TITLE: B-298364.6; B-298364.7, TYBRIN Corporation, March 13, 2007
BNUMBER: B-298364.6; B-298364.7
DATE: March 13, 2007
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B-298364.6; B-298364.7, TYBRIN Corporation, March 13, 2007

   DOCUMENT FOR PUBLIC RELEASE
   The decision issued on the date below was subject to a GAO Protective
   Order. This redacted version has been approved for public release.

   Decision

   Matter of: TYBRIN Corporation

   File: B-298364.6; B-298364.7

   Date: March 13, 2007

   John S. Pachter, Esq., Jonathan D. Shaffer, Esq., Tamara F. Dunlap, Esq.,
   and Mary Pat Gregory, Esq., Smith Pachter McWhorter PLC, for the
   protester.

   Kenneth A. Martin, Esq., The Martin Law Firm, PLLC, for The CENTECH GROUP,
   the intervenor.

   Maj. John G. Terra, and Martin C. O'Brien, Esq., Department of the Air
   Force, and John W. Klein, Esq., and Laura Mann Eyester, Esq., United
   States Small Business Administration, for the agencies.

   John L. Formica, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Agency's award of a contract under a solicitation set aside for small
   businesses was improper where the awardee's proposal as submitted clearly
   did not meet the material solicitation requirement that at least 50
   percent of the cost of contract performance incurred for personnel be
   expended for employees of the small business awardee, notwithstanding the
   United States Small Business Administration's (SBA) issuance of a
   Certificate of Competency to the small business awardee because SBA found
   that the awardee would be able to comply with the subcontracting
   limitation during the performance of the contract.

   DECISION

   TYBRIN Corporation protests the award of a contract to The CENTECH GROUP
   under request for proposals (RFP) No. FA9300-04-R-0040, issued by the
   Department of the Air Force, for advisory and assistance services to
   support the Aerospace Research, Development, Test and Evaluation (RDT&E)
   activities at the Air Force Flight Test Center, Edwards Air Force Base,
   California. TYBRIN argues, among other things, that CENTECH's proposal was
   unacceptable because it exceeded the limitation on subcontracting included
   in the RFP.

   We sustain the protest.

   The RFP, issued on February 28, 2005 as a total small business set-aside,
   provided for the award of a contract for the Aerospace Research,
   Development, Test and Evaluation Advisory and Assistance Services
   (ARDTEAS) program. The ARDTEAS program provides "non-personal advisory and
   assistance services" to support the RDT&E activities at the Flight Test
   Center. RFP at 3. The solicitation's performance requirements document
   (PRD) described the numerous tasks to be performed by the successful
   contractor, including, for example, the provision of "assistance with
   business management in support of ground test, flight test and other
   associated test and support activities," the support of "all phases of
   acquisition from identification of needs through contract performance," as
   well as the provision of systems engineering and technical assistance
   "required to support ground and flight test and related activities." RFP
   PRD at 4-5, 8.

   The RFP provided for the award of a "hybrid" contract on a
   cost-plus-fixed-fee basis for the non-personal advisory and assistance
   services, a cost basis for other direct costs such as travel and
   materials, and a fixed-price-plus-award-fee basis for the phase-in period.
   The solicitation stated that award of the contract would be made to the
   offeror submitting the proposal representing the best value to the
   government, based upon various identified evaluation factors.

   The RFP incorporated by reference the "Notice of Total Small Business
   Set-Aside" clause, Federal Acquisition Regulation (FAR) sect. 52.219-6,
   and the "Limitation on Subcontracting" clause, FAR sect. 52.219-14. RFP at
   29. These clauses put the offerors on notice that the procurement was set
   aside exclusively for small business concerns, and with respect to the
   limitations on subcontracting, that "[a]t least 50 percent of the cost of
   contract performance incurred for personnel shall be expended for
   employees of the concern." FAR sect. 52.219-14(b)(1).

   The agency received proposals from four small business offerors, including
   TYBRIN and CENTECH. The proposals were evaluated, discussions were
   conducted, and final proposal revisions were requested and received from
   the four offerors. The agency selected CENTECH's proposal for award, and
   after requesting and receiving a debriefing, TYBRIN filed a protest with
   our Office on May 26, 2006, challenging virtually every aspect of the
   agency's evaluation of proposals and the selection of CENTECH's proposal
   for award. After receiving the agency report in response to its protest,
   TYBRIN filed supplemental protests with our Office on June 29, July 6, and
   July 14.

   In its first supplemental protest, filed on June 29, TYBRIN argued, among
   other things, that CENTECH's proposal should have been found unacceptable
   by the agency because the proposal provided that approximately 44 percent
   of the cost of contract performance incurred for personnel would be for
   CENTECH personnel, with the remaining 56 percent of the cost of contract
   performance for personnel being incurred for CENTECH's subcontractors.

   In response, the Air Force conceded that CENTECH's proposal provided that
   only 43.2 percent of the cost of contract performance incurred for
   personnel would be for CENTECH personnel. The Air Force noted, however,
   that two of CENTECH's proposed subcontractors were also small businesses,
   and that an additional 23 percent of the cost of contract performance
   incurred for personnel would be for the personnel of these two small
   businesses. The Air Force concluded that because CENTECH's proposal
   provided that the "collective efforts" of CENTECH and its small business
   subcontractors would amount to "66.2% of the cost of contract performance
   for personnel," the proposal evidenced compliance with the Limitation on
   Subcontracting clause. Agency Report (AR) (B-298364.2) at 2; Contracting
   Officer's Statement (B-298364.2) at 4.

   As support for this conclusion, the Air Force pointed to a memorandum
   issued by the Air Force Materiel Command (AFMC) on August 17, 2004,
   entitled "Policy Coverage and Rationale for Interpretation to Allow Small
   Business Prime Contractors and First Tier Small Business Subcontractors to
   Perform the Minimum Work in the `Limitation on Subcontracting' Rule." This
   memorandum provided an analysis of the Limitation on Subcontracting
   clause, FAR sect. 52.219-14(b)(1), and essentially concluded that the
   performance of work requirement imposed by that clause could be "met by
   the cooperative efforts of the small business prime contractor and the
   small business members of the subcontractor group." AR (B-298364.2), Tab
   77, AFMC Memorandum (Aug. 17, 2004), at 3. [1]

   Our Office solicited the views of the United States Small Business
   Administration (SBA) on this matter. The SBA advised that, contrary to the
   AFMC Memorandum, "in general, a small business receiving a prime contract
   award as a result of a solicitation set aside for [small business
   concerns] must meet the subcontracting limitation set forth in statute and
   regulations itself." SBA Memorandum (Aug. 2, 2006) at 8. In this regard,
   the Small Business Act provides that a concern may not be awarded a
   contract "as a small business concern unless the concern agrees
   that--(A) in the case of a contract for services (except construction), at
   least 50 percent of the cost of contract performance incurred for
   personnel shall be expended for employees of the concern." 15 U.S.C. sect.
   644(o) (2000); see also 13 C.F.R. sect. 125.6(a)(1) (2006) (SBA's
   regulations implementing this statute).

   Shortly after its receipt of the SBA's memorandum, the Air Force informed
   our Office and the parties that it had "decided to reconsider whether
   CENTECH meets the requirements for award of the contract . . . to include
   the standards articulated in SBA's [memorandum]," and that the Air Force
   would "stay performance on this contract until this issue is resolved." AR
   (B-298364.6), Tab 5, Notice of Corrective Action. Given that, as a result
   of the Air Force's corrective action, it was no longer clear whether
   CENTECH would remain the awardee, our Office dismissed TYBRIN's protests
   as academic.[2]

   The cognizant Air Force contracting officer subsequently executed a
   "Determination of Non-Responsibility," stating that "[b]ased solely on the
   information received from [CENTECH] with [its] proposal, CENTECH will
   perform 43.2% of the work with personnel of their concern." The
   contracting officer concluded here "that CENTECH does not meet the
   subcontracting limitation requirements as set forth in statute and
   regulation and as such is considered nonresponsible and is not eligible to
   receive the contract award for the ARDTEAS effort." AR (B-298364.6), Tab
   9, Determination of Non-Responsibility.

   Two days later, the contracting officer informed CENTECH that "[b]ased
   solely on the information received with your proposal, CENTECH will
   perform 43.2% of the work," and that because of this, "the CENTECH GROUP
   does not meet the subcontracting limitation requirements set forth in
   statute and regulation." This memorandum added that the Air Force had
   "decided to rescind the award" of the contract to CENTECH, and that the
   matter of CENTECH's compliance with the subcontracting limitation would be
   referred to the SBA for consideration under the SBA's certificate of
   competency (COC) procedures. AR (B-298364.6), Tab 10, Memorandum from the
   Contracting Officer to CENTECH, Rescission of Contract (Sept. 8, 2006).

   By memorandum dated September 15, 2006, the Air Force referred the matter
   of CENTECH's compliance with the subcontracting limitation to the SBA for
   consideration under the SBA's COC procedures. In this memorandum, the
   contracting officer, consistent with her prior determination, informed the
   SBA that based "solely on the information received with CENTECH's
   proposal, the Air Force has determined that CENTECH will perform 43.2% of
   the work," and that "the two small business subcontractors will perform
   18.1% and 4.9% respectively for a total small business performance of
   66.2%." The memorandum added that the contracting officer had "found that
   the CENTECH GROUP did not meet the subcontracting limitation requirements
   set forth in statute and regulation and on 5 September 2006, rescinded the
   award." AR (B-298364.6), Tab 12, Request for COC (Sept. 15, 2006), at 2.

   By letter dated December 4, 2006, the SBA, while conceding that "the
   Centech Group's numbers" set forth in its proposal provided that "around
   42%" of the cost of contract performance incurred for personnel would be
   expended for CENTECH employees, nevertheless informed the Air Force that,
   in the SBA's view, CENTECH would indeed comply with the subcontracting
   limitation during its performance of the contract, and that the SBA found
   CENTECH responsible and had issued a COC to CENTECH. This conclusion was
   based in part on the SBA's consideration of material provided by CENTECH
   during the COC process (including its plans for staffing the contract),
   from which the SBA found that CENTECH would be able to meet this
   limitation. AR (B-298364.6), Tab 16, SBA COC and Rationale. [3]

   On December 21, 2006, the Air Force reinstated the award to CENTECH based
   upon the SBA's issuance of the COC. AR (B-298364.6), Tab 19, Air Force
   Memorandum to CENTECH Reinstating Award. These protests followed.

   TYBRIN argues that because CENTECH's proposal clearly provided that only
   43.2 percent of the cost of contract performance incurred for personnel
   would be expended for CENTECH employees, the proposal should have been
   evaluated as unacceptable by the Air Force, such that CENTECH's proposal
   could not form the basis for award. We agree.

   As a general matter, an agency's judgment as to whether a small business
   offeror will be able to comply with a subcontracting limitation presents a
   question of responsibility for review by the SBA. See 13 C.F.R. sect.
   125.6(f); Spectrum Sec. Servs., Inc., B-297320.2; B-297320.3, Dec. 29,
   2005, 2005 CPD para. 227 at 6. However, our Office has consistently held
   that where a proposal, on its face, should lead an agency to the
   conclusion that an offeror has not agreed to comply with the
   subcontracting limitation, the matter is one of the proposal's
   acceptability. Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007
   CPD para. 18 at 6; KIRA Inc., B-287573.4; B-287573.5, Aug. 29, 2001, 2001
   CPD para. 153 at 3; National Med. Staffing, Inc.; PRS Consultants, Inc.,
   B-238694; B-238694.2, June 4, 1990, 90-1 CPD para. 530 at 4. Our Office
   has also long held that a proposal that fails to conform to a material
   term or condition of the solicitation, including the subcontracting
   limitation, is unacceptable and may not form the basis for an award. KIRA
   Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra,
   at 3-4 (sustaining protest that the award of a contract was improper where
   the awardee's proposal evidenced noncompliance with the subcontracting
   limitation); see Vanderbilt Shirt Co., B-236016, Oct. 10, 1989, 89-2 CPD
   para. 333 at 2 (agency properly rejected the protester's bid as
   nonresponsive where the bid provided that the protester would not comply
   with the subcontracting limitation).

   As set forth above, the record establishes that it was clear to the Air
   Force that CENTECH's proposal as submitted and as evaluated provided that
   43.2 percent of the cost of contract performance incurred for personnel
   would be expended for CENTECH employees and, accordingly, that "the
   CENTECH GROUP did not meet the subcontracting limitation requirements set
   forth in statute and regulation." AR (B-298364.6), Tab 9, Determination of
   Non-Responsibility; see Tab 10, Memorandum from the Contracting Officer to
   CENTECH, Rescission of Contract (Sept. 8, 2006); Tab 12, Request for COC
   (Sept. 15, 2006); AR (B-298364.2) at 2; Contacting Officer's Statement
   (B-298364.2) at 4. Given the Air Force's determination that CENTECH's
   proposal failed to comply with a material term of the solicitation (the
   subcontracting limitation) and, accordingly, that the proposal could not
   form the basis for award under the RFP, the agency should have found
   CENTECH's proposal to be unacceptable, rather than finding CENTECH
   nonresponsible and forwarding the matter to the SBA for its consideration.
   See Continental Staffing, Inc., supra; National Med. Staffing, Inc.; PRS
   Consultants, Inc., supra.

   The fact that the SBA has now determined CENTECH to be a responsible
   contractor does not alter our view here. Although the SBA's determinations
   of responsibility and its issuance of COCs are generally not for review by
   our Office, Bid Protest Regulations, 4 C.F.R. sect. 21.5(b)(2) (2006), the
   issues of a proposal's acceptability and the award of a contract to an
   offeror based upon a proposal that fails to comply with a material term of
   a solicitation are matters initially within the purview of the contracting
   agency and subject to review by our Office. See, e.g., L-3 Communications
   Westwood Corp., B-295126, Jan. 19, 2005, 2005 CPD para. 30 at 5; CACI
   Techs., Inc., B-296946, Oct. 27, 2005, 2005 CPD para. 198 at 5.

   The SBA disagrees with our Office's view that where a proposal, on its
   face, should lead the contracting agency to the conclusion that an offeror
   has not agreed to comply with the subcontracting limitation, the matter is
   one of the proposal's acceptability, rather than the offeror's
   responsibility. SBA Submission (Jan. 23, 2007) at 4. Specifically, the SBA
   points out here that "[w]ith respect to whether or not a [small business
   concern] will meet its subcontracting limitation requirement, the SBA's
   regulations provide that `[c]ompliance will be considered an element of
   responsibility.'" Id.; see 13 C.F.R. 125.6(f). Again, as set forth above,
   the issue here does not concern whether a bidder or offeror can or will
   comply with the subcontracting limitation requirement during performance
   of the contract (where we recognize that the matter is one of
   responsibility (or in certain cases, contract administration, see, e.g.,
   Raloid Corp., B-297176, Nov. 10, 2005, 2005 CPD para. 205 at 4)), but
   rather, whether the bidder or offeror has specifically taken exception to
   the subcontracting limitation requirement on the face of its bid or
   proposal. Given that the determination in this latter, limited
   circumstance involves the evaluation of a bid or proposal for compliance
   with a material term of the solicitation, the determination is one of
   responsiveness or acceptability, rather than responsibility. Continental
   Staffing, Inc., supra; KIRA Inc., supra; National Med. Staffing, Inc.; PRS
   Consultants, Inc., supra; Vanderbilt Shirt Co., supra.

   Accordingly, we sustain the protest on this basis. While we find that
   CENTECH's proposal could not form the basis for award under this RFP, the
   record reflects that CENTECH submitted its proposal with the understanding
   that it would be found to meet or exceed the subcontracting limitation
   requirement, given the AFMC memorandum that allowed for the performance of
   work requirement imposed by the Limitation on Subcontracting clause to be
   met by the "cooperative efforts" of CENTECH and its small business
   subcontractors. Additionally, although discussions were held with the four
   offerors that had submitted proposals, the matter of CENTECH's proposal's
   compliance with the requirements of the Limitation on Subcontracting
   clause was never raised with CENTECH during discussions because of the Air
   Force's reliance on the AFMC memorandum. Accordingly, CENTECH was deprived
   of meaningful discussions regarding its proposal's failure to comply with
   the requirements of the Limitation on Subcontracting clause. See FAR
   sect. 15.306(d)(3); Lockheed Martin Corp., B-293679 et al., May 27, 2004,
   2004 CPD para. 115 at 7; see Special Operations Group, Inc., B-287013;
   B-287103.2, Mar. 30, 2001, 2001 CPD para. 73 at 7 (awardee whose proposal
   should have been rejected for failing to comply with a material term of
   the solicitation was deprived of meaningful discussions where this issue
   was not raised by the agency during its conduct of discussions).

   We recommend that the Air Force reopen discussions and request and review
   revised proposals, evaluate those submissions consistent with the terms of
   the solicitation, and make a new source selection decision.[4] In the
   event a proposal other than CENTECH's is found to represent the best value
   to the government, CENTECH's contract should be terminated and the
   contract awarded to the successful offeror in accordance the terms of the
   RFP. We also recommend that the agency reimburse TYBRIN for its costs of
   filing and pursuing its protest challenging the award to CENTECH,
   including reasonable attorneys' fees. 4 C.F.R. sect. 21.8(d)(1). TYBRIN's
   certified claim for costs, detailing the time expended and costs incurred,
   must be submitted directly to the Air Force within 60 days of receiving
   this decision. 4 C.F.R. sect. 21.8(f)(1).

   Gary L. Kepplinger
   General Counsel

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

   [1] The AFMC policy memorandum setting forth the Air Force's
   interpretation of the Small Business Act's limitation on subcontracting by
   small business concerns was posted on the Federal Business Opportunities
   web site on August 20, 2004. AR (B-298364.2) at 3.

   [2] The Air Force subsequently rescinded the AFMC policy memorandum.

   [3] The record reflects that in accordance with the SBA's COC procedures,
   CENTECH applied for a COC, and its application (which was considered by
   the SBA in issuing the COC) included numerous documents not included in
   CENTECH's proposal, such as narratives, a "compliance matrix," and
   spreadsheets, all of which purported to demonstrate that CENTECH would
   comply with the requirements of the Limitation on Subcontracting clause
   during its performance of the ARDTEAS contract. SBA Report (B-298364.6),
   Tab B, CENTECH COC Application (Sept. 29, 2006). The record also includes
   an additional submission by CENTECH to the SBA, submitted at the SBA's
   request, which included "new analysis and detail." SBA Report
   (B-298364.6), Tab A(2), CENTECH Submission to SBA (Oct. 31, 2006).

   [4] Because we sustain TYBRIN's protest and recommend the reopening of
   discussions, we need not resolve TYBRIN's allegations regarding the
   evaluation of its and CENTECH's proposals and the selection of CENTECH's
   proposal for award, or its allegations that the evaluation evidences bias
   against TYBRIN, that CENTECH has an organizational conflict of interest
   that renders it ineligible for award, that CENTECH was improperly
   permitted by the SBA to alter its proposal and status after the agency had
   received and evaluated the offerors' proposal revisions, or that the Air
   Force had deprived TYBRIN of meaningful discussions. However, as the Air
   Force proceeds with its corrective action, it may want to be mindful of
   the issues raised by TYBRIN in its protests, including TYBRIN's assertion
   that the agency failed to adequately consider potential organizational
   conflicts of interest related to [DELETED] (one of TYBRIN's proposed
   subcontractors).