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FirstLine’s primary objection to the
SPP solicitation is to its establishment of a 40 percent small
business subcontracting goal. The relevant section of the
solicitation, L.6 (Proposal Submission Requirements), states
that the “Government anticipates an overall Small Business goal
of 40 percent,” and that “[w]ithin that goal, the government
anticipates further small business goals of: [(1)] Small,
Disadvantaged business[:] 14.5%; [(2)] Woman Owned[:] 5 percent;
[(3)] HUBZone[:] 3 percent; [(4)] Service Disabled, Veteran
Owned[:] 3 percent.” AR at Tab 4, p. 175-76. Further:
[t]he contracting officer will review the
subcontracting plan for adequacy, ensuring that the required
information, goals and assurances are included in accordance
with FAR 19.705-4. The subcontracting plan will be negotiated
prior to contract award. If the apparently successful offeror
fails to negotiate a subcontracting plan acceptable to the
contracting officer before contract award, the offeror will be
ineligible for award.
Offerors will be required to demonstrate
the extent of their Small Business participation through the
submission of a small business subcontracting plan in accordance
with the criteria set forth in FAR Part 19.704 ‘Subcontracting
Plan Requirements.’ Thus any offeror that is not a Small
Business must submit a Sub-Contracting Plan in accordance with
FAR 52.219-9 that addresses all elements of FAR Part 19.704(a).
The contracting officer will review the subcontracting plan for
adequacy, ensuring that the required information[,] goals, and
assurances are included in accordance with FAR 19.705-4.
As part of the procurement process, TSA
accepted questions from potential offerors and, on September 10,
2012, issued a second amendment to the solicitation that
contained, inter alia, written answers to the same. Id. at Tab
6. In response to a question related to the measurement of the
40 percent small business goal, TSA stated that the “goal
represents 40% of the total contract value.” Id. at p. 307
(Question 189). TSA also answered affirmatively the question
“[i]s it the TSA’s intent that all large businesses [be]
mandated to have, as a minimum, 40% small business participation
… as part of their overall bid?” Id. at p. 308 (Question 190).
In response to the question “[h]ow will the 40% goal be factored
into the offeror’s overall evaluation and score …?” the agency
stated that plans “will be reviewed for adequacy…. [I]f the
successful offeror fails to negotiate a subcontracting plan
acceptable to the contracting officer … the offeror will be
ineligible for award.” Id. (Question 191). Finally, in response
to the question “[w]ill offerors with less than 40% be
disqualified?,” TSA referred prospective offerors to its answer
to the prior question. Id. (Question 192).
On September 27, 2012, after Plaintiff
initiated this bid protest, TSA amended its responses to several
of these questions. Id. at Tab 16, p. 710. Specifically, in
response to Question 190, which asked whether 40 percent small
business participation, as a percent of total contract value,
was “mandatory,” TSA amended its answer to state:
Failure to meet the stated 40% small
business participation goal would not necessarily render a
proposal ineligible for award. However, the U.S. Small Business
Administration (SBA) is responsible for ensuring that the
government-wide goal for participation of small business
concerns is established annually at the statutory levels, and
the reporting agencies’ (to include the Department of Homeland
Security, of which TSA is a component) achievements are relative
to the goals. Consistent with these goals, TSA fully supports
participation of small businesses in all full and open
competitions, such as the current solicitation, to the greatest
extent possible. Offerors for this solicitation are therefore
strongly encouraged to aggressively support the small business
participation goals stated in the solicitation. In the context
of these goals and the locality for which an offeror develops
its individual subcontracting plan, the TSA Contracting Officer
will review any proposed subcontracting plan to ensure that the
offeror has demonstrated due diligence in its efforts to meet
the stated goals.
1. FirstLine’s Challenge
FirstLine originally challenged the 40
percent small business participation standard on the
understanding that it constituted a bright-line requirement, not
a goal. See Compl. ¶¶56-70. However, even after TSA made the
above corrections, FirstLine still contends that the 40 percent
goal is (1) contrary to certain provisions of the FAR as well as
the Competition in Contracting Act (“CICA”), 10 U.S.C. § 2305,
and (2) lacking a rational basis. FirstLine advances several
arguments why this is so.
As an initial matter, Plaintiff argues that
notwithstanding the agency’s use of the word “goal” and its
clarifying amendment to the Q&A, multiple (un-amended) sections
of the RFP – including Section L.6 (Proposal Submission
Requirements), quoted at length above – continue to grant TSA
the ability to exclude as nonresponsive any proposal that falls
short of the subcontracting standard. Pl. Mem. at 23-24; Pl.
Reply at 9-11; see also AR at Tab 4, p. 181 (RFP § M.4 (Order of
Importance), providing under the heading of “Compliance /
Responsiveness” that “[p]roposals that do not respond to all the
requirements in the solicitation may be rejected without further
evaluation, deliberation, or discussion. The Government may
reject any proposal that is evaluated to be significantly not
compliant with or responsive to the solicitation requirements.
The CO will review … specifically the following … (6)
Subcontracting Plan[.]”).
Even if the 40 percent standard were truly
a goal, however, FirstLine maintains that it is contrary to law
and regulation, as well as arbitrary and capricious, for the
following reasons.
First, Plaintiff contends that the 40
percent small business goal violates the plain meaning of FAR
52.219-9 and FAR Subpart 19.7, both of which reference small
business goals in terms of a percentage of total subcontracting
dollars, not total contract dollars. Pl. Mem. at 10-11; see also
FAR 52.219-9(d)(1) (providing that an “offeror’s subcontracting
plan shall include … [g]oals, expressed in terms of percentages
of total planned subcontracting dollars …”); FAR 52.219-9(b)
(defining an “individual contract plan” as “a subcontracting
plan that covers the entire contract period …, applies to a
specific contract, and has goals that are based on the offeror’s
planned subcontracting in support of the specific contact…”);
FAR 19.701 (same).
Second, FirstLine argues that the 40
percent standard violates CICA’s requirement that agencies
“solicit bids or proposals in a manner designed to achieve full
and open competition for the procurement.” Pl. Mem. at 11; 10
U.S.C. § 2305. Essentially, FirstLine’s argument here is that by
“dramatically limit[ing] the offerors [i.e., subcontractors]
that [are] eligible to perform forty percent of the total
contract value,” the RFP violates this general mandate of CICA.
Id. (emphasis removed).
Third, FirstLine contends that the small
business goal is unlawful because it “improperly uses the FAR’s
subcontracting provisions to impose, in effect, a partial
set-aside of 40 percent of the contract without complying with
the set-aside requirements set forth in FAR[.]” Id. at 12. More
specifically, FirstLine argues that the 40 percent goal is in
contravention of FAR 19.502-3(a), which provides that a
contracting officer “shall” set aside a portion of the work to
be performed under a contract for “exclusive small business
participation” when (among other conditions) “the requirement is
severable into two or more economic production runs or
reasonable lots,” and “[o]ne or more small business concerns are
expected to have the technical competence and productive
capacity to satisfy the set-aside portion of the requirement at
a fair market price[.]” FAR 19.502-3(a)(2), (3). In FirstLine’s
estimation, “providing passenger screening services at a major
airport like MCI is not the type of activity that can be divided
into reasonable lots and set-aside without sacrificing high
quality performance and competitive pricing.” Pl. Mem. at 12.
Fourth, FirstLine argues that TSA’s failure
to analyze adequately either the feasibility of the 40 percent
standard or its impact on cost and the quality of performance is
both (1) contrary to FAR and (2) evidence that the goal is
arbitrary and capricious.
With respect to the first of these
arguments, FirstLine posits that relevant provisions of the FAR
“obligate” TSA to conduct market research that specifically
identifies sufficient qualified small businesses prior to
establishing any small business participation goals. Pl. Reply
at 16. In support of this argument, Plaintiff cites, inter alia,
FAR 7.102(a)(2) (requiring agencies to “perform acquisition
planning and conduct market research … for all acquisitions in
order to promote and provide for …[f]ull and open
competition[.]”); FAR 10.001(a)(3)(i) (agencies must “use the
results of the market research to [d]etermine if sources capable
of satisfying the agency’s requirements exist[.]”); FAR
10.002(b)(1)(vii) (market research should include the
determination of, among other things, the “[s]ize and status of
potential sources”); and FAR 19.705-4(a)(1), (c) (respectively,
in reviewing subcontracting plans, the contracting officer
“shall consider … [the] [p]revious involvement of small business
concerns as prime contractors or subcontractors in similar
acquisitions,” and “[in] negotiated acquisitions …[s]ubcontracting
goals should be set at a level that the parties reasonably
expect can result from the offeror expending good faith efforts
to use small businesses”). Pl. Reply at 15-16. In essence,
Plaintiff contends that “[t]aken together,” these provisions
impose an affirmative obligation on TSA to “ascertain whether
sufficient qualified small businesses exist prior to
establishing the [small business subcontracting] ‘goals.’” Id.
at 16.
While TSA did, in fact, conduct market
research prior to issuing the challenged solicitation, see AR at
Tab 11, FirstLine argues that it fell short of the specificity
allegedly required by this collection of FAR provisions. For
example, the report lists thirteen firms that were “specifically
researched to determine size, capabilities, past performance,
and special business practices,” only four of which were
“small,” and none of which were identified as disadvantaged,
woman-owned, HUBZone, or SDVOSB. Id. at p. 627.
Finally, FirstLine argues that the contents
of the market research report demonstrate that the 40 percent
goal is irrational. One part of this argument flows directly
from FirstLine’s assertion that TSA was required to specifically
identify sufficient qualified small business concerns before
establishing the subcontracting goal. In Plaintiff’s words,
“[i]mposing small business participation requirements for
specific types of small businesses without identifying whether
any of the specific types of small businesses even exist is the
epitome of arbitrary agency action.” Pl. Mem. at 15. In a more
general sense, however, FirstLine also argues that the dearth of
evidence showing whether TSA conducted any inquiry into small
business participation in screening services establishes that
this goal is irrational. Thus, Plaintiff posits that:
If TSA had thought about how its approach
would impact performance and price, and determined that any
negative impact to performance and price is outweighed by the
benefit of promoting small business participation, that decision
would be afforded appropriate deference. But the administrative
record shows that TSA undertook no analysis of any kind, and an
agency that fails to apply its expertise through reasoned
decision-making is not due any deference from a reviewing court.
Pl. Reply at 15; see also Pl. Mem. at
16-17.
2. Defendant’s Response
Defendant counters that the 40 percent
small business goal is lawful, rational, and an appropriate
application of the express “policy of the Government to provide
maximum practicable opportunities in its acquisitions to small
business [concerns].” Gov’t Mem. at 11 (quoting FAR 19.201(a));
see also FAR 52.219-8(a). Although the Government acknowledges
that FAR 52.219-9 and Subpart 19.7 speak of small business goals
in terms of a percentage of total subcontracting dollars (as
opposed to total contract dollars), it argues that nothing in
either of these provisions, nor any other part of the FAR,
prohibits an agency from setting a small business goal expressed
as a percentage of total contract price. Thus, Defendant argues
that FirstLine does not, and cannot, identify a single
affirmative bar to such a practice, and cites FAR 1.102(d) for
the proposition that a procurement strategy is permissible if
not specifically prohibited. Gov’t Reply at 2. That provision
states:
In exercising initiative, Government
members of the Acquisition Team may assume if a specific
strategy, practice, policy or procedure is in the best interests
of the Government and is not addressed in the FAR, nor
prohibited by law (statute or case law), Executive order or
other regulation, that the strategy, practice, policy or
procedure is a permissible exercise of authority.
FAR 1.102(d).
Moreover, as Defendant points out,
“[b]ecause an offeror knows (and must identify) the total
contract dollars that it intends to subcontract, an offeror’s
small business goals can be readily expressed in terms of both
total contracting dollars and subcontracting dollars.” Gov’t Mem.
at 8 (citing FAR 19.704(a)(2)) (emphasis in original). Thus, the
agency argues that there is nothing inconsistent between the
language employed by the FAR and TSA’s establishment of a small
business goal expressed as a percentage of total contract value
– and, as evidence of such, points to the fact that several
agencies have engaged in such practices without challenge. See
Gov’t Reply at 3 n.1 (collecting solicitations).
Emphasizing that the 40 percent standard is
a “goal,” not a requirement, Defendant also rejects Plaintiff’s
contention that this term constitutes a “set-aside,” and argues
that “[i]f anything, the FAR’s provisions permitting an agency
to set-aside an entire contract, or portion of a contract, for
exclusive small business participation bolsters an agency’s
discretion to set small business subcontracting goals as it
deems appropriate.” Gov’t Mem. at 10. Similarly, Defendant
contends that properly understood as a goal, the 40 percent
standard does nothing to restrict “full and open competition,”
and therefore cannot be in contravention of CICA. Id.
Moreover, with respect to Plaintiff’s
irrationality argument, Defendant quotes FAR 19.201(a) for the
proposition that:
It is the policy of the Government to provide maximum
practicable opportunities in its acquisitions to small business,
veteran-owned small business, service-disabled veteran small
business, HUBZone small business, small disadvantaged business,
and women-owned small business concerns. Such concerns must also
have the maximum practicable opportunity to participate as
subcontractors in the contracts awarded by an executive agency,
consistent with efficient contract performance.
Defendant argues that the 40 percent goal
is fully consistent with this policy, and within its discretion
to establish. Pl. Mem. at 11. It cites the proposition that
government officials are presumed to act in good faith, id. at
13 (citing Eskridge Research Corp. v. United States, 92 Fed. Cl.
88, 95 (Fed. Cl. 2010)), and argues that any challenge to the
business participation standard “ignores the evaluation process
set forth in the solicitation and [constitutes] a premature
challenge to a review that TSA has not yet performed.” Gov’t
Reply at 5-6 (citing id.).
Defendant emphasizes that the solicitation
and the FAR call for an offeror’s subcontracting plan to be
subject to a reasoned negotiation between the offeror and the
contracting officer, with the contracting officer reviewing
proposed subcontracting plans for evidence of the offeror’s “due
diligence” in meeting the goal. Gov’t. Reply at 5 (citing AR at
Tab 4, p. 17 and FAR 19.705-4(c)). Defendant also states that
FirstLine’s irrationality argument is based on the faulty and
baseless assumption that “utilizing small business
subcontractors will negatively affect the quality of security
screening services at MCI.” Id. at 6. Lastly, although Defendant
concedes that the 40 percent goal “could have an effect on the
total cost of its contracts generally and on this contract
specifically,” it states that the agency places a greater
priority on maximizing small business participation than it does
on achieving the lowest possible cost for this procurement.
Gov’t Reply at 7. In sum, Defendant argues that its “experience
with small businesses who [sic] have successfully performed
security screening services, along with the Government’s policy
of maximizing opportunities to small business concerns, provides
ample justification” for its decision to establish the 40
percent goal. Id. at 6-7.
3. The Court’s Resolution
If the Court were issuing this solicitation
instead of this agency, it may well have based the rather
aggressive small business goals on more robust market research,
and it likely would have stated the goals as a percentage of
subcontracting dollars, as FAR Part 19 authorizes. In this way,
the prime contract offerors would have had the discretion to
determine on their own how much of the work they were prepared
to subcontract, and the desired level of subcontracting would
not have been dictated by the federal agency. Nonetheless, the
Court finds that under the applicable standards of review, it
does not particularly matter that the Court might have conducted
this procurement differently. What matters is the difficult
burden of proof that a protester must meet in order to prevail.
FirstLine has fallen short of establishing its entitlement to
judicial relief, for the following reasons.
a. The 40 Percent Standard is a Goal, Not a
Requirement
First, the Court is satisfied that TSA’s
September 27, 2012 amendment adequately addresses FirstLine’s
concern that the 40 percent standard will operate as a
bright-line requirement or “set-aside.” That amendment clearly
states that “[f]ailure to meet the stated 40% small business
participation goal would not necessarily render a proposal
ineligible for award,” and also expresses the agency’s
expectation that prospective offerors “aggressively support …
small business participation” by “demonstrat[ing] due diligence
in [their] effort[s] to meet the stated goals.” AR at Tab 16, p.
710 (Revised Question 190).
Notwithstanding this language, FirstLine
has cited other terms of the solicitation for the proposition
that TSA retains the discretion to exclude as non-responsive any
proposal that falls short of the subcontracting goal. The Court
disagrees. For example, Section L.6 (Proposal Submission
Requirements) states that:
The contracting officer will review the
subcontracting plan for adequacy, ensuring that the required
information, goals and assurances are included in accordance
with FAR 19.705-4. The subcontracting plan will be negotiated
prior to contract award. If the apparently successful offeror
fails to negotiate a subcontracting plan acceptable to the
contracting officer before contract award, the offeror will be
ineligible for award.
AR at Tab 4, p. 176. Several aspects of
this language, and related regulations, are salient here. First,
the Court disagrees with FirstLine’s assertion that Section L.6
“provides that an offeror that fails to meet the ‘small business
goals’ will be ‘ineligible for award.’” Pl. Mem. at 23-24
(emphasis added). By its plain terms, Section L.6 is simply not
that draconian: it does not speak in terms of failing to meet a
bright-line threshold, but rather in terms of “fail[ing] to
negotiate a subcontracting plan acceptable to the contracting
officer before contract award[.]”
Second, nothing in FAR 19.705-4, which
contains the standards under which a contracting officer must
review and negotiate a subcontracting plan, provides support for
FirstLine’s assertion that a proposal falling short of the 40
percent goal could be rejected, without further analysis, as
non-responsive. To the contrary, FAR 19.705-4 lists a number of
factors that a contracting officer must take into consideration
in evaluating (and negotiating) an offeror’s proposed
subcontracting plan. As FirstLine pointed out at oral argument,
many of these considerations run, in essence, to both the
reasonableness and feasibility of subcontracting at given levels
within a given procurement. They include, for example, the
“[p]revious involvement of small business concerns as prime
contractors or subcontractors in similar acquisitions,” and
“[p]roven methods of involving small business concerns as
subcontractors in similar acquisitions.” FAR 19.705-4(a)(1),
(2). Moreover, under subsection (d)(2), the contracting officer
must:
[E]nsure that the goals offered are
attainable in relation to --
(i) The subcontracting opportunities
available to the contractor, commensurate with the efficient and
economical performance of the contract;
(ii) The pool of eligible subcontractors
available to fulfill the subcontracting opportunities; and
(iii) The actual performance of such
contractor in fulfilling the subcontracting goals specified in
prior plans.
And, under subsection (5), when evaluating
subcontracting potential, the contracting officer must also take
into account “the known availability of small business,
veteran-owned small business, service-disabled veteran-owned
small business, HUBZone small business, small disadvantaged
business, and women-owned small business concerns in the
geographical area where the work will be performed, and the
potential contractor's long-standing contractual relationship
with its suppliers.”
FirstLine may well be correct that a number
of these considerations will ultimately cut against the
feasibility of any offeror fully realizing the 40 percent goal
established by TSA. What FirstLine fails to appreciate, however,
is that precisely for this reason, FAR 19.705-4 provides a
structural safeguard for proposed plans that may fall short of
the 40 percent goal. By requiring the contracting officer to
take such ameliorating factors into consideration when
evaluating proposed plans for adequacy, FAR 19.705-4 ensures
that a proposal falling short of the subcontracting goal must
nonetheless be given due consideration before being rejected as
non-responsive. Indeed, subsection (c) of the provision counsels
that “[n]o goal should be negotiated upward if it is apparent
that a higher goal will significantly increase the Government’s
cost or seriously impede the attainment of acquisition
objectives.” Thus, neither Section L.6 nor FAR 19.705-4 converts
the 40 percent goal into a bright-line requirement.
As noted above, FirstLine also cites
Section M.4 in support of its argument that the goal is a
requirement in disguise. This section provides, under the
heading of “Compliance/Responsiveness” that “[p]roposals that do
not respond to all the requirements in the solicitation may be
rejected without further evaluation, deliberation, or
discussion. The Government may reject any proposal that is
evaluated to be significantly not compliant with or responsive
to the solicitation requirements. The CO will review …
specifically the following … (6) Subcontracting Plan[.]” AR at
Tab 4, p. 181. The section then goes on to state that “[t]he
Contracting Officer will conduct a separate determination of
responsibility….” Id.
The Court agrees with Plaintiff that the
placement of this language under the heading of
“Compliance/Responsiveness” is in tension with TSA’s otherwise
abundantly clear assertion that the 40 percent small business
participation standard constitutes a goal, not a requirement. As
TSA has made its position clear on this point throughout the
course of this litigation, the Court assumes that TSA’s failure
to amend this language as part of its corrective action was an
oversight. The Court would expect TSA to remove this lingering
ambiguity in the terms of the solicitation.
b. The 40 Percent Goal is Lawful
The Court also holds that the 40 percent
goal is lawful. Although FAR 52.219-9 and Subpart 19.7 speak of
small business goals in terms of a percentage of total
subcontracting dollars (as opposed to total contract dollars),
the Court agrees with Defendant that nothing in the FAR
affirmatively prohibits an agency from establishing such goals
in terms of total contract value. As Defendant points out, FAR
1.102(d) expressly provides that contracting officers “may
assume if a specific strategy, practice, policy or procedure …
is not addressed in the FAR, nor prohibited by law (statute or
case law), Executive order or other regulation, that the
strategy, practice, policy or procedure is a permissible
exercise of authority.”
At oral argument, counsel for Plaintiff
conceded that nothing in the FAR expressly prohibits the 40
percent goal, but argued that relevant sections of the
regulations, especially FAR 19.704 and 19.705-4, do “address”
the question, and therefore impliedly prohibit TSA’s action. The
first of these provisions lists eleven required components of an
offeror’s proposed subcontracting plan; because “planned
subcontracting dollars as a percent of total contract value” is
not expressly included on this list, FirstLine contends that FAR
19.704 implicitly precludes an agency from “adding” such a
requirement. However, as Defendant points out, subsection (a)(2)
of that provision does require that such plans contain “[a]
statement of the total dollars planned to be subcontracted and a
statement of the total dollars planned to be subcontracted to
small business,” including specific types of small businesses
such as HUBZone and women-owned small businesses. Although the
question perhaps is debatable, the Court agrees with TSA that
there is nothing inconsistent with FAR 19.704 in requiring an
offeror to use this number to calculate the percent of its
planned subcontracting as a percent of overall contract dollars.
Because the computation is quite simple, the requirement is less
an “addition” to the eleven-item list than a slight modification
to the form in which the offeror must state its planned
subcontracting dollars.
Nor does FAR 19.705-4 provide the implicit
bar to the 40 percent goal that FirstLine claims. As discussed
in detail above, this provision supplies the standards under
which a contracting officer must evaluate a subcontracting plan.
It instructs the contracting officer to consider, at the review
stage, various factors that relate to the reasonableness and
feasibility of an offeror’s proposed subcontracting for a given
procurement; it simply does not address whether or what kinds of
subcontracting goals an agency may set for prospective offerors
in the first instance. Although it may seem reasonable that, in
setting subcontracting goals at the “front end” of a
procurement, an agency be constrained by the considerations it
must take into account at the “back end” of the process, the
Court finds that reading FAR 19.705-4 in this manner stretches
the provision too far. As explained below, the Court finds that
an agency may rationally establish aspirational small business
subcontracting goals for prospective offerors, even without
specifically identifying small businesses that would be
qualified to perform the subcontracted work. To the extent that
such goals may overestimate the size and abilities of a given
small business community, FAR 19.705-4 can reasonably be read as
providing a “backstop” that requires the agency to take into
account market realities in evaluating proposed subcontracting
plans before rejecting such plans as non-responsive.
For similar reasons, FAR 19.705-4 also
stops well short of requiring, as Plaintiff claims, that an
agency affirmatively “ascertain whether sufficient qualified
small businesses exist prior to establishing” the small business
subcontracting goals. Pl. Reply at 16. To be sure, FirstLine’s
argument is not that this provision, standing alone, imparts
such a duty, but rather that it should be read in combination
with various other FAR provisions as collectively doing so. See
id. (citing, inter alia, FAR 7.102(a)(2) (requiring agencies to
“perform acquisition planning and conduct market research … for
all acquisitions in order to promote and provide for …[f]ull and
open competition[.]”); 10.001(a)(3)(i) (agencies must “use the
results of the market research to [d]etermine if sources capable
of satisfying the agency’s requirements exist[.]”);
10.002(b)(1)(vii) (market research should include the
determination of, among other things, the “[s]ize and status of
potential sources”)).
The Court does not share Plaintiff’s
interpretation of these provisions. FAR Subpart 10 is devoted
exclusively to market research; noticeably, this section fails
to provide for any affirmative requirement before an agency may
establish subcontracting goals. Moreover, again, that FAR
19.705-4 provides a “back end” set of standards according to
which a contracting officer must evaluate proposed
subcontracting plans does not necessarily compel the conclusion
that an agency must affirmatively research these considerations
at the “front end” of a solicitation. Rather, as explained
below, the Court finds that one reasonable way for an agency to
further its policy of maximizing small business participation is
to establish a goal and then allow offerors to compete in
finding innovative ways to meet or approximate that goal.
Nothing in the FAR prohibits such a practice.
Finally, the Court also rejects FirstLine’s
contention that the 40 percent standard violates the CICA
requirement that agencies “solicit bids or proposals in a manner
designed to achieve full and open competition for the
procurement.” Pl. Mem. at 11; 10 U.S.C. § 2305. To reiterate,
FirstLine’s argument here is that by “dramatically limit[ing]
the offerors that [are] eligible to perform forty percent of the
total contract value,” the RFP violates this general mandate of
the CICA. Id. (emphasis removed). The Court agrees with
Defendant that because the 40 percent standard is a goal, not a
requirement, this argument is meritless. Moreover, contrary to
FirstLine’s assertion, the solicitation does not artificially
limit the field of offerors; rather, it simply reconfigures the
terms on which potential offerors must compete. That is, instead
of competing, as they did in the past, mainly or solely on the
basis of their own services, potential offerors must now also
compete, to some degree, on their ability to locate and partner
with certain types of small businesses. The Court sees nothing
anti-competitive in such terms.
In reaching the above conclusions, the
Court notes that several of the issues raised in this case
present questions of first impression. It also acknowledges that
some of these issues at least arguably present fairly close
questions of interpretation. For example, in the Court’s
experience, FirstLine is correct that the usual practice is for
“the offeror, not the agency, [to] propose[] specific
percentages [of small business participation] based on its total
subcontracting effort.” Pl. Mem. at 23 (emphasis removed). In
the same vein, the applicable regulations might reasonably be
read as at least primarily contemplating such a practice, to the
implied exclusion of TSA’s actions here. However, because
nothing in the FAR expressly prohibits TSA from establishing the
40 percent small business participation goal, the Court finds
that FirstLine has, at best, established that the agency is
working within a regulatory gray area.
That this may be so, however, does not
authorize the Court to rule for Plaintiff on the merits. This
Court reviews bid protest actions pursuant to the deferential
standards set forth by the APA, 5 U.S.C. § 706. See Banknote
Corp., 365 F.3d at 1350-51. Under these standards, the Court may
only set aside an agency action as involving a violation of
regulation or procedure where the disappointed bidder has shown
“a clear and prejudicial violation of applicable statutes or
regulations.” Axiom Res. Mgmt., 564 F.3d at 1381 (quoting
Impresa, 238 F.3d at 1332-33) (emphasis added). In its strongest
light, FirstLine has established an arguable stretching of
certain relevant regulations, but this showing falls well short
of the necessary threshold for judicial intervention in the
procurement process.
Thus, in summary, the Court holds that the
40 percent small business participation goal is lawful. In the
alternative, it finds that any claimed violation of the relevant
regulations is colorable at best, but far from “clear.” In the
absence of a “clear … violation of applicable statutes or
regulations,” established by a preponderance of the evidence,
FirstLine cannot demonstrate its success on the merits of its
claims.
c. The 40 Percent Goal is Rational
The Court also finds that the 40 percent
goal is “within the bounds of reasoned decision making.” Balt.
Gas & Elec. Co. v. Natural Res. Def. Council, Inc., 462 U.S. 87,
105 (1983). “[P]rocurement decisions invoke ... highly
deferential rational basis review.... Under th[is] standard, [a
Court must] sustain an agency action evincing rational reasoning
and consideration of relevant factors.” Weeks Marine, 575 F.3d
at 1368-69. This rule recognizes a zone of acceptable results in
each particular case and requires that the final decision
evinces that the agency “considered the relevant factors and
articulated a rational connection between the facts found and
the choice made.” Balt. Gas & Elec. Co., 462 U.S. at 105.
Accordingly, “[i]f the court finds a reasonable basis for the
agency's action, the court should stay its hand even though it
might, as an original proposition, have reached a different
conclusion as to the proper administration and application of
the procurement regulations.” Weeks Marine, 575 F.3d at 1371.
The Court heeds this rule, and the limits
of its authority, well in this instance, as it likely would have
structured the challenged solicitation differently had it done
so as an original proposition. However, the Court finds that the
40 percent goal is a rational expression of the Government’s
policy of affording small business concerns – and in particular
certain types of small businesses, such as veteran- or
women-owned – “the maximum practicable opportunity to
participate as subcontractors in the contracts awarded by an
executive agency, consistent with efficient contract
performance.” FAR 19.201(a).
The Government concedes that the goal
“could have an effect on the total cost of its contracts
generally and on this contract specifically,” but states that
TSA currently places a greater priority on expanding small
business opportunities than on achieving the lowest possible
cost for this procurement. Gov’t Reply at 7. It also rejects, as
contrary to its experiences in similar procurements, FirstLine’s
opinion that the expansion of small business participation will
come at an unacceptable cost to the quality of important
security services. Id. at 6-7. Finally, TSA emphasizes
that, pursuant to the terms of the solicitation and FAR
19.705-4, all proposed subcontracting plans will be evaluated
for a demonstration of “due diligence” in meeting or
approximating the goal, and will then be subject to a reasoned
negotiation between the offeror and the contracting officer. Id.
at 5.
The Court agrees with the Government that
its decision to structure the solicitation in this manner is
within its discretion. As discussed above, nothing in the FAR
either prohibits such an approach or affirmatively requires an
agency to specifically identify particular small business
concerns capable of performing subcontracted services.8
Consequently, one rational method by which the Government may
attempt to maximize small business participation is to establish
a rough subcontracting goal for a given contract, and then allow
potential contractors to compete in designing innovative ways to
structure and maximize small business subcontracting within
their proposals.
In reaching this conclusion, the Court is
mindful of the limitations established by FAR 19.705-4,
discussed in detail above. Again, that provision ensures that a
proposal that falls short of a given subcontracting goal must
nonetheless be given due consideration before being rejected as
non-responsive. Indeed, subsection (c) of the provision counsels
that “[n]o goal should be negotiated upward if it is apparent
that a higher goal will significantly increase the Government’s
cost or seriously impede the attainment of acquisition
objectives.” Likewise, FAR 19.201(a) establishes a governmental
policy in favor of maximizing small business subcontracting
“consistent with efficient contract performance.” (emphasis
added). These provisions suggest an outer limit to the
Government’s discretion to accept higher costs and inefficiency
in exchange for greater small business participation. While the
Court cannot say what that limit might be in these
circumstances, it agrees that, at this point, it must presume
that TSA officials will act in good faith in reviewing offerors’
subcontracting proposals, and that any challenge to their
evaluation process is at this point premature. See Eskridge
Research Corp., 92 Fed. Cl. at 95. (FirstLine
Transportation Security, Inc. v. U. S., No. 12-601C,
November 27, 2012) (pdf) |
