BNUMBER: B-281237
DATE: January 14, 1999
TITLE: Callejas & Ross, Inc., B-281237, January 14, 1999
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Matter of:Callejas & Ross, Inc.
File: B-281237
Date:January 14, 1999
Marshall J. Doke, Jr., Esq., Gardere & Wynne, for the protester.
John W. Klein, Esq., and Kenneth Dodds, Esq., Small Business
Administration, and Gregory W. Vanagel, Esq., Department of the Army
Corps of Engineers, for the agencies.
Christina Sklarew, Esq., and Paul Lieberman, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Small Business Administration (SBA) reasonably determined that
protester was ineligible for award of 8(a) construction contract where
protester failed to provide sufficient information during SBA's
investigation to show that it established and maintained a qualifying
office (other than office space provided by the government) staffed
with at least one full-time employee within the geographic area
specified in the solicitation.
DECISION
Callejas & Ross, Inc. protests the determination by the Small Business
Administration (SBA) that the firm is ineligible for an award under
invitation for bids (IFB) No. DACA21-98-B-0036, issued by the Savannah
District Corps of Engineers (Corps) for a construction project on Pope
Air Force Base, North Carolina, because Callejas does not satisfy the
geographic restriction contained in the solicitation. Callejas
asserts that SBA's determination is unreasonable because the protester
does maintain a qualifying office within the geographical area called
for under the IFB.
We deny the protest.
By letter dated March 11, 1998, the Corps offered the construction
requirement for extensive renovations to a family services center on
the Air Force base to SBA for award through the 8(a) Business
Development program. Because the value of the requirement exceeded
the applicable competitive threshold amount,[1] the Corps offered the
requirement to SBA as a competitive 8(a) contract opportunity. Under
this program, SBA executes contracts with other government agencies to
provide goods or services, and subcontracts the performance of the
contracts to small business concerns that are owned and controlled by
individuals determined by SBA to be socially and economically
disadvantaged. Competition for the contract is conducted by the
procuring agency, while SBA makes the 8(a) eligibility determinations.
13 C.F.R. sec. 124.311(e). By statute, 8(a) construction contracts must
be awarded "to the maximum practicable extent" within "the county or
State where the work is to be performed." 15 U.S.C. sec. 637(a)(11)
(1994). Under 13 C.F.R. sec. 124.311(g)(3), SBA determines, based on its
knowledge of the 8(a) portfolio, whether the competition should be
limited to only those firms within the geographical boundaries of one
or more SBA district offices, an entire SBA regional office, or
adjacent SBA regional offices. Only those concerns located within the
appropriate geographical boundaries are eligible to compete.
SBA accepted the requirement as a competitive small disadvantaged
business set-aside under section 8(a) of the Small Business Act, 15
U.S.C. sec. 637(a), and issued the IFB with the following provision on
its initial page:
THIS CONSTRUCTION REQUIREMENT IS SUBJECT TO LOCAL BUY
RESTRICTIONS. ONLY 8(a) COMPANIES MEETING LOCAL BUY CRITERIA FOR
CONSTRUCTION PROJECTS IN NORTH CAROLINA WILL BE ELIGIBLE TO
COMPETE.
The Corps received six bids by the time set on July 30 for bid
opening, of which Callejas's bid was the lowest. Callejas's principal
place of business is Wichita Falls, Texas. By letter dated August 18,
SBA's Charlotte North Carolina District Office requested further
information from Callejas concerning its local buy eligibility for
North Carolina, stating:
Please forward copies of documents that will demonstrate North
Carolina local buy eligibility for Callejas & Ross, Inc.
Examples of documentation include the pay records of the full
time employee(s), lease agreements for North Carolina business
location(s), copies of letterhead identifying North Carolina
business location(s) and records of telecommunications agreements
in the name of Callejas & Ross, Inc. for its North Carolina
site(s).
In response, Callejas submitted the following:
copies of payroll forms referring to "the payment of the persons
employed by Callejas and Ross, Inc. on the Protective Coating
Maintenance, Pope AFB, NC" project for pay periods between
December 31, 1997 and August 11, 1998;
a sheet of letterhead paper listing an address and phone number
for Callejas in Hope Mills, North Carolina;
an unemployment tax rate assessment from the Employment Security
Commission of North Carolina (listing Callejas at its Wichita
Falls, Texas address);
an insurance binder listing Callejas, at its Texas address, as
the insured for a dwelling in Hope Mills, North Carolina;
a mortgage application form on which Callejas, at its Texas
address, applies for a mortgage loan for property at the Hope
Mills address; and
several monthly bills for a cellular phone, listing Callejas at
its Wichita Falls, Texas address.
The business opportunity specialist (BOS) in the SBA Charlotte, North
Carolina District Office determined that Callejas was ineligible for
the award because it could not demonstrate that it maintained a branch
office in North Carolina (other than government-furnished office
space) prior to March 16, the date on which the contract opportunity
was accepted from the Corps. The BOS noted that the firm had not
provided sufficient documentation to show that Callejas was the tenant
of the alleged Hope Mills branch office, such as utility bills or
non-mobile telephone service receipts. Memorandum of Sept. 8, 1998
from BOS to Match/Contract File.
On September 11, SBA informed the Corps that Callejas was ineligible
for the 8(a) contract opportunity because it failed to meet the local
buy restrictions. Accordingly, the Corps awarded the contract to the
next low bidder, and this protest followed.
Callejas alleges that SBA's determination of ineligibility was
improper because it considered the question of whether Callejas had a
branch office as of the date the contract opportunity was accepted
into the 8(a) program (March 16, 1998), pursuant to SBA Procedural
Notice 8000-483, instead of making its determination as of the date of
Callejas's initial offer including price (July 30, 1998), as required
by 13 C.F.R. sec. 124.311(e)(4)(iii). SBA subsequently acknowledged in
its report to our Office that the procedural notice did not satisfy
the applicable C.F.R. standard, but states that it subsequently used
the correct date to determine eligibility as required under the
C.F.R., and determined that Callejas is not eligible for award under
the local buy restriction.
Section 8(a) of the Small Business Act, 15 U.S.C. sec. 637(a), authorizes
SBA to enter into contracts with government agencies and to arrange
for performance through subcontracts with socially and economically
disadvantaged small business concerns. FAR sec. 19.805 and 13 C.F.R. sec.
124.311 provide for and govern competitively awarded contracts set
aside for 8(a) qualified concerns. Because of the broad discretion
afforded to SBA and the contracting agencies under the applicable
statute and regulations, our review of actions under the 8(a) program
is generally limited to determining whether government officials have
violated applicable regulations or engaged in bad faith. See Border
Maintenance Serv., Inc. B-250489, Feb. 3, 1993, 93-1 CPD para. 97 at 5,
recon. denied, B-250489.4, June 21, 1993, 93-1 CPD para. 473. Here, we
find unobjectionable SBA's determination that Callejas did not
maintain a branch office which satisfies the IFB's geographic
restriction, thus rendering the firm ineligible for award.
Implementing 15 U.S.C. sec. 637(a)(11), the applicable SBA regulation, 13
C.F.R. sec. 124.311(g)(3), provides that only 8(a) program participants
"located within the appropriate geographical boundaries" are eligible
to compete for 8(a) construction contracts. The regulations do not
define this phrase or otherwise describe the circumstances under which
SBA considers a participant "located within the appropriate
geographical boundaries." However, the preamble to the regulations
explains that "SBA believes that the Program Participant may be
considered as being located within a geographical boundary if it
regularly maintains an office which employs at least one full-time
individual within that geographical boundary." 60 Fed. Reg. 29,969,
29,971 (June 7, 1995).[2] On August 7, 1997, SBA issued an internal
agency procedural notice stating that for purposes of 8(a) competitive
award of construction contracts, a firm with a "branch office" located
within the geographic boundaries of the relevant competitive area
where the work is to be performed is eligible for award of the
contract. That notice further stated that a "branch office" means an
office with at least one full-time employee that:
(1) is other than a firm's principal place of business for
determining 8(a) eligibility; (2) is established and maintained
by the firm for conduct of one or more business activity(ies) as
an on-going business concern (space provided by the government
shall not be used to market other procurements and shall not be
considered an office);
(3) was established and operational on or before the date the
instant requirement was accepted into the 8(a) program; and (4) is
staffed by
one or more full time employee(s) on the date that the instant
requirement
was accepted into the 8(a) program.
Regarding the date that should be used for determining an offeror's
eligibility, SBA concedes in its report to our Office that the
conflict between this internal procedural notice and the C.F.R. must
be resolved in favor of the C.F.R. While SBA now acknowledges that it
initially applied an inappropriate deadline for eligibility, it
explains that it subsequently assessed the 8(a) local buy eligibility
of Callejas as of the date of Callejas's offer, and reached the same
conclusion when applying the correct standard.
Based on the documentation that Callejas submitted to SBA, we have no
basis to object to SBA's determination that Callejas did not have a
branch office on July 30, as required in order to be eligible for
award. As SBA points out in its protest report, Callejas did not
submit a lease agreement or telecommunication agreement evidencing a
North Carolina office, as specifically requested. While the
unemployment tax forms and certified payroll records show that
Callejas maintains paid employees in the state of North Carolina, it
does not show that these employees work in a branch office, as opposed
to working in the office space provided by the government on Pope Air
Force Base; these records, as well as the cellular phone bills
submitted, all list Callejas's Texas address. The only documentation
showing a North Carolina address consisted of letterhead stationery
with a Hope Mills address; an insurance contract for a dwelling in
Hope Mills; and a real estate loan disclosure/mortgage application
form for a dwelling in Hope Mills. However, the stationery and the
other two forms list two different addresses in Hope Mills. Moreover,
the address on the stationery, a property purchased by Callejas in May
1998, is also the payroll address of record of one of Callejas's
supervisory employees. While that employee submitted a statement to
the SBA office in Fort Worth, Texas (by letter of August 31, 1998)
asserting that a "[r]egional office was established at [a third
address, in Raeford, North Carolina] which was within my residence"
and stating that "Mr. Callejas raised my salary to compensate the
office in my home," no written agreement (or accounting, tax, or
insurance records, or any other documentation) was submitted to
support this, nor does this letter refer in any way to the Hope Mills
addresses that appear on the other documents, or explain what the
current situation is. The protester offers no explanation regarding
the three separate North Carolina addresses that appear in the
submitted documents, either in the submissions or in its protest
filings. The agency report states that as of August 17, 1998, no
telephone listing for Callejas could be obtained from directory
assistance for the Fayetteville, North Carolina area. None of the
other miscellaneous papers later submitted by Callejas--post office
box receipts, federal express mail receipts, credit card receipts for
Internet service and travel expenses, and billing paperwork--show a
North Carolina business address.
Accordingly, we agree with SBA that, notwithstanding its initially
erroneous use of the March 16 date in making its ineligibility
determination, SBA properly determined on the basis of the submitted
documentation that Callejas failed to show that it maintained a branch
office in North Carolina as of July 30, 1998, the date on which
Callejas submitted its offer.
In its comments, Callejas does not provide any explanation for the
conflicting addresses or gaps in the record, discussed above. Rather,
Callejas inaccurately characterizes the position as finding Callejas
"ineligible because [Callejas] had purchased its Hope Mills office
after the date that the SBA accepted the requirement into the 8(a)
program, and [because Callejas] did not have a listing for a
stationary commercial telephone in [North Carolina]," ignoring the
numerous other factors that SBA took into account in its eligibility
analysis.[3] Protester's Surrebuttal of December 3, 1998 at 1.
Callejas then contends that "if [the SBA BOS] had applied the correct
regulatory criteria, he would have found that [Callejas] owned a
branch office in North Carolina as of the date that [Callejas]
submitted its bid," Id. at 2, in an assertion that is wholly
unsupported by the record and contradicts the SBA conclusions,
discussed above. Regarding SBA's determination that cellular phone
records showing a Texas address do not evidence a North Carolina
branch office, Callejas asserts that "[i]n the absence [of] any other
basis for the SBA's determination, the lack of a stationary commercial
telephone line is completely inadequate to support a finding that
[Callejas] did not have a North Carolina branch office." Id. at 2.
Again, Callejas ignores the fact that SBA considered the various other
factors in its eligibility determination, and Callejas mistakenly
presumes that SBA is required to affirmatively prove that the bidder
does not have a branch office, when in fact it is the bidder claiming
eligibility based on a branch office that is required to provide
documentation establishing that office's existence. Further, we find
without merit Callejas's essential argument that mobile phone
records--billed to a Texas office--somehow demonstrate the existence
of an established North Carolina branch office. We do not view
payment of a phone that is not linked to any fixed location as
providing any evidence of a branch office. Moreover, in light of the
fact that Callejas has employees working in government-provided space
on a North Carolina Air Force Base (which cannot be considered as a
branch office), even if the phone records demonstrated that the phone
was operated exclusively by a Callejas employee, it would not
establish that the phone was used by a branch office.
In sum, we see no basis to question the propriety of SBA's
determination that Callejas failed to establish that it had a branch
office in North Carolina.
The protest is denied.
Comptroller General
of the United States
1. SBA's regulations require that a contract opportunity offered to
the 8(a) program be awarded on the basis of a competition restricted
to eligible participants where there is a reasonable expectation that
at least two eligible program participants will submit offers and
award can be made at a fair market price; and the anticipated award
price exceeds $3 million for non-manufacturing contracts. 13 C.F.R. sec.
124.311(a) (1998).
2. See PI Constr. Co., B-272174, B-272177, Oct. 2, 1996, 96-2 CPD para.
128 at 4, recognizing the legal significance of that regulatory
preamble and SBA's implementation of its regulations pertaining to
geographic limitations for construction contracts.
3. While Callejas mentions that the agency report "lists several other
bases [considered in the eligibility determination] that were not part
of its original determination," Protester's Surrebuttal of December 3
at 5, Callejas views these bases as irrelevant because they were not
cited in SBA's initial eligibility determination. Callejas contends
that it is improper during a post-award bid protest for the agency to
substitute completely new bases for its determination, and therefore
does not address these bases at all. We find this argument misplaced.
In these circumstances, where SBA has recognized that the submitted
documentation must be analyzed in relation to a different date than
the date upon which its initial analysis was based, its resulting
analysis is not invalid simply because it is made during the course of
a protest. In this case, unlike Intellectual Properties, Inc.,
B-280803, Nov. 19, 1998, 98-2 CPD para. 115, cited by the protester, SBA's
analysis did not consist of a hypothetical exercise to show that no
prejudice resulted from its misevaluation. Rather, as the cognizant,
statutorily authorized agency, SBA reviewed the facts before it
applying a corrected cut-off date. Moreover, SBA's role in
determining eligibility (as opposed to choosing a vendor with which to
enter a contractual relationship) means that it is not subject to the
pressures of an adversarial process in the same way that a contracting
agency might be. Further, in light of the broad discretion granted
to SBA under Section 8(a) of the Small Business Act, 15 U.S.C. sec.
637(a), we generally limit our review of actions under the 8(a)
program to determining whether government officials have violated
applicable regulations or engaged in bad faith. See Border
Maintenance Serv., Inc., supra.