TITLE:  Rochester Optical Manufacturing Company, B-292247; B-292247.2, August 6, 2003
BNUMBER:  B-292247; B-292247.2
DATE:  August 6, 2003
**********************************************************************
Rochester Optical Manufacturing Company, B-292247; B-292247.2, August 6, 2003

   Decision
    
    
Matter of:    Rochester Optical Manufacturing Company
    
File:             B-292247; B-292247.2
    
Date:              August 6, 2003
    
Robert G. Fryling, Esq., and Edward J. Hoffman, Esq., Blank Rome, for the
protester.
Dennis Foley, Esq., Department of Veterans Affairs, and Kenneth Dodds,
Esq., U.S. Small Business Administration, for the agencies.
Linda S. Lebowitz, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
    
Protest challenging agency decision not to set aside procurement for small
business concerns is sustained where decision was based on insufficient
efforts to ascertain small business interest and capability to perform the
requirement.
DECISION
    
Rochester Optical Manufacturing Company protests the decision of the
Department of Veterans Affairs (VA) to issue on an unrestricted basis
request for proposals (RFP) No. 626-09-03, for eyeglass fabrication and
on-site eyeglass fittings in its Veterans Integrated Service Network
(VISN) 9, which includes seven locations in the states of Kentucky,
Tennessee, and West Virginia.  Rochester, a small business concern, argues
that the requirement should be set aside for small businesses, essentially
contending that the agency failed to undertake sufficient efforts to
ascertain small business interest and capability to perform the
requirement.
    

   We sustain the protest.
    
BACKGROUND
    
Prior Procurements
    
In 1999, the VA procured on an unrestricted basis a requirement for the
fabrication of eyeglasses in VISN 9.  (At the time, the standard
industrial classification (SIC) code was 8099, with a corresponding $5
million average annual gross revenue requirement.)  Three small business
concerns--Schaeffer Eye Center, Korrect Optical, and Classic
Optical--submitted proposals; the VA awarded an
indefinite‑delivery/indefinite-quantity (ID/IQ) contract to each of
these firms for the fabrication of eyeglasses in VISN 9.
    
In 2001, the VA procured on a small business set-aside basis, under North
American Industry Classification System (NAICS) code[2] 621320 (offices of
optometrists, with a corresponding $5 million average annual gross revenue
requirement) a requirement for the fabrication of eyeglasses and for the
performance of eye exams in VISN 9.  As relevant here, eyeglass fittings,
which were to be priced under the line items for eyeglass fabrication,
would take place off-site at a contractor's facility, as opposed to
on-site at a VA facility.  TC at 128-35.  At the time of proposal
submission, the following four firms self‑certified that they were
small business concerns under the above-referenced NAICS code:  Korrect,
Classic, Rochester, and Barnett and Ramel.  After determining, in
accordance with Federal Acquisition Regulation (FAR) S: 19.502-2(b)(2),
that these firms each proposed fair market prices, TC at 97-100, the VA
awarded an ID/IQ contract to each of these firms to fabricate eyeglasses
and to perform eye exams in VISN 9.  After these awards were made, and as
a result of size protests filed with the U.S. Small Business
Administration (SBA), Korrect and Classic were determined by the SBA to be
large businesses under NAICS code 621320; however, the VA determined that
it would not be in the best interest of the government to terminate the
Korrect and Classic contracts.
    
Current Procurement
    
On February 19, 2003, the VA issued the current RFP on an unrestricted
basis, under NAICS code 446130 (optical goods store, with a corresponding
$6 million average annual gross revenue requirement) for the fabrication
of eyeglasses and for on-site eyeglass fittings in VISN 9.  The VA
contemplates the award of multiple, fixed‑price requirements
contracts to the low-priced technically acceptable
offerors.[3]               
    
In determining not to set aside this procurement for small business
concerns, the VA's contracting officer provided the following
justification in a *record of procurement request review for the Small
Business Program*:
    
Due to market survey in 1999, procurement was set aside as a small
business under SIC 8099, $5.0 million.[4]  Korrect Optical, Classic
Optical, Schaeffer were small businesses.  2001 procurement was set aside
to small business.  21 offers were requested, 4 offers were received.  Of
the four offers received, Korrect was considered a large business; Classic
was a large business; Rochester was small business; Barnett and Ramel was
small business with large business subcontractors. . . . In addition
Rochester was the highest priced.  At the present time four contractors
provide VISN 9 needs as indefinite delivery.  This procurement will be a
requirements contract meaning that one contractor will be awarded either
one medical center's needs or all of them depending on their offer.  There
have been changes in the classification codes and due to businesses that
were small becoming large the contracting officer is unaware of two small
businesses capable of handling the quantity of requests needed to support
the veterans.  Offers were issued to local eyeglass companies and no
response was received.  Pro-Net,[5] Sub-Net and minority business sites
were checked and no available site was ascertained.
VA Agency Report, Tab 26, Contracting Officer's Record of Procurement
Request Review for the Small Business Program, Feb. 4, 2003.
    
The contracting officer attached the following Pro-Net results page to her
justification not to set aside the current requirement:
    
PRO-Net Results Page
    
Table Listing
where annual gross revenue is no more than $6.0
and business type includes at least one of:  manufacturing, service
and the firm has NAICS code 446130
and the firm is in one of these state(s):  TN [Tennessee]
and randomized by original start time of search:  01/27/2003 13:17:05
    
What Happened
    
No firms meet your search criteria, sorry.
    
What To Do About It
    
Hit your Web browser's *Back* button, make your criteria less restrictive
and try again.
    
The VISN 9 small business specialist and the senior procurement analyst
with the VA's Office of Small and Disadvantaged Business Utilization both
concurred with the contracting officer's decision not to set aside this
procurement for small business concerns.
    
ISSUE AND ANALYSIS
    
Rochester protests the contracting officer's determination not to set
aside the agency's current VISN 9 requirement for small business
concerns.  Rochester maintains that the contracting officer should have
reasonably expected, based on the prior small business set-aside
procurement that resulted in awards of ID/IQ contracts to Rochester and
Barnett and Ramel--both small business concerns--to have received fair
market price offers here from at least two responsible small business
concerns.  
    
Contracting officers generally are required to set aside for small
businesses all procurements exceeding $100,000 if there is a reasonable
expectation of receiving fair market price offers from at least two
responsible small business concerns.  FAR S: 19.502-2(b).  Generally, we
regard such a determination as a matter of business judgment within the
contracting officer's discretion, which we will not disturb absent a
showing that it was unreasonable.  Neal R. Gross & Co., Inc.,
B‑240924.2, Jan. 17, 1991, 91-1 CPD P: 53 at 2.  However, a
contracting officer must make reasonable efforts to ascertain whether it
is likely that offers will be received from at least two small businesses
capable of performing the work.  Mortara Instrument, Inc., B-272461, Oct.
18, 1996, 96-2 CPD P: 212 at 3.  Our Office will review a protest to
determine whether a contracting officer has made such efforts.  Library
Sys. & Servs./Internet Sys., Inc., B-244432, Oct. 16, 1991, 91-2 CPD P:
337 at 7.
    
While the use of any particular method of assessing the availability of
small businesses is not required, and measures such as prior procurement
history, market surveys, and/or advice from the agency's small business
specialist and technical personnel may all constitute adequate grounds for
a contracting officer's decision not to set aside a procurement, American
Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD P: 188 at 3, the
assessment must be based on sufficient facts so as to establish its
reasonableness.  McSwain & Assocs., Inc.; Shel-Ken Props., Inc.; and
Elaine Dunn Realty, B-271071 et al., May 20, 1996, 96-1 CPD P: 255 at
3-4.  Here, the VA does not dispute that under the prior VISN 9 small
business set-aside procurement, Rochester and Barnett and Ramel were small
business concerns.  Nevertheless, the VA asserts several grounds for why,
in its view, it did not have a reasonable expectation of receiving fair
market price offers from at least two responsible small business concerns,
thus obviating the need for it to set aside the current VISN 9 requirement
for small businesses.  As explained below, we find each of these grounds
to be unreasonable and we conclude that the VA's determination not to set
aside this requirement for small businesses was seriously flawed.
    
The VA first asserts that the prices proposed by Rochester and Barnett and
Ramel under the prior small business set-aside procurement were not low. 
TC at 101-03.  However, as stated above, FAR S: 19.502-2(b) requires that
in determining whether to procure requirements under a small business
set‑aside, an agency must have a reasonable expectation of receiving
*fair market price* offers, not *low* prices, from at least two
responsible small business concerns.  Although the prices proposed by
Rochester and Barnett and Ramel under the prior procurement were not low
(among the four offers received),[6] the fact that these two small
business concerns received ID/IQ contracts under a small business
set‑aside reasonably demonstrates that the agency believed that
their offers ultimately contained fair and reasonable prices.  FAR
S: 15.402(a).  Under these circumstances, the failure of these two small
business concerns to submit the lowest prices under the prior procurement
does not establish a reasonable basis for the VA to conclude that these
two firms could not submit fair market price offers for the protested
requirement.
The VA next argues that in determining not to procure its current VISN 9
requirement under a small business set-aside, it believed, based on the
prior small business set-aside procurement, that it would not receive
offers from at least two *responsible* small business concerns.  In other
words, the VA was not concerned with the quantum of known competition from
the prior procurement--two small businesses, Rochester and Barnett and
Ramel; rather, the VA believed that these two firms were not responsible
contractors.  In this regard, the VA states that under the prior
procurement, Rochester received a cure notice for not submitting
qualifications statements for proposed personnel and Barnett and Ramel
subcontracted with a large business.  (Under their respective ID/IQ
contracts, Rochester received minimal orders, while Barnett and Ramel
received no orders.  TC at 347.)  The record shows, however, that
Rochester complied with the cure notice and its contract was not
terminated by the VA.  TC at 325.  In addition, the record shows that
Barnett and Ramel's subcontract relationship with a large business was
acceptable so long as Barnett and Ramel, as the small business prime
contractor, complied with the 50 percent limitation on subcontracting
clause at FAR S: 52.219-14, which was included in the solicitation.  None
of this establishes on its face that these two firms were not responsible
contractors and we conclude that the VA's position, as stated above, does
not provide a reasonable basis for it to decide not to procure its current
VISN 9 requirement under a small business set‑aside.
    
On a related matter, the VA states that its current needs are materially
different from those as reflected in the prior VISN 9 small business
set-aside procurement and, as a result, small business concerns will not
be able to perform.  The VA explained at the hearing conducted by our
Office that under the prior procurement, where four ID/IQ contracts were
awarded, if one of the small business contractors could not perform (i.e.,
if the contractor could not handle the required quantities), TC at 251-55,
323-25, then the agency could select one of the other three contractors (a
*back up* contractor) to perform, without having to terminate the first
contractor's contract.  In contrast, in the current procurement, where the
VA contemplates the award of multiple requirements contracts, the VA
explained that since there will not be a *back up* contractor available,
it is *asking more responsibility* of the awardee, that is, the VA is
*asking for one contractor to handle that VA quantity and if [the
contractor] can't . . . you [i.e., the VA] either terminate[s] for default
or terminate[s] for convenience [the awardee's contract].*  TC at 258-61. 
While we appreciate the impact associated with the change in the type of
contract to be awarded (i.e., a requirements, rather than an ID/IQ,
contract), in our view, the VA has not explained why that impact supports
a determination that its needs have materially changed such that small
business concerns would not be able to perform the current VISN 9
requirement.[7]
Finally, the record shows that the contracting officer's market research
was inadequate and fails to support the determination not to set aside the
current VISN 9 requirement for small business concerns.  The first problem
with the contracting officer's Pro-Net search is that she unreasonably
limited her search to one state, Tennessee, as shown above, when VISN 9
also covers the states of Kentucky and West Virginia.  When asked at the
hearing conducted by our Office why she did not do the Pro-Net search for
the three states covered in VISN 9 (or even nationwide), the contracting
officer responded, *actually, when I did the Pro-Net search, I thought
that block [on the Internet page] was 'where are you at' and I'm at
Tennessee, so that's what I used and I came up with nothing.*  TC at 491. 
In other words, the contracting officer unreasonably limited her Pro-Net
search to the state of Tennessee because that is where she was located,
thus ignoring the possibility that there could be small business concerns
in at least the other two states, Kentucky and West Virginia, that might
be interested in competing for the current VISN 9 requirement.  Another
problem with the contracting officer's Pro-Net search is that in inserting
an average annual gross revenue amount corresponding to NAICS code 446130,
the contracting officer inserted *$6.0,* not *$6,000,000.00.*  During the
hearing, the contracting officer could not point to anything that would
suggest that the monetary figure inserted by her translated to *millions
of dollars,* as opposed to just *dollars.*  TC at 497-535, 547.  As a
result, it should have come as no surprise that no small business concern
was found to have had an average annual gross revenue amount not exceeding
*$6.00.*[8]  At the hearing, our Office told the VA that we had performed
a Pro‑Net search on a nationwide basis using *$6000000* and NAICS
code 446130, without a *manufacturing, service* restriction; when pointed
out to the VA that our search yielded 65 firms matching this criteria, the
VA had no response.  TC at 497.  On this record, where the contracting
officer's market research was geographically limited for no legitimate
reason and where she used inaccurate information as the basis for her
research, we conclude that the contracting officer's market research was
materially deficient and could not reasonably be relied upon in
determining not to conduct the current procurement as a small business
set-aside.[9]                 
RECOMMENDATION
    
On this record, we sustain the protest because the VA unreasonably
determined that there was no likelihood of receiving fair market price
offers from at least two responsible small business concerns.  We
recommend that the contracting officer conduct a proper market survey to
adequately investigate the potential small business interest and
capability in the current VISN 9 requirement and determine whether there
is a reasonable expectation that fair market price offers will be obtained
from two responsible small business concerns.  We point out, based on the
record developed during this protest, that it appears that this
procurement should have been set aside for small business concerns. 
Although the agency recently has received offers under the RFP, unless the
contracting officer now can reasonably determine, after conducting a
proper market survey, that there is not a reasonable expectation of
receiving offers from at least two responsible small businesses at fair
market prices, the contracting officer should cancel the RFP and re-issue
it as a set-aside for small businesses.  We also recommend that Rochester
be reimbursed the reasonable costs of filing and pursuing the protest,
including reasonable attorneys' fees.  4 C.F.R. S: 21.8(d)(1). 
Rochester's certified claim for costs, detailing the time expended and
costs incurred, must be submitted to the agency within 60 days of
receiving this decision.    
    
The protest is sustained.[10]
    
Anthony H. Gamboa
General Counsel
    
    
    
    
    
    

   ------------------------

   [1] In developing the protest record, our Office conducted a recorded
telephone hearing in which the VA's contracting officer testified.  Since
there is not a written transcript of this hearing, references in this
decision to the hearing are to the approximate point on the cassette
recorder's numerical tape counter (TC at ___).
[2] The NAICS code, which replaced the SIC system as of October 1, 2000,
is used by the federal government to identify and classify specific
categories of business activity that represent the lines of business a
firm conducts.  Professional Landscape Mgmt. Servs., Inc.--Costs,
B-287728.2, Nov. 2, 2001, 2001 CPD P: 180 at 2 n.3. 
[3] The VA explains that it could award either one requirements contract
for all of VISN 9 or a requirements contract for each of the seven
locations in VISN 9.  TC at 235-40.
[4] We note that while in this document the contracting officer
characterizes the 1999 procurement as a small business set-aside, the 1999
RFP reflects that this procurement was conducted on an unrestricted basis.
[5] Pro-Net is an Internet-based database for small, disadvantaged, 8(a),
HUBZone, and women-owned businesses.  The SBA's website describes Pro-Net
as *an electronic gateway of procurement information--for and about small
businesses.  It is a search engine for contracting officers, a marketing
tool for small firms and a 'link' to procurement opportunities and
important information.  It is designed to be a 'virtual'
one-stop-procurement-shop.*  http://pro-net.sba.gov; Quality Hotel
Westshore; Quality Inn Busch Gardens, B-290046, May 31, 2002, 2002 CPD P:
91 at 2 n.1.  
[6] For purposes of context, we point out that *low* prices under the
prior small business set-aside procurement were submitted by Korrect and
Classic, both of which initially self‑certified that they were small
businesses, but ultimately were determined to be large businesses by the
SBA.  TC at 376.
[7] We recognize the VA's position that it is more convenient for veterans
to have their eyeglasses fitted on site at a VA facility (*one stop
shopping* for the veteran), rather than off site at a contractor
facility.  TC at 190-200.  However, the VA has failed to explain why a
small business concern could not comply with the on‑site fitting
requirement.  In fact, while the VA is concerned that only small business
eyeglass labs, which fabricate the eyeglasses off site, will submit
offers, TC at 204-06, 398-404, the VA concedes that a lab could
nevertheless submit a proposal as a small business prime contractor and
subcontract the on-site fittings portion of the requirement, i.e., by
placing someone on site at a VA facility to perform the necessary
fittings.  TC at 214-18, 405.
[8] During the hearing, the SBA commented that the VA's Pro-Net search was
*too narrow.*  TC at 530.  The SBA also concluded that the VA's record did
not support the decision to conduct the current procurement on an
unrestricted, as opposed to small business set-aside, basis.  SBA Report,
June 9, 2003.
[9] We also note that when asked at the hearing, the VA advised that it
had received offers under the current RFP by the stated closing time,
including a number from small business concerns.  TC at 25‑43.  This
information corroborates Rochester's position that there are small
business concerns interested in competing for the VA's current VISN 9
requirement.
[10] To the extent Rochester argues that the unrestricted procurement
constitutes improper bundling, this issue, first raised in Rochester's
supplemental protest filed on June 10, 2003, is untimely since the amended
closing date under amendment No. 1 to the RFP was May 8, 2003.  4 C.F.R.
S: 21.2(a)(1).