New Determination Not to Set Aside RFP 12-2501 for Small Businesses

Camden protests the terms of RFP 12-2501, arguing that the solicitation should have been set aside for small businesses. The protester specifically argues here that its proposed price under RFP 10-2501 was fair and reasonable and representative of a fair market price as charged by a small business. The protester asserts that the agency’s determination to the contrary was not reasonably based, because it failed to consider that Camden’s pricing was based upon its use of unionized labor.

An acquisition expected to exceed $150,000, such as the one here, must be set aside for small business contractors where there is a reasonable expectation that offers will be obtained from at least two responsible small business concerns and the award will be made at a fair market price. FAR § 19.502-2(b); Ruchman and Assocs., Inc., B-275974, Apr. 25, 1997, 97-1 CPD ¶ 155 at 1-2. The determination of whether to set aside a particular procurement involves a business decision within the broad discretion of the contracting officer, and we will not sustain a protest challenging the determination absent a showing that the determination was unreasonable. American Artisan Prods., Inc., B-292380, July 30, 2003, 2003 CPD ¶ 132 at 5.

As set forth previously, this is not a situation where the agency is determining whether a new requirement, or a requirement that had been previously solicited on an unrestricted basis, should be set aside for small businesses. Rather, this protest involves the propriety of the withdrawal of a small business set-aside, where the agency, with the concurrence of SBA, concluded as the result of a rather lengthy procurement process, that it was unable to award a contract to any of the small business offerors because their proposed prices could not be found fair and reasonable, and the subsequent issuance of essentially the same solicitation on an unrestricted basis. As such, and consistent with the positions of the protester and agency, the resolution of this protest does not involve the question of whether the agency could expect to receive two or more offers from small businesses in response to the solicitation, but rather, whether the prices offered by those small businesses were or would be fair and reasonable.

A determination of price reasonableness for a small business set-aside is within the discretion of the contracting agency, and we will not disturb such a determination unless it is unreasonable. A. Hirsh, Inc., B-271829, July 26, 1996, 96-2 CPD ¶ 55 at 2. In making such a determination, the agency may consider such factors as the government estimate, the procurement history for the solicited services, the current market climate, and the “courtesy bid” of an otherwise ineligible large business offeror. Id.; Nutech Laundry & Textiles, Inc., B-291739, Feb. 10, 2003, 2003 CPD ¶ 34 at 4; see FAR §§ 19.202-6, 15.404-1(b).

We have recognized that, in view of the congressional policy favoring small businesses, 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. Hardcore DuPont Composites, L.L.C., B-278371, Jan. 20, 1998, 98-1 CPD ¶ 28 at 3. The determination of whether a small business price premium is unreasonable depends on the circumstances of each case, Olsen Envtl. Servs., Inc., B-241475, Feb. 6, 1991, 91-1 CPD ¶ 126 at 2-3, and we have found cancellations proper where the protester’s price exceeded the government estimate by as little as 7.2 percent. See Building Maint. Specialists, Inc., B-186441, Sept. 10, 1976, 76-2 CPD ¶ 233 at 4.

The record here provides a reasonable basis for the agency’s decision to cancel RFP 10-2501, a small business set-aside, and issue RFP 12-2501, which is essentially the same solicitation, on an unrestricted basis. As previously noted, prior to canceling RFP 10-2501 and withdrawing the set-aside, the agency first found, and the record confirms, that the three small business offerors’ prices were significantly higher than the IGE and the price proposed by Seaward. The agency next conducted a market survey to gain more information on which to base a determination of price reasonableness.[4] The record further reflects that after confirming through the market survey that the prices offered by the small businesses were unreasonably high, the contracting officer engaged in multiple rounds of discussions in an attempt to get the small business offerors to lower their prices to a point that they could be determined fair and reasonable. It was only after this lengthy and relatively involved process that MSC, with the concurrence of SBA, ultimately determined that an award could not be made to any of the small business offerors under RFP 10-2501 because their prices were not fair and reasonable. Although the protester clearly disagrees with the agency’s determination, that disagreement does not provide a basis on which to find the agency’s determination unreasonable.

Because we find reasonable the agency’s actions in canceling RFP 10-2501, inasmuch as none of the small businesses submitted fair and reasonable prices and in the absence of any evidence that small businesses would submit fair and prices in response to RFP 12-2501, there is no basis to find unreasonable MSC’s determination not to set aside RFP 12-2501 for small businesses.  (Camden Shipping Corporation, B-406171,B-406323, Feb 27, 2012)  (pdf)

GSC challenges the agency's decision to award the contract to ATSCC. It argues that the agency did not receive a fair and reasonable price under the contract because the cost to the agency was 17.5% higher than the price offered by VMI. The protester argues that the 17.5% price difference made ATSCC's price inherently unreasonable.

In the agency report, the contracting officer (CO) stated that much of the price difference was due to the pre-award change in the agency's needs. CO Statement at 2. The CO stated that the difference in the prices originally proposed by VMI and ATSCC was less than 6%, and that the additional difference in prices is a result of the service requirement increase, as set forth above.

The Federal Acquisition Regulation (FAR) provides that a contracting officer shall set aside certain acquisitions for small business participation when there is a reasonable expectation that (1) offers will be obtained from at least two responsible small business concerns; and (2) award will be made at fair market prices. FAR sect. 19.502-2(b). In determining whether a fair market price has been achieved, FAR sect. 19.202-6(a)(1) directs agencies to the reasonable price guidelines in FAR sect. 15.404‑1(b), which set forth numerous techniques available to contracting officers to analyze the reasonableness of proposed prices.

A determination of price reasonableness for a small business set-aside is within the discretion of a CO, and we will not disturb such a determination unless it is clearly unreasonable. Division Laundry and Cleaners, Inc., B-311242, May 19, 2008, 2008 CPD para. 97 at 2; see Ashland Sales and Serv. Co./Macon Garment Inc., a Joint Venture, B‑400466, Oct. 23, 2008, 2008 CPD para. 196 (HUBZone set-aside); see also Building Maint. Specialists, Inc., B‑186441, Sept. 10, 1976, 76-2 CPD para. 233 (upholding contracting officer's decision to cancel solicitation where bid was only 7.2% higher than the government estimate); Hybrid Tech. Group, Inc., B‑215168, Oct. 3, 1984, 84-2 CPD para. 385 (upholding contracting officer's decision that an awardee's price, which was more than 100% greater than the protester's price, was reasonable).

Furthermore, in view of the congressional policy favoring small businesses, 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. Hardcore DuPont Composites, LLC, B-278371, Jan. 20, 1998, 98-1 CPD para. 28 at 3; Asbestos Abatement of Am., Inc., B-221891, B-221892, May 7, 1986, 86-1 CPD para. 441 at 4. The determination of whether a small business price premium is unreasonable depends on the circumstances of each case. Division Laundry and Cleaners, Inc., supra, at 2; Olsen Envtl. Servs., Inc., B‑241475, Feb. 6, 1991, 91-1 CPD para. 126 at 2-3.

Here, the contracting officer compared the awardee's proposed price with the government estimate and all of the proposed prices received in response to the solicitation. Agency Report at 4. These are among the techniques available to a CO under FAR sect. 15.404-1(b)(2) to analyze the reasonableness of proposed prices. Using these techniques, the CO determined that the price offered by the awardee for the initial requirements was fair and reasonable. Also, the agency considered that the labor rate used to calculate the price for the additional quantity was the same labor rate initially proposed. Given this record, given the steps taken by the CO, and given the wide latitude afforded contracting officers in this situation, we see no basis to question the contracting officer's determination that the offered prices are fair and reasonable.  (Global Services Corp, B-400229.2, January 27, 2009)  (pdf)

Division challenges the agency’s decision to cancel the solicitation rather than conduct discussions, asserting that the Air Force improperly evaluated its price against a flawed estimate of the government’s needs. In this regard, Division contends that the government estimate reflects considerably lower estimates for various solicitation requirements such as the pick-up and return laundry requirements at each location. Specifically, the protester asserts “on information and belief” that the incumbent contractor is not counting the actual number of items in each bundle of cleaning, as required by the canceled RFP which, if done according to the solicitation’s requirements, would require more manpower and time, resulting in higher costs. Protester’s Comments at 3-4.

A determination of price reasonableness for a small business set-aside is within the discretion of a CO, and we will not disturb such a determination unless it is clearly unreasonable or there is a showing of fraud or bad faith on the part of contracting officials. A. Hirsh, Inc., B-271829, July 26, 1996, 96-2 CPD para. 55 at 2. In making such a determination, the CO may consider such factors as the government estimate, the procurement history for the solicited services, the current market climate, and the "courtesy bid" of an otherwise ineligible large business offeror. Id.; Nutech Laundry & Textiles, Inc., B-291739, Feb. 10, 2003, 2003 CPD para. 34 at 4; see also, Federal Acquisition Regulation (FAR) sections 19.202-6, 15.404-1(b).  Furthermore, in view of the congressional policy favoring small businesses, 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. Hardcore DuPont Composites, LLC, B-278371, Jan. 20, 1998, 98-1 CPD para. 28 at 3. The determination of whether a small business price premium is unreasonable depends on the circumstances of each case, Olsen Envtl. Servs., Inc., B-241475, Feb. 6, 1991, 91-1 CPD para. 126 at 2-3, and we have found cancellations proper where the protester’s price exceeded the government estimate by as little as 7.2 percent. See Building Maint. Specialists, Inc., B-186441, Sept. 10, 1976, 76-2 CPD para. 233 at 4.  The agency’s explanation here provides a reasonable basis for the agency’s decision to cancel the solicitation. As previously noted, the agency canceled the RFP after concluding that both small business offerors’ prices were unreasonable, given that their proposed prices were each more than 35 percent above the government estimate for this requirement. While Division challenges the reasonableness of the government estimate, the protester has provided no credible evidence that the government estimate was flawed or otherwise inaccurate. In any event, Division’s challenge to the government estimate based on information and belief that the incumbent contractor is not performing the requirement that the contractor verify and count all laundry and dry cleaning items picked-up and returned to each location provides no basis to question the validity of the estimated solicitation requirements, or the agency’s reliance on the government price estimate derived from those projections to determine the reasonableness of the protester’s proposed price. Moreover, the agency also compared Division’s price to the other offerors’ prices. As stated previously, the FAR recognizes comparison of offerors’ prices to one another as a permissible technique for determining price reasonableness. FAR sections 19.202-6, 15.404-1(b); Stitziel Co., B-251560, Apr. 13, 1993, 93-1 CPD para. 315 at 2. Given that Division’s offered price was significantly higher than the price of the other small business and the ineligible large business firm, the comparison of offerors’ prices to one another clearly furnished the CO with an additional valid basis for finding that Division’s price was unreasonable. (Division Laundry and Cleaners, Inc., B-311242, May 19, 2008) (pdf)

Turning to the merits, in view of the congressional policy favoring small businesses, contracts may be awarded under small business set-aside procedures at premium prices, so long as those prices are not unreasonable. Hardcore DuPont Composites, LLC, B‑278371, Jan. 20, 1998, 98‑1 CPD 28 at 3.[1] The contracting officer has discretion to determine price reasonableness, and we will not disturb such a determination unless it is unreasonable. A. Hirsh, Inc., B‑271829, July 26, 1996, 96‑2 CPD para. 55 at 2. In making such a determination, the contracting officer may consider such factors as the government estimate, the procurement history for the solicited supplies, the current market climate, or the “courtesy bid” of an ineligible non-small business. See Federal Acquisition Regulation (FAR) sections 19.202-6, 15.404‑1(b); Stitziel Co., B‑251560, Apr. 13, 1993, 93-1 CPD para. 315 at 2. The determination of whether a small business price premium is unreasonable depends on the circumstances of each case. Olsen Envtl. Servs., Inc., B‑241475, Feb. 6, 1991, 91‑1 CPD para. 126 at 2‑3. There is no basis for objecting to the agency’s finding that Hatch’s price was reasonable. The record shows that the Army’s determination was based on the independent government estimate (IGE), which projected a price of $60 for a pair ($15,000,000 for 250,000 pairs) of size medium combat gloves. AR, Tab 12. The agency also cited the pricing of the 8 small business set-aside proposals received, which ranged from $3,290,000 to $19,301,750, Agency Report (AR), Tab 13, 21, for an average price of $10,115,859. Although all but two of these proposals were eliminated from the competitive range, there is no indication--or argument by Hawkeye--that the proposals’ elimination was somehow related to their prices. In any case, given that Hatch’s price was well below the IGE, the agency reasonably determined that Hatch’s proposed price was reasonable. See Sletager, Inc., B‑240789.6, Oct. 11, 1991, 91-2 CPD para. 328 at 2. The protester also argues that the agency improperly failed to consider Hawkeye’s price under the unrestricted competition in assessing the reasonableness of Hatch’s price. However, there is no requirement that agencies take a price submitted outside of a small business set-aside competition--or any other particular factors--into account in its reasonableness determination. See FAR sect. 19.202-6. In any case, there is a range above the price an agency may receive under an unrestricted procurement that may be considered reasonable in a set-aside situation, Browning-Ferris Indus., B‑209234, Mar. 29, 1983, 83-1 CPD para. 323 at 2-3; CDI Marine Co., B‑188905, Nov. 15, 1977, 77-2 CPD para. 367 at 2-3, and we have found a price premium of as much as 51 percent to be reasonable. See Browning-Ferris Indus., supra. Therefore, the fact that Hatch’s price was 48 percent higher than the protester’s would not mandate a finding that the price was unreasonable. (Hawkeye Glove Manufacturing, Inc., B-299237, March 6, 2007) (pdf)