New JRS challenges the agency’s decision to negotiate a HUBZone sole-source award with ProHill. The protester argues that this decision was predicated on flawed market research and the incorrect conclusion that there was only one WOSB interested in, and capable of performing, the requirement.

 (sentences deleted)

As an initial matter, the FAR provides that “[t]here is no order of precedence among the 8(a) Program (subpart 19.8), HUBZone Program (subpart 19.13), Service-Disabled Veteran-Owned Small Business (SDVOSB) Procurement Program (subpart 19.14), or the Women-Owned Small Business (WOSB) Program (subpart 19.15).” FAR § 19.203(a). In determining which socioeconomic program to use, the contracting officer is required to consider, at a minimum, the (1) results of market research performed to determine if there are socioeconomic firms capable of satisfying the agency’s requirement, and (2) the agency’s progress in fulfilling its small business goals. FAR § 19.203(d).

The protester challenges the agency’s determination to award the requirement through the HUBZone program. In this regard, the protester asserts that the agency’s market research was flawed because the sources sought notice misleadingly indicated that the requirement had already been 100 percent set-aside for small businesses. JRS contends that this misstatement made it appear that the agency had already decided to set aside the acquisition, which prejudicially impacted the number of responses the agency received. The protester argues that the agency’s determination to make a HUBZone sole-source award based on such “flawed market research” was in error.

We do not agree. In our view, when read as a whole, the documents included with the sources sought notice indicated that the agency had not yet reached a final determination regarding how it would procure the requirement. In this regard, while the FedBizOpps website entry listed the set-aside status as “Total Small Business,” none of the substantive documents accompanying the entry (i.e., the market questionnaire and the statement of work) stated that the requirement had been set aside exclusively for small businesses or stated that the agency had reached a final determination on how it would acquire the services. In fact, the questionnaire sought information about each responding vendor’s socioeconomic program status.

Moreover, even if the requirement had been set aside for small businesses, interested WOSBs (and participants in SBA’s other small business programs) would have been eligible to compete for the requirement. Because WOSBs would have been eligible to compete under a small business set-aside, we see no reason that interested WOSBs would have been unlikely to respond to the sources sought notice at issue. Indeed, we note that JRS submitted a response to the sources sought notice despite its belief that the agency had chosen to procure the requirement as a small business set-aside. We therefore do not conclude that the agency’s market research was misleading or inadequate.

JRS further argues that the agency overlooked or ignored the fact that ProHill, in addition to being a HUBZone small business, was a WOSB. The protester contends that had BOP properly considered this fact, the agency would have realized that it could compete the requirement as a WOSB set-aside since there was a reasonable expectation that at least two WOSBs (JRS and ProHill) could perform the requirement. The protester argues that there is no indication in the record that BOP considered this fact prior to deciding to award the requirement as a HUBZone sole-source.

We find that the record reasonably supports the agency determination to procure the requirement under the HUBZone program. As noted previously, the FAR expressly states that there is no order of precedence between the WOSB and HUBZone programs, and, in deciding which program to select, agencies are to consider both the results of their market research and their progress in fulfilling their small business goals. FAR § 19.203(a), (d).

Here, the record establishes that, while BOP considered the results of its market research, the agency’s decision to use the HUBZone program was based primarily on the agency’s lack of progress in meeting its HUBZone goals. In this regard, as of May 16, BOP had spent only 0.75 percent of its acquisition dollars on HUBZone small business concerns, well short of its 3 percent goal. AR, Tab 13, BOP Small Business Goal Info., at 2. At the same time, the agency had spent 7.15 percent of its acquisition dollars on WOSBs, which was in excess of its 5 percent goal. Id. In issuing a JOFOC, the agency expressly referenced the agency’s lack of progress in meeting its HUBZone goals, stating that “[t]he agency’s HUBZone small business goal has been difficult to achieve so an increased emphasis is being placed on this program.” AR, Tab 9, JOFOC, at 2. We find this rationale to be reasonable and see no evidence that the ultimate decision to use the HUBZone program would have changed had the agency expressly acknowledged that there were two WOSBs interested in performing the requirement.  (JRS Staffing Services B-414630, B-414630.2: Jul 28, 2017)

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)

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)