TITLE:  	EAA Capital Company, LLC, B-282377.2, June 23, 1999
BNUMBER:  B-282377.2
DATE:  June 23, 1999
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EAA Capital Company, LLC, B-282377.2, June 23, 1999

Decision

Matter of: EAA Capital Company, LLC

File: B-282377.2

Date: June 23, 1999

John J. Ervin for the protester.

Michael J. Farley, Esq., Department of Housing and Urban Development,

for the agency.

Adam Vodraska, Esq., and Christine S. Melody, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

Contracting agency was not required by Federal Acquisition Regulation (FAR)
sect. 19.502-2(a) to issue a purchase order to the protester as the only
responsible small business submitting an acceptable quotation where the
agency inadvertently set aside the request for quotations for small business
and the FAR set-aside provisions do not apply because the requirement does
not involve the expenditure of appropriated funds.

DECISION

EAA Capital Company, LLC, protests the Department of Housing and Urban
Development's (HUD) issuance, without a small business set-aside, of request
for quotations (RFQ) No. TESTING 002 for a National Testing Administrator to
provide examinations to Federal Housing Administration (FHA) real estate
appraisers in all 50 states and U.S. territories. [1] HUD issued the RFQ
without a small business set-aside after it determined that it had
inadvertently set aside the identical requirement in an earlier RFQ (No.
TESTING 001), following EAA's earlier protest of HUD's selection of Sylvan
Prometric, a large business, to be the National Testing Administrator. The
protester contends that as the only responsible small business submitting an
acceptable quotation under RFQ No. TESTING 001, HUD should have selected EAA
and issued it the purchase order for the requirement.

We deny the protest.

On February 5, 1999, HUD synopsized its requirement for the National Testing
Administrator in the Commerce Business Daily. The synopsis stated that the
requirement would be solicited under simplified acquisition procedures and
that no appropriated funds are involved. The synopsis did not specify that
the acquisition was set aside for small business.

HUD issued RFQ No. TESTING 001 on February 24. The RFQ cover form was marked
to indicate that the requirement was set aside for small business. The cover
form also stated that the value of the requirement was anticipated to be
under $100,000. The RFQ included a "Notice of Small Business-Small Purchase
Set-Aside," which informed vendors that quotations were solicited from small
business concerns only and that quotations received from concerns that were
not small businesses would not be considered.

The RFQ explained that the contract would be funded from the fees to be
charged the test takers by the National Test Administrator, with no
expenditure of government funds involved. The RFQ listed the following
evaluation criteria: the frequency the vendor offered the examination (dates
and times); the vendor's capability to administer the FHA appraisal testing
on a national basis; the number and location of the vendor's testing
centers; the frequency and duration of the vendor's test advertising
methodology; and the registration methods to be used by the vendor. The RFQ
also listed as evaluation criteria the reasonableness of the vendor's
proposed fees to be paid by the test takers. Under the RFQ's evaluation
scheme, the vendor's proposed fees were considered of secondary importance
to the technical factors.

Two vendors--the protester and Sylvan--submitted quotations by the RFQ's
March 2 due date. In a letter dated March 22, HUD informed the protester
that it had issued a purchase order for the requirement to Sylvan "based
upon the highest technical evaluation with cost being secondary." Protest,
exh. 6.

On March 25, EAA filed protests with the contracting officer, the Small
Business Administration (SBA) and our Office against HUD's issuance of the
purchase order to Sylvan. EAA contended that Sylvan should not have been
selected because its affiliation with a large business rendered it
ineligible for award under the RFQ's small business set-aside provision. Our
Office dismissed EAA's protest on March 30, on the basis that the Small
Business Act gives the SBA, not our Office, the conclusive authority to
determine matters of small business size status for federal procurements.

In response to EAA's March 25 protests, the contracting officer realized
that the RFQ had been issued erroneously as a small business set-aside.
According to the contracting officer, the requirement was never intended to
have been restricted to small business because a market survey had revealed
that no small business could provide the services required. Agency Report,
exh. 9., Summary of Procurement Actions, at 1st unnumbered page. The
contracting officer canceled the purchase order with Sylvan and on April 15
issued a replacement RFQ (No. TESTING 002) without the small business
set-aside "[i]n order to ensure maximum competition and fairness" and to
make it clear that the RFQ was not intended to be set aside. Contracting
Officer's Statement para. 8. Except for the absence of the set-aside, the
replacement RFQ (No. TESTING 002) was identical to the original RFQ (No.
TESTING 001). EAA filed this protest on April 16, prior to the due date
established by the replacement RFQ for receipt of quotations. EAA and Sylvan
resubmitted their quotations. After reevaluating the quotations, HUD
determined again that Sylvan was the best qualified vendor to serve as
National Test Administrator and issued the purchase order to Sylvan.

EAA contends that because the original RFQ (No. TESTING 001) was set aside
for small business pursuant to Federal Acquisition Regulation (FAR) sect.
19.502-2(a), HUD was required to reject the quotation from Sylvan, a large
business, and to issue the purchase order to EAA. FAR sect. 19.502-2(a) in
relevant part provides that:

each acquisition of supplies or services that has an anticipated dollar
value exceeding $2,500, but not over $100,000, is automatically reserved
exclusively for small business concerns and shall be set aside for small
business unless the contracting officer determines there is not a reasonable
expectation of obtaining offers from two or more responsible small business
concerns that are competitive in terms of market prices, quality, and
delivery. . . . If the contracting officer receives only one acceptable
offer from a responsible small business concern in response to a set-aside,
the contracting officer should make an award to that firm. If the
contracting officer receives no acceptable offers from responsible small
business concerns, the set-aside shall be withdrawn and the requirement, if
still valid, shall be resolicited on an unrestricted basis. [Emphasis
added.]

EAA maintains that since it was the only responsible small business that
submitted an acceptable quotation under the set-aside RFQ (No. TESTING 001),
HUD should have selected EAA as the National Testing Administrator and
issued it the purchase order.

In arguing that FAR sect. 19.502-2(a) is applicable, the protester relies on the
fact that the original RFQ indicated that the value of the requirement was
anticipated to be under $100,000, and thus automatically reserved
exclusively for small business concerns. However, notwithstanding the
original RFQ's cover sheet, the value of the requirement greatly exceeded
$100,000, [2] and the contracting officer represents that HUD did not intend
to limit responses to small business concerns, because, based on the results
of a market survey, no small business could provide the services required.
Contracting Officer's Statement para. 2. The contracting officer also maintains
that she did not realize until EAA filed its initial protest on March 25
that the RFQ inadvertently and incorrectly indicated that the RFQ was set
aside for small business. Id. at para.para. 3, 7. The fact that the RFQ failed to
specify an applicable size standard (as prescribed by FAR sect. 52.219-1(a)(1))
and that a large concern such as Sylvan was solicited further evidences that
the contracting officer inadvertently made the acquisition a set-aside. [3]

Moreover, because the acquisition here does not entail the agency's
expenditure of appropriated funds, the FAR set-aside requirements do not
apply. Simplix, B-274388, Dec. 6, 1996, 96-2 CPD para. 216 at 5 (licensing
agreements under which services are being provided at no cost to the
government need not be set aside because the FAR set-aside requirements are
inapplicable to such contractual arrangements that do not involve the
expenditure of appropriated funds); Good Food Serv., Inc., B-253161, Aug.
19, 1993, 93-2 CPD para. 107 at 3-4, recon. denied, B-256526.3, July 11, 1994,
94-2 CPD para. 16 (FAR set-aside provisions do not apply to procurement of
concession services because expenditure of appropriated funds would not be
involved). Accordingly, even assuming that EAA submitted an acceptable
quotation in response to the set-aside RFQ (No. TESTING 001), since the
contracting officer did not intend to set aside the RFQ and the set-aside
requirements do not apply to this acquisition, we have no basis to object to
HUD's decision not to issue a purchase order to EAA under that RFQ and
instead to issue the replacement RFQ on an unrestricted basis.

EAA maintains that HUD issued the replacement RFQ without the set-aside to
avoid issuing a purchase order to EAA because of EAA's affiliation with
Ervin and Associates, "a whistle blower" that has revealed improprieties at
HUD in other matters. EAA alleges that HUD's actions here evidence a
continuing pattern of retaliation and bad faith by the agency in violation
of the protester's constitutional rights. However, procurement officials are
presumed to act in good faith and allegations to the contrary must be
supported by virtually irrefutable proof that they had specific and
malicious intent to harm the protester. Ervin and Assocs., Inc., B-278849,
Mar. 23, 1998, 98-1 CPD para. 92 at 3. There is no such evidence here. On the
contrary, our review of the record reveals that HUD fully and
contemporaneously documented its evaluation of how EAA and Sylvan proposed
to satisfy the requirements of the RFQ's statement of work and that HUD
considered the merits of what each vendor proposed under the RFQ's stated
evaluation criteria. The record also indicates that HUD reasonably
concluded, based on this evaluation, that Sylvan was the best qualified
vendor, due to its significantly higher evaluation score, a conclusion that
has not even been challenged by EAA. We thus have no basis to question HUD's
evaluation or the agency's selection of Sylvan as the National Testing
Administrator.

The protest is denied.

Comptroller General of the United States

Notes

1. The appraisers will be tested on new FHA appraisal handbook requirements
and on the proper use of a revised appraisal form (including the appraisers'
responsibility to identify property defects and potential hazards).

2. EAA itself states that the $100,000 figure does not accurately
characterize the financial value of the contract, which EAA stated is in
excess of $1.7 million, based on Sylvan's quotation. Protester's Comments at
5; Protest, exh. 10, at 2 n.1. Indeed, HUD's response to a vendor question
incorporated into the original RFQ stated that the $100,000 "ceiling" noted
on the RFQ cover sheet "does not apply" because "[t]here is no cost to the
Government." Rather, HUD explained that "[a]ll cost[s] are to be paid by the
test taker; and all direct and indirect costs are to be built into the
charge to the appraisers taking the examination." RFQ No. TESTING 001 amend.
1, Questions.

3. As the set-aside was made through inadvertence and the contracting
officer intended the procurement to be unrestricted, the procedures (FAR sect.
19.506) pertaining to the withdrawal of set-asides do not apply. Culligan,
Inc., B-192581, Mar. 6, 1979, 79-1 CPD para. 149 at 6.