TITLE: B-298730, ALATEC Inc., December 4, 2006
BNUMBER: B-298730
DATE: December 4, 2006
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B-298730, ALATEC Inc., December 4, 2006

   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: ALATEC Inc.

   File: B-298730

   Date: December 4, 2006

   Gary L. Rigney, Esq., for the protester.

   Craig S. King, Esq., and Richard J. Webber, Esq., Arent Fox PLLC, for The
   Analysis Group, LLC, an intervenor.

   Capt. John J. Pritchard, Department of the Army, and John W. Klein, Esq.,
   and Laura Mann Eyester, Esq., U.S. Small Business Administration, for the
   agencies.

   Charles W. Morrow, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Where the Small Business Administration (SBA) determined, in response to a
   timely size protest, that the awardee under a procurement set aside for
   small businesses was other than small after the 10-day period during which
   the SBA was required to issue the size determination and the agency,
   therefore, proceeded with award, and there was a stay of contract
   performance because of a protest to GAO, during which the SBA Office of
   Hearings and Appeals affirmed that the awardee was other than small, the
   agency, in the absence of any legitimate countervailing reasons for not
   taking such action, should have terminated the large business's contract,
   since to allow the continuation of the contract award by a large business
   in such circumstances would be inconsistent with the integrity of the
   procurement system and the Small Business Act.

   DECISION

   ALATEC, Inc. protests the award of a contract to The Analysis Group, LLC
   (TAG) under request for proposals (RFP) No. W91QF4-05-R-0011, a total
   small business set-aside, issued by the Department of the Army, Fort
   Leavenworth, Kansas, for engineering and technical support services.
   ALATEC contends that its and TAG's proposals were unreasonably evaluated,
   and that TAG's contract should be terminated because the Small Business
   Administration (SBA) has determined that TAG is not a small business
   concern.

   We sustain the protest.

   The RFP, issued on August 30, 2005 as a small business set-aside, sought
   proposals for award of an indefinite-delivery/indefinite-quantity contract
   for engineering and technical support at the United States Army Training
   and Doctrine Command Analysis Center, White Sands Missile Range, New
   Mexico. The RFP provided for award of a contract for a 1-year base period
   beginning in February 2006, with four 1-year option periods, on a
   best-value basis considering price and four technical evaluation factors:
   (1) overall technical approach, (2) experience and technical
   qualifications of personnel, (3) organization and management, and (4) past
   performance.

   The Army designated North American Industry Classification System (NAICS)
   code 541710, "Research and Development in the Physical Engineering, and
   Life Sciences," which is a 500-employee size standard, as the appropriate
   size standard for small business participation. On September 8, 2005,
   RhinoCorps Limited Company filed an appeal with the SBA Office of Hearings
   and Appeals (OHA), challenging this NAICS code designation. On October 7,
   the OHA determined that the assigned NAICS code was inappropriate and that
   NAICS code 541511, which is a $21 million annual receipts size standard,
   was applicable to this RFP.

   While the incumbent contractor, Advanced Systems Technology, Inc. (AST),
   apparently qualified as a small business concern under NAICS code 541710,
   it did not qualify as a small business concern under the $21 million
   annual receipts NAICS code found applicable by the SBA OHA. AST attempted
   to persuade the OHA to reconsider its determination in October, but in
   November, the OHA declined to change its determination. AST then
   challenged the SBA OHA's actions, initially at the United States District
   Court for the District of Columbia (which dismissed the suit for lack of
   jurisdiction), and then in the United States Court of Federal Claims
   (COFC). AST argued to the courts that it had not been permitted to
   participate in the OHA NAICS appeal. In response, on January 23, 2006, the
   COFC issued a preliminary injunction enjoining award of a contract under
   the RFP. Advanced Sys. Tech., Inc. v. United States, 69 Fed. Cl. 474
   (2006). The case was then remanded to the SBA OHA to afford AST a hearing
   on the merits regarding the appropriate NAICS code for this RFP. The OHA
   affirmed its designation of the NAICS code on remand on March 27 and also
   denied a separate AST appeal of the NAICS code on April 13.

   Meanwhile, the agency repeatedly extended the closing date for receipt of
   proposals while AST's litigation was ongoing. On April 10, four offerors
   (including ALATEC, RhinoCorps and TAG) responded to the RFP. TAG proposed
   AST as its subcontractor. Both ALATEC's and TAG's proposals received the
   highest rating of excellent under each technical factor, while
   RhinoCorps's proposal received a good rating under each factor. RhinoCorps
   submitted the lowest-priced proposal at $52,585,768; TAG submitted the
   next lowest-priced proposal at $55,353,184; ALATEC's proposal was third
   lowest-priced at $56,026,624. Agency Report, Tab 21, Post-Negotiation
   Memorandum, at 5. In determining best value, the source selection
   authority determined that as between ALATEC's and TAG's proposals, "TAG's
   technical proposal was considered superior because of the advantages of
   using the incumbent contractor [AST] as a subcontractor" and the best
   value given its lower price. Id. at 13. The record evidences that TAG's
   relatively high ratings were primarily the result of proposing AST and
   AST's personnel.

   On July 12, the Army notified the unsuccessful offerors of the intent to
   award to TAG. On July 20, ALATEC and RhinoCorps filed a timely joint size
   protest with the contracting officer, asserting that TAG was not a small
   business because of its affiliation with other entities and its undue
   reliance on AST to perform the contract. The contracting officer referred
   the matter to the SBA, which received the size protest on July 24.

   The Army's contracting specialist several times requested the SBA to
   advise it of the status of its consideration of the size protest and on
   August 3 was advised by the SBA as follows:

     I will continue the review ASAP upon my return in order to get you a
     determination. I will attempt to get you a response by August 18, 2006.

   Agency Report, Tab 29, E-mail (Aug. 3, 2006). On August 9, the contracting
   officer decided to award the contract without waiting for the SBA's
   determination on the size protest, given that the SBA determination was
   going to be issued more than 10 days after it had been received by the SBA
   and award was, therefore, permitted under Federal Acquisition Regulation
   (FAR) sect. 19.302(h)(1), which provides that contracting officers cannot
   make award in the face of a pending SBA size protest until the SBA issues
   a size determination or 10 business days have expired since the SBA
   received the size protest, and that for a variety of stated reasons, it
   "would be in the government's best interest to make award as soon as
   possible." Agency Report, Tab 32, Decision to Award Contract Prior to
   Determination of Size Protest. On August 16, the agency awarded the
   contract to TAG. Performance of this contract was not to commence until
   September 28.

   On August 18, the SBA determined:

     This procurement was set-aside for small business. TAG and AST have a
     teaming agreement for the instant procurement. AST is not eligible as a
     small business concern under the applicable size standard. TAG has been
     selected for award of this contract and has selected AST as its
     subcontractor. In addition, all of the core personnel, except for one,
     are currently employees of AST. There are numerous references in the
     technical proposal that highlight AST as being the incumbent contractor
     with expertise and processes in place. Based on the above facts,
     including TAG's reliance in its technical proposal on AST's experience
     and expertise as the incumbent, and the fact that the majority of core
     personnel are from AST, SBA finds that TAG is unusually reliant on AST.

     Hence, it is determined that TAG is engaged in a joint venture and is
     affiliated with its subcontractor based on the totality of the
     circumstances. TAG is not a small business concern for this procurement.

   Agency Report, Tab 44, Size Determination, at 6-7. The SBA provided the
   Army a copy of the size determination decision on August 28.

   This protest of the award by ALATEC was filed with our Office on August
   30. In accordance with 31 U.S.C. sect. 3553(c)(3) (2000), the agency has
   suspended performance of the contract pending the resolution of this
   protest.

   On September 12, TAG filed an appeal of the size determination at the SBA
   OHA. On October 17, OHA determined that the size appeal was not moot
   because the contracting officer had suspended performance under the
   contract, and affirmed the SBA Area Office size determination and denied
   TAG's appeal, finding AST to be an "ostensible subcontractor" to TAG
   because TAG was "unusually reliant upon AST," which rendered TAG other
   than a small business concern for this procurement. The Analysis Group,
   L.L.C., SBA OHA Docket No. SIZ-2006-09-12-52 (Oct. 17, 2006), at 1.

   FAR sect. 19.302(h)(1) provides:

     After receiving a [size] protest involving an offeror being considered
     for award, the contracting officer shall not award the contract until
     (i) the SBA has made a size determination or (ii) 10 business days have
     expired since SBA's receipt of the protest, whichever occurs first;
     however, award shall not be withheld when the contracting officer
     determines in writing that an award must be made to protect the public
     interest.

   The SBA's regulations, 13 C.F.R. sect. 121.1009(a) (2006), require:

     After receipt of a [size] protest or a request for a formal size
     determination, SBA will make a formal size determination within
     10 working days, if possible.

   Under the SBA's regulations, "[a] timely filed protest applies to the
   procurement in question, even though a contracting officer awarded the
   contract prior to receipt of the protest." 13 C.F.R. sect. 121.1004(c).
   Nevertheless, we generally have not questioned the propriety of an award
   made by an agency before a decision by the SBA on a size protest had been
   issued, where the 10 business day period for issuing such decisions had
   expired, even where the awardee was determined by the SBA to be other than
   a small business concern. See, e.g., Planned Sys. Int'l, Inc., B-282319.7,
   Feb. 24, 2004, 2004 CPD para. 43 at 2-3; Systems Research and Applications
   Corp.; Infotec Dev., Inc., B-270708 et al., Apr. 15, 1996, 96-1 CPD para.
   186, at 6-8.

   However, we have recognized that in certain circumstances, even where the
   requirements of FAR sect. 19.302 have been satisfied by the agency in
   making an award, termination of the awardee's contract is appropriate,
   where a timely size protest was filed, there was no appeal of the SBA size
   ruling that the awardee was not a small business, and there were no
   countervailing circumstances that weighed in favor of allowing a business
   concern that is not small to continue performance. See, e.g., Tiger
   Enters., Inc., B-292815.3, B-293439, Jan. 20, 2004, 2004 CPD para. 19 at
   4; Adams Indus. Servs., Inc., B-280186, Aug. 28, 1998, 98-2 CPD para. 56
   at 4; Diagnostic Imaging Technical Educ. Ctr., Inc., B-257590, Oct. 21,
   1994, 94-2 CPD para. 148 at 2-3; American Mobilephone Paging, Inc.,
   B-238027, Apr. 5, 1990, 90-1 CPD para. 366 at 3. We found that under such
   circumstances, when there are no countervailing reasons for preserving an
   award to a business that is not small, it would be inconsistent with the
   integrity of the procurement system and the intent of the Small Business
   Act, 15 U.S.C. sections 631-657a (2000), for an agency to permit a
   business that is ineligible under the terms of the solicitation to
   continue contract performance.[1]

   In this case, a timely size protest was filed. In addition, during the
   course of this protest, the OHA has affirmed the SBA size determination,
   which, therefore, "remains in full force and effect" with respect to this
   procurement. See 13 C.F.R. sect. 121.1009(g)(1). Thus, there is no
   possibility that the SBA's ruling on this matter will change.[2]

   On this record, we also find no plausible countervailing circumstances
   that weigh in favor of allowing a business concern that is not small to
   begin performance under this suspended contract, and certainly none for
   allowing that firm to perform for what could be 5 years, which could occur
   if all options are exercised under the small business set-aside. In this
   regard, contract performance remains stayed and the SBA OHA has
   conclusively resolved the size determination with respect to this
   procurement.[3] Moreover, the SBA determination that TAG was not an
   eligible small business was issued on August 18--the date that the SBA
   indicated it planned to issue its decision[4]--which was only 2 days after
   the Army made award to TAG, and the agency received the SBA determination
   at least a month prior to the commencement of scheduled performance of the
   awarded contract.[5] Finally, despite having been afforded the opportunity
   to comment on the SBA's comments and the SBA OHA size determination, which
   indicated that its ruling was applicable to this award and that the
   contract should be terminated, the Army has not advanced any
   countervailing reasons for why preserving the award with TAG at this
   juncture would be appropriate, save that the Army complied with FAR
   sect. 19.302(h)(1). We, therefore, conclude that the Army should have
   terminated TAG's contract when it received the SBA OHA decision affirming
   that TAG was not a small business concern. Not to terminate the contract
   under these circumstances was inconsistent with the integrity of the
   procurement system and the Small Business Act, inasmuch as TAG was not
   eligible for award under the terms of the RFP that required award to a
   small business. See Diagnostic Imaging Technical Educ. Ctr., Inc., supra,
   at 2-3.

   We recommend that the contract awarded to TAG be terminated and award be
   made to the small business offeror whose proposal represents the best
   value under the RFP's evaluation scheme.[6] We also recommend that ALATEC
   be reimbursed its costs of filing and pursuing the protest, including
   reasonable attorneys' fees. Bid Protest Regulations, 4 C.F.R.
   sect. 21.8(d)(1) (2006). ALATEC should submit its certified claim for
   costs, detailing the time expended and costs incurred, directly to the
   contracting agency within 60 days after the receipt of this decision.

   The protest is sustained.

   Gary L. Kepplinger

   General Counsel

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

   [1] The Small Business Act states that "it shall be the declared policy of
   the Congress that the Government should aid, counsel, assist, and protect,
   insofar as is possible, the interests of small business concerns." 15
   U.S.C. sect. 631(a).

   [2] In this respect, this situation is no different from the case where
   the awardee found to be other than small does not appeal the size
   determination.

   [3] The present case is distinguishable from that in Planned Sys. Int'l,
   Inc., supra. In that case, the SBA determination finding the awardee other
   than small was unjustifiably issued 2 months after the size protest was
   timely filed and shortly after a stay of performance of the contract,
   based upon a prior protest to our Office, had been lifted when we issued a
   decision on that protest. The protester then protested to our Office after
   the SBA size determination was made that the award was improper. To the
   extent that any of our prior decisions suggest that an agency is not
   required to consider terminating a contract awarded to a large business in
   circumstances such as those present in the case before us here, they will
   no longer be followed.

   [4] We think it is incumbent on the SBA to resolve size protests within
   10 days, if possible, as called for by its regulations, or as
   expeditiously as possible, where circumstances require more time.

   [5] The Army points to an inconsistency between the date on the official
   SBA determination (August 18) and the date the determination was sent to
   the agency (August 28) as possible grounds to question whether the
   decision was made on August 18. The SBA, however, has reported that it saw
   no urgency to get the decision to the agency because the Army had already
   notified the SBA that an award had been made. While the SBA's failure to
   more promptly provide its decision to the Army was unfortunate, we find
   that whether the decision occurred on August 18 or sometime thereafter is
   not significant, because the agency still was apprised that TAG was not
   eligible for the contract a month before the expected performance date.

   [6] In light of our decision, we need not address ALATEC's remaining
   allegations.