TITLE:  Ocuto Blacktop & Paving Company, Inc., B-286800, February 21, 2001
BNUMBER:  B-286800
DATE:  February 21, 2001
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Ocuto Blacktop & Paving Company, Inc., B-286800, February 21, 2001

Decision

Matter of: Ocuto Blacktop & Paving Company, Inc.

File: B-286800

Date: February 21, 2001

Stephen L. Walthall, Esq., and Anne M. Zielenski, Esq., Kelly & Walthall,
for the protester.

Dawn G. Phillips, Esq., and Janie C. Cavitt, Esq., Department of the Army,
and John W. Klein, Esq., and Gene Marie M. Pade, Esq., Small Business
Administration, for the agencies.

Katherine I. Riback, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

DIGEST

Army Corps of Engineers' issuance of a solicitation for environmental
remediation work at a closed military base as a competitive 8(a) set-aside
was consistent with Defense Federal Acquisition Regulation Supplement
subpart 226.71, where there was a reasonable expectation that offers would
be received from 8(a) eligible concerns located in the vicinity of the work.

DECISION

Ocuto Blacktop & Paving Company, Inc. protests the terms of request for
proposals (RFP) No. DACA41-01-R-0002, a competitive set-aside for section
8(a) eligible concerns, [1] issued by the United States Army Corps of
Engineers for environmental remediation work at the former Griffiss Air
Force Base (AFB), Rome, New York. Ocuto complains that the solicitation did
not properly apply the preference for

businesses located in the vicinity of Griffiss AFB, as required by section
2912 of the National Defense Authorization Act for Fiscal Year 1994, Pub. L.
No. 103-160, 107 Stat. 1547, and Defense Federal Acquisition Regulation
Supplement (DFARS) sect. 226.7103(c), for work associated with closing or
realigning military installations.

We deny the protest.

The statute relevant here is codified at 10 U.S.C. sect. 2687 note (1994), and
provides, in pertinent part:

(a) Preference required.--In entering into contracts with private entities
as part of the closure or realignment of a military installation under a
base closure law, the Secretary of Defense shall give preference, to the
greatest extent practicable, to qualified businesses located in the vicinity
of the installation and to small business concerns and small disadvantaged
business concerns. Contracts for which this preference shall be given shall
include contracts to carry out activities for the environmental restoration
and mitigation at military installations to be closed or realigned.

The statute thus establishes a preference for local, small, and small
disadvantaged businesses, but does not establish a priority among these
three groups. See Ocuto Blacktop & Paving Co., Inc., B-284165, Mar. 1, 2000,
2000 CPD para. 32 at 3 n.1. [2]

DFARS sect. 226.7103 states:

In considering acquisitions for award through the section 8(a) program
(Subpart 219.8 and [Federal Acquisition Regulation] FAR Subpart 19.8) or in
making set-aside decisions under Subpart 219.5 and FAR Subpart 19.5 for
acquisitions in support of a base closure or realignment, the contracting
officer shall--

(a) Determine whether there is a reasonable expectation that offers will be
received from responsible business concerns located in the vicinity of the
military installation that is being closed or realigned.

(b) If offers can not be expected from business concerns in the vicinity,
proceed with section 8(a) or set-aside consideration as otherwise indicated
in Part 219 and FAR Part 19.

(c) If offers can be expected from business concerns in the vicinity-

(1) Consider section 8(a) only if the 8(a) contractor is located in the
vicinity. [3]

(2) Set aside the acquisition for small business only if one of the expected
offers is from a small business located in the vicinity.

The 8(a) program has both competitive and noncompetitive components,
depending upon the dollar value of the requirement. See 13 C.F.R. sect.
124.501(b) (2000). Where, as here, the acquisition value exceeds $3 million,
any 8(a) contract must be competed among 8(a) firms; 8(a) acquisitions of
less than $3 million must be noncompetitive awards. FAR sect. 19.805-1(a)(2);
13 C.F.R. sect. 124.506(a). In addition, according to the SBA, its regulations
allow for a competitive 8(a) acquisition for construction limited to 8(a)
eligible concerns in a certain geographical area where the agency
solicitation provides for such a limitation. See SBA Comments (Feb. 15,
2001); 13 C.F.R. sect. 124.507(c)(2), (3).

The agency issued this solicitation, as a competitive nationwide 8(a)
set-aside, contemplating a single award of an
indefinite-delivery/indefinite-quantity contract on October 31, 2000, for
base realignment and closure environmental remediation projects at Griffiss
AFB. [4] The contract to be awarded was for a 3-year base period with a
single 2-year option for task orders up to a cumulative total of $15
million. The technical evaluation factors listed in descending order of
importance were company experience, past performance, management plan, and
an evaluation preference for businesses. RFP sect. M.3. The primary subfactor of
the evaluation preference for businesses factor was the local or small or
small disadvantaged business preference. RFP sect.sect. M.3, M.4. The local business
preference was stated as follows:

Local businesses are defined as those located within the following counties:
Oneida, Lewis, Oswego, Herkimer, Hamilton, Fulton, Montgomery, Otsego,
Madison, Chenango, Cortland, Jefferson, and Onondaga. To qualify for this
preference, the firm must have been located in one of the counties listed on
or before September 1993 and continued to do business in one of the counties
since that date. To receive a rating for this subfactor, offerors shall
submit a federal-, state-, county-, or local government certified document
that will substantiate the offeror's place of business within one of these
counties for the required period of time.

RFP sect. L.6.d.1(1).

The SBA has identified two 8(a) eligible firms located in the vicinity.
Corps Report, Tab 5, Letter from SBA to the Corps (Mar. 21, 2000). The
protester has not challenged these firms' 8(a) or local status.

The protester, which is a local small business but not an 8(a) eligible
concern, argues that the solicitation did not comply with the regulations
for the use of businesses located in the vicinity of the closed base. Ocuto
argues that "once it has been determined that there is a reasonable
expectation that offers will be received from responsible business concerns
located in the vicinity" of the closed military installation, then the
regulation "does not allow for competitive nationwide 8(a) set asides."
Protester's Comments at 3. The protester contends that DFARS sect. 226.7103(c)
"actually limit[s] the 8(a) set aside to the 8(a) contractor that is located
in the vicinity" (emphasis supplied), which indicates that only "a sole
selection process" of an 8(a) contractor located in the vicinity is
permissible. Protester's Comments at 4. Recognizing that procurements over
$3 million, such as this one, are not to be awarded as sole-source 8(a)
acquisitions, the protester essentially takes the position that this means
there cannot be any 8(a) preference here.

We recognize that the wording of the regulation is problematic.
Specifically, the phrase "the 8(a) contractor" supports the protester's
interpretation, in that it could be read to suggest, through use of the
definite article and the singular, that a sole-source 8(a) award to an
identified 8(a) firm is contemplated. This view is supported by the contrast
with the language in the following subparagraph regarding the treatment of
small businesses, where the regulation says that the acquisition is to be
set aside for small business "only if one of the expected offers" is from a
small business located in the vicinity.

We nonetheless reject the protester's reading of the regulation, for a
number of reasons. First, the language does not unambiguously support the
protester's position: there is no reference to sole-source 8(a) awards, nor
is there a prohibition on 8(a) competitions for acquisitions above $3
million. Indeed, since the context of the problematic language is the
agency's planning about how to structure an acquisition, at the time of that
planning, no offer has been received and, obviously, no 8(a) contract, or
"8(a) contractor," yet exists. In this context, we find reasonable the
Corps's position that the regulation was intended to determine whether the
procurement could be placed under the 8(a) program, and was not intended to
limit or designate which part of the 8(a) program, competitive or
noncompetitive, could be utilized, and did not specifically do so. The
agency argues that if the intent of this regulation was to allow only for
noncompetitive awards to local 8(a) firms, then one would expect that this
intent would be clearly articulated in the regulation.

The protester's position, as noted above, is essentially that 8(a)
competitive procurements, whether limited to local firms or not, are simply
not permitted under the regulation. The result is that the preference for
small disadvantaged businesses would essentially be nullified for
acquisitions over $3 million, since 8(a) acquisitions of that size must be
competed. Such an interpretation would seem to be inconsistent with the
statutory scheme that the regulation is implementing. In this regard,
section 2912 of the National Defense Authorization Act for Fiscal Year 1994
and DFARS sect. 226.7102 state a preference for local, small business, and small
disadvantaged businesses, but do not indicate that one of these preferences
takes precedence over the others. The protester's interpretation of the
regulation would result in a preference for local non-8(a) firms over
non-local 8(a) businesses, a preference not found in the statute.

There is no indication that these significant repercussions were
contemplated by the drafters of the regulation. Instead, we find that the
agency reasonably interpreted DFARS sect. 226.7103(c)(1) as permitting a
competitive 8(a) set-aside, so long as there was an 8(a) eligible concern
located in the vicinity. [5] The agency thus interprets DFARS
sect. 226.7103(c)(1) as parallel to DFARS sect. 226.7103(c)(2), which provides that
a small business set-aside should be issued if "one of the expected offers
is from a small business located in the vicinity." Notwithstanding the
concern that we have regarding the regulatory language, we view this
interpretation as reasonable and consistent with the statutory scheme.

In reaching this conclusion, we are mindful that the interpretation of the
Department of Defense (DOD), the agency responsible for promulgating this
regulation, deserves great weight. We defer to an agency's reasonable
interpretation of its regulations, even where the regulation is less than
clear and potentially subject to more than one interpretation. Israel
Aircraft Indus., Ltd.-Recon., B-258229.2, July 26, 1995, 95-2 CPD para. 46 at 5;
New Hampshire-Vermont Health Serv., B-189603, Mar. 15, 1978, 78-1 CPD para. 202
at 5; see Udall v. Tallman, 380 U.S. 1, 16-17 (1964).

In this regard, we view as significant that the record indicates that DOD
had consistently taken the position that this regulation contemplated
competitive 8(a) set-asides as appropriate. For example, on January 18,
1996, the Deputy Assistant Secretary (Contracting) for the Department of the
Air Force provided guidance regarding Contract Preference for Local, Small
and Small Disadvantaged Businesses at Closure/Realignment Bases, which
states in pertinent part:

As new contract actions are initiated, we should . . . us[e] source
selection criteria to provide preferences. Preferences for local businesses
of any size and set-asides for 8(a) and small businesses located anywhere
are authorized by DFARS Subparts 226.7200 and 226.7103, respectively, and
are consistent with the Competition in Contracting Act [CICA].

Protest, exh. C. [6] In addition, the Air Force Base Conversion Agency
issued a Base Realignment and Closure Contracting Plan for Local, Small and
Small Disadvantaged Business Participation to show its compliance with FAR
part 19, DFARS part 219, and DFARS subparts 226.71 and 226.72, which states
with regard to "new, Individual Contract Awards":

The [contracting officer] will consider awarding a Small Business or 8(a)
setaside contract consistent with FAR Part 19 and DFARS Part 219; however, .
. . competitive 8(a) contract actions may not result in local contractor
selection. This is because such acquisitions cannot restrict competition to
the local area since Section 2912 (DFARS 226.71) is not a CICA exception.

Agency Report, exh. 6, attach., at 2.

For these reasons, we find that the agency reasonably issued this RFP as a
competitive 8(a) set-aside. However, we are, by letter of today to the
Acting Director

of the Defense Acquisition Regulations Council, raising our concern about
the lack of clarity in the regulation.

The protest is denied.

Anthony H. Gamboa

Acting General Counsel

Notes

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

2. In Ocuto Blacktop & Paving Co., Inc., supra, we sustained Ocuto's protest
of the Corps's use of a preplaced regional
indefinite-delivery/indefinite-quantity contract to obtain environmental
remediation at Griffiss AFB because the record did not show that the agency
had given reasonable consideration to the statutory preference for business
concerns located in the vicinity of the installation. This RFP for
environmental remediation at Griffiss AFB is in response to the
recommendation made in that decision.

3. As originally promulgated as an interim regulation, paragraph (1) read
"[s]et aside the acquisition for small disadvantaged business only if one of
the expected offers is from a small disadvantaged business located in the
vicinity." 59 Fed. Reg. 15,501, (Apr. 1, 1994). The current version was
issued in Defense Acquisition Circular 91-7 as a final regulation effective
May 17, 1995. 60 Fed. Reg. 29,491 (June 5, 1995). The only stated reason for
the change in the wording was that the revised paragraph "clarifies the
procedures at 226.7103 to address criteria for consideration of awards to
contractors under the section 8(a) program."

4. On that same date, the agency also issued another solicitation (No.
DACA41-01-R-0001) for environmental remediation work at Griffiss AFB as a
small business set-aside contemplating up to two awards for a cumulative $35
million.

5. We do not reach the question of whether a competitive 8(a) set-aside may
be nationwide, or whether it must be limited to local 8(a) firms. Ocuto is
not an interested party to raise that issue, because, as a non-8(a) firm, it
could not compete even in a local 8(a) competition.

6. The protester cites this memorandum as the appropriate DOD guidance for
applying the local preference to implement section 2912 of the National
Defense Authorization Act for Fiscal Year 1994. Protest at 2; Protester's
Comments at 3. We also note that the United States District Court for the
Northern District of New York has cited this memorandum as evidence of DOD's
policy in this regard. See Ocuto Blacktop and Paving Co., Inc. v. Perry, 942
F. Supp. 783, 787-88 (N.D.N.Y. 1996).