TITLE: B-296602; B-296617, Encompass Group LLC, August 10, 2005
BNUMBER: B-296602; B-296617
DATE: August 10, 2005
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B-296602; B-296617, Encompass Group LLC, August 10, 2005

   Decision

   Matter of: Encompass Group LLC

   File: B-296602; B-296617

   Date: August 10, 2005

   H. K. Tyler, Jr., for the protester.

   Maura C. Brown, Esq., Department of Veterans Affairs, and Laura Mann
   Eyester, Esq., and John W. Klein, Esq., Small Business Administration, for
   the agencies.

   Guy R. Pietrovito, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Protest that solicitations for linens and blankets should not be set aside
   for small business concerns because there are no small business
   manufacturers of bulk fabric from which the linens and blankets will be
   made is denied, where agency found from its market research two or more
   small business concerns that could provide the linens and blankets
   manufactured by small businesses and provided at fair market prices.

   DECISION

   Encompass Group LLC protests the terms of request for proposals (RFP)
   Nos. 797-NC-05-0044 and 797-NC-05-0045, issued by the Department of
   Veterans Affairs for linen and blankets.

   We deny the protests.

   The RFPs were each issued as a total small business set-aside under a
   combined synopsis/solicitation for commercial items in accordance with
   Federal Acquisition Regulation (FAR) Part 12.6.[1] Offerors were informed
   that North American Industry Classification System (NAICS) code 314129 (a
   small business size standard of 500 employees) applied to each
   procurement. In addition, offerors were warned that if they were not the
   manufacturer of the product, the end product provided must be manufactured
   in the United States by a small business manufacturer.[2] See, e.g.,
   RFP-0044 at 2.

   Each solicitation provided for the award of a single indefinite-delivery,
   indefinite-quantity contract: RFP-0044 for sheets, pillow cases and
   operating room linen, and RFP-0045 for general purpose blankets. Offerors
   were informed that the basis for award would be the lowest-priced,
   technically acceptable offer, and that offers would be evaluated under the
   following criteria: technical acceptability, price, and past performance.

   Encompass, which does not satisfy the small business standard applied to
   these procurements, first protests that the RFPs should not be set aside
   for small business concerns, because there are no small business
   manufacturers for the supplies sought and therefore VA will not receive
   offers from any qualified small business concerns under the RFPs.

   An acquisition with an anticipated dollar value of more than $100,000 must
   be set aside for small business concerns if the agency determines that
   there is a reasonable expectation that offers will be received from two or
   more responsible small business concerns, and that award will be made at a
   fair market price.[3] FAR sect. 19.502-2(b). Generally, our Office regards
   such a determination as a matter of business judgment within the agency's
   discretion, which we will not disturb absent a clear showing that it has
   been abused. White Storage & Retrieval Sys., Inc., B-256952, July 20,
   1994, 94-2 CPD para. 35 at 2-3.

   Here, VA determined from its market research that it could expect to
   receive offers from two or more responsible small businesses at a fair and
   reasonable price.[4] For both procurements, VA identified potential small
   business sources by reviewing past performance history within the agency
   and identifying potential small business sources from the General Services
   Administration's (GSA) Federal Supply Schedule (FSS). Potential small
   business sources were contacted and interviewed from which it was verified
   that some had manufacturing capability. In addition, VA consulted a
   variety of other databases and sources, including the Contractor's Central
   Registration, SBA's Dynamic Small Business Search (formerly called
   PRO-Net), and VA's National Acquisition Center's database. See Contracting
   Officer's Statement (B-296602) at 1; AR (B-296602), Tab 3, VA Bundling
   Review (including market research); Tab 4, Past Procurement History and
   Preliminary List of FSS Vendors; and Contracting Officer's Statement
   (B-296617) at 1; AR (B-296617), Tab 3, VA Bundling Review (including
   market research), and Tab 4, Past Procurement History and Preliminary List
   of FSS Vendors.

   With respect to the solicitation for sheets, pillow cases and operating
   room linen, VA found that 10 "capable small businesses possess GSA
   schedules" for the solicited supplies and validated these small
   businesses' manufacturing capability from the Dunn & Bradstreet reports.
   The agency concluded that it could expect to receive 10 to 15 qualified
   proposals from small businesses. VA also concluded from its review of the
   contract prices of small business vendors on GSA's FSS schedules that VA
   would be offered fair market prices. Contracting Officer's Statement
   (B-296602) at 2.

   With respect to the solicitation for general purpose blankets, VA found 33
   small business vendors for blankets on the FSS schedules and two or more
   small business manufacturers. The agency concluded that it could expect to
   receive two or more qualified proposals from small businesses. VA also
   concluded from its review of the contract prices of small business vendors
   on GSA's FSS schedules that VA would be offered fair market prices.
   Contracting Officer's Statement (B-296617) at 2.

   Encompass argues that VA's market research is inadequate because it merely
   lists organizations that sell the solicited supplies, but "does not
   address who provides the products, the country of origin of these
   products, does not ask for the size of the manufacturer that provides
   these products to distributors." Comments (B-296602, B-296617) at 1. In
   this regard, Encompass complains that a small business set-aside for the
   solicited supplies is not possible because bulk fabric is only
   manufactured by large mills and that the bulk fabric comprises the
   greatest value of the end product. See Protest (B-296602) at 3, 4, 7.

   We find that Encompass's arguments do not demonstrate that VA's judgment
   that the agency would receive two or more offers from responsible small
   business concerns at a fair market price was unreasonable. That is, even
   accepting the protester's argument that bulk fabric can only be obtained
   from large businesses, a small business concern would not necessarily be
   unable to satisfy the "nonmanufacturer" rule simply because the small
   business firm obtains bulk fabric from a large business. This is so
   because VA is not purchasing bulk fabric, but finished goods, which
   require the transformation of the bulk fabric. As noted above, SBA's
   regulations provide that the manufacturer of an end item "is the concern
   which, with its own facilities, performs the primary activities in
   transforming inorganic or organic substances, including the assembly of
   parts and components, into the end item being acquired." 13 C.F.R.
   sect. 121.406(b)(2). Under this rule, a firm that transforms the bulk
   fabric into end items such as sheets, pillow cases or blankets could
   qualify as a manufacturer of the end items despite the origin of the bulk
   fabric. Accordingly, we find that Encompass's argument that there are no
   small business manufacturers of the bulk fabric does not show that the
   agency was unreasonable in concluding that it would obtain two or more
   offers from small business manufacturers of the sheets, pillow cases and
   blankets.

   Encompass also challenges a number of other aspects of the RFPs, arguing
   that various solicitation terms are either vague, inadequate or
   restrictive and that VA assigned the wrong NAICS code. With respect to the
   assignment of NAICS code 314129 to these solicitations, challenges to the
   selected standard industrial classification are heard solely by the SBA,
   and are not reviewed by GAO.[5] 4 C.F.R. sect. 21.5(b)(1) (2005). With
   respect to the protester's remaining challenges to the solicitations,
   Encompass is not an interested party, because Encompass would not qualify
   as a small business concern under these solicitations and therefore is not
   a prospective offeror under these RFPs eligible to protest them. [6]  4
   C.F.R. sections 21.0(a), 21.1(a).

   The protests are denied.

   Anthony H. Gamboa

   General Counsel

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

   [1] FAR Part 12.6 provides streamlined procedures for the evaluation and
   solicitation of commercial items.

   [2] Under the Small Business Administration's (SBA) "nonmanufacturer"
   rule, the manufacturer of the end item being acquired is define to be

   the concern which, with its own facilities, performs the primary
   activities in transforming inorganic or organic substances, including the
   assembly of parts and components, into the end item being acquired. The
   end item must possess characteristics which, as a result of mechanical,
   chemical or human action, it did not possess before the original
   substances, parts or components were assembled or transformed.

   13 C.F.R. sect. 121.406(b)(2) (2005).

   [3] VA estimates that the acquisitions protested here are in excess of
   $100,000. See Agency Report (AR) (B-296602), Tab 3, VA Bundling Review
   (including market research) at 1; AR (B-296617), Tab 3, VA Bundling Review
   (including market research), at 1.

   [4] In its report to our Office, SBA agrees that VA's market research was
   adequate and that VA reasonably set these solicitations aside for small
   business concerns.

   [5] SBA reports that Encompass did challenge VA's selection of NAICS code
   in these solicitations and that its appeal to SBA's Office of Hearings and
   Appeals was denied. SBA Report at 6 n.3.

   [6] Encompass also complains that VA improperly bundled various items into
   one solicitation, which Encompass argues will deter "business from
   potentially other suppliers who may only have certain items available."
   See, e.g., Comments (B-296602) at 2. Encompass "suggests" that VA's
   purchase of each and every item being solicited should be the subject of
   full and open competition. Because Encompass does not qualify as a small
   business concern under these RFPs, it is not an interested party to
   challenge this aspect of the solicitations. Moreover, Encompass does not
   assert that it would be unable to compete for these "bundled" requirements
   if the solicitations were not set aside for small business competition.
   That is, while the set-aside nature of the procurements is apparently
   preventing Encompass from competing, it is not clear that their allegedly
   bundled nature, alone, would impede Encompass's ability to compete.