FAR Subpart 19.1307 tells KOs when the Price Evaluation Preference for HUBZone firms will apply. Paragraph (b) states: "The contracting Officer shall give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10% to all offers, except......(2) Otherwise successful offers from small business concerns;...."

My question - What does the term "Otherwise successful" mean in subparagraph (2). SBA says it means that KOs do not apply the price evaluation preference to any offers from small businesses; they cite CFR 126.613. On the other hand, I have seen guidance on the net where the term "otherwise successful" was interpreted to mean apparent low bidder.
Your thoughts?

And, in general, how have GAO and the courts ruled in cases where the FAR deviates from the SBA's implementing regulations?

Thanks!

By bob antonio on Wednesday, February 14, 2001 - 08:42 pm:

J:

Here is the first document I could find from a GAO bid protest.

"While FAR sec. 19.302(j) treats size status protests received after award of a contract as having no applicability to that contract, SBA's regulations, which we view as controlling in this area, provide that "[a] timely filed protest applies to the procurement in question even though a contracting officer awarded the contract prior to receipt of the protest." 13 C.F.R. sec. 121.1004(c). Moreover, in the absence of countervailing reasons, we view it as inconsistent with the integrity of the competitive procurement system and the intent of the Small Business Act, 15 U.S.C. sec. 631-657a(1994), for an agency to permit a large business, which was ineligible under the terms of the RFQ, to continue to perform. Diagnostic Imaging Tech. Educ. Ctr., Inc., supra."

By bob antonio on Thursday, February 15, 2001 - 07:41 am:

Here is the language from a U. S. Court of Federal Claims case.

"Second, plaintiff argues that defendant violated FAR ß 52.219-18(a)(1), which specifically requires that SIC Code 1761 be among the approved codes for a bidder to qualify as a section 8(a) small business under SBA regulations. See 48 C.F.R. ß 52.219-18(a)(1). This regulation was in effect at the time of the RFP's issuance. As has been discussed, however, a sweeping change in requirements for section 8(a) small businesses had been made in 1998, stating that bidders did not have to attain certification under certain SIC Codes, but that they merely had to meet with the requirements of such codes. 13 C.F.R. ßß 124.402 and 124.507. Conflicts between FAR and SBA regulations should be resolved by looking to the SBA's latest intent on the issue and by relying on the SBA to determine which provision best implements the policies of the agency itself. C&G Excavating, Inc. v. United States, 32 Fed. Cl. 231, 239-40 (1994); cf. Ray Ballie Trash Hauling, Inc. v. Kleppe, 477 F.2d 696, 704 (5th Cir. 1973). Here, although FAR ß 52.219-18 was still in effect, it is clear that 13 C.F.R. ßß 124.402 and 124.507 were meant to remove such requirements. See 13 C.F.R. ß 124.507(b)(2)(i); 65 Fed. Reg. 35,726, 35,734 (1998) ("SBA believes that the burden on an 8(a) Participant to obtain SBA approval for every SIC code . . . hinders more than helps the Participant's business development.") As defendant has shown, the SBA's opinion on the matter is that the new provisions in the CFR override the old FAR provision. The court finds that the SBA's interpretation is correct, not only due to deference to the agency, but also due to its obvious earlier intent to rid small businesses of the burden of SIC Code pre-certification. See C&G, 32 Fed. Cl. at 240.(28) Defendant's actions with regard to the SIC Code 1761 requirement were in accord with applicable regulations in effect."

By C Mercy on Thursday, February 15, 2001 - 11:32 am:

JM
They are both correct. The PE is never added to a small business offer that has not already been rejected . It is not incorrect to think of the concept as the low apparent successful offer. In this case the SBA rules and the FAR are not in conflict. What the FAR is saying is that if a bidder is small and is still in contention for award his price is not increased by the ten per cent. If it were not in contention you wouldnt be dealing with it anyway.

By Anonymous on Friday, March 16, 2001 - 02:39 pm:

I understand that SBA has changed their interpretation of the application of the 10%.
If a large business is displaced by a hubzone
the award is made to the hubzone no matter how many small businesses are displaced because of
the award. This is the reading I received today after consultation with the SBA HQ. Might as well tell large firms not to bother bidding!

By C mercy on Friday, March 16, 2001 - 03:16 pm:

Are you saying thst the HZ PEP is to be used against small business offers?

By Anonymous on Tuesday, April 03, 2001 - 03:16 pm:

If you read the CFR it says that the 10% is applied to large businesses and gives guidance that if the next low is not a HUBzone the award is made to the large business. In other words if there is a small business in between you could not skip over him.  What the clause in FAR says is that you add the 10% not only to the large businesses but all businesses between the low and the hubzone. If the HUBzone is 10% less than the low bidder no matter how many small businesses between the large and HUBzone, the award is made to the HUBzone. Therefore you could bypass not only the large but any small business as well.  According to SBA there is a typo in the CFR126.613 and when it is corrected it will agree with the FAR.  I have a protest pending on the issue from a low bidder(large business) and second low (small business)

By C Mercy on Tuesday, April 03, 2001 - 04:38 pm:

I think the SBA is dead wrong. The bill itself states that the PEP shall not be used to revise the price of a small business. I cannot think of a typo that changes this fact.Award is still made to the low bidder after the evaluation is made.

By Phyllis Miriashtiani on Tuesday, May 22, 2001 - 10:36 am:

To Annomyous: Did your protest ever get resolved? If so, can you give me the B number? Thanks
pmiriashtiani@comdt.uscg.mil

By Anonymous on Thursday, May 24, 2001 - 03:42 pm:

No, there are actually three protests. 1) the hubzone did not meet the requirements to be a hubzone. SBA found in favor of hubzone contractor, sustained in appeal because the SBA failed to consider the additional information the protester provided. Sent back to SBA to be reconsidered. Still awaiting that decision 2) The hubzone is a not a small business-local SBA denied because was not specific.Now in appeal. 3) application of the 10% withdrawn until after award-just another note on the third appeal, I have three small businesses awaiting award to appeal as "otherwise successful small businesses".

By Anonymous on Tuesday, April 30, 2002 - 08:58 pm:

With both the PEP for SDBs and HUB ZONE federal contracting has moved into the O-ZONE. Seems bad for Small Business, Large Business and even SDBs. With SDBs I understand that the C.O. does not HAVE TO award to them using the PEP, if they have already met their goals and don't want to spend the money. What the designers forgot was the decision to bid. I have had a SBC for 19 years doing almost all fed contracts. Not anymore,... moving to another market.

By Anonymous on Tuesday, April 30, 2002 - 09:10 pm:

Why HUB ZONE won't work: It is flawed fundamentally. Whereas, the problem is that people in the high unemployment areas need to move or get a job. Also, screwing it up are things like big plants that employ a lot of people but those people travel from NON HZ areas.

No new jobs are created by this policy. People in Non-HZ areas will loose their jobs, so a person in a HZ can have one. E.G. If I move my business into a HZ area I will have to LAY OFF workers so I can hire others in the HZ area to meet my 35% min. The work that I have is not in the HZ area so the workers will have to drive further. Kind of like 'school bussing'. The net effect is that someone has to drive further for a job and a different person is doing that job.

By Linda Koone on Tuesday, January 14, 2003 - 02:55 pm:

This application of the 10% PEP under the HUBZone Program is still confusing to me. I was wondering if the protests that the initiator of this thread (or Anonymous) mentioned were settled and what the outcome was.

The issue that I'm confused over is something akin to whether the chicken or the egg came first.

Let's say you issued an unrestricted solicitation and the award will be made to the lowest priced, technically acceptable offeror. You receive three technically acceptable offers as follows:

Company A, a large business, submits an offer of $3.5M.

Company B, a small business, submits an offer of $3.6M.

Company C, a HUBZone small business, submits an offer of $3.8M.

For the sake of simplicity, we'll say that $3.8M doesn't exceed a fair market price.

Adding the PEP, the offers now look like this:

Company A: $3.85M (10% added)
Company B: $3.6 M
Company C: $3.8 M

According to the guidance that I've read, Company C gets the award because it displaced company A.

However, Company C also ends up displacing Company B, even though Company B would be the apparent successful offeror after adding the PEP.

And to get back to my chicken/egg comment, when do I make a responsibility determination? If Company A is considered nonresponsible, then Company B clearly becomes the apparent low offeror and the PEP doesn't come into play. But do I make the responsibility determination prior to adding the PEP, or afterwards?

If anyone can help clear this up for me, I'd appreciate it.

Thanks.

By cm on Tuesday, January 14, 2003 - 03:08 pm:

After the price evaluation,responsibility determinations would be made.If c were determined non-responsible....and SBA did not issue a COC ,the award would be made to A.

By cm on Tuesday, January 14, 2003 - 03:12 pm:

Assuming A were responsile

By Linda Koone on Wednesday, January 15, 2003 - 08:11 am:

CM:

If I do a responsibility check after evaluation, then I wouldn't check the responsibility for Offeror A, because that offer has been displaced as a result of the PEP.

However, what if Offeror B has information that would indicate that Offeror A was not a responsible source, and therefore, not eligible for award? Does Offeror B have grounds for a protest because the PEP was applied to an ineligible offer?

Thanks.

By cm on Wednesday, January 15, 2003 - 02:38 pm:

In my opinion the answer is no because ineligibility confers the meaning that "A" was somehow not allowed to submit an offer for consideration in the first place whereas a potential non-reasonablity issue,in and of itself, does not carry the same onus. It is an issue that cannot be reachede by "b" because such a determination need not be made unless "A" is not overcome by "C".If it were any other way we would be making responsibility determinations on all offers recieved regardless of their standing.(it seems to me)

By Linda Koone on Thursday, January 16, 2003 - 09:12 am:

CM:

I kept researching this and might have answered my own question. I found that PL 105-135 and 15 USC 637(a) both state "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."

Would seem that you would determine responsibility prior to applying the PEP. However, I don't see that addressed in any of the SBA guidance out there. And the FAR doesn't address it either.

Another fine example of policy/regulation writing, I suppose?

By cm on Thursday, January 16, 2003 - 10:26 am:

LK....I am familiar with the passage but I have always felt the term "responsible" meant something other than a Part 9 determination. I could be way off here but my impression was that the term,as used here, meant that the offer was not a fraud and that the offeror intended to be bound. In other words that it was submitted in good faith,untainted and thus remained available for the application of the PEP. Would you not agree that the term "lowest" in the part you cite is inaccurate as the PEP is not limited in use to sealed bids? How do you read it?

By Linda Koone on Thursday, January 16, 2003 - 10:53 am:

CM:

I read it as archaic! How the PEP is applied in a trade-off situation using this language is anyone's guess.

The FAR stipulates that the PEP is applied to all offers (except small business...) Interestingly, using the FAR language would probably be more in the spirit of the intent of the PEP in a trade-off situation, but in the case Bob pointed out above in the thread, the Comp Gen and the COFC discount the FAR when it conflicts with the statute.

I'm curious as to where you got your definition of a responsible contractor. I've always used the definition in FAR Part 9. Can you shed some light on your definition?

Thanks.

By Vern Edwards on Thursday, January 16, 2003 - 11:19 am:

Here is how the HUBZone price evaluation preference works, based on the language in the pertinent regulations and solicitation provision. Consider the following bid abstract from a procurement conducted by sealed bidding in which six bids were received:  

The contracting officer must now evaluate the bids. The first step is to determine which bids are responsive. The contracting officer determines that the bid from SB1 is nonresponsive, so it is eliminated from further consideration. The next step is to add the HUBZone price evaluation preference factor (10 percent of each bidder's price) to the responsive bids from LB1 and LB2, but not to the responsive bids from SB2 and SB3. The result is as follows:  

The apparent low bidder is now SB2. The next step is to determine whether SB2 is responsible. The contracting officer determines SB2 to be nonresponsible and the SBA denies a certificate of competency. So, the result is now as follows:  

The apparent low bidder is now SB3. The contracting officer determines SB3 to be responsible. It is "otherwise successful". Thus, the winner is SB3.

I don't know where Linda got guidance that the HUBZone bidder wins despite the fact that a non-HUBZone small business has a lower price. I would like to see that guidance.

As for Anonymous of Friday, Narch 16 -- I don't know where he or she got his or her "understanding" of SBA's interpretation of the HUBZone price evaluation preference rule, but that understanding is not reflected in any regulation, solicitation provision or protest decision that I could find and so there is no reason whatsover to give any credence to that Anonymous's comments.

By Linda Koone on Thursday, January 16, 2003 - 11:39 am:

Vern:

I made it up, just for fun!

No. Not really.

The SBA shows us how to apply the PEP at this
link: SBA HUBZone Guidance (Go to pages 10-12)

Also, Section 613 of 13CFR 126 provides an example of how to apply the PEP, but conveniently makes the SB offer higher than the HZSB.

By cm on Thursday, January 16, 2003 - 11:50 am:

With all due respect Vern I cannot see how a price preference designed to benefit a HZ can be used to benefit a non HZ sb. If the PEP is used properly and displaces LB1 but the HZ is not in line for award then what is the point? This cannot be the planned outcome of this progrsam unless Congress intended to give non HZs a part of the PEP.

By Vern Edwards on Thursday, January 16, 2003 - 11:53 am:

cm:

Well, you make a good point. I'm trying to get to Linda's guidance, but the link is really slow. I'll get back to you.

Vern

By Vern Edwards on Thursday, January 16, 2003 - 12:02 pm:

Linda/cm:

Okay, I saw the guidance, which is a PowerPoint presentation. Linda, where does it come from? Who issued it? I couldn't find any identifying marks on the presentation.

However, cm's comment made me realize that the guidance makes some sense. You wouldn't want to eliminate a low bid from a large business based on a HUBZone price evaluation preference if it wasn't going to benefit a HUBzone small business. I guess the rationale is that if the government is willing to give a ten percent price evaluation preference, then you might as well skip over a non-HUBZone small business with a smaller advantage.

Yikes!

By Linda Koone on Thursday, January 16, 2003 - 01:13 pm: