TITLE:  Catapult Technology, Ltd., B-294936; B-294936.2, January 13, 2005
BNUMBER:  B-294936; B-294936.2
DATE:  January 13, 2005

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   Decision

   Matter of:   Catapult Technology, Ltd.

   File:            B-294936; B-294936.2

   Date:              January 13, 2005

   Cyrus E. Phillips IV, Esq., for the protester.

   Timothy B. Mills, Esq., and Mary Beth Bosco, Esq., Patton Boggs LLP, for
Bowhead Information Technology Services, an intervenor.

   Terence W. Carlson, Esq., Department of Transportation, and John W. Klein,
Esq., and Kenneth W. Dodds, Esq., Small Business Administration, for the
agencies.

   Paula A. Williams, Esq., and Michael R. Golden, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest that the Small Business Administration (SBA) improperly accepted
information technology services requirement into section 8(a) business
development program is denied where, under the SBA's interpretation of its
regulation, the protester does not appear to meet the condition for a
presumption that accepting the requirement would cause it adverse impact
and the applicable regulation does not preclude the SBA from deciding to
accept a consolidated requirement into the section 8(a) business
development program, even if the adverse impact presumption is met.

   DECISION

   Catapult Technology, Ltd. protests the decision by the Department of
Transportation (DOT) and the Small Business Administration (SBA) to
contract with Bowhead Information Technology Services, an Alaskan Native
Corporation, under the SBA's section 8(a) business development program for
information technology (IT) infrastructure operations and maintenance
services at the DOT headquarters in Washington, DC. Catapult, which was
performing some of the offered services prior to the section 8(a)
offering, alleges that the SBA improperly accepted these IT requirements
into the section 8(a) business development program.

   We deny the protest.

   The DOT consists of the Office of the Secretary of Transportation and 10
operating administrations each of which has its own individual data
center, help desk, desktop computer maintenance contract, common software
licenses and unique telephone services, making the sharing of information
between organizations cumbersome.  Agency Report (AR), exh. 4, Acquisition
Plan, at 7.  The agency reports that the requirement, which was offered to
the SBA, will consolidate the IT infrastructure contracts of these 10
operating administrations into a single common operating environment. 
According to DOT, this will create a more mission effective, secure, and
cost efficient computing environment that will provide common IT services
to all of DOT.  Contracting Officer's Statement at 2-3.

   The record shows that in fiscal year (FY) 2004, the agency had awarded two
contracts for IT support services--one to Catapult for services such as
network operations and "help desk" support, and the other to Bowhead for
computer "help desk" services.  As it relates to this protest, the
Catapult contract, DTOS59-04-C-00408, originated from a task order issued
as the result of an unrestricted competition among contractors under a DOT
multiple-award, indefinite-delivery/indefinite-quantity (ID/IQ) contract
known as "VANITS" to provide IT support for the then existing
Transportation Administrative Service Center (TASC) within DOT.  When the
TASC was abolished by DOT, the Catapult task order (T020001) was novated
from the terminated VANITS contract into a stand-alone contract
DTOS59-04-C-00408.[3]  That stand-alone contract incorporated the task
order terms and conditions, including the 1-year option for FY05 and FY06
performance.  AR, exh. 3, Catapult's Contract; Contracting Officer's
Statement at 3-4.

   By letter dated August 11, 2004, DOT offered the consolidated IT
requirement to the SBA under the 8(a) business development program.  The
letter described the requirement as a consolidation project planned to
create a centrally managed IT support operation and advised the SBA of the
current 8(a) contractors providing IT support services to the individual
operating administrations within the agency.  The DOT letter valued the
offered acquisition at approximately $200 million over 5 years and
recommended Bowhead for a sole-source award.  Offering Letter from DOT to
the SBA at 1-2.  By letter dated August 19, the SBA accepted the
procurement, stating that a determination had been made that "acceptance
of this procurement will cause no adverse impact on another small business
concern."  AR, exh. 2, Letter from the SBA to Contracting Officer.  On
September 24, Catapult was told of the agency's decision not to exercise
the FY05 option under Catapult's stand-alone contract.  Thereafter, on
September 30, a sole-source ID/IQ contract was awarded to Bowhead through
the section 8(a) business development program.[4]  Contracting Officer's
Statement at 4-5.

   Catapult protests the SBA's decision to accept these consolidated IT
requirements into the section 8(a) business development program, asserting
that the decision contravenes the regulations governing acceptance of
procurements for award under the program.  Specifically, the protester
alleges that it was performing 90 percent of DOT's total IT support
services that have now been consolidated into the challenged award and
that the dollar value of the requirement Catapult was performing for the
last 12 months was 25 percent or more of its annual gross sales.[5] 

   The Small Business Act affords the SBA and contracting agencies broad
discretion in selecting procurements for inclusion in the section 8(a)
program and we will not consider a protest challenging a decision to place
a requirement under the section 8(a) program absent a showing by the
protester of possible bad faith on the part of government officials, or
that specific laws or regulations have been violated. 4 C.F.R. 
S 21.5(b)(3) (2004); C. Martin Co., Inc., B-292662, Nov. 6, 2003, 2003 CPD
P 207 at 3.  Here, Catapult does not allege, and the record does not show,
that either DOT or the SBA acted in bad faith and, as discussed below, we
find no violation of law or regulation.

   As relevant here, the implementing regulations in effect at the time this
requirement was accepted into the section 8(a) business development
program state that:

   SBA will not accept a procurement for award as an 8(a) contract if the
circumstances identified in paragraphs (a) through (d) of this section
exist.

   *          *          *          *          *

   (c) Adverse impact.  SBA has made a written determination that acceptance
of the procurement for 8(a) award 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.  The
adverse impact concept is designed to protect small business concerns
which are performing Government contracts awarded outside the 8(a)
[business development] program . . . .

   13 C.F.R. S 124.504; Korean Maint. Co., B-243957, Sept. 16, 1991, 91-2 CPD
P 246 atA 2.  The regulation provides that the SBA will presume adverse
impact exists where a small business has been performing the requirement
and the requirement represents 25 percent or more of the small business
contractor's most recent annual gross sales.  For a multiyear requirement,
the dollar value of the last 12 months of the requirement would be used to
determine whether a small business would be adversely affected by the
SBA's acceptance of the offered requirement.  

     13 C.F.R. SA 124.504(c)(1)(i)(C).

   Where a requirement is "new," i.e., it has not been previously purchased
by the procuring agency, the adverse impact rule does not apply--with one
exception.  13A C.F.R. SA 124.504(c)(1)(ii).  The exception, which is
relevant to this protest, relates to the situation where multiple
contracts are being consolidated.  The regulation addresses that situation
as follows:

   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.

   13 C.F.R. S 124.504(c)(2).

   The SBA reports to our Office that, contrary to the statement in its
acceptance letter to DOT, the SBA had not specifically considered whether
acceptance of the offered IT requirements would adversely affect Catapult
or any other small business concern, because the SBA believed the offered
requirement was "new" and therefore, consistent with its regulations, the
SBA was not required to perform an adverse impact analysis.  SBA Report at
2, 3 (Dec. 6, 2004).  However, the SBA acknowledges that where, as here, a
new requirement is a consolidation of two or more requirements previously
performed by a group of small businesses, under the regulatory guidance
found in 13 C.F.R. S 124.504(c)(2), the SBA is required to conduct an
adverse impact analysis.

   The SBA contends, however, that the failure to conduct an adverse impact
analysis did not prejudice Catapult, for two reasons.  First, according to
the SBA, Catapult did not meet the 25-percent dollar value threshold for
the presumption of adverse impact under the SBA's regulations. 
Specifically, the SBA explains that from its review of the pleadings filed
in response to Catapult's protest, including DOT's report and supplemental
report, Catapult received "approximately $4.8 million over the last
12A months of its performance of the [DOT] requirement that has already
been consolidated into the Bowhead contract, which is well short of 25
percent of Catapult's claimed annual gross sales ($28 million)."  SBA
Report at 3 (Dec. 6, 2004).  Indeed, in a letter to the SBA, Catapult
accepts DOT's statement that Catapult "has lost only 17 percent of its
revenues, not the 25 percent required for an adverse impact."  Catapult's
Letter to SBA at 2 (Dec. 3, 2004).  While the protester argues that the
SBA's analysis ignores DOT's "immediate plans to consolidate more work
into [the protested contract]" and that Catapult will have "a total loss
of 42 percent of Catapult's revenues," id. at 2-3, the fact remains that
the record shows that, at the time the matter was before the SBA, Catapult
did not meet the 25-percent threshold.  More importantly, in the view of
the SBA, the additional work that may be consolidated into the contract is
being performed under a section 8(a) contract and, according to the SBA,
consolidation of such requirements is not to be counted toward the
25-percent share relevant to the adverse impact analysis.  For this
reason, the SBA contends that Catapult did not meet the 25-percent
threshold for the presumption of adverse impact.

   Second, the SBA points out that the language of the regulation provides
that, in the context of consolidated requirements, even if the presumption
of adverse impact is met as to an affected small business, the SBA
"may"--rather than "shall"--find adverse impact to exist.  13 C.F.R.
SA 124.504(c)(2).  In other words, according to the SBA, the above-quoted
exception to the usual provision exempting new requirements from the
adverse impact rule gives the SBA "the discretion to accept a requirement
into the 8(a) [business development] program in appropriate circumstances
even where one or more contractors met the presumption of adverse
impact."  SBA Supplemental Report at 2 (Dec. 14, 2004).  The SBA points
out that the adverse impact regulation was amended to provide that the SBA
"may" find adverse impact to exist if the adverse impact presumption is
met for a "new" consolidated requirement.  62 Fed. Reg. 43583, 43591
(1997).  The regulation thus does not preclude the SBA from deciding to
accept a consolidated requirement into the section 8(a) business
development program, even if the adverse impact presumption is met.  The
SBA argues that under the circumstances here, the SBA's decision to accept
the offered IT requirement into the section 8(a) business development
program was in accordance with its regulations.

   Catapult disagrees with the SBA's analysis.  In Catapult's view, its 8(a)
contract work should be included in the analysis of whether the 25-percent
threshold is met.  Catapult also rejects the SBA's conclusion that the
adverse impact determination is discretionary even where the presumption
of adverse impact is met.[6]  Moreover, Catapult argues, since the SBA
admitted that it never performed an adverse impact analysis and never
"exercised discretion of any sort," the SBA cannot now rely on discretion
as a defense to its failure to conduct an adverse impact analysis. 
Protester's Final Comments at 3-4 (Dec. 17, 2004).

   We are required to give deference to an agency's reasonable interpretation
of its regulations, and because the SBA is the agency responsible for
promulgating the adverse impact regulation, we give its interpretation
great weight.  See Red River Serv. Corp., B-279250, May 26, 1998, 98-1
CPD P 142 at 5-6; see also Udall v. Tallman, 380 U.S. 1, 16 (1965). 
Because Catapult would appear not to have met the 25-percent threshold,
particularly in light of the SBA's view that section 8(a) contracts should
not be the basis of an adverse impact determination, it appears that the
record supports the conclusion that, had the SBA performed the required
analysis at the time, it would have concluded that Catapult would not
suffer adverse impact.  In addition, the SBA's interpretation of its
regulations indicates that the requirement could properly have been
accepted, even if adverse impact had been found as to Catapult.  Under
these circumstances, it does not appear that Catapult has suffered

   any prejudice by the SBA's admitted failure to perform an adverse impact
analysis.  Designer Assocs., Inc., B-293226, Feb. 12, 2004, 2004 CPD
PA 114 at 5.

   The protest is denied.[7]

   Anthony H. Gamboa

   General Counsel

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

   [1] Section 8(a) of the Small Business Act authorizes the SBA to enter
into contracts 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. S 637(a) (2000).

   [2] Catapult is a small business contractor that participates in the SBA's
small disadvantaged business and business development programs.

   [3] The record indicates that this stand-alone contract, effective
December 31, 2003, was initially funded at a value of $3,543,808.26.  AR,
exh. 3, Catapult's Contract, at 3-4.  This amount was later increased by 
$95,587.60 under modification No. 1; by $82,709.47 under modification No. 2; 
by $12,375.99 under modification No. 4; and decreased by $53,502.33 under 
modification No. 5, for a total FY04 value of $3,680,978.99.  The record 
further indicates that the total value of Catapult's contract for FY04 was 
$4,815,976.22 ($1,134,997.23 under the VANITS contract plus $3,680,978.99 
under the stand-alone contract).  Supplemental AR, at 2 (Dec. 1, 2004).

   [4] Federal Acquisition Regulation (FAR) S 19.805-1(b)(2) permits the
award of sole-source contracts to concerns owned by Indian tribes or
Alaska Native Corporations, without regard to the dollar thresholds that
would otherwise require a competitive 8(a) procurement.  See 15 U.S.C. S
637(a)(16)(A); FAR S 19.805-1(a)(2); 13 C.F.R. SA 124.506(b) (2004). 

   [5] To the extent Catapult challenges the agency's refusal to exercise the
FY05 option of its stand-alone contract, this issue is not for our review
since a contracting agency's decision whether to exercise an option is a
matter of contract administration outside the scope of our bid protest
function.  4 C.F.R. S 21.5(a); American Consulting Servs., Inc.,
B-276149.2, B-276537.2, July 31, 1997, 97-2 CPD PA 37 at 9.

   [6] As support for its position, Catapult relies on the decision by the
U.S. District Court for the District of Columbia in Barrett Refining Corp.
v. Defense Fuel Supply Ctr., 1992 U.S. Dist. 1271.  Protester's
Supplemental Comments, at 4 (Dec. 8, 2004).  However, as noted by the SBA
and DOT, the Barrett decision is not controlling because, among other
things, the discretionary language ("may") was introduced into the
regulations after the Barrett decision was issued.  SBA Supplemental
Report at 2 (Dec. 14, 2004).

   [7] In a supplemental protest, filed after receipt of the agency report,
Catapult challenges Bowhead's failure to obtain the required facilities
security clearance prior to award.  We agree with the agency that the
issue of whether Bowhead ultimately obtains security clearances is a
matter of contract administration, which our Office does not review.  4
C.F.R. S 21.5(a); Mark Dunning Indus., Inc., B-258373, Dec. 7, 1994, 94-2
CPD P 226 at 5-6.
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