the agency to proceed with a sole-source award to Copper River without considering whether a set-aside for HUBZone concerns was required.

We recognize that our conclusion that an agency must make reasonable efforts to determine whether it will receive offers from two or more HUBZone small businesses, and if so, set the acquisition aside for HUBZone firms, even where a prior contract for the requirement has previously been performed by an 8(a) contractor, is inconsistent with the views of SBA, as argued in connection with this protest and as implemented through its regulations. Those regulations essentially provide that HUBZone set-asides are not required even where the criteria specified in 15 U.S.C. sect. 657a(b)(2)(B) are satisfied if the requirement has previously been performed by an 8(a) contractor or the contracting officer has chosen to offer the requirement to the 8(a) program. See 13 C.F.R. sections 126.605, 126.606, and 126.607. While an agency’s interpretation of a statute that it is responsible for implementing is entitled to substantial deference, and, if reasonable, should be upheld, Blue Rock Structures, Inc., B‑293134, Feb. 6, 2004, 2004 CPD para. 63 at 8, an interpretation that is unreasonable is not entitled to deference. We do not think that SBA’s regulatory implementation of the HUBZone and 8(a) statutes is reasonable since it fails to give effect to the mandatory language of the HUBZone statute. We note in this connection that we have reviewed the legislative history pertaining to the HUBZone program and are aware that there has been considerable discussion (expressing differing viewpoints) as to the intended relationship between the 8(a) and HUBZone programs. As we pointed out in International Program Group, Inc., supra, however, the starting point of any analysis of the meaning of a statutory provision is the statutory language, and where the language is clear on its face, as the language of the HUBZone statute is here, its plain meaning will be given effect.

Contrary to the position taken by SBA in its comments on the protest, the contracting agency concedes that “before it recommends a requirement for SBA consideration as a candidate eligible for the 8(a) Program, it must first follow the HUBZone set-aside prescriptive set out in 15 U.S.C. sect. 657a(b)(2),” Agency Report at 7; that is, it must make reasonable efforts to ascertain whether it will receive offers from at least two HUBZone small business concerns. See International Program Group, Inc., supra, at 7; Global Solutions Network, Inc., B-292568, Oct. 3, 2003, 2003 CPD para. 174 at 3. The Army asserts, however, that the point at which it was required to investigate whether HUBZone firms could be expected to compete was when the requirement was originally offered to SBA under the 8(a) program (i.e., December 2007), and that any objection by the protester to the agency’s failure to investigate therefore should have been raised at that time and is now untimely.

We disagree. 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.” 13 C.F.R. sect. 126.103. Moreover, the SBA regulations governing the award of 8(a) contracts clearly anticipate a reevaluation of the potential for competition, and a decision whether the requirement should continue under the 8(a) program, every time the award of a follow-on contract is contemplated. See 13 C.F.R. sect. 124.503(f). Accordingly, given that MCS protested to our Office within 10 days after learning that the contract opportunity at issue here had been awarded to Copper River, we think that its protest is timely.

In sum, because the Army did not consider whether two or more qualified HUBZone small businesses could be expected to submit offers and whether award could be made at a fair market price, as required by the HUBZone statute, prior to deciding to award to Copper River on a sole-source basis, we sustain MCS’s protest. We recommend that the agency undertake reasonable efforts to determine whether two or more qualified HUBZone small business concerns will submit offers and whether award can be made at a reasonable price if the contract opportunity is set aside for competition among HUBZone firms. If there is such an expectation, we recommend that the Army terminate the contract awarded to Copper River and resolicit the requirement on the basis of competition restricted to HUBZone small business concerns. We also recommend that the agency reimburse the protester the costs of filing and pursuing its protest, including reasonable attorneys’ fees. 4 C.F.R. sect. 21.8(d)(1) (2008). The protester’s certified claim for costs, detailing the time spent and cost incurred, must be submitted to the agency within 60 days after receiving this decision.  (Mission Critical Solutions, B-401057, May 4, 2009)  (pdf)


As is relevant here, the solicitation announced:

Offerors which are certified under multiple categories will be eligible for each category in which they are certified . . .Offerors which compete unsuccessfully for the 8(a), HUBZone small business or SDVOSB Set-Aside will be eligible for one of the additional Small Business Awards . . .(Offerors will still only be eligible for one award).

Id. (emphasis added).

The Corps received a total of 12 proposals, 2 of which were from HUBZone concerns, including FPM. The agency ultimately made six awards, one in each small business subcategory and three to other small businesses. FPM was awarded the HUBZone contract on December 19, and all offerors were provided notice of award, or non-award on December 22. Agency Motion to Dismiss, exh. 6, Supplemental Source Selection Decision Document, at 2.

On December 30, UXB International, Inc., the other HUBZone offeror, filed a protest with the Small Business Administration (SBA) challenging FPM's HUBZone status. On February 6, 2009, the SBA made a formal determination that FPM was not a qualified HUBZone small business concern eligible for award of the HUBZone contract and that FPM would be decertified. As a result, on February 11, the Corps terminated FPM's HUBZone contract. On February 23, FPM filed this protest with our Office.

FPM alleges that the agency improperly failed to consider the firm for one of the other small business awards after its initial contract had been terminated following a successful HUBZone status protest. In addition, FPM challenges the agency's evaluation of proposals and the subsequent best value award determinations.

Among other things, the agency asserts that during the initial evaluation and selection period FPM was not considered for any other award because FPM had been selected for award of the HUBZone contract. Agency Motion to Dismiss, at 3-4. We agree.

Our Bid Protest Regulations, 4 C.F.R. sect. 21.1(c)(4) and (f) (2008), require that a protest include a detailed statement of the legal and factual grounds for the protest, and that the grounds stated be legally sufficient. These requirements contemplate that protesters will provide, at a minimum, either allegations or evidence sufficient, if uncontradicted, to establish the likelihood that the protester will prevail in its claim of improper agency action. Id.

The solicitation here specifically provided that only offerors who were not selected for award under one of the small business subcategories would be considered for one of the remaining small business awards. In this regard, the agency reports that it first selected the awardees under each small business subcategory--8(a), HUBZone and SDVOSB--and then it selected the other small business awardees from the remaining pool of eligible small business offerors. These award determinations were consistent with the express requirements of the solicitation.

The fact that FPM's initial HUBZone award was later terminated after a successful HUBZone status protest does not render the agency's earlier award determinations unreasonable, nor does it otherwise establish that the agency violated a procurement statute or regulation. In fact, if anything, it was FPM's inaccurate representation that it was eligible for award as a HUBZone small business that resulted in its selection and resulting unavailability when the remaining small business awards were made. Hence, FPM, not the agency, is responsible for its lack of award and we see nothing in this record that would require the agency to reopen the competition to permit the protester to compete for another award for which it might be eligible.  (FPM Remediations, Inc., B-401017.2, April 16, 2009) (pdf)


In view of the congressional policy favoring small businesses, our Office has stated that contracts may be awarded under small business set-aside procedures to small business firms at premium prices, so long as those prices are not unreasonable. Vitronics, Inc., B-237249, Jan. 16, 1990, 90-1 CPD para. 57 at 2. In this regard, we have noted that a small business concern’s price is not unreasonable merely because it is higher than the price of an ineligible large business, since there is a range over and above the price submitted by the large business that may be considered reasonable in a set-aside situation. Hardcore DuPont Composites, L.L.C., B-278371, Jan. 20, 1998, 98-1 CPD para. 28 at 3. The determination of whether a particular small business price premium is unreasonable depends upon the circumstances of each case. Id. With regard to the set-aside challenged here, we think our statements concerning the congressional policy favoring small businesses apply equally in the context of a HUBZone small business set-aside.

AM-JV asserts that under the circumstances presented in this case, Zacbac’s price was unreasonable. AM-JV specifically emphasizes that Zacbac’s price was over 30 percent higher than that offered by AM-JV (itself a small business), that the item being produced is a mass production item that does not require research or development, and that there are no special reasons why production in a HUBZone should be any more expensive than production in AM-JV’s facilities. AM-JV also points to previous decisions by our Office in which we have upheld a contracting officer’s decision to cancel a set-aside when the small business’ price was less than 30 percent higher than that of an ineligible business. American Imaging Servs.,B-238969, B-238971, July 19, 1990, 90-2 CPD para. 51 at 2 (26 percent higher); Flagg Integrated Sys. Tech.,B-214153, Aug. 24, 1984, 84-1 CPD para. 221 at 1 (24 percent higher).

We note, however, that our Office also has upheld a contracting officer’s decision to proceed with a set-aside where the small business’ price has been as much as 51 percent higher than that of an ineligible large business. Browning-Ferris Indus., B-209234, Mar. 29, 1983, 83-1 CPD para. 323 at 2 (51 percent higher); Canadian Commercial Corp., B-196111, May 29, 1980, 80-1 CPD para. 369 at 3 (31 percent higher). When taken together, we believe that our decisions reflect the broad discretion granted the contracting officer in this area and in fact counter the notion that there is any set price differential at which that discretion ends, as long as the contracting officer’s conclusion is supported by other relevant factors. See A. Hirsh, Inc., Supra, at 2 (in making a determination of price reasonableness, the contracting officer may consider pricing history, government estimates, current market conditions, or other relevant factors revealed by the bidding).

Here, the record indicates that the contracting officer conducted a thorough price analysis of Zacbac’s offer. This price analysis explicitly made a comparison between Zacbac’s price and the price offered by AM-JV on the small business set-aside, and noted the 30.7 percent price differential. Agency Report, Tab 5, at 6. The price analysis also considered that there was adequate price competition in the HUBZone set-aside solicitation in the form of offers from five different HUBZone firms, three of which were included in the competitive range; during discussions, all three firms were advised to review their proposed prices. Id. at 4, 6-7. Ultimately, the contracting officer determined that Zacbac’s price was fair and reasonable based on adequate price competition, and discounted the price differential between Zacbac and AM-JV as a product of the three times greater quantity under the small business set-aside solicitation. Id. at 7.

Based on our review of the record, we cannot conclude that the contracting officer’s conclusion was unreasonable. That all offers received in response to the HUBZone set-aside solicitation were higher in price than the offer submitted by the protester on the prior solicitation can reasonably be interpreted (as the contracting officer did) to indicate that the difference in volume between the two solicitations had a material impact on price. In light of that factor, we find the contracting officer’s decision to discount the differential between solicitations in determining reasonable price, relying on the price competition achieved on the particular solicitation at issue, to be unobjectionable.  (Ashland Sales and Service Company/Macon Garment Inc., a Joint Venture, B-400466, October 23, 2008)  (pdf)


Thus, unlike the HUBZone set-aside program, which requires a set-aside if two or more HUBZone concerns are interested in submitting offers and award is expected to be made at a fair market price, there is no requirement to set aside a procurement for SDVOSBCs, DAV Prime, Inc., B-311420, May 1, 2008, 2008 CPD para. 90 at 3; rather, the decision to proceed with an SDVOSBC set-aside is discretionary with the contracting officer. MCS Portable Restroom Serv., B-299291, Mar. 28, 2007, 2007 CPD para. 55 at 5.

The threshold issue in both of IPG’s protests is the relationship between the HUBZone and SDVOSBC programs, specifically, whether a contracting officer must proceed with a HUBZone set-aside provided the listed conditions are present--a reasonable expectation that offers will be received from two or more HUBZone firms and that award will be made at a fair market price--or whether the contracting officer retains the discretion to proceed instead with an SDVOSBC set-aside.

The starting point of any analysis of the meaning of a statutory provision is the statutory language used by Congress. See Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980) (“We begin with the familiar canon of statutory construction that the starting point for interpreting a statute is the language of the statute itself.”). Where the language is clear on its face, its plain meaning will be given effect; that is, if the intent of Congress is clear, “that is the end of the matter.” Chevron, U.S.A., Inc. v. Natural Res. Defense Council, Inc., 467 U.S. 837, 842 (1984). Here, given the unambiguous language of the HUBZone and SDVOSBC statutes (with which the implementing FAR provisions are consistent), we conclude that a HUBZone set-aside is mandatory where the enumerated conditions are met, and that the discretion granted the contracting officer under the SDVOSBC set-aside program does not supersede the mandatory nature of the HUBZone set-aside program. To interpret the statutes otherwise, as in effect creating parity between the programs, would fail to give effect to the clear language of the HUBzone statute, which uses the mandatory term “shall,” not (as in the SDVOSBC statute) the discretionary term “may.” See Contract Mgmt. Indus., Inc. v. Rumsfeld, 434 F.3d 1145, 1147 (9th Cir. 2006) (holding that the HUBZone program “commands in unequivocal terms that a contract opportunity be designated as a HUBZone set-aside when certain criteria are met”).

Sole-Source Order to VGS

Given our view regarding the relationship between the HUBZone and SDVOSBC programs, we conclude that the agency was required to reasonably consider whether a HUBZone set-aside was warranted before proceeding with the sole-source order to VGS under the SDVOSBC program. The record shows that the agency did not do so.

According to the contracting specialist, due to the urgency of the requirement, he first considered a HUBZone sole-source award, relying on his experience over the previous months that only one HUBZone concern, IPG, had submitted a quotation for a similar requirement, to conclude that there were not two or more HUBZone small businesses interested in submitting quotes. Contracting Specialist’s Supplemental Statement, Sept. 8, 2008, at 1. The contracting specialist did not further inquire into the availability of other HUBZone small businesses before turning to the possibility of pursuing an SDVOSBC sole-source order for the requirement. Id. However, although the contracting specialist also knew from experience that only one SDVOSBC, VGS, had submitted a quote for similar requirements, he nonetheless conducted a small business search to determine if there were two or more SDVOSBCs who could compete for the requirement, as the existence of two or more would have precluded a SDVOSBC sole-source order. Id. at 1-2.

As discussed above, consistent with the mandatory nature of the set-aside program, our Office has concluded that an agency must make reasonable efforts to ascertain whether it will receive offers from at least two HUBZone small business concerns. Global Solutions Network, Inc., supra, at 3. Although the use of any particular method of assessing the availability of firms for a set-aside is not required, measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may constitute adequate grounds for a decision, so long as the agency undertakes reasonable efforts to locate responsible potential competitors. National Linen Serv., B-285458, Aug. 22, 2000, 2000 CPD para. 138 at 2. Our Office regards such a determination as a matter of business judgment, and we will not disturb that determination absent a showing that it was unreasonable. Id.

Here, we conclude that it was unreasonable for the agency to fail to make any inquiry into the availability of HUBZone small businesses other than IPG. While the contracting specialist and contracting officer considered their experience with recent procurement history for the requirement, the contracting officer also acknowledged that “recently, small business vendors have developed the capability to offer [these] services,” AR, Tab 6, Contracting Officer’s Statement, at 1, and “the vendor base for these services has matured.” Agency Response, Aug. 7, 2008, Tab 1, Contracting Officer’s Statement, at 1. Further, IPG has demonstrated that a routine search for HUBZone firms under the applicable industry code in California would have revealed Lexicon as a potential HUBZone competitor.[6] IPG Comments at 4. Under these circumstances, we conclude that the contracting staff’s reliance solely on recent procurement experience, which may not have reflected an expanded field of HUBZone firms, was inadequate as a means to identify responsible potential HUBZone competitors, and we sustain the protest on this basis. 

SDVOSBC Set-Aside

With regard to IPG’s protest of the SDVOSBC set-aside, as discussed above, shortly after issuing the sole-source order to VGS, the agency decided to proceed with an SDVOSBC set-aside for its additional requirements, without further considering a set-aside for HUBZone concerns. As with the sole-source award to VGS, we conclude that it was inconsistent with the HUBZone statute and FAR provision for the agency to set aside the requirement for SDVOSBCs without reasonably considering whether a set-aside for HUBZone concerns was required, based on reasonably assessing the availability of HUBZone firms, and we sustain the protest on this basis.  (International Program Group, Inc., B-400278; B-400308, September 19, 2008)  (pdf)


The IFB, issued on September 6, 2007 and amended several times, called for the demolition and construction of a security screening area at a Department of State federal building in Washington, DC. By the October 18 bid opening date, the agency received four timely bids. The total bid prices were as follows: Sigal Construction Corporation, $4,360,819; Grunley, $6,507,000; Southern Insulation, $6,532,000; and Goel, $7,129,692. Sigal subsequently was authorized by the agency to withdraw its bid, and on January 16, 2008, award was made to Grunley. By letter dated that same day, the agency notified Goel of the award and this protest followed.  In its initial protest, Goel challenges the award to Grunley alleging that under Federal Acquisition Regulation (FAR) sect. 19.1308 the agency should have applied a 10 percent price evaluation preference for HUBZone firms such as itself, and argues that, with the preference, it would have been next in line for award. In answer to the protest, the agency advised Goel, and our Office, that the solicitation mistakenly failed to include the clause implementing the HUBZone price evaluation preference. Agency Request for Dismissal at 1. Goel replies that even if the solicitation did not include the clause, the agency was required to apply the price preference here. We disagree. Given that the agency did not include the clause in its solicitation, the agency did not violate the terms of the solicitation by failing to apply the preference. In addition, despite the protester’s arguments to the contrary, there is no requirement that mandatory provisions must be incorporated into solicitations by operation of law when they have been omitted. See American Imaging Serv., Inc.--Recon., B‑250861.2, Jan. 5, 1993, 93-1 CPD para. 13 at 2 (involving a mandatory preference for small disadvantaged business concerns); see also Parsons Precision Prod., Inc., B-249940, Dec. 22, 1992, 92-1 CPD para. 431 at 6 (involving omission of a clause implementing the Prompt Payment Act).  (Goel Services, Inc., B-310822.2, May 23, 2008) (pdf)


While the use of any particular method of assessing the availability of HUBZone small businesses is not required, and measures such as prior procurement history, market surveys, and advice from the agency’s small business specialist may all constitute adequate grounds for a contracting officer’s decision not to set aside a procurement, American Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD para. 188 at 3, the assessment must be based on sufficient facts so as to establish its reasonableness. Rochester Optical Mfg. Co., B-292247; B-292247.2, Aug. 6, 2003, 2003 CPD para. 138 at 5. Here, the record indicates that the agency employed several methods to ascertain whether to set aside the procurement for HUBZone firms. The agency’s key small business official, the OSDBU Director, was integral to the agency’s decision-making process. That official, in cooperation with the OPO Director, considered the responses the agency received to two similar, although substantially smaller in scope, solicitations, noting that in neither case did the agency receive two acceptable proposals from HUBZone firms. The agency gauged the interest from possible HUBZone firms by publishing an RFI and considered the responses to that RFI, discussed in detail above. The agency then made a determination, based on a review of the information provided by all of these sources, that it was unlikely to receive adequate proposals from two or more HUBZone firms. Given the record, including the protester’s own apparent concerns with the difficulty that it would have in performing this contract, we find that the agency’s decision not to set aside the procurement for HUBZone firms was reasonable.

We solicited the views of the SBA on whether the agency should have set aside the procurement for HUBZone firms. The SBA concluded that the agency should have done so, arguing that the agency offered no support for its assertion that the four HUBZone firms that responded to the RFI “lacked capacity.” SBA Comments at 11. On the contrary, the capability package requested by the RFI contained a wealth of information on each of the interested firms. After reviewing that data and information from other sources, the agency articulated clearly why the three actual HUBZone firms, in its business judgment, would not be able to successfully complete the contract. The SBA also argues that if the agency had conducted a search on CCR, using the two applicable North American Industry Classification System codes, the agency would have identified 33 HUBZone firms that might have been potential offerors. As a preliminary matter, the actual number of respondents is 31, because 2 firms appear in the results of both searches. In any event, SBA’s argument is not persuasive; the raw number of HubZone firms generated by a CCR search reveals little about the capability of those firms to perform as required under the RFP. A cursory review of the list shows that many lack experience in the services called for; for example, one listed firm is described as a construction contractor located in Florida. Also, although all of the respondents to the RFI were local firms and it appears from the record that the contract would be of primary interest to local firms, only 5 of the 31 firms identified in the SBA’s search are local, and 3 of them had in fact responded to the RFI. Of the two local firms not already identified by the agency, one delivers products to government agencies and the other offers no narrative of its capabilities. SBA simply points to the number of firms identified in the CCR search as evidence of likely HubZone competition without in any way examining whether--for the reasons set out above, among others--the firms are viable competitors under the RFP here. Finally, the protester asserts that the agency improperly assessed the capability of the firms who responded to the RFI to provide the required DISCO-cleared storage facility because the agency first informed potential offerors of that requirement in an amendment to the RFI but discouraged HUBZone firms from responding to the amendment. Comments at 7. The SBA shares this concern. The agency specifically requested in the capability package that interested firms describe their current security clearance level for overnight parking of vehicles, thus putting interested firms on notice that they should fully disclose the extent of their security clearances. In fact, one of the responders specifically indicated that it could provide a DISCO facility. Under these circumstances, we see no basis to question the agency’s assessment of the firms’ capabilities on this ground. (Shirlington Limousine & Transport, Inc., B-299241, March 13, 2007) (pdf)


The protester asserted that the VA has not complied with the goals for contracting to HUBZone small businesses that it has set for itself pursuant to the requirements of 15 U.S.C. sect. 644(g)(2) (2000), and that to remedy the noncompliance, the agency should award it (i.e., Metro) a sole-source contract. The contracting officer observes that neither the requirement that only one HUBZone small business concern be capable of satisfying the requirement nor the requirement that the anticipated price of the contract, including options, not exceed $3 million (the applicable limit) was met here. In the former connection, the contracting officer notes that both Metro and another HUBZone small business, Eagle Home Medical Corp., expressed interest in competing for the Dingell VAMC requirements; in the latter connection, he notes that the government’s estimated price for the services for that location was in excess of $3 million. The protester has not sought to rebut the agency’s position, which we find to be persuasive.[3] In this regard, we sought comments on the protest from the Small Business Administration (SBA). In its comments, SBA agreed that the requirement at issue may not be the subject of a sole-source award to a HUBZone small business because the prerequisites for consideration of such a sole-source contract are not present. SBA Comments at 1-2. Moreover, as SBA also noted, the language of FAR sect. 19.306(a) is discretionary in any event; neither the statutory provisions relating to the HUBZone program nor the implementing regulations require the contracting officer to award a sole-source contract even where the prerequisites for such an award are met. Id. at 2.  Further, with regard to the protester’s argument that the VA should award it a sole-source contract to remedy the agency’s alleged failure to meet its annual goals for contracting to HUBZone small businesses, there is no legal basis for such a contention. As SBA points out, “Neither the statutory HUBZone provisions, the statutory goaling provisions, nor the implementing regulations contain an exception to the prerequisites for sole source HUBZone contract awards based on an agency’s goaling performance. See 15 U.S.C. sections 644(g)-(h), 657a(b)(2); FAR sect. 19.1306(a); 13 C.F.R. sect. 126.612.” SBA Comments at 2. (Metro Home Medical Supply, Inc., B-297262, December 8, 2005)  (pdf)


In this case, the agency undertook only minimal efforts to determine whether two capable HUBZone firms would submit offers, and we find that the agency's efforts were insufficient under the circumstances. Specifically, the only market research performed by the contracting officer was a review of one prior FPI procurement. The agency made no use of commonly referenced, readily available databases of possible HUBZone firms, such as the Dynamic Small Business Search database (www.ccr.gov), nor did the agency contact the SBA. We sought the review of the SBA during the development of the protest. Based on its review of the record, the SBA concluded that the contracting officer's assessment that he did not have a reasonable expectation of receiving offers from at least two HUBZone firms was not reasonable. We accord substantial weight to the fact that the contracting officer's determination was reviewed by the SBA and found not to be reasonable. See American Artisan Prods., Inc. , B-292380, July 30, 2003, 2003 CPD 132 at 6. Under the circumstances here, we conclude that the agency failed to make reasonable efforts to ascertain the likelihood of receiving offers from two or more HUBZone firms. (USA Fabrics, Inc., B-295737; B-295737.2, April 19, 2005) (pdf)


We find that the agency's post-protest conclusions--that SWR was not capable of performing and that USL was not interested in competing--were unreasonable. First, ignoring the fact that the agency's further review took place only after SWR's protest was filed, and that it affirmed its conclusion in the heat of litigation, we do not think that two telephone calls constituted a reasonable effort to ascertain USL's interest under the circumstances. Had the attempts to contact USL come in April, prior to issuance of the RFP, and shortly after USL expressed interest, the agency might have been justified in reaching this conclusion, but it is just as possible that USL would have expressed interest if the agency had attempted contact at that time. As it is, since the inquiries were made only after the RFP was issued as a nonHUBZone set-aside, there is no way of knowing whether USL's assumed lack of interest was due to changed business circumstances (since the time of its expression of interest), the failure to make this a HUBZone set-aside (in which case, USL might not have been interested in competing), or some other reason. We note in this regard that the agency does not indicate exactly what information was included in the messages left for USL. The content of the messages--for example, whether the agency specifically stated that it was soliciting USL's interest in performing this requirement under a HUBZone set-aside, or merely asked the company to return the calls, with no HUBZone set-aside reference--obviously could have affected whether USL would respond, as well as one's interpretation of its failure to respond. Regarding SWR, while the scope and complexity of a requirement is an appropriate consideration in determining a potential HUBZone offeror's capability, Global Solutions Network, Inc. , supra , at 2, here, the agency's determination that SWR lacked the capability to perform was unreasonable. In this regard, the mere fact that SWR currently is performing only a small portion of the requirement does not necessarily equate with an inability to perform the larger requirement. There is no evidence that the agency actually considered whether SWR had the resources to perform the larger requirement. This is relevant given that SWR has 10 years of experience performing the type of work under the RFP, and that during part of its Cherry Point contract SWR performed washing services at a USMC base in Hawaii, for which it received exceptional past performance ratings. In addition, despite the fact that large businesses performed 95 percent of the requirement in the past, in setting the requirement aside for small businesses, the agency determined that small businesses generally could handle the substantially larger scope of work; it is not apparent why the agency considered SWR to be differently situated in this regard than other small businesses. Turning to SWR's allegedly marginal performance record at Cherry Point, the contracting officer noted a number of instances regarding labor issues and performance problems, and the contracting officer's representative's view that he would not award the firm another contract. COS 17(b). SWR asserts that the agency has mischaracterized its performance and provides explanations for the alleged performance issues. SWR Comments at 7. Regardless of whether SWR or the agency is correct, we believe that it was unreasonable for the contracting officer to conclude in advance, without at least more meaningfully reviewing SWR's performance record, that perceived performance problems at Cherry Point would preclude SWR from receiving award. In this regard, as noted above, SWR's performance was rated exceptional under at least one other contract--at the USMC base in Hawaii. See Rochester Optical Mfg. Co. , supra , at 6 (offeror's receipt of cure notice, without termination of contract, did not establish offeror was nonresponsible, and thus was not a reasonable basis for making a negative set-aside determination). We conclude that the agency unreasonably determined that SWR was not a viable potential HUBZone offeror. (SWR, Inc., B-294266, October 6, 2004) (pdf)


Atlantic challenges the reasonableness of the agency’s set-aside determination on the ground that its methodology in researching the likelihood of receiving HUBZone concern competition was flawed. It complains, for example, that the contracting officer improperly considered the prospect of receiving competition under NAICS codes other than 238140, the code under which the solicitation was set aside. Atlantic concludes that, notwithstanding that four acceptable HUBZone concern offers ultimately were received, the set-aside decision was improper because GSA unreasonably determined that it could expect to receive offers from two or more HUBZone concerns. The protest is without merit. Even if we agreed that the set-aside determination was not adequately supported, we will not object to the determination under the circumstances here. In this regard, as a matter of policy, we view the subsequent receipt of proposals from multiple set-aside concerns as essentially validating an agency’s set-aside determination; we therefore will not disturb such a determination where adequate set-aside concern competition is received. See York Int’l Corp., supra, at 7 (small business set-aside). Since the agency received four offers from acceptable HUBZone concerns and anticipates making award at a fair market price–Atlantic does not assert that any of these firms is not technically capable or is otherwise ineligible for award--we find that the set-aside determination was reasonable. (The Atlantic Company of America, Inc., B-293974, July 1, 2004) (pdf)


The agency maintains that it properly did not apply the PEP in evaluating proposals here because the statute establishing the preference, noted above, limits its application to circumstances in which the price offered by the qualified HUBZone [G1] small business concern is not more than 10 percent higher than the price offered by the otherwise lowest, responsive, and responsible offeror, and the protester’s price here was more than 10 percent higher than any of the six awardees. The Small Business Administration (SBA), from whom we solicited comments on this issue, agreed with the agency’s analysis, further noting that “to the extent FAR § 19.1307 and FAR clause 52.219-4 imply that there is no requirement that a HUBZone SBC’s price must be within 10 percent of the lowest offeror’s price in order for the HUBZone PEP to be applicable, these provisions must be read in the context of the clear statutory language that [they] implement[],” which makes clear that “[t]he HUBZone PEP is not applied if a HUBZone SBC’s price exceeds the price of ‘the otherwise lowest, responsive, and responsible offeror’ by more than 10 percent.” Letter from SBA to GAO, Feb. 3, 2004, at 3. An agency’s interpretation of a statute that it is responsible for implementing is entitled to substantial deference. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). If the agency’s interpretation is reasonable, it should be upheld. Appalachian Council, Inc., B-256179, May 20, 1994, 94-1 CPD ¶ 319 at 16. Here, the SBA is responsible for implementing the statutory HUBZone preferences, and, given the deference that we afford the SBA’s view in these circumstances, we cannot conclude that the SBA has unreasonably interpreted § 657a(b)(3)(A) as providing for application of the PEP only where a HUBZone SBC’s price exceeds the price of the otherwise low, responsive, and responsible offeror by less than 10 percent.  (Blue Rock Structures, Inc., B-293134, February 6, 2004) (pdf)


The protester argues that the agency has failed to justify adequately the selection of a proposal higher in evaluated price than its own. Carmon contends that it “has clearly demonstrated, on very similar projects, a high level of competence, integrity and on-time, on-cost performance,” and that “[t]here is therefore no reason for the government to pay more, unless it clearly demonstrates that it has significant, clearly justifiable reasons to do so.” Protester’s Comments at 7. Carmon further maintains that “[t]o say that the 10% PEP applies, but then to fail to really apply the PEP, but rather to justify on ‘best value’ grounds, without rigorous analysis, flies in the face of the entire Congressional intent of the [HUBZone] program.” Id. 
The record does not support the protester’s assertion that the agency has failed to justify its selection of Batson-Cook’s proposal for award. The RFP provided that technical factors would be “significantly more important” than price in the selection process, and Batson-Cook’s proposal received a technical score considerably higher than Carmon’s (90 versus 77.43). Moreover, the evaluators found that Batson-Cook’s proposal represented a “very high” probability of success, whereas Carmon’s represented only a “good” probability. In addition, the SSEB report establishes that the evaluators had a basis for--and the protester has not challenged--the scoring of proposals. Under the most important technical evaluation factor, management plan and schedule, for example, the evaluators assigned Batson-Cook’s proposal a score of 90 and Carmon’s proposal a score of 76.67, noting that Batson-Cook’s management plan narrative was excellent and that it had provided a project schedule shorter than that required by the RFP, while Carmon’s management plan narrative was merely “pretty good,” its project schedule met (but did not exceed) the RFP’s requirement, and its plan to have the project manager run the project from the home office 2 days per month constituted a significant weakness. SSEB Report at 31, 43.  (Carmon Construction, Inc., B-292387; B-292387.3, September 5, 2003)  (pdf)


In other words, in accordance with the Small Business Act and the regulatory implementation of that Act as contained in the clause at FAR § 52.219-4 (which was incorporated in this IFB), in an unrestricted, full and open competition, a HUBZone small business concern can displace a large business as the low bidder if the evaluated price of the HUBZone small business concern is not more than 10 percent higher than the evaluated price of the large business. Here, the agency added 10 percent to Turner-Universal's bid, thereby making Turner‑Universal's evaluated price higher than GSC's evaluated price. Since the evaluated price of GSC, a HUBZone small business concern, was not more than 10 percent higher than that of Turner‑Universal, a large business, the agency, consistent with the Small Business Act and the clause at FAR § 52.219-4, properly awarded the contract to GSC. On this record, we have no basis to object to the award to GSC based on its low evaluated price. (Universal Construction Company, Inc., d/b/a Turner-Universal, B-292407, August 18, 2003)  (pdf)

Comptroller General - Listing of Decisions

For the Government For the Protester
Planet Depos LLC B-411142: May 26, 2015  (pdf) The Argos Group, LLC, B-406040, Jan 24, 2012  (pdf) 

See General Services Administration--Reconsideration, B-406040.2, Oct 24, 2012.  (pdf)

Wakan, LLC, B-408535.2: Jun 19, 2014  (pdf) Explo Systems, Inc., B-404952; B-404952.2, July 8, 2011  (pdf)
Tennier Industries, Inc., B-403946.2, Jun 29, 2012  (pdf) Rice Services, Inc., B-403746, September 16, 2010)  (pdf)
Family Entertainment Services, Inc., B-401693; B-401693.2,  October 20, 2009 (pdf) Rice Services, Inc., B-402966.2, September 16, 2010 (pdf)
Small Business Administration--Reconsideration, B-401057.2,  July 6, 2009  (pdf) DGR Associates, Inc., B-402494, May 14, 2010  (pdf)
FPM Remediations, Inc., B-401017.2, April 16, 2009 (pdf) Mission Critical Solutions, B-401057, May 4, 2009  (pdf)
Ashland Sales and Service Company/Macon Garment Inc., a Joint Venture, B-400466, October 23, 2008  (pdf) International Program Group, Inc., B-400278; B-400308, September 19, 2008  (pdf)
Goel Services, Inc., B-310822.2, May 23, 2008 (pdf) USA Fabrics, Inc., B-295737; B-295737.2, April 19, 2005 (pdf)
Shirlington Limousine & Transport, Inc., B-299241, March 13, 2007 (pdf) SWR, Inc., B-294266, October 6, 2004 (pdf)
Metro Home Medical Supply, Inc., B-297262, December 8, 2005  (pdf)  
The Atlantic Company of America, Inc., B-293974, July 1, 2004 (pdf)  
Blue Rock Structures, Inc., B-293134, February 6, 2004 (pdf)  
Carmon Construction, Inc., B-292387; B-292387.3, September 5, 2003  (pdf)  
Universal Construction Company, Inc., d/b/a Turner-Universal, B-292407, August 18, 2003  (pdf)  

U. S. Court of Federal Claims - Key Excerpts

New I. The HUBZone Program and the 35% Residency Requirement

To “encourage[] economic development in historically underutilized business zones”—i.e., “HUBZones”—Congress has created the HUBZone program for qualified small businesses. Understanding the HUBZone Program, SBA.gov, https://www.sba.gov/contracting/government-contracting-programs/hubzoneprogram/understanding-hubzone-program (last visited September 29, 2016); see also Small Business Reauthorization Act of 1997, Pub. L. 105-135, Tit. VI, 111 Stat 2592, 2627 (1997). Under the program, qualified small businesses receive federal contracting assistance in the form of contract set-asides and other preferences. Understanding the HUBZone Program, supra; see also 13 C.F.R. § 126.100.

To participate in the program, a small business must first obtain certification from SBA. See 13 C.F.R. § 126.300. To become certified, the small business must (among other things) meet the program’s 35% residency requirement, which mandates that “[a]t least 35% of the [business’s] employees must reside in a HUBZone.”1 Id. § 126.200(b)(4). After obtaining certification, a small business must still meet a variety of other requirements to secure a HUBZone award. See id. § 126.601. As is most relevant here, the business “must be a qualified HUBZone [small business] both at the time of its initial offer and at the time of [the] award in order to be eligible for a HUBZone contract.” Id. § 126.601(c). Thus, the small business must meet the 35% residency requirement both on the date of the offer and at the time of the award. See id.

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On July 27, 2015, the Air Force received proposals from Dorado and GEO. Id. Tabs 8–9; see also Compl. ¶ 5. It awarded the contract to Dorado [Services, Inc.] on October 29, 2015. AR Tab 18 at 468; see also id. Tab 15 at 420–23 (source selection decision).

A few days later, on November 5, 2015, GEO [International Management, Inc.] filed a HUBZone status protest with SBA. 2 Id. Tab 18 at 469–70; see generally 13 C.F.R. §§ 126.800–05 (setting forth the HUBZone status protest procedures). GEO contended that Dorado could not have satisfied the HUBZone program’s 35% employee residency requirement on either the date it submitted its offer or the date of the award. AR Tab 18 at 471–74.

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As discussed below, the [SBA’s Associate Administrator for Government Contracting and Business Development] AA/GCBD’s alternative rationale provides a sufficient basis for resolving Dorado’s challenge. Accordingly, for purposes of deciding this case, the Court will treat as employees all 82 individuals who worked a total of at least 40 hours during the pay periods covering October 2015 for which Dorado produced payroll records in response to the protest. Thus, the Court now turns to assessing whether the AA/GCBD erred under the alternative rationale.

 2. The AA/GCBD’s Determination Regarding the Number of HUBZone-Resident Employees Working for Dorado at the Time of the Award.

In response to the HUBZone protest, Dorado claimed that 32 of its employees resided in HUBZones at the time of the award. See AR Tab 45 at 1850–51; see also id. Tab 46 at 1859 (chart listing Dorado’s claimed HUBZone-resident employees). Under the program’s regulations, “reside” means “to live in a primary residence at a place for at least 180 days, or as a currently registered voter, and with intent to live there indefinitely.” 13 C.F.R. § 126.103.

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Based on the documents Dorado provided, the AA/GCBD ultimately determined that Dorado submitted adequate documentation to establish HUBZone residency for 20 of the 32 individuals it claimed as HUBZone-resident employees. See id. Tab 41 at 1607– 08. On the other hand, he determined that Dorado did not submit adequate documentation to establish HUBZone residency for the following 12 individuals:

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The AA/GCBD determined that four of these individuals—[ . . . ], [ . . . ], [ . . . ], and [ . . . ]—lacked adequate proof of their places of residence. See id. As for the other eight—[ . . . ], [ . . . ], [ . . . ], [ . . . ], [ . . . ], [ . . . ], [ . . . ], and [ . . . ]—the AA/GCBD determined that although Dorado had produced adequate proofs of residence, the areas in which these individuals resided had “ceased to be qualified HUBZone areas on October 1, 2015.” See id. at 1608–09.

a. The Eight Individuals With Adequate Proofs of Residence

SBA’s treatment of the latter eight individuals is of paramount importance in this case. As Dorado conceded at oral argument, it cannot meet the 35% residency requirement if these eight individuals are not counted as HUBZone residents. See Oral Argument on Cross-Mots. for J. on the Admin. R. at 4:30–41 (September 21, 2016).  Thus, if these eight individuals are not counted as HUBZone-residents, Dorado could claim at most 24 HUBZone-resident employees out of 82 total employees, or 29.3%.

The statutory scheme establishes several criteria for determining the boundaries of a HUBZone. See 15 U.S.C. § 632(p)(4). Under the first criterion, any census tract that the Department of Housing and Urban Development (HUD) has determined is a qualified census tract for purposes of the low-income housing credit is also a HUBZone. See id. § 632(p)(4)(A) (incorporating by reference the definition found in 26 U.S.C. § 42(d)(5)(B)(ii)). In addition, when a formerly qualified census tract “ceases to be qualified” (as determined by HUD), it becomes a “redesignated area” for a three-year period. See 15 U.S.C. § 632(p)(4)(C). Redesignated areas are also HUBZones. Id. § 632(p)(1)(D). Thus, as the government observes, redesignation acts as “a form of grandfathering” giving businesses a chance to “endeavor to remain certified” after a census tract where its employees reside otherwise ceases to be a qualified HUBZone. See Def.’s Reply to Pl’s Opp’n to Def.’s Cross-Mot. for J. on the Admin. R. (Def.’s Reply) at 3.

All eight of the individuals identified above resided in a single census tract—No. 12117020201. See AR Tab 48 at 1920 ([ . . . ]); id. Tab 49 at 1924 ([ . . . ]); id. at 1927 ([ . . . ]); id. Tab 50 at 1931([ . . . ]); id. at 1934 ([ . . . ]); id. Tab 51 at 1938 ([ . . . ]); id. Tab 53 at 1952 ([ . . . ]); id. at 1955 ([ . . . ]). According to the AA/GCBD, that census tract ceased to be a “qualified census tract” on October 1, 2012, and thus became a redesignated area on that date. See AR Tab 41 at 1608 n.1. The redesignation then expired three years later, on October 1, 2015. See id. Thus, on the date of the award, the census tract where the eight employees lived was not a HUBZone.

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In the end, the Court concludes that a company that scrupulously tracked its HUBZone status (as Dorado claims it did) had no reason to be and in fact was not caught off-guard by the expiration of the redesignated area where eight of its employees lived. Thus, the AA/GCBD properly excluded the eight employees from Dorado’s list of HUBZone-resident employees. As Dorado concedes, it cannot meet the 35% residency requirement without those eight employees. Accordingly, even if the AA/GCBD erred in some other respect, Dorado was not prejudiced by such error; and Dorado’s motion for judgment on the administrative record must therefore be DENIED.  (Dorado Services, Inc. v. U. S. and GEO International Management, Inc., No. 16-945C, October 18, 2016)


1. There Is No Conflict Between the HUBZone Act and 33 U.S.C. § 624(a)(2)

It is generally recognized that if Congress intends one statute to repeal an earlier statute or section of a statute, Congress will usually do so directly in the repealing act. See United States v. Fausto, 484 U.S. 439, 453 (1988) (“[I]t can be strongly presumed that Congress will specifically address language on the statute books that it wishes to change . . . .”) (citing Morton v. Mancari, 427 U.S. 535 (1974)). This is because “repeals by implication are not favored . . . and will not be found unless an intent to repeal is clear and manifest.” Rodriguez v. United States, 480 U.S. 522, 524 (1987) (citations omitted); see also Morton, 417 U.S. at 550-51 (“Where there is no clear intention otherwise, a specific statute will not be controlled or nullified by a general one, regardless of the priority of enactment.”) (citations omitted). In some situations, however, a potential conflict in the application of two federal statutes arises and Congress is silent as to their relationship. In those cases, courts are charged with trying to harmonize the two statutes so that both can be given effect. Specifically, courts are tasked wherever possible to “read [two allegedly conflicting] statutes to give effect to each if [they] can do so while preserving their sense and purpose.” Watt v. Alaska, 451 U.S. 259, 266-67 (1981). Only if the statutes are “irreconcilably conflicting,” id. at 266 n.146, or the “later one . . . is clearly intended as a substitute,” Posadas v. Nat’l City Bank of New York, 296 U.S. 497, 503 (1936), will the court find the later of the two prevails.

Tested by these standards, the court agrees with the government and Shavers-Whittle that there is no reason for the court not to apply § 624 together with the HUBZone Act and hold that AquaTerra is ineligible for award on the grounds that its bid exceeds the 25% threshold in § 624(a)(2). The government and Shavers-Whittle argue that there is nothing in the HUBZone Act to suggest that § 624 should not be applied to bids submitted by HUBZone contractors, and thus there is no direct repeal of § 624(a)(2). The court agrees. The HUBZone Act is silent with regard to § 624 as a whole and there is nothing in the language of the HUBZone Act or its legislative history to suggest that the HUBZone Act was specifically intended to supersede the application of § 624(a)(2). As a result, there is simply no basis to conclude that the HUBZone Act effected a direct repeal of § 624(a)(2) by Congress.

The court also agrees with the government and Shavers-Whittle that there is no reason to find that there has been a repeal of § 624(a)(2) by implication based on some “irreconcilable” conflict between the two statutes. The 25% cut off established in § 624 serves as cap on government spending, while the HUBZone Act deals with contractor preferences. Specifically, the HUBZone Act provides that a qualified HUBZone business is to be given a preference in awarding a contract where the HUBZone business’s price is not more than 10% higher than that of the lowest bidder, while § 624 provides that no contract may be awarded to any bidder whose price is more than 25% about the government estimate. These statutes are not in conflict with each other. To the contrary, they can be easily harmonized. Under these statutes (assuming that the HUBZone Act must be applied), AquaTerra would be designated the lowest bidder—but eligible for award only if AquaTerra’s price fell within the § 624(a)(2) cap in the first instance. So long as it is possible for a HUBZone contractor to secure a contract if it does not exceed the § 624(a)(2) cap, there is nothing irreconcilable between the two statutes. The court therefore finds that, in order for AquaTerra to be eligible for award, its price had to comply with the 25% cap set in § 624(a)(2).

At oral argument, plaintiff additionally argued that the intent of the HUBZone Act is to give preference to small, local businesses over large ones whenever possible, and that this brings it into conflict with § 624 when the latter prevents the implementation of the former. However, this interpretation of the intent of the HUBZone Act is unsupported. Congress has revised the HUBZone Act on several occasions and has declined to take the opportunity to give HUBZone businesses preference in situations involving statutory bid caps. In fact, Congress in 2010 removed language stating that the HUBZone preference applied “[n]otwithstanding any other provisions of law,” and thus cannot be presumed to have waived § 624. Compare 15 U.S.C. § 657a(b)(2) (2004) (containing quoted language), with 15 U.S.C. § 657a(b)(2) (2010) (language removed). As repeals by implication are disfavored in the first instance, as discussed above, this court cannot accept plaintiff’s argument as to the intent of Congress when there is nothing in the statute or legislative history of the HUBZone Act to suggest that § 624 should not apply.  (AquaTerra Contracting, Inc. v. U. S. and Shavers-Whittle Construction, Inc., No 13.587C, November 22, 2013)  (pdf)


RCD Cleaning Service, Inc. (RCD) filed its post-award bid protest complaint on January 6, 2011. In its complaint, RCD challenges the decision by the United States Small Business Administration (SBA) decertifying RCD from the Historically Underutilized Business Zone (HUBZone) program, 15 U.S.C. § 657a (2006), after which the United States Army (Army) cancelled an award to RCD under Solicitation No. W912CN-10-R-0045.

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F. SBA’s Consideration of RCD’s Submissions of Documentation

The administrative record contains an analysis of RCD’s submissions to SBA, the product, according to defendant, of an SBA attorney. AR at 2767-86. That analysis is comprised of four documents. The first (undated) document collates various types of information provided for 83 RCD employees. Id. at 2767- 71. The second (undated) document appears to be an analysis of RCD’s total number of “employees” as of July 26, 2010 and October 15, 2010, and information related to the 35% HUBZone residency requirement. Id. at 2772-75. The third document is dated November 16, 2010, and reports the number of RCD employees at certain work locations, and, specifically, reports the number of employees at RCD’s offices in Phoenix, Tucson, Utah and Georgia, as well as the percentage of time spent by these employees at these offices. AR at 2776-80. Finally, the fourth document is a copy of the POA, the attachment to the email that SBA sent RCD on November 15, 2010, as discussed supra.

This twenty-page analysis contained in four documents authored by “MKG,” appears to be the record of SBA’s detailed consideration of RCD’s submissions to SBA, and supports SBA’s rationale for decertifying RCD from the HUBZone program. The court will first comment on the MKG analysis. The court will next turn to the text of the decertification decision rendered by SBA on November 16, 2010, which was issued a few hours after SBA received the last of RCD’s faxes and emails. AR Tab 20. While both the MKG analysis and the SBA status protest decision reveal various flaws in SBA’s consideration of RCD’s submissions, SBA’s conclusion, that RCD failed to establish that its principal office is located in a HUBZone, is not irrational.

1. The MKG Analysis

The MKG analysis of RCD’s submissions to SBA contains four important errors. First, MKG concluded that “3 [RCD employees] spend [the] majority of time . . . in [RCD’s] Phoenix [office].” AR at 2776. RCD, however, had shown that six employees spent the majority of their time in its Phoenix office, which is located in a HUBZone. See AR at 2440, 3027 (MKG’s POA), 3069. Second, MKG concluded that 24 employee job-site locations in RCD’s November 16, 2010 submission were not supported by contract documentation. AR at 2776-77. Yet, each of the spreadsheet pages identifying these employee job-site locations contained the notation “Contract provided 11/05/2010,” AR at 2742-45, 2752-53, an assertion that is correct, see AR at 3025-27 (MKG’s POA, noting that on November 5, 2010 RCD had already supplied contract documentation for these job-site locations). These first two errors show that MKG, perhaps due to time constraints, was not considering whether certain information in RCD’s November 5, 2010 submission supplemented information in RCD’s November 16, 2010 submission.

The third error is also indicative of inadvertence on the part of MKG. Three spreadsheet pages in the November 16, 2010 submission identify job locations that are not mentioned in MKG’s analysis, although the analysis comments on all other job locations submitted by RCD on that date, as either documented or unsupported by documentation. See AR at 3064-66. All of these spreadsheet pages contained the notation “Contract provided 11/05/2010,” id., and for two of these job locations, there is indeed evidence of contract documentation in RCD’s November 5, 2010 submission, see AR at 2385, 2397, 2408-09, 3026-27. The third work location, “AFNI #2 Foothills,” was not noted in MKG’s POA as one of the sites for which contract documentation had been provided by RCD on November 5, 2010.22 The court interprets the record to indicate that MKG neglected to count seven jobsite employees as being adequately documented by RCD, by failing to notice these three spreadsheet pages.

The fourth error in the MKG analysis concerns the number of job-site locations adequately documented in RCD’s November 16, 2010 submission. MKG found that 80 job sites were adequately documented. AR at 2776. The court believes that MKG’s count of RCD employees with adequate work location documentation in RCD’s November 16, 2010 submission, when corrected for the undercounting noted above, would have been much higher. The court acknowledges that it would be difficult to state exactly how much higher the count would have been.

One of the problems with this case is the confusion surrounding the documentation goals of SBA. RCD’s payroll registers for July 26, 2010 and October 15, 2010 contained 173 and 203 names, respectively. AR at 2258, 2264. SBA determined that RCD had eleven employees who were not “employees” for HUBZone purposes on July 26, 2010, and twenty-one employees who were not “employees” on October 15, 2010, and identified these individuals in its November 15, 2010 email to RCD. AR at 3027-29. In the court’s view, this could leave 162 RCD employees in July, and 182 RCD employees in October, for whom additional documentation was required.

SBA informed RCD, however, that it only had to provide work location documentation for 159 and 170 employees, respectively, for these dates. AR at 3022. The only explanation the court has found is that MKG appears to have relied on RCD’s payroll records, perhaps the voluminous print-outs covering several pay periods, to determine the total number of RCD employees in July and October, and arrived at figures which did not match the numbers provided by RCD in its payroll registers. Compare AR at 2258, 2264 with id. at 2772-73 (showing that instead of finding that RCD had 173 and 203 total employees on the relevant dates, MKG found that RCD had 170 and 191 total employees on the relevant dates). The court does not know whether MKG’s figures or RCD’s payroll registers provide more accurate numbers. In any case, RCD had no guidance from SBA as to which 159 “employees” of its remaining 162 employees on the payroll register were to be accounted for, in July, and which 170 “employees” of its remaining 182 employees on the payroll register were to be accounted for, in October.

The court hesitates to rely on MKG’s total employee figures. If, however, these figures are accurate, and MKG’s POA is accurate, and the portions of MKG’s analysis of RCD’s November 16, 2010 submission not identified as faulty by this court are accurate, RCD appears to have provided adequate work location information for 153 of its 159 employees on July 26, 2010, and 157 of its 170 employees on October 15, 2010. The court’s own analysis, based largely on RCD’s payroll register and RCD’s payroll summaries of hours worked, as well as MKG’s corrected analysis of the information contained in RCD’s two submissions to SBA, shows that 24 employees on the July register were never matched with the job locations where they performed the majority of their work, and 32 employees on the October register were never matched with the job locations where they performed the majority of their work.

Perhaps the payroll registers and payroll summaries are not the most accurate documents provided by RCD to SBA, but these are the documents from which employee information is most readily extracted. Even when the court excludes from the payroll registers employees RCD never mentioned in its payroll summaries, for July there are still 12 employees lacking information as to where they performed the majority of their work, and for October, there are still 19 employees lacking information as to where they performed the majority of their work. Among these individuals are the RCD employees who spend a minority of their time in an office, and, necessarily, a majority of their work time not working in that office. The Phoenix office has three employees in this category; the Tucson office also has three employees in this category. If, as it appears, SBA could not proceed with a principal office analysis without documentation for every employee’s work location, the record before the court shows that RCD failed to provide that perfect level of documentation.

Thus, although the court must emphasize that the MKG analysis of RCD’s two submissions to SBA was fraught with errors and did not in all instances accurately describe employee work location information provided by RCD, the MKG analysis correctly indicated that RCD had failed to provide work location information for all of its employees. In that regard, the MKG analysis does not fundamentally differ from the court’s analysis of the record. The court now turns to SBA’s status protest decision, which largely adopts the MKG analysis, and raises other issues.

2. SBA’s Resolution of the Status Protest

SBA’s resolution of FMH’s challenge to RCD’s HUBZone status was issued on November 16, 2010 by Ms. Mariana Pardo, Deputy Director of the HUBZone Program at SBA. AR at 2822, 2833. This decision states that “RCD did not meet the principal office requirements at the time it submitted its offer and at the time of contract award.” AR at 2822. The primary ground for this determination appears to be SBA’s finding that “RCD did not provide a sufficient amount of information for SBA to determine the work location for each of RCD’s employees.” AR at 2830. As discussed supra, the record shows that RCD did indeed fail to provide work location information for each of RCD’s employees.

SBA relied heavily, it appears, on the MKG analysis to reach this conclusion. All of the key figures from the MKG analysis appear in the text of Ms. Pardo’s decision, where that decision discusses RCD’s work location documentation. Compare AR at 2830 (finding that there were 159 RCD “employees” on July 26, 2010; that 49 work locations were documented in RCD’s November 5, 2010 submission; and, that 104 work location allegations were presented in RCD’s November 16, 2010 submission (of which 24 were deemed to be invalid)) with AR at 2772, 2776, 2782-84 (same). Ms. Pardo concludes that RCD’s work location documentation was inadequate for 30 employees as of July 26, 2010, and that RCD’s work location documentation was inadequate for 41 employees as of October 15, 2010. Although the court has shown that these figures are inaccurate, as concerns the total number of work locations adequately identified by RCD, SBA’s errors in this regard are merely a matter of degree. SBA had requested, and had not received, sufficient work location documentation for each RCD employee on its payroll.

SBA stated two additional reasons for its decertification decision. First, for seven employees reported by RCD to work in an office less than 100% of the time, SBA stated that “[w]ithout further information that clarifies where these employees perform the majority·of their work, SBA cannot determine the location of the RCD principal office.” AR at 2832. The court agrees with SBA that clarifying information regarding these employees might conceivably have made a difference in SBA’s principal office analysis, considering the number of work locations of other employees that could not be determined from RCD’s submissions to SBA.25 The final reason cited by SBA for decertifying RCD was that Ms. Pardo was “making an adverse inference that RCD’s principal office is not located in a HUBZone,” because RCD had failed to provide sufficient information to SBA. Id.

The case for making an adverse inference is less than clear. If SBA had more promptly presented its initial request for information to RCD, and if SBA had been more helpful in assisting RCD in filling in the gaps in its work location information, the regulation would have supported an adverse inference, if RCD had then failed to document where its employees worked. See 13 C.F.R. § 126.403(a). Here, SBA never provided RCD with a list identifying the 159 (July 26) and 170 (October 15) employees for whom it required such information. RCD was thus compelled to document the work location of every RCD employee on its payroll for these two dates. Here, SBA informed RCD that the only way to document work locations for job-site employees was to provide photocopies of cover sheets and place of performance pages from numerous contracts. AR at 1723. RCD, it appears, attempted to track down all of these contract pages, where such documents existed, and still fell short of documenting each employee’s work location. Here, too, SBA’s requests for work location data failed to suggest a particular format that would satisfy SBA’s need for documentation. RCD, perhaps naively, appears to have expected that its payroll print-outs, payroll registers, payroll summaries, and spreadsheet pages would allow SBA to determine that its largest office was in Phoenix and in a HUBZone. Cf. AR at 2556 (RCD’s organizational chart, submitted to SBA on November 5, 2010 as part of the copy of its proposal for the Army contract in Hawaii, showing that RCD’s Phoenix headquarters/office had more staff than any of its other offices).

The court acknowledges that SBA requested comprehensive work location information that would explain where each RCD employee worked for the majority of his or her time. SBA’s requests in this regard, however, did not tell RCD how to provide that information. Indeed, SBA’s requests were vague, varying and confusing, and were ill-tailored to the goal of getting pertinent information from RCD in a short time-frame.

One version of SBA’s information request, sent October 29, 2010, demanded “records indicating the location at which each employee performed his/her work at the time RCD submitted its offer and at the time of award.” AR at 1723. Note that this request does not discuss ‘majority of time worked,’ in the context of office employees. Note, too, that only “records” are required, and that RCD was given no indication of the format of these records. RCD was also required to send along photocopies of contract pages documenting the locations of most of its employees. The burden of assembling this information in a coherent manner was left to the discretion of RCD.

The next general request for this type of information, sent by email on November 15, 2010, stated that “SBA requests a written statement of the job location for all RCD employees, and not just the RCD employees that RCD also claims as HUBZone residents.” AR at 3022. In this communication, SBA requested a “written statement,” again, in a format not identified. Attached to this email is another general request for work location information: “Please provide a list of the job locations where ALL RCD ‘employees’ perform the majority of their work duties.” AR at 3024. This SBA request, provided as an introduction to an attachment to an email, asks for a “list” which must address the location where a majority of duties are performed by each employee. The need for photocopies of contract pages is reiterated on November 15, 2010, although in this iteration SBA asked only for contract cover pages. AR at 3022.

Finally, regarding RCD’s Tucson office, the second email sent to RCD on November 15, 2010 requested information concerning the work locations of the Tucson office employees: “[P]lease provide the address [of the Tucson office], and identify the employees that perform the majority of their duties at these offices as opposed to job site locations.” Id. By the afternoon of November 15, 2010, RCD had received several SBA requests for employee work location information, expressed differently in different communications, and was given twenty-four hours to comply with all of these requests.

The court cannot approve of the adverse inference drawn by SBA. The short time-frame was exacerbated by SBA’s lack of diligence in processing the status protest. The communications with RCD were confusing, and did not assist RCD in understanding how it could satisfy SBA’s evolving documentation requirements. To the court, RCD appears to have attempted to cooperate with SBA in a reasonable manner. The court rejects the adverse inference drawn by SBA, but, in the final analysis, SBA had sufficient grounds to decertify RCD without drawing an adverse inference.

The government asserts that SBA’s methodology for determining the location of a HUBZone concern’s principal office is to determine the total number of employees, determine where each employee does the majority of his or her work, exclude job-site employees from the principal office analysis for service industry concerns, and then compare head-counts of employees who work at the concern’s offices. As shown by SBA’s analysis in the record before the court, this is a cumbersome and tedious process, and prone to error when SBA and the contractor are rushed. When time is short, SBA risks decertifying a legitimate HUBZone contractor merely because that concern cannot remove every shred of uncertainty over the work locations of its far-flung job-site employees, when the staffing of its offices would be relatively simple to explain and document. The court, however, must defer to SBA’s expertise in these matters. Because RCD did not provide work location information for each of its employees, this court is constrained to find that SBA did not have sufficient information to perform its principal office analysis.

VIII. The Appeal

On December 21, 2010, Mr. Joseph G. Jordan denied RCD’s appeal of SBA’s decertification decision. AR at 3196, 3200. Mr. Jordan ruled that the decision should stand, and although he did not explicitly state that an adverse inference was warranted in the status appeal decided against RCD, much of his decision rebuts RCD’s allegation that an adverse inference was unwarranted. He stated, for example, that

SBA provided detailed and helpful information to RCD, in order [to] help it better comply with the additional requests SBA made. SBA provided lists and other useful information so that RCD knew what information needed to be provided, and so that RCD did not waste time producing duplicative information. It was clear from the SBA requests that SBA needed to know the location at which all RCD employees worked in order to determine its principal office location.

AR at 3197. Mr. Jordan also noted that the information requested by SBA was not irrelevant to the principal office analysis. Id. at 3199.

Although the court disagrees with Mr. Jordan as to the helpfulness of SBA’s communications with RCD, the court accepts his description of the methodology that SBA uses to perform a principal office analysis for the HUBZone program:

SBA cannot determine a firm’s principal office without adequate evidence of several key facts. First it must determine the total number of employees that the firm employed at key time periods. As noted in SBA’s request on November 15, 2010, SBA did this and even informed RCD of its conclusions with regard to this key issue. Next, SBA must allocate each employee of the firm to either a job site or an office location. SBA must have adequate evidence of where every individual performed his/her work in order to make a determination of [a] firm’s principal office. This is required by the definition of principal office noted above . . . . In order to make this determination SBA must have documentation and evidence showing where each and every employee performed his/her work. SBA cannot make a determination that the greatest numbers [of] employees work at a given location, without knowing how many employees there are, and where all the employees work.

AR at 3198-99. And although Mr. Jordan relied on many of the inaccurate figures produced in the MKG analysis and Ms. Pardo’s decision that overstated the gaps in the work location information provided by RCD, his conclusion that “RCD failed to produce information showing where its employees were performing their work” is unassailable. AR at 3199. Given the highly deferential standard of review that applies in bid protests, the court finds that SBA’s rejection of RCD’s appeal of the decertification decision was reasonable and may not be set aside. The court observes, however, that a review and overhaul of SBA’s boilerplate request for principal office location documentation would serve both SBA and its HUBZone contractors well.  (RCD Cleaning Service, Inc. v. U. S. and Federal Maintenance Hawaii, Inc., No. 11-13C, April 13, 2011) (pdf)  Also see RCD Cleaning Service, Inc. v. U. S. and Wincor Properties, LLC, No. 11-89C, April 13, 2011 (pdf)


The central question in this matter is the interpretation of SBA regulations requiring that “at least 35% of the concern‟s employees must reside in a HUBZone” in order to receive SBA certification as a qualified HUBZone SBC. 13 C.F.R. § 126.200(b)(4). Plaintiff avers that it had already met the requirements of initial certification and that, although its actual employee residency in a HUBZone had fallen below 35%, it was meeting the alternative, “safe harbor” requirement of “attempt[ing] to maintain” the 35% threshold, pursuant to 13 C.F.R. § 126.103, while performing on an existing HUBZone contract. Accordingly, it argues that it remained a qualified HUBZone SBC when it bid for and was awarded a different Air Force contract in December 2009 (“the December 2009 contract”). The SBA, however, reads its regulations as requiring actual 35% employee residency in a HUBZone “at the time of initial offer and at the time of award” of a new HUBZone contract, pursuant to 13 C.F.R. § 126.601(c).

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The SBA promulgated regulations in 1998 governing the administration of the HUBZone program. See 13 C.F.R. § 126.100 through § 126.900. The requirements for certification as a qualified HUBZone SBC are set out in 13 C.F.R. § 126.200, entitled “What requirements must a concern meet to receive SBA certification as a qualified HUBZone SBC?” For a non-agricultural, non-Indian Tribal Government entity such as MCS, there are six requirements. These requirements involve standards relating to: 1) percentage of ownership and control by United States citizens, 2) size as a small business, 3) location of the principal office of the concern within the HUBZone, 4) percentage of the concern‟s employees residing with the HUBZone, 5) attempting to maintain that percentage during the performance of any HUBZone contract, and 6) certain subcontracting performance obligations. 13 C.F.R. § 126.200(b).

Regarding employee residency, this regulation specifies: “(4) Employees. At least 35% of the concern‟s employees must reside in a HUBZone . . .” 13 C.F.R. § 126.200(b)(4). Section 126.200(b) further provides, “(5) Contract Performance. The concern must represent, as provided in the application, that it will „attempt to maintain‟ (see § 126.103) having 35% of its employees reside in a HUBZone during the performance of any HUBZone contract it receives.” 13 C.F.R. § 126.200(b)(5).

“Attempt to maintain” is explained in the “definitions” section of the HUBZone regulations. “Attempt to maintain means making substantive and documented efforts such as written offers of employment, published advertisements seeking employees, and attendance at job fairs.” 13 C.F.R. § 126.103.

It is clear from the record that Plaintiff did receive certification from the SBA as a “qualified HUBZone SBC,” that it was maintained on the SBA‟s List of qualified HUBZone SBCs through 2009 and until it was decertified in October 2010, but that it had fallen short of the 35% employee residency requirement at some time prior to the time of its initial offer for and the time of its award of Air Force Solicitation No. FA2521-09-R-0085 in 2009.

The Administrative Record also reflects doubt within the SBA with respect to Plaintiff‟s “attempt to maintain” efforts. In its first proposed decertification letter, in July 2009, the SBA flatly stated its finding that MCS‟s “attempts to maintain” were “not substantive,” although inexplicably it took no action at that time. AR 239. In an email on July 21, 2010, from Leo Sanchez, an SBA HUBZone Office area director, to program Melissa Bryner, he stated,

I believe the firm is playing games with us . . . When the first proposed decertification letter was sent, the firm . . . argued that since they had been awarded a HUBZone contract, that the “attempt to maintain” clause should apply to them . . . if we were going to allow the attempt to maintain clause to apply, we were going to need to obtain payroll information from . . . 10 years back. The attempt to maintain clause does not indicate for how long a firm may be able to make the claim.

AR 245.

Rather than base its proposed decertification on a failure to “attempt to maintain,” Mr. Sanchez urged decertification on existing grounds:

I think the basis of the decertification . . . may be that it appears the firm was bidding on HUBZone contracts when it should not have been because likely it was not in compliance with the 35% residency requirement. I think we should have enough in the file to decertify the firm now.

Id.

The Administrative Record reflects, nevertheless, that Plaintiff did certify to the contracting officer for the December 2009 Air Force Solicitation, pursuant to 13 C.F.R. § 126.601, that it was attempting to maintain the 35% residency requirement. AR 369. It based this representation on its “attempt to maintain” efforts during the ongoing performance of the Mt. Home AFB contract. AR 368. Neither in the Administrative Record nor in its motion for judgment on the record does the Government contest Plaintiff‟s representation in this respect.

The Government argues in essence, however, that Plaintiff‟s “attempt to maintain” efforts on the Mt. Home AFB contract are irrelevant. It avers that “the safe harbor provided by the „attempt to maintain‟ language in the HUBZone regulations applies only during the performance of a contract, and a firm must meet all the regulations of the HUBZone program – including the 35 percent residency requirement – at the time of offer and award of any new HUBZone contracts.” Def.‟s Opp‟n to Pl.‟s Mot. for J. on AR and Def.‟s Cross-Mot. for J. upon AR 11 (“Def.‟s Cross-Mot.”) (emphasis added). The SBA‟s interpretation is laid out more specifically in its decertification letter to MCS:

[W]hen enacting the HUBZone program, Congress was well aware that small businesses must hire employees to perform on specific contracts. Because the hiring of additional employees for a specific HUBZone contract could impact the businesses‟ ability to meet the 35% HUBZone residency requirement, the HUBZone small business is required, by statute, to “attempt to maintain” that requirement during the performance of that HUBZone contract.

In other words, the Government‟s position is that the “attempt to maintain” safe harbor only serves to preserve the status of a qualified HUBZone SBC when its employee residency percentage falls below the 35% threshold during the performance of a particular contract, but only as to that contract and not as to new contracts.

As the Government notes, the pertinent regulatory references to “attempt to maintain” tie that phrase to the context of a “qualified HUBZone SBC.”

For example, under the “Subpart” heading of “Requirement to Be a Qualified HUBzone Sbc,” § 126.200(b)(5) provides, “The concern must represent, as provided in the application, that it will „attempt to maintain‟ (see § 126.103) having 35% of its employees in a HUBZone during the performance of any HUBZone contract it receives.” Id. Pursuant to § 126.601, entitled “What additional requirements must a qualified HUBZone SBC meet to bid on a contract?,” the SBC must certify to the contracting officer of the soliciting agency that, inter alia, “If the qualified HUBZone SBC was certified pursuant to § 126.200(b), it must represent that it will „attempt to maintain‟ (See § 126.103) the required percentage of employees who are HUBZone residents during the performance of a HUBZone contract.” § 126.601(d)(4). § 126.602, entitled “Must a qualified HUBZone SBC maintain the employee residency percentage during contract performance?,” provides, “Qualified HUBZone SBCs eligible for the program pursuant to § 126.200(b) must „attempt to maintain‟ (See § 126.103) the required percentage of employees who reside in a HUBZone during the performance of any contract awarded to the concern on the basis of its HUBZone status.” Id.

In its decertification letter to MCS, the SBA acknowledged that “once awarded a HUBZone contract, a qualified HUBZone SBC must „attempt to maintain‟ the 35% HUBZone residency requirement,” citing § 126.602. AR 409. It then advised that, “if that same qualified HUBZone SBC submits an offer for another HUBZone contract and is ultimately awarded the contract, it must meet all of the HUBZone program‟s requirements at the time of submission of its initial offer and at the time of award, including the 35% HUBZone residency requirement,” citing § 126.601(b).5 AR 410. That section provides plainly that, “a firm must be a qualified HUBZone SBC both at the time of its initial offer and at the time of award in order to be eligible for a HUBZone contract.” Because MCS did not demonstrate that it met the 35% threshold, the SBA concluded that it had failed “to demonstrate that [it] was eligible for the HUBZone contracts that it has received.” AR 411.

The SBA‟s conclusion that MCS was not “a qualified HUBZone SBC” when it bid for and was awarded the December 2009 Air Force contract, of course, begs the question of what constitutes a “qualified HUBZone SBC.” § 126.103 defines “Qualified HUBZone SBC” as “a HUBZone SBC that SBA certifies as qualified for federal contracting assistance under the HUBZone program.” In turn, in order to obtain certification, an entity must meet the requirements of § 126.200, “What requirements must a concern meet to receive SBA certification as a qualified HUBZone SBC?,” which follows the heading, “Subpart B. Requirements to Be a Qualified Hubzone Sbc [sic].” (emphasis added).

The fourth requirement under § 126.200(b) (applicable to non-Indian Tribal Government/non-agricultural concerns such as MCS) is that “[a]t least 35% of the concern‟s employees must reside in a HUBZone.” § 126.200(b)(4).

Plaintiff dismisses § 126.200(b) as applicable only to initial certification. “[T]he SBA applied the wrong standard. The SBA applied the standard that applies when a concern is first trying to be certified . . .” Pl.‟s Mot. 1. According to Plaintiff, once certified, the concern remains a qualified HUBZone SBC so long as it is both performing on a HUBZone contract, even if it falls below the 35% threshold, and meeting the terms of the “attempt to maintain” safe harbor. “Once a concern is determined to be a qualified HUBZone SBC there are certain requirements it must meet to remain a qualified HUBZone SBC.” Id. at 13 (emphasis added). As such, it would then still be a “qualified HUBZone SBC” if it bid on a new or additional contract.
Accordingly, Plaintiff argues in response to the Government that, when it bid for and was awarded the December 2009 contract, it was in fact certified as a qualified HUBZone SBC pursuant to § 126.200(b), it had certified to the contracting officer that it was on the SBA List, AR 369, and it was “attempt[ing] to maintain” the 35% employee residency threshold while continuing to perform on the Mt. Home AFB contract. Thus, it avers that it met all the terms of § 126.601, “What additional requirements must a qualified HUBZone SBC meet to bid on a contract?”

The court finds, however, that Plaintiff‟s neat division of the regulations into one category applicable to concerns seeking certification in the first place, such as § 126.200(b), and an alternative category applicable to “remaining” qualified, such as §§ 126.601 and 602, is not so clear cut. § 126.601 prescribes requirements in addition to being a “qualified HUBZone SBC,” not in lieu of the requirements to become certified as qualified pursuant to § 126.200(b). One of the additional requirements therein is that the firm “must be a qualified HUBZone SBC both at the time of its initial offer and at the time of award to be eligible for a HUBZone contract.” § 126.601(c). § 126.602, “Must a qualified HUBZone SBC maintain the employee residency percentage during contract performance?,” requires that “qualified HUBZone SBCs eligible for the program pursuant to § 126.200(b) must „attempt to maintain‟” the residency threshold during the performance of any contract awarded on the basis of its HUBZone status. The “attempt to maintain” requirement specified in § 126.602, however, is an additional obligation, not a definitional change in what constitutes a qualified HUBZone SBC. Thus, the court finds no support for Plaintiff‟s argument that the 35% residency requirement in § 126.200(b)(4) is abrogated for purposes of new or additional contracts by operation of the “attempt to maintain” references in §§ 126.601 and 602. By contrast, the references to “contract performance” in § 126.200(b)(5) and to “performance of any contract” in § 126.602 provide the explicit authority for a HUBZone SBC that is qualified under § 126.200(b) to continue performance on a existing HUBZone contract even though its employee percentage falls below the threshold. Thus, the court concludes that, except for performance during an existing contract, the 35% residency requirement is a continuing requirement. The court further notes that, even if the residency requirement were not so clear as the court finds it, it is at best ambiguous; as such, under Gose, 451 F.3d at 836, the court must defer to the agency‟s interpretation of its own regulations unless plainly erroneous.

Furthermore, the Government argues that “SBA‟s interpretation of the regulations at issue here – the 35 percent residency requirement and the „attempt to maintain‟ safe harbor provisions – is clearly reasonable when the regulations are viewed in their entirety.” Def.‟s Cross-Mot. 11. It notes that Congress‟s “clear intent behind the HUBZone program was to revitalize economically distressed areas. Such revitalization, as Congress recognized, requires that government contracts be given to businesses that employ people who live in the HUBZone areas.” Id. at 13. Allowing the “attempt to maintain” safe harbor to operate potentially indefinitely would clearly undermine Congressional intent and frustrate the purpose of the HUBZone program. Id.
Accordingly, it argues, “SBA‟s determination that Mission Critical did not meet the 35 percent residency requirement required for HUBZone status is entitled to substantial deference because that determination represents SBA‟s reasonable interpretation of its own regulations administering the HUBZone program.” Id. at 14. The court concurs that the SBA‟s interpretation limiting the reach of the safe harbor, “attempt to maintain” regulations to existing contracts aligns the HUBZone program with the evident desire of Congress to utilize the program to increase employment in the HUBZone areas.

Therefore, the court finds that the 35% residency threshold is a requirement for a qualified HUBZone SBC to obtain new or additional HUBZone contracts, that MCS did not meet the employee residency requirement at the time of offer and at the time of award of the December 2009 contract, and that the SBA‟s decertification of MCS was reasonable and justified.  (Mission Critical Solutions v. U. S., No. 10-810C, March 8, 2011) (pdf)


Defendant opposes DGR’s protest, arguing that the lawsuit is untimely because it was not filed before the closing date for receipt of proposals, citing Blue & Gold Fleet L.P. v. United States, 492 F.3d 1308 (Fed. Cir. 2007). Defendant also argues that, under the Small Business Administration’s regulations, the Air Force was not required to give any priority to HUBZone small business concerns. The outcome of this dispute turns on the interpretation of the statutory language that Congress used to establish the section 8(a) and HUBZone small business programs. Despite executive agency memoranda to the contrary, this Court and the GAO have held that the plain meaning of the Small Business Act mandates a priority to the HUBZone program. Mission Critical Solutions v. United States, 91 Fed. Cl. 386 (2010), appeal docketed, No. 2010-5099 (Fed. Cir. Apr. 2, 2010); DGR Assocs., Inc., B-402494, 2010 CPD ¶ 115 (Comp. Gen. May 14, 2010); Mission Critical Solutions, B- 401057, 2009 CPD ¶ 93 (Comp. Gen. May 4, 2009); Int’l Program Group, Inc., B-400278 et al., 2008 CPD ¶ 172 (Comp. Gen. Sept. 19, 2008). The Ninth Circuit has reached a similar conclusion, giving priority to the HUBZone program. Contract Mgmt., Inc. v. Rumsfeld, 434 F.3d 1145, 1149 (9th Cir. 2006).

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On the issue of statutory interpretation, the language of the Small Business Act granting priority to the HUBZone program could not be more clear. By using the phrases “notwithstanding any other provision of law . . . a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns,” Congress established a priority for the HUBZone program over other competing small business programs. See 15 U.S.C. § 657a(b)(2)(B). If Congress intended something different from what it stated, Congress alone must enact an appropriate amendment, as this Court can only apply the laws as written. See, e.g., Conn. Nat’l Bank v. Germain, 503 U.S. 249, 254 (1992) (“[C]ourts must presume that a legislature says in a statute what it means and means in a statute what it says there.”). The executive agency memoranda reflecting disagreement with this interpretation, more than anything, simply express disbelief that Congress could have intended a priority for the HUBZone program. These agencies would be better served to seek legislative relief from Congress rather than judicial relief in this Court. With the issuance of this decision, the Court permanently enjoins Defendant from proceeding with the contract unlawfully awarded to General Trades & Services, and from awarding any contract that is not in compliance with the Small Business Act as interpreted herein.  (Italics added by Wifcon.com)

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B. The Small Business Act Grants Priority to The HUBZone Program.

The parties agree that this case hinges on a single question of statutory interpretation: whether the language of the Small Business Act grants priority to a HUBZone competition over a section 8(a) competition. The Court decided this same question earlier this year in Mission Critical Solutions. See 91 Fed. Cl. at 395. In that case, Chief Judge Hewitt found the language of the HUBZone provision to demand unequivocally the prioritization of the HUBZone program over other Small Business Act programs, including the section 8(a) program. The HUBZone provision makes clear that, before a procurement can be set-aside under the 8(a) program, a contracting officer must first determine if the procurement can be set-aside for a HUBZone small business concern. See 15 U.S.C. § 657a(b)(2)(B). In particular, the contracting officer must apply the “rule of two” and determine whether: (1) there is a reasonable expectation that two or more qualified HUBZone small business concerns will submit offers; and (2) the award can be made at a fair market price. See id. Chief Judge Hewitt’s analysis in Mission Critical Solutions is directly applicable here. See 91 Fed. Cl. at 395-412. The Court sees no need to modify the detailed, analytical and persuasive reasoning of the Chief Judge. A brief summary of the key underpinnings will suffice.

1. The Chevron Method of Statutory Interpretation

Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837
(1984), provides the framework for deciding the statutory interpretation question presented  in this case. Under Chevron, this Court first must determine “whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.” Id. at 843. “[I]f the statute is silent or ambiguous with respect to the specific issue,” a court must proceed to the second step of Chevron, which is to ask whether the implementing agency’s interpretation of the statute reasonable. Id.; see also Ad Hoc Shrimp Trade Action Comm. v. United States, 596 F.3d 1365, 1369 (Fed. Cir. 2010). The court must not “impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation.” Chevron, 467 U.S. at 843. Rather, “Chevron requires a federal court to accept the agency’s construction of the statute, even if the agency’s reading differs from what the court believes is the best statutory interpretation.” Nat’l Cable & Telecommunications Ass’n. v. Brand X Internet Servs., 545 U.S. 967, 980 (2005). However, no deference to an agency’s interpretation of the statute is due if Congress has made its intent “clear” in the statutory text. See Chevron, 467 U.S. at 842.

The Court’s analysis thus begins with the language of the statute itself. See Robinson v. Shell Oil Co., 519 U.S. 337, 340 (1997). If, as here, the statute’s language is unambiguous, the “‘judicial inquiry is complete.’” Conn. Nat.’l Bank, 503 U.S. at 254 (quoting Rubin v. United States, 449 U.S. 424, 430 (1981)); Muwwakkil v. Office of Pers. Mgmt., 18 F.3d 921, 924 (Fed. Cir.1994) (“When statutory interpretation is at issue, the plain and unambiguous meaning of a statute prevails.”); Sharp v. United States, 580 F.3d 1234,1238 (Fed. Cir. 2009) (“Where the intent is unambiguously expressed by the plain meaning of the statutory text, we give effect to that clear language without rendering any portion of it meaningless.”). To determine whether the statutory language is plain and unambiguous, the Court must look at “the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.” Robinson, 519 U.S. at 341. In the instant case, the relevant provisions of the Small Business Act are unambiguous, and Congress clearly has answered the question presented by the parties. Therefore, this Court finds no reason to afford deference under Chevron to the SBA’s interpretation. See Pub. Employees Ret. Sys. of Ohio v. Betts, 492 U.S. 158, 171 (1989) (“[N]o deference is due to agency interpretations at odds with the plain language of the statute itself.”).

2. The Plain Requirements of The HUBZone Program

Here, Congress’ intent to supersede all other laws and prioritize the HUBZone program over other Small Business Act programs is plain on the face of the statute. The HUBZone provision states that “[n]otwithstanding any other provision of law,” 15 U.S.C. § 657a(b)(2):

[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.

Id. § 657a(b)(2)(B) (emphasis added). In addition, a contract “may be awarded on a solesource basis when those statutory conditions are not met.” Id. § 657a(b)(2)(A) (emphasis added).

The operative language of the HUBZone provision thus combines the expansive phrase “notwithstanding any other provision of law” with the section providing that “a contract opportunity shall be awarded” under enumerated conditions. See Shoshone Indian Tribe of Wind River Reservation v. United States, 364 F.3d 1339, 1346 (Fed. Cir. 2004) (emphasis added) (finding the operative language of the statute at issue to be “the combination of the phrases ‘[n]otwithstanding any other provision of law’ and the directive that the statute of limitations ‘shall not commence to run’ on any claim until an accounting is provided”). Under the 8(a) program, a contracting officer also “shall award” on the basis of restricted competition if certain criteria are met. 5 See 15 U.S.C. § 637(a)(1)(D)(i). Yet, unlike its counterpart in the HUBZone provision, the mandatory language of the 8(a) restricted competition section is not preceded by the phrase “notwithstanding any other provision of law.” See id. § 637(a)(1). It is the combination of the two phrases that creates a clear priority for the HUBZone program over the 8(a) program when the standards of the HUBZone program are satisfied. The Court will examine each of these phrases below.

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3. Legislative History Presents no Clear Contrary Intent to Plain Meaning Interpretation.

Although the Court finds the plain language of the HUBZone provision to establish the priority of the HUBZone program over the 8(a) program, the Court will examine the legislative history “only to determine whether a clear intent contrary to the plain meaning exists.” Sharp, 580 F.3d at 1238 (quoting Glaxo Operations UK Ltd. v. Quigg, 894 F.2d 392, 396 (Fed. Cir. 1990)). In “rare and exceptional circumstances,” the presumption that the plain language of the statute expresses congressional intent can be rebutted. United States v. James, 478 U.S. 597 (1986) (quoting Rubin v. United States, 449 U.S. 424, 430 (1981)). Seldom is the legislative history clear enough to overcome the strong presumption “‘that the legislative purpose is expressed by the ordinary meaning of the words used.’” American Tobacco Co. v. Patterson, 456 U.S. 63, 68 (1982) (quoting Richards v. United States, 369 U.S. 1, 9 (1962)); see, e.g., Consumer Prod. Safety Comm’n v. GTE Sylvania, Inc., 447 U.S. 102, 108 (1980) (“[O]rdinarily even the contemporaneous remarks of a single legislator who sponsors a bill are not controlling in analyzing legislative history.”); James, 478 U.S. at 606 (finding legislative history did not merit a departure from the plain language of the statute). “Going behind the plain language of a statute in search of a possibly contrary congressional intent is ‘a step to be taken cautiously’ even under the best of circumstances.” American Tobacco Co., 456 U.S. at 75 (quoting Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 26 (1977)).

Defendant argues as it did in Mission Critical Solutions that legislative history clearly indicates Congress’ intent not to prioritize the HUBZone Program over other small business programs, including the 8(a) program. See Def.’s July 20, 2010 Reply 15-16; see also 91 Fed. Cl. at 407. To overcome the plain meaning of the statute, Defendant must establish that the legislative history embodies “an ‘extraordinary showing of contrary intention.’” Glaxo Operations, 894 F.2d at 396 (quoting Garcia v. United States, 469 U.S. 70, 75 (1984)). Defendant has not satisfied this burden.

To support its argument, Defendant relies heavily on the Senate version of the HUBZone program, introduced in 1997 as part of the Small Business Reauthorization Act. (Def.’s July 9, 2010 Mot. 34.) Defendant alleges that because the original Senate version of the Small Business Reauthorization Act contained language clarifying that the HUBZone assistance provisions “shall not limit the discretion of a contracting officer to let any procurement contract to [SBA] under section 8(a),” the intent of Congress was to establish parity between the 8(a) and HUBZone programs. Id.; see also S. 1139, 105th Cong. § 31(b)(5) (as reported by S. Comm. on Small Business, Aug. 19, 1997, S. Rep. No. 105-62). A Senate Committee Report explained that the HUBZone program was “not designed to compete with SBA’s 8(a) Program,” and an agency’s contracting officer had “the flexibility to decide whether to target a specific procurement requirement for the HUBZone Program or the 8(a) Program.” S. Rep. No. 105-62, at 26 (1997). However, as Defendant acknowledges, the parity provision was dropped from the proposed bill during the reconciliation process with no explanation. See 143 Cong. Rec. 24,206 (1997). Defendant also cites Representative John J. LaFalce expressions of concern that the HUBZone program could impact negatively the 8(a) program. (Def.’s July 9, 2010 Mot. 35.) Representative LaFalce, however, does not state explicitly that Congress wished the programs to be in parity with one another. See 143 Cong. Rec. 25,760 (1997).

Defendant further accuses the Court in Mission Critical Solutions of ignoring this “extensive” legislative history. Id. at 36 (citing Mission Critical Solutions, 91 Fed. Cl at 408). Chief Judge Hewitt in fact did consider at length the legislative history behind the HUBZone provision. See 91 Fed. Cl. at 406-10 (“Nor is the court persuaded to ignore the plain meaning of the statutory language by the legislative history that defendant cites.”). The Court concluded that without a clear legislative intent, the plain meaning of the HUBZone statute must prevail. See id. at 409-10.

The Court again finds the legislative history Defendant cites to be unpersuasive and certainly insufficient to overcome the unambiguous language of the HUBZone provision. Specifically, the Court agrees with Chief Judge Hewitt in Mission Critical Solutions that: “With no explanation from the Senate as to why the parity provision was omitted, the fact that it was omitted is inconclusive.” Id. at 408. Any conclusions regarding Congress’ reasons for removing all parity language from the HUBZone provision are purely speculative. Speculation is surely not an “extraordinary showing of contrary intention” justifying a departure from the plain meaning of the HUBZone provision. Glaxo Operations, 894 F.2d at 396 (internal quotations omitted). Moreover, the comments that Defendant cites from a single House of Representatives member offer at most evidence of the intent of that one member, not of the entire Congress. See Barnhart v. Sigmon Coal, Co., Inc., 534 U.S. 438, 457 (2002) (“Floor statements from two Senators cannot amend the clear and unambiguous language of a statute.”); see also Mission Critical Solutions, 91 Fed. Cl. at 408.

Therefore, the Court’s inquiry into Congress’ intent must begin and end with the language of the HUBZone program, what it does say and what it does not say. See Conn. Nat’l Bank, 503 U.S. at 254. Despite Defendant’s contentions, this Court does not find that the legislative history of the statute warrants departure from the plain words of the Small Business Act.

C. The Air Force Violates The Small Business Act by Complying With The SBA’s Statutory Interpretation.

If the Air Force had followed the HUBZone provision as it was obligated to do by the plain statutory language, it would have found there was a reasonable expectation that at least two qualified HUBZone small business concerns could submit offers at fair market prices. Under an earlier solicitation for the same services, Solicitation I, four offerors submitted proposals under a HUBZone small business set-aside, including DGR. After awarding Solicitation I under the HUBZone program, the Air Force cancelled it following DGR’s protest of the contract award to an ineligible entity. Therefore, if the Air Force had complied with the Small Business Act as interpreted herein, the current contract would have been set aside for a HUBZone small business concern, which would have given DGR an opportunity to compete.

D. Permanent Injunctive Relief is Granted.

On June 28, 2010, when DGR filed its lawsuit, DGR requested declaratory and injunctive relief to prohibit the Air Force from proceeding with the performance of the contract awarded to General Trades & Services for military family housing maintenance services. The Court has substantial discretion to decide whether to grant injunctive relief in a bid protest. See 28 U.S.C. § 1491(b)(2) (“To afford relief in such an action, the courts may award any relief that the court considers proper, including declaratory and injunctive relief except that any monetary relief shall be limited to bid preparation and proposal costs.”); see also PGBA v. United States, 389 F.3d 1219, 1223-24 (Fed. Cir. 2004) (“We give deference to the Court of Federal Claims’ decision to grant or deny injunctive relief. . . .”) (citation omitted). In determining whether to grant injunctive relief, a court considers:

(1) whether, as it must, the plaintiff has succeeded on the merits of the case; (2) whether the plaintiff will suffer irreparable harm if the court withholds injunctive relief; (3) whether the balance of hardships to the respective parties favors the grant of injunctive relief; and (4) whether it is in the public interest to grant injunctive relief.

Id. at 1228-29 (citing Amoco Prod. Co. v. Vill. of Gambell, Alaska, 480 U.S. 531, 546 n.12 (1987)).

DGR succeeded on the merits in this case and thus, has satisfied the first criterion of the four-part injunctive relief test. The Court already concluded in Mission Critical Solutions that “the mandatory language of the HUBZone statute requires that a contracting officer first determine whether the specified criteria are met before awarding a contract under another small business program or on a sole-source basis.” 91 Fed. Cl. at 411. The Court here agrees with Chief Judge Hewitt’s determination. Accordingly, the Air Force violated the Small Business Act by complying with the SBA’s regulations, which fail to prioritize the HUBZone program over other small business programs as provided in the plain language of the Act. See 15 U.S.C. § 657a(b)(2)(B). If the Air Force had followed the HUBZone provision as it was obligated to do by the plain statutory language, it would have found there was a reasonable expectation that at least two qualified HUBZone small business concerns could submit offers at fair market prices. DGR would have been given an opportunity to compete.

DGR also must satisfy the remaining requirements – irreparable harm, balance of the hardships, and public interest – for a permanent injunction to issue. DGR asserts that, because the Air Force refused to follow the law in issuing Solicitation II, it was unable to compete for a procurement that as the incumbent contractor it had a reasonable chance of winning and thus, it lost potential profits. (Pl.’s TRO Mem. 16.) A lost opportunity to compete for a contract is sufficient to demonstrate irreparable harm. See Magnum Opus Techs. v. United States, 2010 WL 2255523, at *27 (Fed. Cl., May 28, 2010) (finding that being deprived of the chance to compete for a procurement constitutes irreparable harm); Overstreet Elec. Co., Inc. v. United States, 47 Fed. Cl. 728, 744 (2000) (“[A] lost opportunity to compete in a fair competitive bidding process for a contract, has been found sufficient to prove irreparable harm.”). Accordingly, DGR has established that it will suffer irreparable harm in the absence of injunctive relief.

Next, the Court must consider whether the balance of hardships to the respective parties weighs in favor of awarding injunctive relief. As mentioned above, without injunctive relief, DGR will be denied the potential benefit of winning the competition and retaining the contract. An injunction also could result in additional procurement costs and further delay in the performance of the contract. However, because the Air Force’s second solicitation was not conducted in accordance with applicable law, the additional time and effort required to conduct the procurement in a lawful manner fails to constitute an adequate hardship. Thus, the balance of hardships tilts in DGR’s favor.

Finally, the Court looks to whether the public interest would be served by the granting of injunctive relief. “There is an overriding public interest in preserving the integrity of the procurement process by requiring the government to follow its procurement regulations.” Hosp. Klean of Tex., Inc. v. United States, 65 Fed. Cl. 618, 624 (2005). The public interest obviously is served by ensuring that contracting agencies follow applicable procurement statutes and regulations. See, e.g., Magnum Opus Techs., 2010 WL 2255523, at *34 (citing Heritage of Am., LLC v. United States, 11 Fed. Cl. 66, 80 (2007); Hunt Bldg. Co., Ltd. v. United States, 61 Fed. Cl. 243, 280 (2004); Cincom Sys., Inc. v. United States, 37 Fed. Cl. 266, 269 (1997)). In this case, because the Air Force acted in violation of the law when it issued the second solicitation under the 8(a) program, it is in the public interest for the Court to correct the illegality that occurred and stop the contract from proceeding. The illegal contract must be cancelled and a new solicitation issued. DGR does not automatically become the contract awardee, but DGR will be able to compete for the award. This final factor thus also favors DGR.

Conclusion

By this decision, the Court enters a permanent injunction requiring the Air Force and the Small Business Administration to terminate the unlawful contract awarded to General Trades & Services, and to determine whether the criteria of 15 U.S.C. § 657a(b)(2)(B) are met, such that the contracting opportunity at issue must be set aside and awarded on the basis of restricted competition to a qualified HUBZone small business concern. Defendant is enjoined from awarding the contract in a manner that is inconsistent with this decision. This permanent injunction shall take effect upon the filing of this Opinion and Order in the Court’s electronic filing system.  (DGR Associates, Inc. v. U. S. and General Trades & Services, Inc., No. 10-396c, August 13, 2010)  (pdf)


On December 17, 2008, the Army requested that the SBA issue an acceptance letter approving the nomination of Copper River Information Technology, LLC (Copper River), an Alaska Native Corporation, as the IT support services provider. AR 136-37. The Army had determined that the requirement was appropriate for set-aside under the SBA’s 8(a) program and, with the SBA’s concurrence, intended to issue a sole-source contract to Copper River. Id. The SBA accepted the requirement on behalf of Copper River on December 23, 2008, AR 139, and the Army awarded the sole-source contract to Copper River on January 13, 2009, AR 141, 210.

MCS filed a protest with the Government Accountability Office (GAO) on January 28, 2009. AR 1-3. MCS argued that the Army should not have awarded the contract to Copper River on a sole-source basis, thereby depriving MCS of an opportunity to compete for the contract. Id. As both an 8(a) program participant and a qualified HUBZone small business, MCS argued that the Army should have competed the requirement among HUBZone small businesses under the HUBZone statute. AR 1-3, 26- 28. At GAO’s request, the SBA responded to the issue raised in the protest. AR 209. The Army filed two motions to dismiss the protest, both of which GAO denied. See AR 4, 35, 51, 69. GAO sustained MCS’s protest on May 4, 2009, AR 252-59, and denied the SBA’s request for reconsideration on July 6, 2009, AR 304-11.

On July 10, 2009, the Office of Management and Budget issued a memorandum directing executive branch agencies to disregard GAO’s rulings in Mission Critical Solutions, Comp. Gen. B-401057, 2009 CPD ¶ 93, 2009 WL 1231855 (May 4, 2009), and International Program Group, Inc., Comp. Gen. B-400278, B-400308, 2008 CPD ¶ 172, 2008 WL 4351134 (Sept. 19, 2008), pending legal review by the executive branch. AR 312-13. On August 21, 2009, the Office of Legal Counsel of the United States Department of Justice (OLC) issued a memorandum opinion (OLC Opinion) addressing the issues raised in the MCS protest. AR 314-27. The OLC Opinion disagreed with GAO’s analysis, concluded that the SBA’s interpretation is a permissible construction of the relevant statutes, and stated that the OLC Opinion is--and GAO’s decisions are not--binding on the executive branch. AR 315, 327. On September 28, 2009, the Army informed GAO that, as a result of the OLC Opinion, the SBA had decided not to release the IT support services requirement from the 8(a) program and the Army would not be implementing GAO’s recommendations. AR 349-50.

On October 9, 2009, MCS requested a recommendation from GAO that the Army pay MCS the costs of pursuing its protest before GAO. AR 328-29. The Army notified GAO that it did not intend to reimburse MCS for its costs because it believed the OLC Opinion prevented it from doing so. AR 330-32. On November 19, 2009, GAO dismissed MCS’s request as “academic” in light of the Army’s statement. AR 353. MCS filed a second protest of the same contract award on November 25, 2009, AR 354-59, which the GAO also dismissed as “academic” on December 7, 2009, AR 412-13.

MCS filed its notice of intent to protest in this court on December 11, 2009, and filed its Complaint on December 15, 2009. Along with its Complaint, MCS filed a Motion for Preliminary Injunction, Docket Number (Dkt. No.) 2, and Plaintiff’s Memorandum of Points and Authorities in Support of Its Motion for Preliminary Injunction, Dkt. No. 3. Further to a conference call with the parties held on December 16, 2009, the court denied plaintiff’s Motion for Preliminary Injunction based on the parties’ proposed briefing schedule and the understanding that the Army planned to stay any action on the awarded contract until March 4, 2010. Def.’s Resp. 12. MCS is currently providing the IT support services at issue under a bridge contract awarded on December 7, 2009 that can be extended through March 4, 2010. See AR 372-411; Def.’s Resp. 12.

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The HUBZone statute establishes the HUBZone program within the SBA: “There is established within the [Small Business] Administration a program to be carried out by the Administrator to provide for Federal contracting assistance to qualified HUBZone small business concerns in accordance with this section.” Id. § 657a(a). The statute provides that “[n]otwithstanding any other provision of law,” id. § 657a(b)(2), “a contracting officer may award sole source contracts under this section to any qualified HUBZone small business concern” if certain criteria are met, id. § 657a(b)(2)(A). The statute also provides that “[n]otwithstanding any other provision of law,” id. § 657a(b)(2), “a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to qualified HUBZone small business concerns” if certain criteria are met, id. § 657a(b)(2)(B). Finally, the statute provides that “[n]otwithstanding any other provision of law,” id. § 657a(b)(2), “the Administrator [of the SBA] may notify the contracting officer of the intent to appeal the contracting officer’s decision, and . . . may file a written request for reconsideration of the contracting officer’s decision with the Secretary of the department or agency head” should the contracting officer decide “not to award a contract opportunity under this section to a qualified HUBZone small business concern,” id. § 657a(b)(2)(C).

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III. Discussion: Statutory Interpretation

A. Introduction

The parties and the court are in accord that this case turns on questions of statutory interpretation, in particular whether statutory language provides for the prioritization of the HUBZone program over the 8(a) program or provides for parity between the programs. This statutory interpretation requires an examination of the language of the Small Business Act, in particular the HUBZone and 8(a) statutes.

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Plaintiff and defendant agree that Congress did not prioritize one small business program over another under either § 637(d)(1) or § 644(g). See Def.’s Resp. 16-17; Pl.’s Reply 8. The parties differ, however, in their views of what the agreed lack of prioritization in these two sections indicates. See Def.’s Resp. 16-17; Pl.’s Reply 8. Defendant argues that because § 644(g) “demonstrates that Congress intended that the goals of both programs were to be pursued concurrently” and § 637(d)(1) “treats the programs as co-equal,” the SBA’s regulations providing for parity between the HUBZone and 8(a) programs are permissible. Def.’s Resp. 16-17. Plaintiff argues that the Department of Justice “erroneously interprets the fact that Congress chose to not distinguish between the different small business procurement programs [in § 637(d)(1) and § 644(g)] as evidence of intent that each program be treated equally, even though Congress never stated that each program would be treated equally.” Pl.’s Mot. 12- 13; see Pl.’s Reply 8. Plaintiff asserts that “if Congress did not intend to differentiate between the different small business procurement programs, it would have ensured each program contained identical, or at least similar, statutory language implementing the terms of each program . . . .” Pl.’s Mot. 13; Pl.’s Reply 8. The court agrees that Congress’s statements of policy and goals do not appear to distinguish between the programs or prioritize one over the other.

The court now turns to the statutory language implementing the HUBZone and 8(a) programs to determine whether the implementing provisions indicate the prioritization of the HUBZone program over the 8(a) program.

2. Implementing Provisions Prioritizing the HUBZone Program over the 8(a) Program

a. “Notwithstanding any other provision of law”

The HUBZone statute provides:

Notwithstanding any other provision of law—

. . . .

(B) 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 . . . .

15 U.S.C. § 657a(b)(2) (emphasis added). Plaintiff argues that the meaning of the phrase “notwithstanding any other provision of law” is plain on its face and “shows that [the statute] was clearly written to supersede other small business contracting rules.” Pl.’s Mot. 9; Pl.’s Reply 7. Defendant, apparently conceding that the plain meaning of the phrase supports plaintiff’s interpretation, argues that the phrase “notwithstanding any other provision of law” is not always to be construed literally, Def.’s Resp. 23 (citing Or. Natural Res. Council v. Thomas, 92 F.3d 792, 796-97 (9th Cir. 1996) and In re Glacier Bay, 944 F.2d 577, 582 (9th Cir. 1991)), especially “where such language narrows an important provision of the same statute,” id. (citing Ministry of Def. & Support for the Armed Forces of the Islamic Republic of Iran v. Elahi (Elahi), 129 S. Ct. 1732, 1744 (2009)). Defendant argues that the SBA has reasonably interpreted the phrase to refer to provisions outside of the Small Business Act, for example, the otherwise applicable requirement that government contracts are awarded on the basis of “full and open competition.” Id. (referring to 41 U.S.C. § 253a(a)(1)(A)). According to defendant’s argument and the SBA’s interpretation, “notwithstanding any other provision of law” does not refer to provisions found within the Small Business Act, such as those included in the statutory section implementing the 8(a) program. See id.

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Here, the court examines the language of other sections of the Small Business Act for evidence of Congress’s intent and finds no language that suggests that Congress meant to exclude other unenumerated provisions of the Small Business Act from the application of the phrase “notwithstanding any other provision of law.” There is, however, a provision in the HUBZone statute that lists, by name or section number, particular statutes that have priority over the HUBZone program and are presumably excluded from application of the phrase “notwithstanding any other provision of law.” See 15 U.S.C. § 657a(b)(4). This provision is entitled “Relationship to other contracting preferences” and states: “A procurement may not be made from a source on the basis of a preference provided in paragraph (2) [sole-source and restricted competition awards] or (3) [ten-percent bid adjustment in full and open competition awards], if the procurement would otherwise be made from a different source under section 4124 [prison-made products] or 4125 [prison camp services] of Title 18 or the Javits-Wagner-O’Day Act (41 U.S.C. 46 et seq.) [products and services purchased from nonprofit agencies for the blind and severely handicapped].” Id. § 657a(b)(4). Defendant argues that this provision indicates that Congress expressly stated when it was prioritizing a particular noncompetitive provision or program under the Small Business Act. Def.’s Resp. 22. Defendant argues: “[A]lthough this provision clearly establishes the priority of these other contracting preferences, the HUBZone statute does not expressly provide that the HUBZone program be given priority over SBA’s other contract assistance programs. Accordingly, Congress did not clearly intend for the HUBZone program to have such priority.” Id. The “omission” defendant argues as evidence of lack of clear intent also supports a contrary position, however. Congress could have expressly stated that the phrase “notwithstanding any other provision of law” refers to provisions outside of the Small Business Act, or that other sections of the Small Business Act are excluded from application of the phrase, if that is, as defendant argues, see Def.’s Resp. 23, 30-31, what Congress intended. What section 657a(b)(4) makes very clear is that, if Congress wished to establish the relationship of the HUBZone program to another contracting preference program, it knew how to do so.

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In this case, the Small Business Act does not contain two such conflicting provisions as were found within the TRIA in Elahi. The HUBZone statute makes no reference to other “applicable law,” as did the statutes examined in Oregon Natural Resources Council and Glacier Bay. Congress did not explicitly provide for parity between the HUBZone and 8(a) programs. See supra Part III.B.1. Moreover, Congress gave the SBA and contracting officers discretion to decide to place contracts within the 8(a) program, see 15 U.S.C. § 637(a), while dictating to contracting officers that a contract opportunity shall be awarded under the HUBZone statute on the basis of competition when certain criteria are met, see id. § 657a(b)(2)(B). The two programs are not in conflict because contracts may, in the contracting officers’ discretion, be placed within the 8(a) program whenever the HUBZone statutory criteria are not met. See id. § 637(a). The mandatory HUBZone statute has not preempted the 8(a) program, thereby rendering its statutory provisions meaningless. Nor does the HUBZone statute suggest that there is a category of laws that Congress intended to exclude from the application of the phrase “notwithstanding any other provision of law.” In contradistinction, there is no other statutory language within the Small Business Act that compels the conclusion that Congress intended the phrase “notwithstanding any other provision of law” to have a more limited meaning than its plain language indicates.

The court is not persuaded by defendant’s argument for its interpretation of the phrase “notwithstanding any other provision of law” and declines to interpret the statutory language to have a meaning more narrow than its plain language. “The courts must be guided by what the legislature said in the statute in question, not by what the courts may think the legislature said.” 2A Singer, supra, § 46:3, at 165-69. As the Supreme Court has stated, the use of a “notwithstanding” phrase in a statute “clearly signals the drafter’s intention that the provisions of the ‘notwithstanding’ section override conflicting provisions of any other section.” Cisneros v. Alpine Ridge Group, 508 U.S. 10, 18 (1993) (citing Shomberg v. United States, 348 U.S. 540, 547-48 (1955)). The Supreme Court also noted that the Courts of Appeals generally have “interpreted similar ‘notwithstanding’ language . . . to supersede all other laws, stating that a clearer statement is difficult to imagine.” Id. (quoting Liberty Mar. Corp. v. United States, 928 F.2d 413, 416 (D.C. Cir. 1991) (internal quotation marks and brackets omitted)).

“The introductory phrase ‘[n]otwithstanding any other provision of law’ connotes a legislative intent to displace any other provision of law that is contrary” to the terms of the law introduced by the phrase. See Shoshone Indian Tribe of Wind River Reservation v. United States (Shoshone), 364 F.3d 1339, 1346 (Fed. Cir. 2004) (holding that Congress intended, under the Department of the Interior and Related Agencies Appropriations Act, Public Law No. 108-7, that the statute of limitations contained in 28 U.S.C. § 2501 not begin to run on an Indian tribe’s claims until the claimant has been provided with an accounting). “Any other provision of law” therefore encompasses provisions found within the Small Business Act, including the provisions implementing the 8(a) program. The operative language of the statute combines the phrases “[n]otwithstanding any other provision of law” and the directive that the “contract opportunity shall be awarded” on the basis of competition among qualified HUBZone small business concerns whenever the specified criteria, or “rule of two,” see supra note 7, are met. See Shoshone, 364 F.3d at 1346 (concluding that the operative language of the statute at issue was “the combination of the phrases ‘[n]otwithstanding any other provision of law’ and the directive that the statute of limitations ‘shall not commence to run’ on any claim until an accounting is provided”). The combination of these two phrases supports the conclusion that the statutory language is mandatory and that the plain meaning of the HUBZone statute requires a contract opportunity to be competed among qualified HUBZone small business concerns whenever the specified criteria are met, notwithstanding other provisions of law--including those found within the Small Business Act itself.

b. “[S]hall be awarded”

According to the HUBZone statute, “a contract opportunity shall be awarded pursuant to [section 657a] on the basis of competition restricted to qualified HUBZone small business concerns” if the rule of two is met. 15 U.S.C. § 657a(b)(2)(B) (emphasis added). Plaintiff argues that “this language is clear on its face that the ‘shall’ mandates a set-aside for HUBZone small business concerns when the conditions of the HUBZone statute are met.” Pl.’s Mot. 8. In support of its argument, plaintiff refers to the similar interpretation reached by the GAO in Mission Critical Solutions, Comp. Gen. B-401057, 2009 CPD ¶ 93, 2009 WL 1231855 (May 4, 2009) and International Program Group, Inc., Comp. Gen. B-400278, B-400308, 2008 CPD ¶ 172, 2008 WL 4351134 (Sept. 19, 2008). Pl.’s Mot. 3-5, 8-9. Plaintiff also notes that the Ninth Circuit interpreted the HUBZone statutory language as mandatory, in contrast with the discretionary language of the 8(a) statute. Pl.’s Mot. 13 (citing Contract Mgmt., Inc. v. Rumsfeld, 434 F.3d 1145, 1149 (9th Cir. 2006)).

Defendant argues that the single word “shall” in one portion of a section of the Small Business Act is not sufficient to establish legislative intent that a statutory provision be mandatory. Def.’s Resp. 19. Defendant cites a Federal Circuit decision noting that “Congress’s use of the two terms ‘may’ and ‘shall’ does not end the analysis.” Id. (quoting Ky., Educ. Cabinet, Dep’t for the Blind v. United States, 424 F.3d 1222, 1227 (Fed. Cir. 2005)). Defendant argues that the court may consider “indications of legislative intent to the contrary or [] obvious inferences from the structure and purpose of the statute.’” Id. (quoting United States v. Rodgers, 461 U.S. 677, 706 (1983)). Defendant further argues that, even if the use of the word “shall” does create a priority for HUBZone competition when the rule of two is met, that priority is over HUBZone sole source awards rather than over 8(a) concerns, which are governed under a separate section of the Small Business Act. Id. According to defendant, the language of the HUBZone competition provision should be interpreted in relation to the sole-source provision that comes just before it in the HUBZone statute. Def.’s Resp. 19, 20. The HUBZone statute provides that “a contracting officer may award sole source contracts under this section to any qualified HUBZone small business concern” if certain criteria are met. 15 U.S.C. § 657a(b)(2)(A) (emphasis added). Defendant argues that “the structure of the HUBZone program section establishes that the ‘shall’ in the HUBZone restricted competition provisions of 15 U.S.C. § 657a(b)(2)(B) is intended to be contrasted with the ‘may’ in the HUBZone sole source provisions of 15 U.S.C. § 657a(b)(2)(A)[,] not the 8(a) provisions.” Def.’s Resp. 20. Because the two parallel provisions are structurally tied and represent two methods of awarding a contract, “it therefore makes most sense to compare these two methods to each other” according to defendant. Id.

“The word ‘shall’ is ordinarily ‘[t]he language of command.’ And when the same [r]ule uses both ‘may’ and ‘shall,’ the normal inference is that each is used in its usual sense-the one act being permissive, the other mandatory.” Anderson v. Yungkau, 329 U.S. 482, 485 (1947) (citations omitted). Although there may be certain circumstances under which the court must analyze further Congress’s intent in using the words “shall” and “may,” such an analysis is not warranted here. Indeed, the case cited by defendant for the proposition that the court’s analysis should extend beyond Congress’s choice of terms did not suggest that the legislative use of the word “shall” should be questioned but rather involved the discretionary nature of “may.” See United States v. Rodgers, 461 U.S. 677, 706 (1983) (“The word ‘may,’ when used in a statute, usually implies some degree of discretion. This common-sense principle of statutory construction is by no means invariable, however, . . . and can be defeated by indications of legislative intent to the contrary or by obvious inferences from the structure and purpose of the statute.”). “‘Shall’ is considered presumptively mandatory unless there is something in the context or the character of the legislation which requires it to be looked at differently.” 3 Singer, supra, §57:2, at 8-9 (emphasis added).

The court interprets the language of the HUBZone competition provision--“shall be awarded”--to be mandatory, such that a contract opportunity must be set aside for competition among qualified HUBZone small business concerns whenever the rule of two is met. The court agrees that the “shall” of the competition provision contrasts with the “may” of the sole-source provision but does not conclude that the mandatory nature of the HUBZone competition provision is bounded by this relationship. The court concludes that the HUBZone competition provision is properly interpreted as mandatory in relationship to both the sole-source provision and the 8(a) program provisions, and that this interpretation is further supported by the differences in the statutory language providing authority for contract decisionmaking and program administration.

c. “[O]ffered for award pursuant to this section”

In contrast to the HUBZone statute, the 8(a) statute explicitly affords discretion both to the SBA and to agency contracting officers in deciding whether to place a contract opportunity in the 8(a) program. As to the discretion of the SBA, the 8(a) statute provides: “It shall be the duty of the Administration and it is hereby empowered, whenever it determines such action is necessary or appropriate . . . to enter into contracts with the United States Government and any department, agency, or officer thereof having procurement powers . . . .” 15 U.S.C. § 637(a)(1)(A) (emphasis added). As to the discretion of agency contracting officers, the 8(a) statute provides that a contracting officer “shall be authorized in his discretion to let such procurement contract [as to which the SBA has certified it is “competent and responsible to perform”] to the Administration.” Id. (emphasis added). The Small Business Administration is then empowered “to arrange for the performance of such procurement contracts by negotiating or otherwise letting subcontracts to socially and economically disadvantaged small business concerns . . . as may be necessary to enable the Administration to perform such contracts” and “to make an award to a small business concern owned and controlled by socially and economically disadvantaged individuals.” Id. § 637(a)(1)(B)-(C).

(sections deleted)

The court has examined the language of the Small Business Act, in particular the HUBZone and 8(a) statutes, to determine whether the statutory language provides for the prioritization of the HUBZone program over the 8(a) program or provides for parity between the programs. The court agrees with both parties in this case that Congress’s statements of policy and goals do not appear to distinguish between the programs or prioritize one over the other. However, the statutory language implementing the HUBZone and 8(a) programs indicate that the HUBZone program takes priority over the 8(a) program whenever the specified criteria found in 15 U.S.C. § 657a(b)(2)(B) are met. The court has concluded that the phrase “[n]otwithstanding any other provision of law” encompasses provisions found within the Small Business Act, including the provisions implementing the 8(a) program. The operative language of the HUBZone statute combines the phrases “[n]otwithstanding any other provision of law” and the directive that the “contract opportunity shall be awarded” on the basis of competition among qualified HUBZone small business concerns whenever the specified criteria are met. The combination of these two phrases supports the conclusion that the statutory language is mandatory and that the plain meaning of the HUBZone statute requires a contract opportunity to be competed among qualified HUBZone small business concerns whenever the specified criteria are met, notwithstanding other provisions of law-- including those found within the Small Business Act itself. The court has concluded that the HUBZone competition provision is properly interpreted as mandatory in relationship to both the sole-source provision and the 8(a) program provisions, and that this interpretation is further supported by the differences in the statutory language providing authority for contract decisionmaking and program administration. Unlike the 8(a) statute and the sole-source provision of the HUBZone statute, the HUBZone competition provision does not afford the contracting officer discretion to decide whether or not to award a contract in accordance with its terms. Instead, the HUBZone statute provides that “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 . . . .” 15 U.S.C. § 657a(b)(2)(B) (emphasis added).  (Mission Critical Solutions, v. U. S., No. 09-864C, March 2, 2010) (pdf)  (Note:  See Comptroller General decisions above on this subjext.)


In this case, Aeolus was disqualified for award because it failed to satisfy the HUBZone program requirement that at least 35% of its employees reside in a HUBZone. See 13 C.F.R. § 126.200(b)(4). The record is uncontroverted that, at the time of its initial and final offers for the Army contract, Aeolus had two putative employees, Mr. Philipose and Mr. Louisa. Because Mr. Philipose did not live in a HUBZone, Aeolus’s program eligibility depended completely on Mr. Louisa’s status. The parties agree that Mr. Louisa lived in a HUBZone at all relevant times. On the dates at issue, however, Mr. Louisa had agreed to “defer” his compensation. Based on that arrangement, the SBA held that Mr. Louisa was not an “employee” of Aeolus as that term is defined in the HUBZone regulations, and that his place of residence could not be relied upon to satisfy the 35% residency requirement.7 AR at 1810 (“[W]e decline to allow non-owners who defer compensation to be counted as employees under the HUBZone definition.”).

(Sections deleted)

The parties agree that, in this case, “the SBA is interpreting its own regulations, promulgated for the purpose of implementing 15 U.S.C.A. §§ 632(p)(3)(A) and (p)(5)(A)(i)(I)(aa) . . . under the HUBZone Act.” Pl.’s Mot. at 9. Indeed, there is no question that the SBA promulgated 13 C.F.R. § 126.103 “through the notice-and-comment rule making procedures of the Administrative Procedure Act,” pursuant to its congressionally mandated authority to administer the provisions of the Small Business Act. See Pl.’s Mot. at 12. This is critical because, “[a]s a general rule, [the court] must defer to an agency’s interpretation of the regulations it promulgates, as long as the regulation is ambiguous and the agency’s interpretation is neither plainly erroneous nor inconsistent with the regulation.” Gose v. United States Postal Serv., 451 F.3d 831, 836 (Fed. Cir. 2006) (citations omitted). In fact, the court must “defer even more broadly to an agency’s interpretations of its own regulations than to its interpretation of statutes, because the agency, as the promulgator of the regulation, is particularly well suited to speak to its original intent in adopting the regulation.”11 Id. at 837 (citing Cathedral Candle Co. v. United States Int’l Trade Comm’n, 400 F.3d 1352, 1363- 64 (Fed. Cir. 2005) and Am. Express Co. v. United States, 262 F.3d 1376, 1382-83 (Fed. Cir. 2001)). Accordingly, “an agency’s interpretation of its own regulation is ‘controlling’ unless ‘plainly erroneous or inconsistent with’ the regulations being interpreted.” Long Island Care at Home, Ltd. v. Coke, 127 S. Ct. 2339, 2349 (2007) (quoting Auer v. Robbins, 519 U.S. 452, 461 (1997)) (internal quotations omitted). Deference is required even if an alternative interpretation of the regulation might comport with the regulatory language more closely than does the interpretation of the agency. Gose, 451 F.3d at 837 (citation omitted); see also Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 515 (1994) (“The Secretary’s interpretation . . . is far more consistent with the regulation’s unqualified language than the interpretation advanced by petitioner. But even if this were not so, the Secretary’s construction is, at the very least, a reasonable one, and we are required to afford it ‘controlling weight.’” (quoting Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414 (1945))).

Here, the parties agree that both the HUBZone statute and the SBA’s implementing regulations are silent on the question of whether workers who receive deferred compensation are “employees” for purposes of the HUBZone program. Indeed, the regulation which defines the term “employee” fails to address that topic altogether. Because the relevant sources of law are ambiguous regarding the issue presented in this protest, the court must defer to the SBA’s interpretation, so long as it is not inconsistent with the regulation, or plainly erroneous. Long Island Care at Home, 127 S. Ct. at 2349.

(sections deleted)

Finally, the court agrees with the United States that the SBA’s well-reasoned decision in this case does, in fact, support and promote the underlying goals of the HUBZone program. Plaintiff may be correct that, in some cases, a worker’s inability to enter into a deferred compensation agreement with a HUBZone concern will hinder his or her ability to secure work with that concern. However, the extent to which such a restriction will undermine the goals of the HUBZone program will likely be slight in comparison with the potential for abuse which would arise from a contrary rule for HUBZone contractors. Further, although the SBA may have the means to track the salary histories of HUBZone workers, the court agrees with the agency that it would be impractical to expect the SBA to do so. For these reasons, the court agrees with defendant that the SBA’s decision is a reasonable and effective means by which to promote the goals of the HUBZone program. Moreover, even if the court did not agree with the agency’s conclusions, a reversal of its findings still would not be appropriate because the SBA decision is a reasonable interpretation of its own statute. Thomas Jefferson University, 512 U.S. at 515 (requiring deference to an agency interpretation of its own regulation, where that interpretation is reasonable).

For all of these reasons, the court concludes that the SBA’s interpretation of its own regulation was not inconsistent or plainly erroneous, and is thus entitled to substantial deference. Long Island Care at Home, 127 S. Ct. at 2349. The court must also afford substantial deference to the SBA’s decision because it was clearly based on a reasoned consideration of the issues presented. See id. Under that deferential standard, the SBA’s decision was reasonable, and not “‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’” Bannum, 404 F.3d at 1351 (citation omitted). Plaintiff’s claim that the decision was arbitrary, capricious, an abuse of discretion, or otherwise contrary to law is without merit.  (Aeolus Systems, LLC, v. U. S. and Global Solutions Network, Inc., No. 07-581C, October 31, 2007) (pdf)


The question at issue in this case is whether Si-Nor met the HUBZone requirements at the time of bid opening (October 2002). In other words, if SBA had conducted an investigation into Si-Nor’s HUBZone eligibility, in response to a proper status protest, would it have found that, at the time of bid opening, Si-Nor met all HUBZone requirements? The Court finds that none of the three decisions cited by defendant establish that Si-Nor met the principal office requirement at the time of bid opening. First, SBA’s November 2002 actions do not constitute an “investigation” for purposes of a status protest. In response to an e-mail, a SBA Assistant District Director (“ADD”) conducted an unannounced visit to Si-Nor’s Bandini office. Def-Int.’s Motion to Suppl. Adm. Rec. Ex. A. The ADD did not visit Si-Nor’s other sites, nor did he seek information about these other sites. The ADD merely observed cars in the parking lot and an office trailer with a secretary and two yard workers. Based solely on these observations, he concluded that the Bandini office “appears to be the principal office where the employees report to for their daily assignments.” Id. (emphasis added). He then conveyed this information to the HUBZone Program’s Area Director via e-mail. This cursory visit hardly constitutes a formal investigation for purposes of a status protest. Second, SBA’s December 2003 and February 2004 decisions do not determine whether Si-Nor met the HUBZone requirements at the time of bid opening. Thus, the Court finds that the question remains unanswered. (Mark Dunning Industries, Inc. v. U. S. and Si-Nor, Inc., No. 03-465C, May 27, 2004) (pdf)


It is concluded that no prejudicial error occurred by reason of the omission of the FAR 52.219-4 notice clause from the RFP. The RFP required offerors to list their small business or HUBZone small business status. Delaney and Tug Hill did so, indicating clear knowledge as to the existence of small business and HUBZone provisions. Whatever the merit of the several decisions by the Comptroller General, cited by the parties, that missing provisions cannot be read into a solicitation, these decisions lack substance where, as here, the HUBZone statute itself mandates the price evaluation preference. However, this mandate does not apply to small business offers and Delaney self-certified as a small business. The Corps was entitled to rely on this certification for award purposes, and the postaward protest and small business size determination that Delaney’s certification was erroneous does not impact the legality of the prior award. FAR 19.302(j); see Midwest Construction, Ltd. v. United States, 181 Ct. Cl. 774, 387 F.2d 957 (1967)

The fact remains that the Fort Drum road contract was awarded without HUBZone price evaluation on the basis of a faulty small business certification. In this circumstance, contract termination action by the Corps, at this early stage after award, in connection with proceeding to a new award on the same RFP would not engender a basis for relief pursuant to the standards set forth in section 706 of Title 5 [Administrative Procedure Act]. 28 U.S.C. § 1491(b)(4). This action by the Corps would have a rational basis. See Landmark Constr. Corp., B-281957.3, 99-2 CPD ¶ 75 (Oct. 22, 1999); Diagnostic Imaging Technical Education Center, Inc., B-257, 590, 94-2 CPD ¶ 148 (Oct. 21, 1994).  On the other hand, after termination action amending the RFP simply to include the FAR 52.219-4 notice clause and then seeking new price proposals does present a situation calling for equitable relief. As noted, HUBZone price evaluation was mandated for this contract award by 15 U.S.C. § 657a(b)(3)(A).  No contract clause was required to subject this award process to the mandated price evaluation. While the FAR 52.219-4 notice clause was omitted from the RFP, the record contains no evidence that the presence of this clause would have any additional impact on price competition. This is clearly evident from the illogical argument of defendant and plaintiff that the FAR 52.219-4 clause is needed to provide a place for a HUBZone small business to indicate that it waives the statutory price evaluation preference should it wish to do so.  Besides the fact that waiver can otherwise be included in an offeror’s proposal, each offerors’ proposal cannot be disclosed to other offerors during the award process. Thus no offeror can know whether the HUBZone price evaluation will be applicable or whether it has been waived by one or more HUBZone small business offerors. Only the government has this information as contained in each proposal. Price competition could not be affected by the presence or omission of the FAR 52.219-4 clause.

Furthermore, the prices proposed by all offerors for the Fort Drum contract have been mistakenly disclosed by the Corps. Based on this disclosure and where no useful purpose would be served by amending the RFP to add the omitted FAR 52.219-4 notice clause and then obtain new price proposals, it is concluded that these portions of the proposed corrective procedure would comprise arbitrary action. See MCII Generator & Electric, Inc. v. United States, No. 02-85 C, 2000 U. S. Claims LEXIS 172 (Mar. 18, 2002).  (Delaney Construction Corporation, Tug Hill Construction, Inc., v. U. S. , No. 03-193C, May 19, 2003)  (pdf)

U. S. Court of Federal Claims - Listing of Decisions
For the Government For the Protester
New Dorado Services, Inc. v. U. S. and GEO International Management, Inc., No. 16-945C, October 18, 2016 DGR Associates, Inc. v. U. S. and General Trades & Services, Inc., No. 10-396c, August 13, 2010)  (pdf)  (Note:  See Comptroller General decisions above on this subject.)
AquaTerra Contracting, Inc. v. U. S. and Shavers-Whittle Construction, Inc., No 13.587C, November 22, 2013  (pdf) Mission Critical Solutions, v. U. S., No. 09-864C, March 2, 2010 (pdf)  (Note:  See Comptroller General decisions above on this subject.)
RCD Cleaning Service, Inc. v. U. S. and Federal Maintenance Hawaii, Inc., No. 11-13C, April 13, 2011 (pdf)  Also see RCD Cleaning Service, Inc. v. U. S. and Wincor Properties, LLC, No. 11-89C, April 13, 2011 (pdf) Mark Dunning Industries, Inc. v. U. S. and Si-Nor, Inc., No. 03-465C, May 27, 2004 (pdf)
Mission Critical Solutions v. U. S., No. 10-810C, March 8, 2011 (pdf) Delaney Construction Corporation, Tug Hill Construction, Inc., v. U. S. , No. 03-193C, May 19, 2003  (pdf)
Aeolus Systems, LLC, v. U. S. and Global Solutions Network, Inc., No. 07-581C, October 31, 2007 (pdf)  
   
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