(c) Agreement. A service-disabled veteran-owned small business concern agrees that in the performance of the contract, the concern will comply with the limitation on subcontracting requirements in 13 C.F.R. § 125.6.

Section 125.6, in turn, provides as follows with regard to services contracts:

(1) In the case of a contract for services (except construction), it will not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated. Any work that a similarly situated subcontractor further subcontracts will count towards the 50% subcontract amount that cannot be exceeded.

An agency’s judgment as to whether a small business offeror can comply with a limitation on subcontracting clause is generally a matter of responsibility and the contractor’s actual compliance is a matter of contract administration. Ashridge, Inc., B‑408469, Sept. 27, 2013, 2013 CPD ¶ 250 at 7. Neither issue is one that our Office will consider. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability, which our Office may consider. EcoAnalysts, Inc., B-406233 et al., Mar. 19, 2012, 2012 CPD ¶ 169 at 3; TYBRIN Corp., B‑298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5. Such circumstances, however, are not present here.

In this regard, the protester points to no part of FGMG’s quotation in which FGMG indicates an intention not to comply with the RFQ’s subcontracting limitations. In addition, VA advises that nothing on the face of FGMG’s quotation led it to conclude that FGMG would not comply with the RFQ’s subcontracting limitations and our review of the quotation gives us no basis to question the agency’s judgment. See ACME Indus., Inc., B‑414023, Jan. 13, 2017, 2017 CPD ¶ 22 at 4 (no basis to question agency’s judgment regarding awardee’s compliance with subcontracting limitations where nothing on the face of the awardee’s proposal led the agency to conclude that the firm would not comply with the solicitation’s requirements in that regard).

The protest is denied.  (Crosstown Courier Service, Inc. B-414752: Sep 1, 2017)

As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration. Geiler/Schrudde & Zimmerman, B-412219 et al., Jan. 7, 2016, 2016 CPD ¶ 16 at 7. Neither issue is one that our Office generally reviews. 4 C.F.R. § 21.5(a), (c); Geiler/Schrudde & Zimmerman, supra, at 7‑8. As our Office has consistently held, however, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal acceptability. See e.g., Geiler/Schrudde & Zimmerman, supra, at 8; Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4; TYBRIN Corp., B‑298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5, 6. See also 13 C.F.R. § 125.5(b)(ii). This is because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award. Geiler/Schrudde & Zimmerman, supra, at 8; Addx Corp., B-404888, May 4, 2011, 2011 CPD ¶ 89 at 3-4.

An offeror, however, need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal. Dorado Serv., Inc., B-408075, B‑408075.2, June 14, 2013, 2013 CPD ¶ 161 at 12. Rather, such compliance is presumed unless specifically negated by other language in the proposal. The plain language of the subcontracting limitation clause provides that the act of proposal submission itself is sufficient to demonstrate agreement to be bound by the limitation. FAR clause 52.219-14(c)(1) (“By submission of an offer . . . the Offeror/Contractor agrees that . . . [a]t least 50 percent of the cost of the contract performance incurred for personnel shall be expended for employees of the concern.”). Accordingly, where an offeror submits a proposal in response to an RFP that incorporates FAR clause 52.219-14, the offeror agrees to comply with the limitation, Dorado Serv., Inc., supra, at 12, and in the absence of any contradictory language, the agency may presume that the offeror agrees to comply with the subcontracting limitations.

Of course, this presumption may be rebutted by other language in the proposal. It is the protester, however, that bears the burden to affirmatively demonstrate that the awardee’s proposal takes exception to the limitations on subcontracting. Id. (“[T]he protester confuses the applicable standard by attempting to shift to the awardee and the agency the burden of affirmatively demonstrating that the awardee’s proposal will comply with the limitation on subcontracting requirement.”); KAES Entprs., LLC, B‑408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 3 (“[I]t is the protester who bears the burden of demonstrating that the proposal should have led the agency to conclude that the awardee did not comply with this limitation; simply arguing that the awardee’s quotation did not contain sufficient information to demonstrate whether the awardee will comply does not meet this burden.”).

This burden is met where the protester demonstrates that the awardee has specifically taken exception to the subcontracting limitation. Sealift, Inc., supra, at 5; Addx Corp., supra, at 3; Reliable Builders, Inc., supra, at 5; TYBRIN Corp., supra, at 6. That is, the protester must identify information in the offeror’s proposal that shows the offeror has not agreed to comply with the subcontracting limitation. Mere assumptions, inferences, and speculation are generally insufficient to demonstrate noncompliance. See Dorado Serv., Inc., supra, at 12. Here, we conclude that nothing on the face of WTS’s technical proposal or the associated attachments should have led the VA to determine that WTS had taken exception to the subcontracting limitation.

The RFP did not prohibit the use of subcontractors. RFP § 16.1, at 42. Thus, WTS’s references to “independent contract driver,” without more, do not demonstrate that it took exception to the subcontracting limitation. Furthermore, although EMT highlights several instances in which WTS refers to independent contract drivers, EMT fails to point to any language indicating that WTS intends to rely almost exclusively upon independent contract drivers for this effort. Moreover, as explained above, the references to independent contract drivers are contained in internal training manuals and safety plans that were attached to WTS’s proposal. Considering the nature of these documents and their apparent applicability to a wide-variety of contexts, we fail to see that their references to independent contractors demonstrate noncompliance with the subcontracting limitation clause.

Additionally, even if WTS has relied heavily on independent contractor drivers to perform prior contracts, as EMT seems to allege, see Protest at 4-6, there is no indication that WTS intends to do so here. Rather, WTS’s proposal indicates that it has not yet hired its full fleet of drivers. AR, Exh. F, WTS Technical Proposal, Part I, at 20. At the time of proposal submission, it had retained only 25 percent of its driver fleet. Id. Upon receipt of a required certificate from the local county board, WTS intends to hire “a sufficient number of drivers and vehicles to ensure timely service[.]” Id. The proposal also states that “additional drivers can be easily added to meet all contract requirements.” Id. We have previously held that an offeror is not prohibited from hiring additional personnel as needed to complete the project or to comply with the subcontracting limitations. Geiler/Schrudde & Zimmerman, supra, at 9. There is no indication from WTS’s proposal that it intends to hire independent contractor drivers exclusively.

In sum, EMT fails to point to any portion of WTS’s proposal in which WTS states an intent to rely almost exclusively on independent contract drivers. In the absence of any such indication, we conclude that there was nothing on the face of the proposal that should have led the agency to conclude that WTS had not agreed to comply with the subcontracting limitation.  (Express Medical Transporters, Inc. B-412692: Apr 20, 2016)  (pdf)
 

Limitations on Subcontracting

With respect to subcontracting, NCS/EML argues that the awardee’s offer failed to comply with FAR clause 52.219‑14, limitations on subcontracting. We dismiss this aspect of NCS/EML’s protest. While the solicitation was set aside for small businesses, the RFP did not incorporate FAR clause 52.219-14. Indeed, NCS/EML’s protest acknowledges that the clause was not included in the solicitation. Accordingly, this allegation is factually and legally insufficient, and we will not consider it. 4 C.F.R. §§ 21.1(c)(4), 21.5(f); Excalibur Laundries, Inc., B‑405814, B‑405814.2, Jan. 3, 2012, 2012 CPD ¶ 1 at 6 (allegation that the awardee’s proposal did not comply with FAR clause 52.219-14 is factually and legally insufficient where the solicitation--set aside for small businesses--did not incorporate the clause).  (NCS/EML JV, LLC, B-412277, B-412277.2, B-412277.3: Jan 14, 2016)  (pdf)
 

Compliance with Subcontracting Limitations

GSZ contends that ISS will not comply with the subcontracting limitation in VAAR clause 852.219-10, arguing that it is “impossible” for ISS to spend 15 percent of the cost of the contract performance on its own employees because ISS’s proposal lists only four ISS employees in the “key personnel” portion of its technical proposal. Protest at 3‑4; Protester’s Comments (Nov. 20, 2015) at 6, 8. GSZ contends that ISS would need to spend at least $1,299,450 on those four employees, resulting in an hourly rate that is not sustainable in the construction industry. Protester’s Comments (Nov. 20, 2015) at 6. We find no merit to this argument.

As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration. RaloidCorp., B‑297176, Nov. 10, 2005, 2005 CPD ¶ 205 at 4; Ecompex, Inc., B‑292865.4, et al., June 18, 2004, 2004 CPD ¶ 149 at 5. Neither issue is one that our Office generally reviews. See 4 C.F.R. § 21.5(a), (c). However, as our Office has consistently held, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal’s acceptability. Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4; MindPoint Grp., LLC, B-409562, May 8, 2014, 2014 CPD ¶ 145 at 2; TYBRIN Corp., B‑298364.6, B‑298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5, 6. This is because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award. Addx Corp., B‑404888, May 4, 2011, 2011 CPD ¶ 89 at 3-4.

The VA did not directly address GSZ’s argument. Instead, in its report responding to the protest, the VA submitted a size determination issued by the SBA for ISS in connection with a different procurement. AR, Tab J, SBA Size Determination No. 04-2015-058. The agency argued that GSZ’s protest should be denied because the “SBA recently affirmed ISS as a small business” and found that ISS “is not unusually reliant on its subcontractors to complete the work required.” AR at 5. We conclude, however, that the SBA’s size determination is not relevant to GSZ’s arguments here because it pertains to an entirely different procurement, which was issued under a different North American Industry Classification System code, with a different corresponding size standard, and which had a different statement of work. See 13 C.F.R. § 121.1007 (stating that a protest of size status, and thus the resulting formal size determination, must relate to a particular procurement). The SBA’s size determination is also not relevant because it does not address GSZ’s arguments here, which pertain to the technical acceptability of ISS’s proposal, not its status as a small business concern.

Although the VA did not directly respond to GSZ’s arguments, we conclude that nothing on the face of ISS’s proposal should have led the VA to conclude that ISS would not comply with the subcontracting limitation. First, contrary to GSZ’s allegations, an offeror’s number of employees, without more, does establish that the offeror takes exception to the subcontracting limitation. See Reliable Builders, Inc., B‑402652, B-402652.3, June 28, 2010, 2010 CPD ¶ 260 at 4, 5 (allegations that a firm lacks office space, licenses, and staff does not provide a basis for finding that the firm takes exception to the subcontracting clause in its proposal); Raloid Corp., supra, at 4 (allegations that an offeror does not have adequate facilities, equipment, or employees to perform the contract does not provide evidence that the firm cannot or will not comply with the subcontracting clause). See also KAES Enter., LLC, B‑408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 2-3 (protest alleging that awardee’s employees could perform only 27 percent, not the 51 percent required by the subcontracting clause, is denied where there was nothing on the face of the proposal to indicate the awardee would not comply with the clause).

Moreover, although ISS’s proposal lists four “key personnel,” by name, as required by the RFP, there is no indication in the proposal that those four individuals comprise the entirety of ISS’s workforce on the project or that ISS would not hire additional personnel as needed to complete the project or to comply with the subcontracting limitations. In this regard, the awardee’s proposal states that, as the prime contractor, “ISS will have overall responsibility for the operation, quality, safety, and outcome of the project and will self-perform general construction work on the project.” AR, Tab I, ISS’s Technical Proposal, at 2. The proposal also states that ISS will self-perform pipefitting, demolition, and mechanical supply. Id. at 6.

ISS’s proposal states that the remainder of the work will be performed by one of its three subcontractors. Id. Notably, ISS’s team includes a subcontractor that is also an SDVOSB, who will perform all electrical construction, electrical trades, and fire alarm installation. Id. at 2, 5, 6. Thus, because the subcontracting limitation clause expressly allows an SDVOSB concern to rely upon “the employees of other eligible [SDVOSB] concerns” in order to satisfy the 15 percent limitation, VAAR clause 852.219-10(c)(3), we find that ISS’s proposal, on its face, did not furnish any basis for finding that it took exception to the clause.  (Geiler/Schrudde & Zimmerman B-412219, B-412219.2, B-412219.3: Jan 7, 2016)  (pdf)

Promotions argues that DLA should have rejected M&M’s proposal as unacceptable because, on its face, the awardee’s proposal did not comply with the RFP’s limitation on subcontracting. Specifically, the protester argues that M&M will not perform more than 50 percent of the cost of manufacturing, as required by the RFP, because M&M intends to subcontract the cutting to [DELETED]. The protester also contends that the awardee’s proposed subcontract with [DELETED], which is not a small business, renders its proposal unacceptable. For the reasons discussed below, we find no basis to sustain the protest.

As a general matter, an agency’s judgment as to whether a small business vendor will be able to comply with a subcontracting limitation presents a question of responsibility, and the contractor’s actual compliance with the provisions is a matter of contract administration. KIRA, Inc., B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD ¶ 153 at 3. However, where a proposal, on its face, should have led the agency to conclude that the concern could not and would not comply with the subcontracting limitation, this is a matter of technical acceptability. Id. A submission that fails to conform to a material term or condition of the solicitation, such as a limitation on subcontracting clause, is unacceptable and may not form the basis for an order. Id.

DLA argues that nothing in M&M’s proposal, on its face, showed that the awardee would not comply with the requirement to perform at least 50 percent of the cost of manufacturing. AR at 9. Although M&M proposed to use [DELETED] to perform the cutting requirements, the agency notes that nothing in M&M’s proposal indicated that these costs would exceed 50 percent of the manufacturing costs for the end item to be provided. Id. at 10-11. Instead, as discussed above, the awardee’s proposal stated that it would perform the manufacturing, inspection, bundling and shipping. AR, Tab 6, M&M’s RFP Response, at 71; Tab 7, M&M’s Technical Proposal, at 11-12.

In our view, nothing on the face of M&M’s proposal takes exception to the RFP’s limitation on subcontracting, or suggests that the awardee will not comply with that limitation in performing the contract. As relevant here, M&M’s proposal states that it will be responsible for overall contract performance; that it will make the gloves; and that it will be responsible for all of the manufacturing and shipping. AR, Tab 6, M&M’s RFP Response, at 71. The agency states that after analyzing M&M’s proposal, it determined that M&M will manufacture and produce the end items in accordance with the small business set-aside clause, as well as perform work for at least 50 percent of the costs of manufacturing the supplies of the end item in accordance with the limitations on subcontracting requirements. AR at 10-11. Under these circumstances there is no basis for us to conclude that M&M’s proposal, on its face, should have led the agency to conclude that M&M could not and would not comply with the limitation on subcontracting clause.  (Promotions Plus, Inc., B-409318: Mar 10, 2014)  (pdf)
 

As a threshold matter, the agency asserts that MindPoint is not an interested party to pursue this protest because MindPoint, on the face of its proposal, took exception to the requirement that employees of MindPoint will perform at least 50 percent of the cost of contract performance incurred for personnel. Motion to Dismiss, Mar. 19, 2014 at 2-3. The protester asserts that it properly considered one of its two proposed systems administrators--an independent contractor--to be an employee for the purpose of calculating whether MindPoint would meet the minimum percent cost of performance requirement.

Where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. TYBRIN Corp., B-298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5. Such a noncompliant proposal may not form the basis for an award. See KIRA, Inc., B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD ¶ 153 at 3.

Here, we agree with the agency that on its face, MindPoint’s proposal takes exception to the 50-percent subcontracting limitation. In this regard, MindPoint’s final proposal revision (FPR) contains the required Table B1, with proposed staff and annual costs, for each of 10 labor categories. See AR, Tab 17, MindPoint FPR at 20. MindPoint represented that it would itself perform 53.3 percent of the contract effort using 7 individuals, including Systems Administrator MS, all generally designated as “MindPoint Group” in Exhibit 1.3, Team MindPoint Group Support Resources Breakdown. FPR, Exhibit 1.3, at 10. Using those figures, the agency calculates that, without the contribution of Systems Administrator MS, the proposal committed MindPoint to perform only 45 percent of the personnel costs of performance with its own employees. Email from Agency to GAO, Apr. 7, 2014. The protester does not dispute that calculation. In essence, to avoid violating the limitations on subcontracting provision of the solicitation, MindPoint must include the contribution of Systems Administrator MS in its calculation of the percentage of labor cost to be performed by MindPoint employees.

As noted by the agency, however, the protester’s proposal elsewhere indicated that Systems Administrator MS would, in fact, be a MindPoint independent contractor. See Agency’s Reply to Protester’s Opposition to Request for Dismissal at 6-7. In this regard, the systems administrator’s resume indicates that he is currently employed by another firm. AR, Tab 17, MindPoint FPR at 48. Further, the systems administrator’s letter of commitment states that he will be an independent consultant, and not an employee of MindPoint, for the contemplated contract: “I am committed to remaining as a member of Team MindPoint Group in support of the National Security Division and as an independent consultant to MindPoint Group for the duration of the contract.”[1] AR, Tab 8, MindPoint Initial Technical Proposal at 49. Likewise, MindPoint’s price proposal lists the systems administrator as a “1099 Consultant,” referring to the 1099 Internal Revenue Service form used for independent contractors. MindPoint FPR at 20. As such, the agency notes, MindPoint treated the systems administrator the same way that it did all of the other subcontracted employees (and different from the way it treated MindPoint employees) for the purpose of calculating fringe benefit costs, overhead cost, and profit. Id.

The protester’s argument that the agency should have instead considered its Systems Administrator MS to be an employee rests entirely on information not contained in MindPoint’s proposal, purporting to show that the systems administrator “would function more akin to an employee of MindPoint than a subcontractor.” See Protester’s Response to Request for Dismissal at 5-6, citing Exh. A, Decl. of MindPoint President & Exh. B, Teaming Agreement. It is an offeror’s responsibility to submit an adequately written proposal that establishes its capability and the merits of its proposed approach in accordance with the evaluation terms of the solicitation. See Verizon Fed., Inc., B-293527, Mar. 26, 2004, 2004 CPD ¶ 186 at 4. An offeror that does not affirmatively demonstrate the merits of its proposal risks rejection of its proposal. HDL Research Lab, Inc., B-294959, Dec. 21, 2004, 2005 CPD ¶ 8 at 5. Here, since the protester’s own proposal repeatedly treated the systems administrator as an independent contractor or consultant rather than as an employee, there is no basis to question the agency’s conclusion that the individual is not an employee of MindPoint.

As a result, MindPoint’s proposal was unacceptable, and, because there is another acceptable offer, MindPoint is not an interested party to pursue the remaining issues in its protest. See Tetra Tech Tesoro, Inc., B-403797, Dec. 14, 2010, 2011 CPD ¶ 7 at 6.

The protest is dismissed.  (MindPoint Group, LLC, B-409562: May 8, 2014)  (pdf)

SumCo next argues that the contracting officer had an affirmative responsibility to determine whether DCM could comply with the limitations on subcontracting incorporated into the contract at FAR § 52.219-3 and FAR § 52.219.14. The firm asserts that the agency could not make such an affirmative determination based on DCM’s lump sum bid, and that the bid, on its face, should have led the contracting officer to conclude that DCM could not and would not meet the relevant subcontracting limitations. Supp. Comments at 4. SumCo asserts that the agency was required to inquire further of DCM to determine the work allocation between the firm and its subcontractor. Protest at 4; Comments at 3-9. The firm argues that, had it made such an inquiry, the agency would have found that DCM was not a responsible bidder and rejected its bid. Comments at 9.

An agency’s judgment as to whether a small business offeror can comply with a limitation on subcontracting provision is generally a matter of responsibility. Ashridge, Inc., B-408469, Sept. 27, 2013, 2013 CPD ¶ 250 at 6. However, our Office has consistently held that where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. EcoAnalysts, Inc., B- 406233 et al., Mar. 19, 2012, 2012 CPD ¶ 169 at 3. In this regard, a proposal that fails to conform to a material term or condition of the solicitation, such as the subcontracting limitation, is unacceptable and may not form the basis for an award. Id.

The agency responds that DCM’s bid did not contain any information on its face that led the agency to conclude that DCM could not or would not comply with the relevant subcontracting limitations. Memorandum of Law at 9. We agree with the agency. The submitted bid was a lump sum bid, which was not broken down into components, such as prime contractor work and subcontractor work. IFB at 3; Supp. AR, Exh. 2, DCM Bid, at 3. Further, nothing else on the face of the bid would lead to the conclusion that DCM could not or would not comply with the relevant subcontracting limitations. See generally Supp. AR, Exh. 2, DCM Bid. The bid, on its face, does not evidence any nonconformance to a material term or condition of the solicitation, and was thus acceptable for award.  (SumCo Eco-Contracting LLC, B-409434, B-409434.2: Apr 15, 2014)  (pdf)

DBI contends that the agency should have found Conquistador’s quotation unacceptable for failing to comply with the RFQ’s limitation on subcontracting. Protest at 1. The protester argues that Conquistador does not intend to provide more than 50 percent of the labor costs because, in the protester’s view, Conquistador proposes to subcontract virtually the entire project to a non-SDVOSB. Id. at 2; Protester’s Comments at 2-4.

The VA argues that, on its face, Conquistator’s quotation generally indicates its intent to comply with the subcontracting limitation. AR at 3. The agency also points out that the RFQ did not require vendors to provide in their quotations specific proof of compliance, such as a breakdown of labor hours. Id.

As discussed above, the solicitation included a limitation on subcontracting clause, VAAR § 852.219-10(c)(1), which provides that, for service contracts, an SDVOSB concern must perform at least 50 percent of the personnel costs. As a general matter, an agency’s judgment as to whether a small business vendor will be able to comply with a subcontracting limitation presents a question of responsibility not subject to our review. Chant Engineering Co., Inc., B-402054, Dec. 29, 2009, 2010 CPD ¶ 16 at 2. However, where a quotation, on its face, should lead an agency to the conclusion that a vendor has not agreed to comply with the subcontracting limitation, the matter is one of the quotation’s acceptability. Id.

In our view, nothing on the face of Conquistador’s quotation, including the terms of its proposed subcontracting agreement, takes exception to the RFQ’s limitation on subcontracting, or suggests that the awardee will not comply with that limitation in performing the contract. As relevant here, Conquistador’s quotation states that it will be responsible for overall contract performance; that it will market recyclables; that it will prepare and submit monthly reports and disposal records; and that it will perform all billing and administrative functions. AR, Tab B, Conquistador’s Quotation, at 18. The quotation states that the key subcontractor will perform all aspects of refuse and recyclables collection. Id. Moreover, the subcontracting agreement explicitly states that in no event will Conquistador perform less than the percentage required by the subcontracting limitation and that Conquistador does not intend to be “unusually reliant” upon the subcontractor in the performing the contract. Id. at 10, 13.

DBI disputes that Conquistador’s quotation is facially compliant with the subcontracting limitation, because Conquistador’s subcontracting agreement provides that the key subcontractor would perform the waste removal, hauling, and container cleaning tasks, which the protester insists comprise almost the entirety of the requirement. Protester’s Comments at 2-4; Protester’s 2nd Supp. Comments at 3-7. DBI contends that, under the terms of the subcontracting agreement, Conquistador would only perform limited administrative or professional functions that, according to the protester, are insignificant, discretionary, or performed by VAMC staff. Id.

The VA explains that the procurement is primarily for management of the hospital’s waste removal and recycling program and requires a significant amount of professional and administrative work. 2nd Supp. AR, Tab J, Declaration of Chief of Environmental Management Services, at 1. In contrast, the agency argues, the waste and recycling removal tasks that the key subcontractor will perform are limited to picking up and transporting waste, which are a relatively small portion of the contract. Id. at 2.

We agree with the agency that the solicitation here calls for significantly more work than transporting waste. As discussed above, the solicitation calls for full-service recycling management, and it requires the contractor to perform (in addition to picking up and transporting waste) numerous data collection, reporting, compliance, training, and consulting tasks. Specifically, the contractor must: (1) track solid waste and recycling data, and provide monthly reports of this information; (2) maintain bills of lading and provide monthly and yearly summaries of this information; (3) document credits received for materials and reimburse the agency for such credits; (4) provide monthly forecasts, supported by at least two trade publications, of material pricing; (5) comply with waste regulations at various governmental levels, and submit mandatory reports in that regard; (6) appropriately handle and destroy medical records, and submit monthly certifications of destruction; (7) provide recyclability analysis, including laboratory and economic analysis; (8) provide a quarterly newsletter; (9) provide a monthly web posting; and (10) provide a training video, in-house training sessions, and walk-through trainings. RFQ at 4-7.

Contrary to the protester’s suggestion, these tasks are not limited, insignificant, or reserved for VAMC staff, and we are persuaded by the agency that these tasks require a significant amount of professional and administrative work. Although DBI disputes and minimizes the amount of labor required to perform some of the tasks enumerated above, the RFQ does not support DBI’s conclusion that the professional and administrative work is only a small part of the contract. Furthermore, the intervenor has provided a detailed breakdown of its expected labor hours, convincingly showing that the professional and administrative work performed by Conquistador is more than three times that of the waste removal work performed by the key subcontractor, consistent with our interpretation of the RFQ above. AR, Tab G, Declaration of Conquistador President. Accordingly, based on our review of the record, we find no basis to question the VA’s determination that the awardee would comply with the RFQ’s subcontracting limitation, and DBI’s arguments to the contrary simply reflect its disagreement with the agency.  (DBI Waste Systems, Inc., B-408304, B-408304.2, Aug 5, 2013)  (pdf)

KAES Enterprises contends that Energy Pro was ineligible for award because the firm failed to comply with the applicable limitation on subcontracting. Therefore, the protester contends, Energy Pro’s quotation should have been rejected as nonresponsible and unacceptable. Protest at 2. The protester argues that Energy Pro’s staff is unable to complete “at least 50 Percent” of the work on its own. In its comments, the protester analyzed the number of hours of work required under the contract versus the number of individuals employed by Energy Pro, and it concluded that, at most, Energy Pro staff could only be expected to perform 27 percent of the work required under the contract. Comments at 1-2. Therefore, the protester contends, Energy Pro’s proposal should have been rejected as noncompliant with the subcontracting limitation.

With regard to contracts for services, FAR § 52.219-14(c)(1) provides that “at least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.” As a general matter, an agency’s judgment as to whether a small business offeror will be able to comply with this subcontracting limitation presents a question of responsibility not subject to our review. Dorado Servs., Inc., B-408075, June 14, 2013, 2013 CPD ¶ __ at 11; Spectrum Sec. Servs., Inc., B-297320.2, B-297320.3, Dec. 29, 2005, 2005 CPD ¶ 227 at 6. However, where a quotation, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the quotation’s acceptability. See Dorado Servs., Inc., supra at 11; TYBRIN Corp., B-298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5.

Here, as set forth above, the solicitation asked offerors to provide, as a percentage, the “total estimated amount of work under this contract that your firm will complete (excluding subcontractors).” RFQ at 36. In response, the awardee’s quotation stated that it would perform 51 percent of the work itself. AR, Tab 6, Energy Pro Quotation, at 7. The protester has not identified any portion of the awardee’s quotation that, on its face, should have led the agency to the conclusion that Energy Pro had not agreed to comply with the subcontracting limitation. Instead, the protester argues that Energy Pro did not provide any supplemental data to support its claim that the firm would perform at least 50 percent of the cost of the contract itself. Comments at 1. However, it is the protester who bears the burden of demonstrating that the proposal should have led the agency to conclude that the awardee did not comply with this limitation; simply arguing that the awardee’s quotation did not contain sufficient information to demonstrate whether the awardee will comply does not meet this burden. Dorado Servs., Inc., supra at 12. Finally, we note that the protester’s arguments appear to rely on a misunderstanding of the FAR provision. The provision requires that at least 50 percent of the cost of contract performance incurred for personnel be incurred by the prime contractor. Thus, the protester’s arguments regarding the number of hours of work to be performed by the prime contractor versus the subcontractor are unconvincing.

We find that there is nothing on the face of Energy Pro’s quotation, nor has the protester directed us to anything on the face of Energy Pro’s quotation, that evidences that the firm will not comply with the solicitation’s subcontracting limitation provision. As a result, we see no basis to conclude that the agency acted improperly in accepting Energy Pro’s quotation.  (KAES Enterprises, LLC, B-408366, Aug 7, 2013)  (pdf)
 

EcoAnalysts contends that the EPA’s decision to reject its proposal as technically unacceptable on the basis that it did not meet the RFP’s limitation on subcontracting requirement was unreasonable.

As a general matter, an agency’s judgment as to whether a small business offeror will be able to comply with a subcontracting limitation presents a question of responsibility for review by the SBA. See 13 C.F.R. § 125.6(f); Spectrum Sec. Servs., Inc., B-297320.2, B-297320.3, Dec. 29, 2005, 2005 CPD ¶ 227 at 6. However, our Office has consistently held that where a proposal, on its face, should lead an agency to the conclusion than an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007 CPD ¶ 18 at 6; KIRA Inc., B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD ¶ 153 at 3; National Med. Staffing, Inc.; PRS Consultants, Inc., B-238694, B-238694.2, June 4, 1990, 90-1 CPD ¶ 530 at 4. In this regard, a proposal that fails to conform to a material term or condition of the solicitation, such as the subcontracting limitation, is unacceptable and may not form the basis for an award. TYBRIN Corp., B 298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5.

Here, the agency reasonably found, and our review confirms that, EcoAnalysts’ proposal included only 46.5 percent of the firm’s personnel cost in its direct labor base. EcoAnalysts admitted to the EPA that it proposed to incur less than 50 percent of the direct labor, and in its protest, EcoAnalysts acknowledges that its proposal reflected that its share of the direct labor costs incurred for personnel was only 46.5 percent, which is less than required to comply with the limitation on subcontracting requirement. See AR, Tab R.2, EcoAnalysts Letter to EPA, at 1-2; Protest at 17 n.4.

EcoAnalysts nevertheless argues that it was unreasonable for the EPA to conclude that EcoAnalysts “could not and would not comply with the subcontracting limitation” and reject its proposal, given EcoAnalysts’ assurances to the EPA in its November 22 letter (and previously to the SBA) that EcoAnalysts would comply with the subcontracting limitation requirements. EcoAnalysts also argues that in determining that the firm would not incur at least 50 percent of the costs of personnel, the EPA and the SBA unreasonably ignored the bulk of the personnel costs for laboratory services to be performed under the contract by EcoAnalysts personnel, which were included in its cost proposal as other direct costs (ODC).

As noted above, for purposes of complying with the subcontracting limitation requirement, the applicable regulation requires the cost incurred for personnel to be based on direct labor costs and any overhead which has only direct labor as its base, plus the concern’s G&A rate multiplied by the labor costs. 13 C.F.R. § 125.6(e)(2). This definition does not appear to include the consideration of labor costs embedded in ODCs. The ODCs here are for laboratory services and were a plug number ($22,050,000) included in all offerors’ cost proposals. The ODC plug number accounts for such elements as labor, equipment, supplies, materials, and other non-labor costs. In any case, EcoAnalysts provided no information in its proposal as to the personnel costs for its own employees for the laboratory services that would allow the agency to consider them in determining whether that firm would satisfy the subcontracting limitation. Thus, the agency reasonably disregarded the ODCs in determining EcoAnalyst’s compliance with the subcontracting limitation. See Addx Corp., B-404888, May 4, 2011, 2011 CPD ¶ 89 at 4 (for purposes of determining compliance with subcontracting limitation the agency should rely upon the contents of the proposal).

Although EcoAnalysts offered to, and states that it could, comply with the requirement, the proposal was reasonably found to be technically unacceptable as submitted. EcoAnalysts’ offers to comply with the subcontracting limitation do not render acceptable a proposal that is noncompliant on its face. TYBRIN Corp., supra, at 5-6. To make EcoAnalysts’ proposal acceptable would have required the EPA to conduct discussions and allow EcoAnalysts to revise its cost proposal. However, the agency was not obligated to conduct discussions with EcoAnalysts for this purpose, where, as here, the agency made award without discussions to other offerors with technically acceptable proposals. See Orincon Corp., B-276704, July 18, 1997, 97-2 CPD ¶ 26 at 4-6.  (EcoAnalysts, Inc., B-406233, Mar 19, 2012)  (pdf)

The protester argues that the agency improperly relied upon an unstated evaluation factor in rejecting its proposal for failure to comply with the limitation on subcontracting clause. Addx further argues that until the agency issues technical instructions definitively determining the required level of effort under the task order, it lacks a basis for concluding that the protester will not comply with the limitation.

The protester's first argument is without merit. Where a proposal, on its face, demonstrates that an offeror is taking exception to the subcontracting limitation clause, the proposal is technically unacceptable. TYBRIN Corp., B‑298364.6, B‑298364.7, Mar. 13, 2007, 2007 CPD para. 51 at 5. This is so because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award. Id. To the extent that the protester is arguing that the [task order proposal request] TOPR did not notify offerors that it incorporated the limitation on subcontracting clause, as previously noted, the protester's underlying Seaport-E contract provided it with notice that the limitation on subcontracting clause would be incorporated into any TOPR set aside for small business. AR, Tab 10, at 24. In addition, the TOPR itself advised offerors of the clause's incorporation. TOPR, amend. 2, at 27.

Turning to the protester's second argument--i.e., that until the agency definitively decides the required level of effort under the task order, it lacks a basis for concluding that the protester will not comply with the limitation--we think the agency reasonably concluded that Addx had not agreed to comply with the limitation on subcontracting clause. While it is true that the precise level of effort under the task order is to be defined at the task order kick-off meeting and throughout the life of the task order (making it impossible for the agency to determine the precise percentage of work to be performed by Addx's subcontractors), this does not render meaningless, as Addx suggests, the information concerning Addx's proposed staffing mix (prime vs. subcontractor) set forth in Addx's technical and cost proposals. The protester's proposal was based on the "best estimate" of the government's labor hour requirements, TOPR, amend. 2, at 37; in addition, the protester's cost proposal indicated that it would perform the estimated requirements using largely a subcontractor work force (78 percent of its labor costs were for subcontractor employees). Given the information Addx provided in its proposal, the agency had a reasonable basis to conclude that Addx was not agreeing to expend at least 50 percent of personnel costs for its own employees in performance of the contract.

The protest is denied.  (Addx Corporation, B-404888, May 4, 2011)  (pdf)

Chant argues that Clover's quotation should have been found unacceptable because, on its face, it did not comply with the RFQ's LOS clause, FAR sect. 52.219-14(b)(2) (the so-called "50% rule"). Specifically, Chant contends that the breakdown of work to be performed by Clover and Oilgear shows that Clover will perform less than 50% of the contract value.

As a general rule, an agency's judgment as to whether a small business concern will comply with the LOS clause is a matter of responsibility, and the contractor's actual compliance with the provisions is a matter of contract administration. However, where a quotation, on its face, should have led the agency to conclude that the concern could not and would not comply with the subcontracting limitation, this is a matter of technical acceptability. A submission that fails to conform to a material term or condition of the solicitation, such as the LOS clause, is unacceptable and may not form the basis for an order. KIRA, Inc., B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD para. 153 at 3.

We find nothing on the face of Clover's quotation indicating an intent not to comply with the LOS clause. Chant points to nothing, and we find nothing, in Clover's quotation or in the solicitation that establishes that Clover's method of performance does not comply with the LOS clause. In contrast, the agency states that its analysis of the quotation shows that Clover will supply and fabricate a number of unique, one-of-a-kind components and assume total project responsibility, while Oilgear is to supply other components that are readily available in its supply chain and require only modest fabrication to meet the solicitation specifications. AR, Tab E, Engineers' Statement, at 3-4. Additionally, the agency states that, after analyzing Clover's proposal, it determined that Clover will incur far more than 50% of the cost to manufacture the entire hydraulic power system (not including the cost of materials). Id. at 3. Under these circumstances, there is no basis for us to conclude that Clover's quotation, on its face, should have led the agency to conclude that Clover could not and would not comply with the LOS clause.

Chant argues that Clover's quotation should have been found unacceptable because it showed that Clover would not incur at least 50% of the personnel costs, as required under the LOS clause. Protest at 5. However, either subparagraph (1) or subparagraph (2) of the LOS clause applies, but not both, depending upon whether the contract is one for services or supplies. The contract here is for the construction, fabrication, assembly, and testing of a hydraulic system, components and new operating machinery, and thus falls under the supplies requirement at subparagraph (2) (as reflected in the agency's analysis above which we have no basis to question). Accordingly, subparagraph (1), establishing the 50% of personnel costs requirement, does not apply. See TFab Mfg., LLC, B-401190, June 18, 2009, 2009 CPD para. 127 at 3-4.  (Chant Engineering Company, Inc., B-402054, December 29, 2009) (pdf)
 

The RFP, issued on July 9, 2008 as a total small business set-aside, provided for the award of an indefinite-delivery, indefinite quantity contract. Contracting Officer’s Statement (COS) at 3. The RFP called for both hardware requirements and engineering services requirements. COS at 2‑3. The RFP incorporated FAR sect. 52.219‑14, the LOS clause, as follows:

LIMITATIONS ON SUBCONTRACTING (DEC 1996)
(a) This clause does not apply to the unrestricted portion of a partial set-aside.
(b) By submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract in the case of a contract for--
(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.
(2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.
(3) General construction..…
(4) Construction by special trade contractors..…

Proposals were received from several small businesses, including TFab. COS at 3. The contracting officer questioned TFab regarding its compliance with the LOS clause, since TFab’s proposal specifically indicated “an approximately 95 percent exemption” from the 50% subcontracting rule for the required services. Id. at 3-4. The contracting officer was concerned “that the protester’s proposal for how the services CLINS were to be performed amounted to a significant pass through to a large business.” Id. at 4. On February 12, the contracting officer issued RFP amendment No. 17, which clarified the manner in which the Army intended to apply the LOS clause, as follows:

V. Offerors are cautioned that this acquisition is a Small Business Set‑Aside and is subject to the requirements of FAR clause 52.219-14, Limitations on Subcontracting. This acquisition contains both Supply and Service contract line items, both of which are separately subject to FAR clause 52-219-14, Limitations on Subcontracting. Offerors are cautioned that CLINs described as Cost Plus Fixed Fee CLINs are considered to be an important part of this procurement and not incidental to the production/fixed fee CLINs. Accordingly, offerors must meet the requirements for Small Business Set-Aside with regard to these CLINS.

RFP, Amend. No. 17, sect. A-16.V. All offerors, including the protester, submitted revised proposals by the March 17 closing time. COS at 4. This protest was filed prior to the closing time.

(sections deleted)

ANALYSIS

We agree with the protester that the LOS clause does not provide for dual application of the 50% requirement. The clause, on its face, establishes separate subcontracting limitations “in the case of a contract for” four distinct types of work. Paragraph (b)(1) establishes subcontracting limitations, not with regard to services generally, but with regard to “a contract … for Services.” Similarly, paragraph (b)(2) establishes subcontracting limitations, not with regard to supplies generally, but with regard to “a contract … for Supplies.” There is no language in the clause that contemplates a hybrid services/supply contract; more specifically, there is no language that provides for applying both paragraphs (b)(1) and (b)(2) in a single acquisition to require small business firms to agree to perform at least 50% of both services and supply work under a single contract. We read the language of the clause as indicating that the applicable LOS clause paragraph is to be applied to entire contracts, rather than portions of contracts, and that the clause contemplates that the contracting agency must choose among the paragraphs.

In AFL-CIO v. Donovan, 582 F. Supp. 1015, 1020 (D.D.C. 1984), aff’d, 757 F.2d 330 (D.C. Cir. 1985), the court reached a similar conclusion in interpreting applicability of the Service Contract Act (SCA), 41 U.S.C. sections 351-358 (applicable to contracts “the principal purpose of which is to furnish services”) and the Walsh-Healey Public Contracts Act (WHA), 41 U.S.C. sections 35-45 (applicable to contracts “for the manufacture or furnishing of materials, supplies, articles, and equipment”), statutes in para materia with subsection 15(o) and the LOS clause. Specifically, in interpreting the relevant provisions of the SCA, the court found that text that “refers to ‘the contract’ without any reference to line item specifications” indicated that the SCA “was intended to apply to entire contracts, not to individual line items.” Agencies’ implementation of the SCA and WHA is consistent with this interpretation; the contracting agency must make a determination whether a requirement is for services or supplies in order to determine which of the two statutes is applicable to an acquisition. See Information Handling Servs., 70 Comp. Gen. 35 (1990), 90-2 CPD para. 306 at 3 (regulations implementing the SCA and WHA contemplate an initial determination by the procuring agency as to which statute applies to a particular procurement); Tenavision, Inc., B-231453, Aug. 4, 1988, 88‑2 CPD para. 114 at 2 (regulatory scheme implementing these statutes envisions an initial determination by the contracting agency as to which statute applies to a particular procurement). This determination requires identification of the principal purpose of the contract. See AFL-CIO v. Donovan, 757 F.2d 330, supra, at 345 (SCA applies only when principal purpose of contract is for services); Southern Packaging & Storage Co. v. U.S., 458 F. Supp. 726, 734 (D.S.C. 1978), aff’d, 618 F.2d 1088, 1090 (4th Cir. 1980) (acquisition of field rations would be exempt from coverage under SCA if found to be subject to provisions of WHA); Department of Labor Regulations, 29 C.F.R. sect. 4.117 (2009).

We find the courts’ interpretation regarding the manner in which the SCA and WHA are to be applied to contracts supportive of our conclusion here, where we are interpreting an acquisition statute and associated regulations the provisions of which, like those of the SCA and WHA, apply to “contracts” rather than to particular services or supplies within a contract, and which, to be implemented, require an initial agency determination regarding applicability.

Our interpretation also is consistent with SBA’s position regarding this issue. In response to our request for its views, SBA agrees that the Army’s application of the LOS clause to the services and supply portions of the requirement here is improper. SBA points out that the FAR LOS clause requirements parallel those under subsection 125.6(a) of its own regulations, 13 C.F.R. sect. 125.6(a), which also implement subsection 15(o) of the Small Business Act, 15 U.S.C. sect. 644(o).[2] Consistent with our interpretation, it is SBA’s position that these provisions “established one performance requirement that applies to a ‘contract for the procurement of supplies’ and a different performance requirement that applies to a ‘contract for services.’” SBA Comments at 3. SBA concludes that the Army’s attempt to apply both the services and supply provisions of the LOS clause is inconsistent with the act. Id. at 4. We generally will give deference to an agency’s reasonable interpretation of its own regulations. See Blue Rock Structures, Inc., B-293134, Feb. 6, 2004, 2004 CPD para. 63 at 8 (SBA’s interpretation of statute that it is responsible for implementing entitled to substantial deference and, if reasonable, should be upheld).

Further, we agree with SBA that the Army’s implementation of the LOS clause will have the practical effect of restricting competition. In this regard, while, as discussed, the Army is motivated to preclude a small business awardee from subcontracting with a large business to perform all of the service work or all of the supply work under the contract, applying the LOS clause to both the services and supply portions of the contract clearly will limit the small businesses that will be able to compete. Specifically, small business firms that can only perform either a majority of the services work or a majority of the supply work will not be able to compete; the pool of potential competitors will be limited to small businesses that can satisfy the requirements of both paragraph (b)(1) (“50 percent of the cost of contract performance incurred for personnel”) and paragraph (b)(2) (“50 percent of the cost of manufacturing the supplies”).

Accordingly, we sustain the protest.  (TFab Manufacturing, LLC, B-401190, June 18, 2009)  (pdf)

As a general matter, an agency’s judgment as to whether a small business offeror will be able to comply with a subcontracting limitation presents a question of responsibility for review by the SBA. See 13 C.F.R. sect. 125.6(f); Spectrum Sec. Servs., Inc., B-297320.2; B-297320.3, Dec. 29, 2005, 2005 CPD para. 227 at 6. However, our Office has consistently held that where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007 CPD para. 18 at 6; KIRA Inc., B-287573.4; B‑287573.5, Aug. 29, 2001, 2001 CPD para. 153 at 3; National Med. Staffing, Inc.; PRS Consultants, Inc., B-238694; B-238694.2, June 4, 1990, 90-1 CPD para. 530 at 4. Our Office has also long held that a proposal that fails to conform to a material term or condition of the solicitation, including the subcontracting limitation, is unacceptable and may not form the basis for an award. KIRA Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra, at 3-4 (sustaining protest that the award of a contract was improper where the awardee’s proposal evidenced noncompliance with the subcontracting limitation); see Vanderbilt Shirt Co., B-236016, Oct. 10, 1989, 89‑2 CPD para. 333 at 2 (agency properly rejected the protester’s bid as nonresponsive where the bid provided that the protester would not comply with the subcontracting limitation). As set forth above, the record establishes that it was clear to the Air Force that CENTECH’s proposal as submitted and as evaluated provided that 43.2 percent of the cost of contract performance incurred for personnel would be expended for CENTECH employees and, accordingly, that “the CENTECH GROUP did not meet the subcontracting limitation requirements set forth in statute and regulation.” AR (B-298364.6), Tab 9, Determination of Non-Responsibility; see Tab 10, Memorandum from the Contracting Officer to CENTECH, Rescission of Contract (Sept. 8, 2006); Tab 12, Request for COC (Sept. 15, 2006); AR (B-298364.2) at 2; Contacting Officer’s Statement (B-298364.2) at 4. Given the Air Force’s determination that CENTECH’s proposal failed to comply with a material term of the solicitation (the subcontracting limitation) and, accordingly, that the proposal could not form the basis for award under the RFP, the agency should have found CENTECH’s proposal to be unacceptable, rather than finding CENTECH nonresponsible and forwarding the matter to the SBA for its consideration. See Continental Staffing, Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra. The fact that the SBA has now determined CENTECH to be a responsible contractor does not alter our view here. Although the SBA’s determinations of responsibility and its issuance of COCs are generally not for review by our Office, Bid Protest Regulations, 4 C.F.R. sect. 21.5(b)(2) (2006), the issues of a proposal’s acceptability and the award of a contract to an offeror based upon a proposal that fails to comply with a material term of a solicitation are matters initially within the purview of the contracting agency and subject to review by our Office. See, e.g., L-3 Communications Westwood Corp., B‑295126, Jan. 19, 2005, 2005 CPD para. 30 at 5; CACI Techs., Inc., B-296946, Oct. 27, 2005, 2005 CPD para. 198 at 5. The SBA disagrees with our Office’s view that where a proposal, on its face, should lead the contracting agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability, rather than the offeror’s responsibility. SBA Submission (Jan. 23, 2007) at 4. Specifically, the SBA points out here that “[w]ith respect to whether or not a [small business concern] will meet its subcontracting limitation requirement, the SBA’s regulations provide that ‘[c]ompliance will be considered an element of responsibility.’” Id.; see 13 C.F.R. 125.6(f). Again, as set forth above, the issue here does not concern whether a bidder or offeror can or will comply with the subcontracting limitation requirement during performance of the contract (where we recognize that the matter is one of responsibility (or in certain cases, contract administration, see, e.g., Raloid Corp., B‑297176, Nov. 10, 2005, 2005 CPD para. 205 at 4)), but rather, whether the bidder or offeror has specifically taken exception to the subcontracting limitation requirement on the face of its bid or proposal. Given that the determination in this latter, limited circumstance involves the evaluation of a bid or proposal for compliance with a material term of the solicitation, the determination is one of responsiveness or acceptability, rather than responsibility. Continental Staffing, Inc., supra; KIRA Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra; Vanderbilt Shirt Co., supra.

Accordingly, we sustain the protest on this basis. While we find that CENTECH’s proposal could not form the basis for award under this RFP, the record reflects that CENTECH submitted its proposal with the understanding that it would be found to meet or exceed the subcontracting limitation requirement, given the AFMC memorandum that allowed for the performance of work requirement imposed by the Limitation on Subcontracting clause to be met by the “cooperative efforts” of CENTECH and its small business subcontractors. Additionally, although discussions were held with the four offerors that had submitted proposals, the matter of CENTECH’s proposal’s compliance with the requirements of the Limitation on Subcontracting clause was never raised with CENTECH during discussions because of the Air Force’s reliance on the AFMC memorandum. Accordingly, CENTECH was deprived of meaningful discussions regarding its proposal’s failure to comply with the requirements of the Limitation on Subcontracting clause. See FAR sect. 15.306(d)(3); Lockheed Martin Corp., B-293679 et al., May 27, 2004, 2004 CPD para. 115 at 7; see Special Operations Group, Inc., B-287013; B-287103.2, Mar. 30, 2001, 2001 CPD para. 73 at 7 (awardee whose proposal should have been rejected for failing to comply with a material term of the solicitation was deprived of meaningful discussions where this issue was not raised by the agency during its conduct of discussions). (TYBRIN Corporation, B-298364.6; B-298364.7, March 13, 2007) (pdf)

Raloid also questions whether DET will comply with the limitations on subcontracting provision at Federal Acquisition Regulation (FAR) sect. 52.219-14 contained in the RFP because, in its view, DET does not have adequate facilities, equipment, or employees to manufacture the adapters. The FAR limitations on subcontracting provision requires that a prime contractor perform at least 50 percent of the cost of the contract incurred for personnel with its own employees. An agency’s judgment as to whether a small business offeror will comply with the limitations on subcontracting provision is a matter of responsibility and the contractor’s actual compliance with the provision is a matter of contract administration. Coffman Specialties, Inc., B-284546, B-284546.2, May 10, 2000, 2000 CPD para. 77 at 5. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, the proposal may not form the basis for an award. KIRA, Inc., B-287573.4, B‑287573.5, Aug. 29, 2001, 2001 CPD para. 153 at 3. There is nothing on the face of DET’s proposal evidencing that the firm cannot and will not comply with the RFP’s subcontracting limitation provision. Accordingly, we have no basis to question the agency’s reliance on DET’s representations in concluding that DET agreed to perform as required.  (Raloid Corporation, B-297176, November 10, 2005) (pdf)

Highland contends that Chenega's performance of the work will be less than 50 percent of the contract value, as allegedly indicated by its proposal's cost and pricing schedules. In this regard, Highland argues that in computing Chenega's compliance with the 50percent rule its overhead costs, general and administrative (G&A) costs, and profit must be excluded from the total contract cost, but that the agency's analysis did not do this. Highland also asserts that agency's analysis was flawed because the production quantities and the option CLINs should have been excluded from the analysis since such future orders beyond the initial prototypes are "speculative," and that only the SDD work (which will primarily be subcontracted to Radian) should be used to determine compliance with the 50percent rule.

As a general rule, an agency's judgment as to whether a small business offeror will comply with the subcontracting limitation is a matter of responsibility, and the contractor's actual compliance with the provisions is a matter of contract administration. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal's technical acceptability; a proposal that fails to conform to a material term or condition of the solicitation such as the subcontracting limitation is unacceptable and may not form the basis for an award. KIRA, Inc. , B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD 153 at 3.

As indicated by the subcontracting clause (quoted above), the standard for compliance with the 50percent rule is different depending whether the contract is for services or for supplies. Compare Phoenix Sys. & Techs., Inc. , SBA No. 3220 (Nov. 29, 1989) (supply contract) with SM Sys. & Research Corp., Inc. , SBA No. 3241 (Jan. 9, 1990) (service contract). [19] The contract here is a single integrated development and production requirements contract for a 5-year term, with optional CLINs for certain incidental services or items. While there may be some incidental services included in the contract, this is a contract for supplies, as indicated by the inclusion of the clause implementing the Walsh-Healey Public Contracts Act, 41 U.S.C. 35-45 (2000), in the RFP, and the designation of this procurement under North American Industry Classification System Code 333319, "Other Commercial and Service Industry Machinery Manufacturing."

Much of Highland's argument that Chenega will not satisfy the 50-percent rule is based on its assertion that the award was only for CLIN0001AA for the SDD prototype--work that will be primarily performed by Radian--and that the production quantities in the contract cannot be considered in determining Chenega's compliance with the subcontracting limitation because they are "speculative." This argument does not account for the fact that the production quantities are part of the contract as a whole and thus are required to be considered in determining compliance with the subcontracting limitation, and that the award of the SDD prototype was merely the initial order under the contract. For contracts without option years, as here, the subcontracting limitation applies to the contract as a whole, not to individual delivery or task orders. [20] MCA Research Corp. , B-278268.2, Apr. 10, 1998, 98-1 CPD 129 at 6 n.5.

To determine compliance with the 50-percent rule in a supply contract, SBA's Office of Hearings and Appeals has stated that the total contract cost (including profit) less materials and subcontracting costs is to be compared with all subcontracting costs less the subcontractor's materials costs. See Marwais Steel Co. , SBA No. 3884 (Feb.10, 1994); Phoenix Sys. & Techs., Inc. , supra . Highland's argument that Chenega's overhead costs, G&A costs, and profit need to be excluded from the computation of the total contract cost is based upon decisions of the SBA's Office of Hearings and Appeals involving service contracts. See e.g. , SM Sys. & Research Corp., Inc. , supra . The rule for supply contracts is that overhead costs, G&A costs and profit should not be excluded from the computation of the total contract cost; rather, only material and subcontracting costs are to be excluded from the total contract cost. Phoenix Sys. & Techs., Inc. , supra . When Chenega's overhead costs, G&A costs and profit are properly included in the calculation of Chenega's total contract cost, our review indicates that Chenega's proposal complies with the 50percent rule, i.e. , that Chenega planned to perform work for more than 50 percent of the cost of manufacturing the supplies, not including the cost of materials.  Mechanical Equipment Company, Inc.; Highland Engineering, Inc.; Etnyre International, Ltd.; Kara Aerospace, Inc., B-292789.2; B-292789.3; B-292789.4; B-292789.5; B-292789.6; B-292789.7, December 15, 2003 (pdf)

The Limitations on Subcontracting clause applies only to solicitations (or portions thereof) that are set aside for small business competition or the 8(a) program. See FAR 19.508(e) ("The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside for small business and the contract amount is expected to exceed100,000"). See also FAR 19.811-3(e) ("The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in any solicitation and contract resulting from this subpart [ i.e. , subpart 19.8 (The 8(a) Program)]"). Accordingly, since the solicitation at issue here was unrestricted, the clause has no application to it (despite the fact that it was incorrectly incorporated by reference). With regard to FAR 52.203-6, the protesters have furnished no argument in support of their allegation that B&R's stated intention to subcontract with [deleted] would violate the clause, and we see no basis for such an argument. Section 52.203-6 prohibits a contractor from entering into an agreement with an actual or prospective subcontractor, or otherwise acting in a manner, "which has or may have the effect of restricting sales by such subcontractors directly to the Government of any item or process (. . .) made or furnished by the subcontractor under this contract or under any follow-on production contract." There is no evidence in the record here that B&R has entered into an agreement with [deleted], or otherwise acted in a manner, that violates the above provision. (Superior Optical Labs, Inc.; Diversified Ophthalmics, Inc., B-294662; B-294662.2, December 9, 2004) (pdf)

It is undisputed that accepting IBM's proposal and using IBM to perform maintenance for all computers and laser printers (other than the few IBM 4028 laser printers) would place COMTek in violation of the limitation in the Federal Acquisition Regulation (FAR) on subcontracting where a solicitation is set aside for small business and the contract amount is expected to exceed $100,000. In this regard, under FAR § 52.219‑14(b)(1), which was included in the solicitation, in the case of a contract for services, “[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.”  (Integration Technologies Group, Inc., B-291657, February 13, 2003)  (txt version)

However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal's technical acceptability; a proposal that fails to conform to a material term or condition of the solicitation such as the subcontracting limitation is unacceptable and may not form the basis for an award. Coffman Specialties, Inc., B-284546, B-284546.2, May 10, 2000, 2000 CPD para. 77 at 5.  (KIRA Inc., B-287573.4; B-287573.5, August 29, 2001)

In any event, the record shows that the evaluators noted that this issue was not entirely verifiable prior to award, and that NASA will ensure Infinity's compliance with the subcontracting limitation provision. Further, based on our review of Infinity's proposal, there is nothing to suggest that the firm took exception to the subcontracting limitation provision. Given that an agency is permitted wide discretion in this area, and in light of the agency's explanation in response to this allegation, we see no basis to conclude that NASA abused its discretion in selecting Infinity's proposal for award.  (Symtech Corporation, B-285358, August 21, 2000)

We have held that an agency need not consider subcontractor experience where the solicitation contemplates award of a service contract to a section 8(a) firm, and includes the provision at Federal Acquisition Regulation (FAR) sect. 52.219-14, which imposes a limitation on subcontracting to an amount less than 50 percent of the cost of contract performance. USATREX Int'l, Inc. supra at 4. In such cases, the agency properly may determine that only the offeror's own capabilities are relevant for purposes of discriminating among the proposals. Since the RFP here provided for award of a service contract and contained the cited FAR provision, we think it properly could limit its evaluation to the prime contractor?s capabilities.  (North State Resources, Inc., B-282140, June 7, 1999)