BNUMBER:  B-271071.6; B-271071.7; B-271071.8; B-271071.9
DATE:  May 20, 1996
TITLE:  McSwain & Associates, Inc.; Shel-Ken Properties, Inc.;
and Elaine Dunn Realty

**********************************************************************

Matter of:McSwain & Associates, Inc.; Shel-Ken Properties, Inc.;
               and Elaine Dunn Realty

File:     B-271071; B-271071.2; B-271071.3; B-271071.4; B-271071.5; 
            B-271071.6; B-271071.7; B-271071.8; B-271071.9

Date:     May 20, 1996

Michael J. McSwain for McSwain & Associates, Inc.; Charlotte C. 
Jenkins for
Shel-Ken Properties, Inc.; and Elaine Dunn for Elaine Dunn Realty, the 
protesters.
W. Graham Moses, Esq., Department of Housing and Urban Development, 
for the agency.
Wm. David Hasfurther, Esq., Susan K. McAuliffe, Esq., and Michael R. 
Golden, Esq., Office of the General Counsel, GAO, participated in the 
preparation of the decision.

DIGEST

Protests are sustained where agency decision not to set aside real 
estate asset manager services procurement for small business concerns 
was based on insufficient efforts to ascertain small business 
capability to perform the contract.

DECISION

McSwain & Associates, Inc., Shel-Ken Properties, Inc., and Elaine Dunn 
Realty protest the decision of the Department of Housing and Urban 
Development (HUD), Georgia State Office, to procure real estate asset 
manager (REAM) services on an unrestricted basis under request for 
proposals (RFP) No. DU204-R-95-0021.  The protesters contend that the 
procurement of these services, which has in the past been limited to 
small business concerns, should be set aside solely for small 
businesses.  They also contend that the agency has improperly failed 
to clarify certain RFP requirements.

We sustain the protests.

The agency advances three reasons for its decision to issue the RFP on 
an unrestricted basis.  First, it states that the greatly increased 
size of each service area under the RFP and the increased managerial 
and financial resources needed to service each area make it impossible 
for small businesses to perform successfully without entering into 
joint ventures.  Second, it contends that since the dollar amount of 
any contract under the RFP will exceed the maximum dollar level
($1.5 million) permitted by the applicable Standard Industrial 
Classification (SIC) code (SIC code 6531) for a small business, no 
firm obtaining an award under the RFP can be considered a small 
business for purposes of this procurement.  Third, it argues that a 
Greensboro (North Carolina) Field Office's attempted set-aside, which 
had to be canceled when acceptable small business offers were not 
received, proves the inappropriateness of setting the current 
procurement aside.  The agency also notes that the objective of HUD 
Notice 91-12, which established the REAM procurement procedures, is 
not to limit these procurements to small businesses, but rather to 
obtain high-quality property management services.

The protesters maintain that there are several small business firms, 
including the protesters, that are capable of fulfilling the contract 
requirements and are interested in competing.

An acquisition of services is required to be set aside for exclusive 
small business participation if the contracting officer determines 
that there is a reasonable expectation that offers will be obtained 
from at least two responsible small business concerns and that award 
will be made at fair market prices.  Federal Acquisition Regulation  sec.  
19.502-2(b).  Generally, we regard such a determination as a matter of 
business judgment within the contracting officer's discretion which we 
will not disturb absent a showing that it was unreasonable.  Neal R. 
Gross & Co., Inc.,
B-240924.2, Jan. 17, 1991, 91-1 CPD  para.  53.  However, an agency must 
undertake reasonable efforts to ascertain whether it is likely that it 
will receive offers from at least two small businesses with the 
capability to perform the work and we will review a protest to 
determine whether an agency has done so.  Library Sys. & 
Servs./Internet Sys., Inc., B-244432, Oct. 16, 1991, 91-2 CPD  para.  337; 
The Taylor Group, Inc., B-235205, Aug. 11, 1989, 89-2 CPD  para.  129.  In 
this regard, we have found unreasonable the determination to issue a 
solicitation on an unrestricted basis where that determination is 
based upon outdated or incomplete information.  Library Sys. & 
Servs./Internet Sys., Inc., supra.

The record does not show that the contracting officer met her duty to 
reasonably investigate whether the procurement could be set aside for 
exclusive small business  participation.  Based upon the facts 
underlying the determination as they were provided to us, the agency's 
determination not to set aside the procurement was based on incomplete 
information and unsupported assertions.  While the use of any 
particular method of assessing the availability of small businesses is 
not required, and measures such as prior procurement history, market 
surveys and/or advice from the agency's small business specialist and 
technical personnel may all constitute adequate grounds for a 
contracting officer's decision not to set aside a procurement,  
American Imaging Servs., Inc., 71 Comp. Gen. 249 (1991), 92-1 CPD  para.  
188, the assessment must be based on sufficient facts so as to 
establish its reasonableness.  Here, however, the agency's general 
assertion that the service areas are too large to be successfully 
serviced by a small business simply states a conclusion that is not 
established by any facts provided to our Office.  The agency offers no 
meaningful comparison of the current requirements to those of the 
service areas which have been successfully serviced by small 
businesses in the past to support its position; additionally, no facts 
have been offered to establish the applicability of the Greensboro 
experience, where acceptable small business offers were not received, 
to the present procurement.

The agency here simply did not conduct an adequate review of the 
potential small business market.  For instance, the agency did not 
contact any of the small businesses that expressed interest in the 
contract, or those with known REAM contract experience, to ascertain 
whether they were qualified to meet the increased requirements.  
Rather, the agency concluded, without evidentiary support, that any 
small business would be incapable of meeting the contract 
requirements, particularly with regard to financially capacity.   
Although the agency states that it reviewed prior small business REAM 
contracts and proposals in reaching its conclusion, the agency has not 
explained how a review of these prior contracts is relevant to 
determining the availability of responsible small businesses to meet 
the current requirements.  

The agency's conclusion that small business contractors lack the 
financial capability to satisfactorily perform the contract was based 
upon the agency's experience with incumbent small business 
contractors' complaints regarding their need to use their own 
financial resources (sometimes exceeding $100,000) between agency 
payments.  The protesters respond, however, that they are financially 
able to perform the current contract requirements and that the 
contractor complaints referenced by the agency were the result of the 
agency's own violations of the prompt payment terms of those 
contracts.  The agency has not rebutted the protesters' position and, 
in the absence of any further explanation concerning these 
circumstances and the causes of the small business incumbents' 
complaints, we are not persuaded that this concern justifies an 
unrestricted procurement where other small businesses may in fact have 
the financial capability.  (The record shows that there has been no 
review of the interested small businesses' financial capability to 
satisfactorily perform the current requirements in accordance with the 
RFP's payment terms.)

We do not question the legitimacy of the agency's concerns that the 
increased requirements may be excessive for certain small businesses 
or reach any conclusion as to whether there actually are two or more 
small businesses that can meet the RFP's requirements.  We find only 
that the agency was required to more actively investigate the current 
capabilities of at least a representative number of interested small 
business firms before determining, based only upon incomplete 
information and unsupported assertions, that no small business concern 
would be able to perform the work.  Because the agency failed to make 
reasonable efforts to ascertain whether small business firms are 
capable of performing the contract, we conclude that the decision not 
to set aside this procurement for exclusive small business competition 
is not adequately supported and, therefore, the protests are 
sustained.  DCT Inc., B-252479, July 1, 1993, 93-2 CPD  para.  1.[1]
 
Accordingly, we recommend that the contracting officer adequately 
investigate the potential small business interest in this procurement 
and the responsibility of  interested small business firms.  If the 
contracting officer finds that there is a reasonable expectation that 
offers will be obtained from at least two responsible small business 
concerns (and that award can be made at a fair market price), the 
agency should take the necessary steps to set aside this procurement 
for small businesses.  We also recommend that the protesters be 
reimbursed their costs of filing and pursuing their protests.  Bid 
Protest Regulations, 4 C.F.R.  sec.  21.8(d)(1) (1996).  The protesters 
should submit their detailed and certified claim for costs directly to 
the agency within 90 days after receipt of this decision.  4 C.F.R.  sec.  
21.8(f)(1).

The protests are sustained.[2]

Comptroller General
of the United States 

1. Further, the agency's reliance on the applicable SIC code--for 
purposes of arguing that since the current contract will exceed that 
code's small business size ceiling (of $1.5 million in annual 
receipts), no firm can be considered a small business--is misplaced.  
The dollar amount of the current contract would be excluded from the 
calculation of a firm's annual receipts for compliance with the 
applicable SIC code ceiling for this procurement.  In any event, the 
SIC code's effect on offeror eligibility as to size status is a matter 
for the Small Business Administration (SBA).  See StaffAll, B-233205, 
Feb. 23, 1989, 89-1 CPD  para.  195.  We also note, regarding the SBA, that 
the agency did not seek the opinion of that agency in making its 
determination not to set aside the procurement for small business 
concerns. 

2. McSwain and Shel-Ken raised numerous other challenges to the 
procurement (e.g., alleged bias or criminal activity on the part of 
the agency) that have been reviewed by our Office, but which are not 
supported by the record or are rendered academic in light of our 
decision above sustaining the protests of the agency's determination 
not to set aside the procurement for small businesses.  To the extent 
the protesters challenge certain specifications of the RFP as 
restrictive of competition or ambiguous, that insufficient time was 
permitted for the preparation of proposals, and that the requirement 
should be procured under sealed bidding procedures, we have no basis 
to question the contested terms of the procurement.  The record shows 
that all offerors were given sufficient time and information to 
intelligently prepare their proposals on an equal basis, reasonably 
allowing for the exercise of their own business judgment.