TITLE:  Professional Landscape Management Services, Inc.--Costs, B-287728.2, November 2, 2001
BNUMBER:  B-287728.2
DATE:  November 2, 2001
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Decision

Matter of: Professional Landscape Management Services, Inc.--Costs

File: B-287728.2

Date: November 2, 2001

Joel S. Rubinstein, Esq., Bell, Boyd & Lloyd, for the protester.

J.J. Cox, Esq., and Madeline Shay, Esq., U.S. Army Corps of Engineers; and
Kenneth Dodds, Esq., and John W. Klein, Esq., Small Business Administration,
for the agencies.

Christina Sklarew, Esq., and Michael R. Golden, Esq., Office of the General
Counsel, GAO, participated in the preparation of the decision.

DIGEST

General Accounting Office recommends that the protester be reimbursed the
costs of filing and pursuing its protest where the agency unduly delayed
taking corrective action in the face of a clearly meritorious protest;
protest is clearly meritorious when a reasonable agency inquiry into the
protester's allegations would have revealed that the agency had not taken
reasonable steps to determine whether the procurement needed to be set aside
for HUBZone small businesses.

DECISION

Professional Landscape Management Services, Inc. (PLMS) requests
reimbursement of the reasonable costs of filing and pursuing its protest of
the Army Corps of Engineers' determination to issue request for proposals
(RFP) No. DACW31-01-R-0018 as a small business set-aside, rather than
setting the procurement aside exclusively for small businesses certified
under the Historically Underutilized Business Zone (HUBZone) program.

We recommend that the Corps reimburse PLMS its protest costs.

BACKGROUND

On February 22, 2001, the Corps's Baltimore district office received a
standard form requesting that it issue a "best value" solicitation package
for grounds maintenance services for the Washington Aqueduct Division. On
March 3, the requirement was synopsized as a small business set aside on
CBDNet, the Commerce Business Daily website, and was described as grounds
maintenance services including, among other things, the removal of ice and
snow. Agency Report (AR), Tab 5, CBDNet Notice. The RFP, when issued,
defined snow removal as an emergency priority requiring the contractor to
respond within 2 hours of notification. The RFP did not include any
geographic restriction, or otherwise require offerors to be located within a
particular area. RFP sect. C.2.36.1.

The agency report stated that, before the solicitation was issued, the
Corps's contracting staff considered various set-aside options. In light of
the requirement at Federal Acquisition Regulation sect. 19.1305(a) and (b), that
contracting agencies set aside for HUBZone small businesses all procurements
exceeding $100,000 if there is a reasonable expectation of receiving offers
from at least two HUBZone small businesses at a fair market price, a Corps
official identified as the Deputy for Small Business researched whether
there were any qualified HUBZone firms available to perform this work, using
the Procurement Marketing and Access Network ("Pro-Net"), an Internet-based,
searchable database that the Small Business Administration (SBA) maintains.
[1] Although no contemporaneous record of the search was maintained, this
official reported that she limited her search to HUBZones in the Washington,
D.C. area (including parts of Maryland and Virginia), based on her "business
judgment" that grounds maintenance and snow removal fit into the category
where it is essential to use local firms. Hearing Video Transcript (VT)
at 10:52. [2] The search identified no local HUBZone small businesses. VT at
9:53. This official subsequently admitted that when she conducted the
search, she entered an improper code (called a "NAICS" code, based on the
North American Industry Classification System) [3] to specify the type of
services being sought. VT at 10:39. She stated that it was her understanding
at that time that a 5-digit code would yield more inclusive results, whereas
in fact, only a 6-digit code would yield any results in this type of search.
[4] Based on her belief that only local firms could reasonably be expected
to submit offers, and her belief that no HUBZone-certified firms capable of
doing the work were available, the official recommended that the
solicitation be issued as a small business set aside, and the contracting
officer concurred. VT at 10:56.

After the CBDNet notice appeared, PLMS contacted an SBA representative to
inquire whether the procurement could be set aside for HUBZone small
business concerns. The inquiry was conveyed to the SBA Liaison Procurement
Center Representative (PCR), who then contacted the Corps. According to the
Corps's Deputy for Small Business, she told the PCR about the results of the
Pro-Net search without discussing the parameters of the search, and told the
PCR that the procurement was being set aside for small business concerns.
She also advised the PCR that:

I currently . . . had two . . . [HUBZone] requirements on the street, and as
a result of those two procurements, I would meet the [Corps's] imposed goal
and the statutory goal as well. I also indicated to [the PCR] that it was
possible that I would not meet my small business set-aside goal and that
this procurement would assist in that endeavor.

AR, Tab 3, Memorandum at 1.

The Corps official states that the PCR did not object to the Corps's
decision. VT at 10:16-10:22. The record includes a contemporaneous document
in which the PCR states that, based on the Deputy's indication that her
Pro-Net search had not been "successful," he had no reason to object to the
decision not to set aside the procurement for HUBZone small businesses. AR,
Tab 12, E-mail from PCR to Corps, May 21, 2001.

The RFP was issued on April 13 as a small business set-aside, with a May 16
deadline for receipt of proposals. PLMS filed its protest in our Office on
May 10, alleging that the agency's decision not to set the procurement aside
for HUBZone small businesses was improper. PLMS asserted that there were at
least two such firms on a list of HUBZone firms maintained online by SBA, so
that the agency should have expected that two or more qualified
HUBZone-certified contractors would submit offers.

The agency submitted its report to our Office on June 8, urging that we deny
the protest on the basis that the Corps's set-aside determination was
reasonable. The protester submitted its comments on June 21, asserting that
when the agency determined that it could not reasonably expect to receive at
least two HUBZone-certified small business offers, it had improperly limited
its search by geographic area, even though the RFP contained no geographic
restriction. On June 27, the Corps filed a rebuttal to the protester's
comments. The Corps argued that it was entitled to rely on the results of
its ProNet search at the time it made its set-aside determination (as
opposed to being obligated to take into consideration search results later
submitted by the protester, or information regarding the actual offers that
were submitted). The Corps also defended its decision to consider only firms
in the Washington area in determining whether to set the procurement aside
for HUBZone small businesses.

On July 3, our Office informed the parties by a telephone conference call
that we intended to hold a hearing for the purpose of obtaining testimony
from the agency contracting officials concerning their basis for not setting
aside this procurement for HUBZone-certified firms. The hearing was held in
our Office on July 12. Because of the important role that SBA plays in
HUBZone matters, our Office invited SBA representatives to participate in
the hearing and to submit post-hearing comments with SBA's views, and they
did so.

On July 17, approximately 5 weeks after the agency filed its protest report,
the Corps informed us that it intended to take corrective action. The Corps
advised that it was not until discussions with witnesses and others the
evening before the hearing that the Corps first discovered that the initial
Pro-Net searches had used a flawed NAICS code. The Corps stated that
searches had been conducted the same day for both HUBZone-certified firms
and firms certified under Section 8(a) of the Small Business Act [5], using
the same flawed 5-digit number as the NAICS code, and that this flaw in the
search entry was the apparent reason that the initial searches did not
locate any firms. Agency Letter of July 17 at 1. The Corps proposed to
cancel the solicitation, "reinstitute" the entire set-aside decision process
including separate reviews for availability of 8(a) and HUBZone firms, and
resolicit the requirements. Id. The following day, PLMS filed this request
for reimbursement of costs.

DISCUSSION

Our Bid Protest Regulations provide that where the contracting agency
decides to take corrective action in response to a protest, we may recommend
that the protester be reimbursed the costs of filing and pursuing its
protest, including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(e) (2001). We
will make such a recommendation where, based on the circumstances of the
case, we determine that the agency unduly delayed taking corrective action
in the face of a clearly meritorious protest. Oklahoma Indian Corp.--Claim
for Costs, B-243785.2, June 10, 1991, 91-1 CPD para. 558 at 2. A protest is
clearly meritorious when a reasonable agency inquiry into the protester's
allegations would show facts disclosing the absence of a defensible legal
position. The Real Estate Ctr.--Costs, B-274081.7, Mar. 30, 1998, 98-1 CPD para.
105 at 3. Our rule is intended to prevent inordinate delay in investigating
the merits of a protest and taking corrective action once an error is
evident, so that a protester will not incur unnecessary effort and expense
in pursuing its remedies before our Office. David Weisberg--Entitlement to
Costs, B-246041.2, Aug. 10, 1992, 92-2 CPD para. 91 at 4.

The Corps opposes PLMS's request, arguing that corrective action was taken
"promptly" because it was taken before the record was closed; that the basis
for its corrective action is different from PLMS's basis for protest; and
that the protest was not "clearly meritorious" in any event, since it
presented a "matter of first impression." The Corps continues to "dispute
the allegation that restricting competition only to HUBZone firms was
necessary, for all the reasons explained" during the course of the protest.
Agency Response to Request for Reimbursement at 4.

We find the agency's position without merit. With regard to the Corps's
assertion that the corrective action was taken promptly because it happened
before the record was closed (meaning, presumably, before all post-hearing
briefs had been received), we point out that one of the reasons we found
that a hearing was necessary in this case was because the agency report
failed to disclose the parameters of the Pro-Net search it had conducted. In
our view, it is clear that a reasonable agency inquiry would have disclosed
the problem with that search weeks earlier. [6] In these circumstances, we
do not view the agency's decision to take corrective action as prompt.

Regarding the other prong of our analysis, we find that the protest was
clearly meritorious. While the Corps contends that the protest could not be
clearly meritorious because it was one of first impression, we disagree. In
our view, the protest here is directly analogous to an allegation that a
procurement should be set aside for exclusive small business participation.
It is well settled that an assessment not to set a procurement aside must be
based on sufficient facts to establish its reasonableness. Safety Storage,
Inc., B-280851, Oct. 29, 1998, 98-2 CPD para. 102 at 3; McGhee Constr., Inc.,
B-249235, Nov. 3, 1992, 92-2 CPD para. 318 at 3. Whether the set-aside at issue
is one for small businesses or one for HUBZone small businesses, the same
test of reasonableness would apply; in that sense, this was not a case of
first impression. Indeed, the agency apparently shared that view during the
pendency of the protest, since it repeatedly advocated a "reasonable basis"
standard, and its submissions to our Office cited our decisions concerning
small business set-asides. Corps's June 8 Submission at 3-4; June 27
Submission at 3.

The question, then, is whether, at the time it made its determination, the
Corps had a reasonable basis for determining not to set the procurement
aside. The protester argued throughout that the Corps had no reasonable
basis for its action, based on the protester's assertion that there were at
least two HUBZone small businesses that would bid on the work. After the
Corps revealed in its report that when it was investigating the likelihood
that it would receive two or more HUBZone small business offers, it
considered only firms within a certain geographic area (the Washington
area), PLMS's comments pursued that aspect of the Corps's set-aside
determination. In its post-hearing comments, SBA stated that "[g]enerally,
we do not believe that searches in PRO-Net that are limited geographically
for [the] purpose of making set aside determinations are reasonable." SBA
Post-Hearing Comments at 1. Once the Corps admitted after the hearing that
its original Pro-Net search had been flawed (in inputting only five digits),
the question of the geographic limitation became irrelevant to our review,
since even a nationwide search with only five digits would also have
identified no HUBZone-certified small businesses.

While the Corps attaches importance to the difference between the defect in
the set-aside analysis alleged in the initial protest and the defect that
the agency concedes occurred, we do not view the difference as dispositive
in the context of a cost claim. Although PLMS admittedly had not identified
in its initial protest the particular error that the agency committed (that
is, entering five digits instead of six into the online search engine), we
do not view that as a basis to deny its request for costs, since the agency
concedes that error in its analysis, and we view that flaw as inextricably
bound up with the protester's concern.

Finally, we turn to the agency's argument that its improper Pro-Net search
did not prejudice PLMS, since the agency otherwise had a reasonable basis to
decide not to set the procurement aside, on the basis of the geographic
limitation and its concern about the capability and capacity of
HUBZone-certified small businesses. In determining whether an agency's
improper action prejudiced a protester, we look to whether, but for the
agency's action, the protester would have had a substantial chance of
receiving the award. McDonald-Bradley, B-270126, Feb. 8, 1996, 96-1 CPD para. 54
at 3; see Statistica, Inc. v. Christopher, 102 F.3d 1577, 1581 (Fed. Cir.
1996). Where there is an objective, fact-based argument for finding that an
agency's improper action did not prejudice a protester, it may well prevail;
the more the argument reflects a new judgment on the agency's part, the
greater will be our concern that a judgment forged in the heat of litigation
may not reflect the fair and considered judgment of the agency. See Boeing
Sikorsky Aircraft Support, B-277263.2, B-277263.3, Sept. 29, 1997, 97-2 CPD
para. 91 at 15.

Here, the Corps stated, in its corrective action letter, that the "entire
set-aside decision process will be reinstituted, including separate
availability of 8(a) and HUBZone firms." Agency Letter of July 17 at 1. That
full review provided the Corps an opportunity to consider the facts that it
learned during the pendency of the protest, and to take into account SBA's
views concerning the appropriate parameters of the search. [7] As of the
date it committed to reinstituting the entire set-aside decision process,
the agency had not yet formed a firm judgment and was thus apparently open
to the possibility of setting the procurement aside for HUBZone small
businesses. Because, once the agency's admitted error was put aside and the
matter revisited, there was a reasonable possibility that the agency would
decide to set the procurement aside for HUBZone-certified businesses, we
believe that PLMS has shown prejudice, regardless of whether the Corps's
ultimate judgment is in favor or against a HUBZone set-aside.

We therefore recommend that the agency reimburse PLMS its costs of filing
and pursuing the protest, including reasonable attorneys' fees. See The Real
Estate Ctr.--Costs, supra, at 5. The protester should submit its claim for
costs, detailing and certifying the time expended and costs incurred,
directly to the agency within 60 days after receipt of this decision. 4
C.F.R. sect. 21.8(f)(1).

Anthony H. Gamboa

General Counsel

Notes

1. Pro-Net can be accessed through a hyperlink on the SBA website,
www.sba.gov.

2. It is unclear from the record exactly what information the official had
available to her when she was formulating her recommendation of whether the
procurement should be restricted. While she testified at the hearing that at
that time she had only the original request form, which did not include snow
removal, VT at 10:50, she repeatedly indicated at the hearing that her
concern about snow removal work was an important aspect of her decision to
limit her search to local firms. VT at 9:49, 10:55.

3. The NAICS code replaced the Standard Industrial Classification System as
of October 1, 2000, and is used by the federal government to identify and
classify specific categories of business activity that represent the lines
of business a firm conducts. See http://pro-net.sba.gov.

4. At the time this protest was being developed, our research showed that
entering a 5-digit number (such as 56173) on Pro-Net as the NAICS code
resulted in a message that "where the firm is HUBZone certified and the firm
has NAICS code 56173 . . . [n]o firms meet your search criteria, sorry."
Currently, Pro-Net will accept a 5-digit number and produce results based on
any NAICS code beginning with those 5 digits. Specifically, entering 56173
results in a list of 120 firms.

5. Section 8(a) establishes a business development program under which,
among other things, competition may be restricted to eligible small
disadvantaged business concerns. See generally 15 U.S.C. sect. 637(a); 13 C.F.R.
Part 124.

6. We find particularly troubling that, by the agency's own account, it
discovered the flawed search methodology when it questioned its witnesses
prior to the hearing, yet it nonetheless allowed the protester and SBA to
incur the cost of participating in the hearing and preparing post-hearing
comments; the agency gave no indication of its intent to take corrective
action until the deadline for submitting its post-hearing comments.

7. The agency appears to place considerable weight on the fact that SBA
concurred in the decision not to set the procurement aside. It is clear from
the record that SBA's initial concurrence was made in reliance on the
assumption that the Corps's search was reasonably conducted. The Corps now
concedes that the initial search was flawed. Therefore, we think SBA's
initial concurrence, based on flawed information, is immaterial.