BNUMBER:  B-274378
DATE:  November 8, 1996
TITLE:  Grace Industries, Inc.

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Matter of:Grace Industries, Inc.

File:     B-274378

Date:November 8, 1996

Herbert V. Kelly, Esq., Jones, Blechman, Woltz & Kelly, for the 
protester.
Christopher M. Bellomy, Esq., Department of the Navy, for the agency.
Scott H. Riback, Esq., and John M. Melody, Esq., Office of the General 
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Protest that Small Business Administration (SBA) improperly failed to 
perform adverse impact evaluation before accepting janitorial services 
requirement into section 8(a) program is denied where record supports 
SBA determination that requirement was "new," and that adverse impact 
evaluation therefore was not required, because of significant increase 
in square footage under the requirement.

DECISION

Grace Industries, Inc. protests the decision by the Department of the 
Navy and the Small Business Administration (SBA) to include 
solicitation No. N62477-96-D-1044, for janitorial services at Quantico 
Marine Corps Base, in the SBA's section 8(a)   set-aside program.[1]  

We deny the protest.

Grace was awarded a contract for janitorial services at Quantico in 
1993; following a series of contract modifications, this contract 
ultimately covered a total of 203,868 square feet.  In 1996, the 
agency decided to consolidate this requirement with additional 
requirements and to offer it to the SBA for inclusion in the section 
8(a) program; the consolidated requirement covers 368,660 square feet.  
The SBA accepted the requirement for the section 8(a) program without 
performing an adverse impact evaluation pursuant to 13 C.F.R.  sec.  
124.309 (1996)[2] based on its determination that, because the offered 
requirement covered an area more than     50 percent larger than the 
area under Grace's contract, it was a "new" requirement; new 
requirements are exempt from the adverse impact evaluation 
requirement.  

Grace maintains that the requirement should not be considered new 
since it covers the same kinds of services provided under its 
contract.  While the area covered is greater, Grace notes, the agency 
previously substantially increased the area under its originally 
awarded contract, indicating, Grace argues, that the agency previously 
did not consider increases in area to be material.  Grace concludes 
that the increase in area should not be deemed to make this a new 
requirement within the meaning of the regulation, and that an adverse 
impact evaluation is required.

Because the Small Business Act affords the SBA and contracting 
agencies broad discretion in selecting procurements for the section 
8(a) program, our Office reviews challenges to decisions to procure 
requirements under section 8(a) only to ensure that agency officials 
have not acted in bad faith, and that applicable laws or regulations 
have been followed.  American Mutual Protective Bureau,73 Comp. Gen. 
196 (1994), 94-1 CPD  para.  371.  Grace does not contend that the Navy and 
SBA have acted in bad faith, and we find no violation of law or 
regulation. 

The applicable regulation, 13 C.F.R.  sec.  124.309(c), provides in 
relevant part:

          "The expansion or alteration of an existing requirement 
          shall be considered a new requirement where the requirement 
          is materially expanded or modified so that the ensuing 
          requirement is not substantially similar to the prior 
          requirement due to the magnitude of the expansion or 
          alteration."

The SBA's determination that the requirement is new was based on the 
reference in the regulation to a material "expansion," and the fact 
that the area covered by the requirement is more than 50 percent 
greater than the area under Grace's contract.  There is no basis for 
objecting to the SBA's interpretation of the regulation language.  The 
former requirement (the area under Grace's contract) clearly has been 
expanded, and the magnitude of the expansion--more than 50 percent--on 
its face seems material.  In this latter regard, although the SBA's 
regulation does not define materiality, we think the possibility that 
the expanded requirement could call for a significantly greater, 
different, and more costly effort to perform are considerations that 
support viewing such a large increase in area as material.  See 
Coopers Constr., Inc., B-260364; B-260364.2, May 30, 1995, 95-1 CPD  para.  
268; Federal Acquisition Regulation  sec.  14.405 (defect or variation 
viewed as material where it has more than a negligible effect on 
price, quantity, quality or delivery).  The fact that the Navy 
previously opted to increase the area under Grace's contract is 
irrelevant; the regulation does not preclude the SBA from subsequently 
determining that an expansion of a requirement is material, and that 
it renders a requirement new such that an adverse impact evaluation is 
not required.

The protest is denied

Comptroller General
of the United States

1. Section 8(a) of the Small Business Act, 15 U.S.C.  sec.  637(a) (1994), 
authorizes the SBA to contract with government agencies and arrange 
for performance of those contracts by awarding subcontracts to small 
socially and economically disadvantaged businesses.

2. The SBA performs adverse impact evaluations to determine whether 
acceptance of a requirement into the section 8(a) program will have an 
adverse impact on other small business programs, or on an individual  
small business whether or not that small business is in the section 
8(a) program; the adverse impact evaluation procedure is designed to 
protect other small businesses performing contracts outside the 
section 8(a) program.  13 C.F.R.  sec.  124.309 (c).