BNUMBER:  B-281352; B-281353 
DATE:  January 28, 1999
TITLE: The Urban Group, Inc.; McSwain and Associates, Inc., B-
281352; B-281353, January 28, 1999
**********************************************************************

Matter of:The Urban Group, Inc.; McSwain and Associates, Inc.

File:     B-281352; B-281353

Date:January 28, 1999

Sam Z. Gdanski, Esq., and Jeffrey I. Gdanski, Esq., for the 
protesters.
David R. Kohler, Esq., and Audrey H. Liebross, Esq., for the Small 
Business Administration.
Michael J. Farley, Esq., Department of Housing and Urban Development, 
for the agency.
Henry J. Gorczycki, Esq., and James A. Spangenberg, Esq., Office of 
the General Counsel, GAO, participated in the preparation of this 
decision.

DIGEST

1.  Issuance of a section 8(a) set-aside solicitation, which includes 
work previously performed by small businesses as well as new work, 
without assessing the adverse impact of the set-aside on small 
business concerns, is unobjectionable where no adverse impact 
assessment is required under applicable Small Business Administration 
(SBA) regulations because the SBA, in interpreting its regulations, 
reasonably determined that the overall solicitation is radically 
different from the previously performed work and thus represents new 
work.

2.  A solicitation provision stating that a section 8(a) set-aside 
will become a small business set-aside if fewer than two acceptable 
offers from 8(a) firms are received is not contrary to statute or 
regulation, or unfair to small businesses.

3.  Absent clear judicial precedent, General Accounting Office will 
not consider protest alleging that agency did not have 
constitutionally sufficient basis for creating a section 8(a) 
set-aside.

4.  Agency's decision to consolidate marketing requirements 
(previously performed largely in-house) with existing property 
management contract requirements into larger contracts for both 
management and marketing services in multiple states is not 
objectionable under the Small Business Act, 15 U.S.C.A.  sec.  631(j)(3), 
644(e)(2) (West Supp. 1998), where the resulting benefits are 
"measurably substantial" and support a determination that the bundling 
is necessary and justified, and the protester has not identified a 
reasonable alternative that would provide similar benefits.

DECISION

The Urban Group, Inc. and McSwain and Associates, Inc. protest request 
for proposals (RFP) No. R-OPC-21230, issued by the Department of 
Housing and Urban Development (HUD) contemplating up to 16 separate 
contracts for management and marketing (M&M) services for single 
family properties in 16 designated areas of the United States.  Urban 
challenges the set-aside for section 8(a) concerns in the area of 
Florida and Puerto Rico.  McSwain challenges the bundling of Alabama, 
Georgia, Mississippi, North Carolina, and South Carolina into one 
area.

We deny the protests.

HUD insures hundreds of thousands of Federal Housing Administration 
(FHA) mortgages.  Where defaulted mortgages result in foreclosure by 
the lender and payment of insurance claims by HUD to the lender, HUD 
gains title to thousands of properties throughout the country.  HUD 
manages these properties by providing maintenance and repairs, and 
ultimately sells the properties in order to recoup funds paid on 
insurance claims.  The Real Estate Owned Branch (REO) of HUD's Office 
of Housing is responsible for managing and marketing these properties.  
Agency Report on Urban Protest (ARU) at 2; Agency Report on McSwain 
Protest (ARM) at 2.  

Prior to the issuance of this RFP for M&M services, HUD generally 
contracted for the property management services separately, and the 
REO staff performed the marketing services in-house with some 
assistance from advertising contractors.  The most recent management 
contracts were the Real Estate Asset Management (REAM) services 
contracts, which were usually performed by small business concerns 
covering small geographic areas and administered by REO staff in 81 
HUD field offices.  REAM contractors received a fixed-fee for managing 
the properties, and subcontracted for maintenance and repairs, the 
cost of which was directly paid by HUD.  ARU at 2-3; ARM at 2-3.

Administration of the REAM contracts and marketing properties has been 
burdensome for HUD.  Also, an audit of the REAM contract program, 
conducted by the General Accounting Office in response to 
congressional inquiries regarding reports or poor contract 
administration, found that HUD's oversight of these contracts was 
inadequate.  Single-Family Housing:  Improvements Needed in HUD's 
Oversight of Property Management Contractors (GAO/RCED-98-65, Mar. 
1998).  This report concluded that this inadequacy may have resulted 
in a decrease in the marketability of properties, as well as a 
decrease in the value of surrounding homes and a threat to the health 
and safety of neighbors and potential buyers, while also increasing 
the holding costs of these properties for the government.  HUD 
essentially concurs with the conclusions of this report.  In addition, 
HUD is in the process of reducing staff from a 1996 level of 10,500 
employees to a 2002 level of 7,500 employees.  This will reduce the 
REO staff from 500 in 1997 to 88 by the end of 1999.  The reduced REO 
staff will transfer from the 81 field offices to 4 regional Home 
Ownership Centers (HOC).[1]  Consequently, HUD needed a more efficient 
and less costly method for managing and marketing its properties.  ARU 
at 3-4; ARM at 3-4.

In order to decrease the burden of contract oversight and to improve 
the marketing of the properties, HUD has developed a new approach to 
its property management and marketing responsibilities, which entails 
issuing far fewer contracts covering much larger geographic areas, and 
combining the management and marketing requirements under one 
contract.  Three pilot programs successfully tested this approach.  
Under these pilot programs, contractors were reimbursed for repairs, 
but otherwise received a percentage of the price at which each 
property was sold.  These pilot programs met or exceeded the sales 
goals established by HUD and reduced the average time a property was 
held by HUD.  However, the risk of the cost of repairs and the 
associated oversight burden still existed for HUD.  ARU at 4-5; ARM at 
4-5.  

To further reduce costs and administrative burden, the final M&M 
approach also placed responsibility for performing and paying for 
repairs with the contractor.  The resulting solicitation provided 
financial incentives for the contractor to efficiently maintain, 
repair and market properties in a manner that would promote the 
highest possible selling price for each property by compensating the 
contractor based on a percentage of the sales price.  ARU at 5; ARM at 
5.  

Prior to issuing the current M&M RFP, the agency issued four regional 
M&M solicitations, one for each HOC.  None of these solicitations 
included small business or section 8(a) set-asides.  The Small 
Business Administration (SBA) objected to these solicitations, 
recommending that the requirements be subdivided and partially set 
aside for small business concerns.  The regional solicitations were 
canceled and replaced with the current M&M RFP, which incorporated the 
SBA's recommendations.  ARU at 6-7; ARM at 6-7.

The M&M RFP, issued on August 17, 1998, identified four service 
regions corresponding to the four HOCs in Philadelphia, Atlanta, 
Denver and Santa Ana.  Each HOC is responsible for 3 to 6 areas for a 
total of 16 geographic areas.  The Atlanta HOC is divided into three 
areas.  Area 2 of the Atlanta HOC, the subject of McSwain's protest, 
consists of Alabama, Georgia, Mississippi, North Carolina and South 
Carolina; Area 3, the subject of Urban's protest, consists of Florida 
and Puerto Rico.  RFP  sec.  B.II.  

The RFP contemplated the award of up to 16 fixed-price, 
indefinite-quantity contracts, covering the 16 areas, for 1 year with 
4 option years.  RFP cover letter at 1,  sec.  B, M.VI.  Offerors could 
submit proposals for as many areas as they chose, with a minimum of 
one entire area.  RFP  sec.  M.IV(a).

Contract price was to be determined primarily by applying the 
offeror's proposed fixed-price factor to the sale or rental price of 
each property.[2]  RFP  sec.  B.III-IV.  Except for a limited number of 
cost-reimbursable services (specified at  sec.  C-4.III) the proposed price 
factors determined the total compensation due for contract 
performance.  RFP  sec.  B.III-IV.

The RFP stated the following set-aside procedures at section M.IV: 
     
     (c)(1)In accordance with [Federal Acquisition Regulation (FAR)] 
          Subpart 19.8, any award for . . . Area 3 of the Atlanta HOC 
          . . . resulting from this solicitation, will be made on a 
          competitive basis to eligible Section 8(a) business 
          concerns, provided that a minimum of two (2) competitive 
          (technical and cost) offers are received from eligible 
          Section 8(a) concerns.

        (2)If a minimum of two (2) offers from eligible Section 8(a) 
          concerns are not received, the award for the area(s) 
          specified in (c)(1) above will be made to a small business . 
          . . in accordance with FAR Subpart 19.5, provided that a 
          minimum of two competitive (technical and cost) offers are 
          received from qualified small business concerns.

        (3)If a minimum of two (2) offers from qualified small 
          business concerns are not received, the award for the 
          area(s) specified in (c)(1) above will be made on the basis 
          of full and open competition from among all responsible 
          business concerns submitting offers.

A total of 6 areas were set aside in this manner.  The remaining 10 
areas had no restrictions on competition.  RFP  sec.  M.IV.  The above 
set-aside scheme was suggested, and the set-aside areas were selected, 
by the SBA, and HUD accepted the SBA's recommendations.  ARU at 7; ARM 
at 7.

Proposals were due on October 20.  RFP Amendment 0001, at 1.  Urban 
and McSwain protested prior to the time set for closing.

THE URBAN PROTEST

Urban protests that the agencies failed to determine if any incumbent 
small business REAM contractor would be adversely affected by the 
decision to solicit Area 3 of the Atlanta HOC as a section 8(a) 
set-aside.  Urban Protest at 3-5; Urban Comments at 5-8.

Because the Small Business Act affords the SBA and contracting 
agencies broad discretion in selecting procurements for the section 
8(a) program, we will review 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 regulations have been 
followed.  John Blood, B-280318, B-280319, Aug. 31, 1998, 98-2 CPD  para.  
58 at 2; American Consulting Servs., Inc., B-276149.2, B-276537.2, 
July 31, 1997, 97-2 CPD  para.  37 at 9.  Since it is not alleged here that 
either HUD or the SBA acted in bad faith, nor does the record so 
indicate, our review of Urban's protest turns to the applicable 
regulations.

Section 8(a) of the Small Business Act authorizes the SBA to contract 
with government agencies and to arrange for performance of such 
contracts by awarding subcontracts to socially and economically 
disadvantaged small business concerns.  15 U.S.C.  sec.  637(a) (1994).  
The implementing regulations for the section 8(a) program provide that 
the "SBA will not accept a procurement for award as an 8(a) contract" 
which was not previously in the 8(a) program, where the acceptance of 
the procurement would have an adverse impact on an individual small 
business, a group of small businesses located in a specific 
geographical location, or other small business programs.  Section 
124.504(c), 63 Fed. Reg. 35756, 35757 (June 30, 1998) (to be codified 
at 13 C.F.R.  sec.  124.504(c)).  An adverse impact is presumed to exist 
where a small business has been performing the requirement and the 
requirement represents 25 percent or more of the small business's 
gross sales.  Id. at  sec.  124.504(c)(1)(i)(C).  However, if the 
requirement being procured is a "new" requirement, i.e., one which has 
not been previously procured by the procuring activity, then the 
adverse impact rule does not apply, with one exception.  Id. at 
124.504(c)(1)(ii).  That exception to the adverse impact rule states:

     In determining whether the acceptance of a requirement would have 
     an adverse impact on a group of small businesses, SBA will 
     consider the effects of combining or consolidating various 
     requirements being performed by two or more small business 
     concerns into a single contract which would be considered a "new" 
     requirement as compared to any of the previous smaller 
     requirements.  SBA may find adverse impact to exist if one of the 
     existing small business contractors meets the presumption set 
     forth in paragraph (c)(1)(i) of this section.

Id. at  sec.  124.504(c)(2).

HUD states that this is a new requirement because it has not 
previously procured the marketing services and certain other 
requirements encompassed by this RFP, and thus the adverse impact rule 
does not apply.  ARU at 16-17.  The SBA agrees.  SBA Report at 13.

The SBA states that the above-quoted exception to the adverse impact 
rule is not applicable where, as here, the consolidation of old 
requirements performed by small businesses, together with the addition 
of new requirements not previously procured, creates a "radically" 
different work requirement from that of the old requirements.  SBA 
Report at 13.  The SBA states that, unlike the REAM contracts:

     The M&M contractor will not only take responsibility for deciding 
     what repairs to perform on a specific property, but they will 
     also market the properties and obtain much of their remuneration 
     from the sale proceeds.

Id.  The SBA thus considers the nature of the M&M contracts to "differ 
radically" from that of the REAM contracts, and states that the M&M 
RFP can therefore be set aside for section 8(a) concerns without 
consideration of adverse impact on small business concerns.  Id.

As the agency responsible for promulgating this regulation, the SBA's 
interpretation deserves great weight, and we are required to give 
deference to an agency's reasonable interpretation of its regulations.  
See Red River Serv. Corp., B-279250, May 26, 1998, 98-1 CPD  para.  142 at 
5-6; see also Udall v. Tallman, 380 U.S. 1, 16 (1965).

We think that the SBA's interpretation of its regulation is 
reasonable.  The terms of the exception do not encompass all types of 
new requirements, of which services previously performed by small 
businesses are a part.  Specifically, the exception does not state 
that combining services previously performed in-house with otherwise 
existing contract requirements necessarily constitutes a new 
requirement subject to the exception; rather, the exception 
specifically addresses only new requirements which are created by 
combining existing contract requirements.  Therefore, it is not 
unreasonable to interpret this language as limited only to those new 
requirements which are created solely from combining existing contract 
requirements.  Since the M&M RFP is a new requirement created by 
combining marketing requirements previously performed largely in-house 
with existing management contract requirements, the SBA reasonably 
determined that the section 8(a) set-asides could be created for this 
new requirement without an adverse impact analysis.[3]  

Urban next alleges that the conditional nature of the section 8(a) 
set-aside is unduly burdensome on small business concerns because they 
do not have the resources to prepare proposals that will not be 
considered if at least two competitive proposals are submitted by 
section 8(a) concerns.  Urban Protest at 3; Urban Comments at 8. 

As set out above, the RFP set-aside scheme for the six designated 
areas progresses from a section 8(a) set-aside, to a small business 
set-aside, and finally to an unrestricted procurement, depending on 
whether sufficient competitive proposals in the set-aside categories 
are received.  Under this scheme, both small and large business 
concerns must submit proposals in response to the RFP to be considered 
for award in the event the more restrictive set-aside requirements are 
not satisfied, even though their proposals would not be evaluated if a 
contract is awarded under the section 8(a) set-aside.  

The SBA recommended this order of precedence approach to HUD as an 
alternative to a completely unrestricted procurement.  ARU at 15; SBA 
Report at 7.  The SBA states that this approach is not barred by any 
statute or regulation, that the RFP clearly advised potential offerors 
of the set-aside scheme so that they could assess the risks prior to 
preparing a proposal, and that qualified small businesses may well be 
willing to accept the risks associated with the order-of-precedence 
structure of the set-aside to have the opportunity to receive the 
relatively large contracts that will be awarded under these 
set-asides.  SBA Report at 8-9.

We are aware of no statute or regulation that would prohibit this 
approach, nor has the protester identified any such statutory or 
regulatory restriction.  Since the scheme proposed by the SBA and 
accepted by HUD will have the effect of increasing the opportunity for 
small business concerns under an otherwise unrestricted solicitation, 
we have no basis to object to this set-aside scheme as unduly 
burdensome for small business concerns.

Finally, Urban alleges that the section 8(a) set-aside was imposed on 
Area 3 without assessing the need for such a restriction in that area, 
which is unconstitutional under the ruling in Adarand Constructors, 
Inc. v. Peï¿½a, 515 U.S. 200 (1995),[4] as interpreted by the U.S. 
District Court for the District of Columbia in Cortez III Serv. Corp. 
v. National Aeronautics & Space Admin., 950 F. Supp. 357 (D.D.C. 
1996).  Urban Protest at 5-6; Urban Comments at 3-4.

There must be clear judicial precedent on the precise issue presented 
to us before we will consider a protest based on the asserted 
unconstitutionality of a procuring agency's actions.  Ervin and 
Assocs., Inc., B-279161 et al., Apr. 20, 1998, 98-1 CPD  para.  115 at 3.  
We have consistently held that, since the Court in Adarand simply 
announced the standard that is to be applied in determining the 
constitutionality of programs involving racial classifications in the 
federal government and remanded the case to the lower court for 
further consideration in light of that standard, Adarand did not 
provide that precedent.  Id.  

The ruling in Cortez applied the standard stated in Adarand to a 
federal agency's decision to restrict a solicitation as a section 8(a) 
set-aside, and discussed the corresponding analysis which the court 
determined that the agency was required to perform before doing so.  
Cortez v. NASA, 950 F. Supp. at 361-363.  However, as noted by the SBA 
and HUD, the Cortez decision concerned only a motion for a preliminary 
injunction without a fully developed record, and the SBA advises that 
this matter previously has had limited exposure in the courts and is 
now the subject of on-going litigation in other courts.  HUD Letter, 
January 21, 1999, at 6; SBA Letter, January 21, 1999, at 4-7.  Since 
the Cortez decision is not binding on other courts and since the 
effect of the Adarand decision remains a contentious issue in the area 
of federal procurements, we do not think that the Cortez decision 
represents the clear judicial precedent that our Office requires to 
rule on protests alleging unconstitutional agency action.  Thus, we 
decline to consider Urban's protest on this basis.

THE McSWAIN PROTEST

McSwain challenges the agency's designation of Area 2 of the Atlanta 
HOC for unrestricted competition, alleging that the five-state region 
which comprises Area 2 of the Atlanta HOC under the RFP was created by 
improperly bundling a large number of smaller REAM contract areas 
without assessing the impact on small business concerns and that if 
this area were broken up further it would be suitable for small 
business set-asides.  McSwain Protest at 2-3; McSwain Comments at 1-2.

The Competition in Contracting Act of 1984, 41 U.S.C.  sec.  253a(a) 
(1994), generally requires that solicitations permit full and open 
competition and contain restrictive provisions or conditions only to 
the extent necessary to satisfy the needs of the agency.  Since 
bundled, consolidated, or total-package procurements combine separate, 
multiple requirements into one contract, they have the potential for 
restricting competition by excluding firms that can furnish only a 
portion of the requirement.  Aalco Forwarding, Inc., et al., 
B-277241.12, B-277241.13, Dec. 29, 1997, 97-2 CPD  para.  175 at 6.  
Furthermore, the Small Business Act, 15 U.S.C.A.  sec.  631(j)(3) (West 
Supp. 1998), states that, "to the maximum extent practicable," each 
agency shall "avoid unnecessary and unjustified bundling of contract 
requirements that precludes small business participation in 
procurements as prime contractors."  We will review such solicitations 
to determine whether the approach is necessary and justified to 
satisfy the agency's needs.  See Aalco Forwarding, Inc., et al., 
supra.

The Small Business Act, 15  sec.  U.S.C.A. 644(e)(2)(A), states that, 
before proceeding with an acquisition strategy that could lead to a 
contract containing consolidated procurement requirements, the head of 
an agency shall conduct market research to determine whether 
consolidation of the requirements is necessary and justified.  An 
agency may determine that consolidation of requirements is "necessary 
and justified if, as compared to the benefits that would be derived 
from contracting to meet those requirements if not consolidated, the 
Federal Government would derive from the consolidation measurably 
substantial benefits, including any combination of benefits that, in 
combination, are measurably substantial."  15 U.S.C.A.  sec.  644(e)(2)(B).  
Such benefits may include:  (i) cost savings, (ii) quality 
improvements, (iii) reduction in acquisition cycle times, (iv) better 
terms and conditions, or (v) any other benefits.  Id.  "The reduction 
of administrative or personnel costs alone shall not be a 
justification for bundling of contract requirements unless the cost 
savings are expected to be substantial in relation to the dollar value 
of the procurement requirements to be consolidated."  15 U.S.C.A.  sec.  
644(e)(2)(C).

HUD does not consider these requirements as bundled, as defined by the 
Small Business Act,[5] because the RFP includes previously unsolicited 
marketing services and completely redesigns HUD's property management 
and marketing methodology.[6]  ARM at 16-19.  The SBA disagrees 
because the RFP includes substantial services previously provided or 
performed under separate smaller contracts.  SBA Report at 8 n.3.  
However, HUD and the SBA both conclude that any bundling that may 
exist under this RFP was necessary and justified.  ARM Report at 
19-23; SBA Report at 8 n.3, 9.  As discussed below, whether or not 
this RFP involved bundling, as defined under the Small Business Act, 
the protester has not established that the bundling was unnecessary or 
unjustified.  

McSwain does not object to the bundling of the various types of 
services provided in previous contracts with the newly solicited types 
of services.  What McSwain protests is the combination of numerous 
small geographical regions that were previously the subject of REAM 
contracts into a single five-state area because, while McSwain 
"possesses excellent skills in all aspects as required in [the RFP,] 
but [they are] not at a level of multi-state management."[7]  McSwain 
Protest at 3, Attachment 1 at 1. 

Here, the M&M RFP includes consolidation of geographical areas of 
management service contracts previously administered by HUD's 81 field 
offices into 16 areas, which will be administered by the four HOCs as 
well as additional services not previously obtained by contract.  
HUD's REO was faced with the converging problems of being unable to 
adequately administer the large number of REAM contracts with the 
staff it had, as well as having a severely reduced staff in the near 
future.  The impetus for the M&M RFP approach was a documented need 
for improved program efficiency and quality in the face of fewer 
resources to administer the program.  Realistically, these 
circumstances left REO with little, if any, alternative to reducing 
its contract administrative burden by having far fewer contracts 
encompassing more requirements and by incentivizing the contractors to 
more efficiently and successfully perform the M&M work.[8]  The 
structure of the M&M RFP can reasonably be expected to reduce the 
amount of oversight by REO staff by reducing the number of contracts 
from hundreds of REAM contracts administered from 81 field offices to 
a maximum of 16 contracts administered from 4 HOCs.  ARM at 19-20.  

Additionally, the financial incentive for each contractor to perform 
the maintenance and repairs which they deem necessary to enable them 
to sell the contract at the highest possible price and to maximize 
profits will add a self-monitoring component that was not possible 
under the REAM contracting approach.  Id.  Furthermore, the transfer 
of the marketing function to the contractors should provide improved 
performance over REO's in-house performance, as illustrated by the 
pilot program results.  This should increase program efficiency and 
reduce program costs.  Id.  The total result should reduce the 
administrative burden sufficiently so that the small REO staff will be 
able to adequately administer these contracts.  Id.

HUD also believes that the improved oversight under the M&M 
contracting approach, together with the financial incentives for 
contractors to achieve the highest price for the properties under 
their contracts, will improve the conditions of the properties, which 
in turn will increase the value of surrounding properties and improve 
the health and safety of the neighborhoods.  ARM at 22.  Although this 
is yet to be proven by results, the expectation appears reasonable.

The SBA agrees with HUD that the restructuring of HUD's requirements 
was necessary, and that the resulting benefits in cost savings and 
quality improvements are substantial and justify the consolidation of 
property management requirements into the M&M approach.  SBA Report at 
10.  Furthermore, the SBA worked with HUD to ensure that the RFP 
provides opportunities to the maximum extent practicable for small 
business concerns, both as prime contractors and subcontractors, and 
urges our Office not to disturb the resulting structure of the RFP.  
Id.

We conclude that the record supports the finding that substantial 
benefits of cost savings and quality improvements will likely result 
from the consolidation of the previously contracted-out requirements 
with HUD's new requirements into contracts covering relatively large 
areas, and that these benefits go beyond reducing administrative and 
personnel costs alone.  The expected improved program efficiency and 
quality, as well as the substantial potential cost savings, support 
the finding that the consolidation of the requirements under the M&M 
RFP approach was necessary and justified.  

Given the protester's statement that it does not have "multi-state" 
capability, it evidently seeks breaking up the five-state area in 
question into much smaller pieces, presumably a contract for each 
state.  This would result in a proliferation of contract vehicles that 
would undermine the basic benefits of the program.  The protester has 
failed to identify a reasonable alternative to the RFP consolidation 
that would provide similar benefits.  Thus, we cannot say this 
particular five-state grouping was unnecessary or unjustified.

The protests are denied.

Comptroller General
of the United States

1. These HOCs were initially developed to streamline HUD's mortgage 
insurance processes.  ARU at 4; ARM at 4.  Four HOCs (Denver, 
Philadelphia, Atlanta and Santa Ana, California) were created to cover 
all regions of the country.  The mortgage insurance processes were 
transferred from the 81 HUD field offices to these 4 HOCs, reportedly 
resulting in great efficiencies in insuring a high volume of home 
loans.  ARU at 1-2; ARM at 1-2. 

2. Prices for managing properties which are not to be placed on the 
market are to be based on a proposed fixed monthly rate for custodial 
properties.  RFP  sec.  B.III.

3. Urban's allegation that under certain REAM contracts it was 
permitted to sell certain properties, thus implying that REAM 
contracts encompassed the marketing requirements in the M&M RFP, Urban 
Comments at 7, Exhibit 1 at 1, is not supported by the record.  The 
agency has provided a copy of Urban's REAM contract for several 
counties in Florida, which was awarded in June 1995 and was in effect 
during this protest.  ARU, Exhibit 3.  That contract does not include 
any requirement or authority for Urban to sell or market HUD 
properties, and Urban has provided no evidence to support its 
allegations.  In any case, Urban acknowledges that the M&M RFP 
includes HUD REO functions in addition to existing contract 
requirements.  Urban Comments, Exhibit 1 at 3.

4. In Adarand, the Supreme Court held that racial classifications must 
be subject to strict scrutiny and must serve a compelling governmental 
interest and be narrowly tailored to further that interest.  Adarand 
v. Pena, 515 U.S. at 224-27.

5."Bundling of contract requirements" is defined by the Small Business 
Act, 15 U.S.C.A.  sec.  632(o)(2), as:

            consolidating 2 or more procurement requirements for goods 
            or services previously provided or performed under 
            separate smaller contracts into a solicitation of offers 
            for a single contract that is likely to be unsuitable for 
            award to a small-business concern due to--
               (A) the diversity, size, or specialized nature of the 
            elements of the performance specified;
               (B) the aggregate dollar value of the anticipated 
            award;
               (C) the geographical dispersion of the contract 
            performance sites; 
            or
               (D) any combination of the factors described in 
            subparagraphs (A), (B), and (C).

6. Because HUD did not consider the RFP to involve bundling, it did 
not perform a formal market survey, as envisioned by the Small 
Business Act, 15 U.S.C.A.  sec.  644(e)(2)(A).

7. McSwain's protest indicates interest in North Carolina work.

8. The results of HUD's pilot programs indicated that considerable 
efficiencies, cost savings, and improved quality and marketability of 
HUD properties could be achieved through a consolidation of the 
services under a single contractor.  ARM at 5, Exhibit 6.