TITLE: B-299291, MCS Portable Restroom Service, March 28, 2007
BNUMBER: B-299291
DATE: March 28, 2007
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B-299291, MCS Portable Restroom Service, March 28, 2007

   Decision

   Matter of: MCS Portable Restroom Service

   File: B-299291

   Date: March 28, 2007

   Merrill Austin for the protester.

   Christopher S. Cole, Esq., Department of the Air Force, and John W. Klein,
   Esq., and Kenneth Dodds, Esq., Small Business Administration, for the
   agencies.

   Nora K. Adkins, Esq., Sharon L. Larkin, Esq., and James A. Spangenberg,
   Esq., Office of the General Counsel, GAO, participated in the preparation
   of the decision.

   DIGEST

   1. Procuring agency is required to make reasonable efforts to ascertain
   whether an acquisition is suitable for a set-aside for service-disabled
   veteran-owned small business concerns (SDVOSBC) before it can proceed with
   a small business set-aside.

   2. Procuring agency has the discretion to make a sole-source award to an
   SDVOSBC if the contracting officer does not have a reasonable expectation
   that two or more SDVOSBCs would submit bids for the work.

   DECISION

   MCS Portable Restroom Service (MCS), a service-disabled veteran-owned
   small business concern (SDVOSBC), protests the Air Force's decision not to
   set aside a requirement for SDVOSBCs or, alternatively, to make a
   sole-source award to an SDVOSBC, for portable chemical toilet services at
   the United States Air Force Academy and Farish Memorial Park in Colorado,
   and to instead obtain these services as a small business set-aside under
   invitation for bids (IFB) No. FA7000-07-B-0002.

   We sustain the protest.

   The IFB, issued as a 100-percent small business set-aside, sought a
   contractor to provide all management, tools, supplies, equipment and labor
   necessary for the portable chemical toilet services. The IFB provided for
   an 8-month base period, with 4 option years.

   As part of the market research for this acquisition, the contracting
   officer searched the Central Contractor Registration (CCR) database under
   North American Industry Classification System code 562991 (Septic Tank and
   Related Services), and located 28 SDVOSBCs, 29 section 8(a) concerns,
   10 Historically Underutilized Business Zone (HUBZone) concerns, and
   28 other small business concerns that potentially could perform the work.
   Agency Report (AR), Tab 6D, Market Research Summary, at 4. On February 14,
   2006, the agency sent e-mails to all of these firms and received responses
   from two SDVOSBCs (MCS and a Florida company that expressed interest in
   developing a joint venture to perform this work), one HUBZone concern, and
   four small businesses. On April 18, the agency posted a "sources sought"
   notice on FedBizOpps and three companies responded: one small business,
   one women-owned small business, and MCS. Contracting Officer's (CO)
   Statement at 1.

   After considering this market research, the contracting officer determined
   that she did not have a reasonable expectation of receiving two or more
   bids from HUBZone or SDVOSBC concerns. AR, Tab 6D, Market Research
   Summary, at 6. Based on this determination and after receiving approval
   from the Air Force small business specialist to set aside the procurement
   for small businesses, AR, Tab 6C, Small Business Coordination Record, the
   agency, on August 8, posted a synopsis on FedBizOpps of the proposed
   solicitation for these services as a small business set-aside, that is,
   not one reserved for a subset of small businesses--either HUBZone or
   SDVOSBC concerns.

   MCS then filed an agency-level protest of this determination. MCS
   contended that the IFB should have been set aside for SDVOSBCs or, in the
   alternative, a sole-source award should have been made to MCS because it
   is an SDVOSBC.

   After receiving the protest, the contracting officer searched the CCR for
   all SDVOSBCs in Colorado and nationwide "to ensure that the market had not
   changed since the time the initial market research was conducted." CO
   Statement at 2. This search revealed the existence of 2 SDVOSBCs in
   Colorado and 20 SDVOSBCs nationwide that could potentially perform the
   work. AR, Tab 6B, Letter from Air Force to MCS Denying Protest, Sept. 22,
   2006, at 2. While it is not clear from the record whether the second CCR
   search identified firms that were previously identified in the initial CCR
   search, no efforts were made to contact any of these companies at that
   time. The agency determined that a sole-source SDVOSBC award was, for
   reasons explained later in this decision, prohibited by the Federal
   Acquisition Regulation (FAR). The agency then affirmed its decision to set
   aside the procurement for small businesses and denied MCS's agency-level
   protest.

   No actual solicitation for the services was issued until December 5, when
   the IFB was posted on FedBizOpps as a small business set-aside. MCS then
   timely protested to our Office, reasserting the grounds raised in its
   agency-level protest.

   SDVOSBC SET-ASIDE REQUIREMENTS

   MCS first asserts that the agency should have set aside the acquisition
   for SDVOSBC participation. It complains that the agency's market research
   was inadequate and does not support the determination to issue the IFB as
   a small business, rather than as an SDVOSBC, set-aside.

   The Small Business Act was amended by section 36 of the Veterans Benefits
   Act of 2003, Pub. L. No. 108-183, 117 Stat. 2651, 2662 (2003), 15 U.S.C.
   sect. 657f (Supp. IV 2004), to establish the SDVOSBC procurement program.
   This amendment provided for procurements with competition restricted to
   SDVOSBCs as follows:

     In accordance with this section, a contracting officer may award
     contracts on the basis of competition restricted to [SDVOSBCs] if the
     contracting officer has a reasonable expectation that not less than
     2 [SDVOSBCs] will submit offers and that the award can be made at a fair
     market price.

   15 U.S.C. sect. 657f(b).

   This program is implemented in FAR Subpart 19.14, which in part provides:

     (a)    The contracting officer may set aside acquisitions exceeding the
     micro-purchase threshold for competition restricted to [SDVOSBCs] when
     the requirements of paragraph (b) of this section can be satisfied. The
     contracting officer shall consider [SDVOSBC] set-asides before
     considering [SDVOSBC] sole source awards . . . .

     (b)    To set-aside an acquisition for competition restricted to
     [SDVOSBCs], the contracting officer must have a reasonable expectation
     that--

       (1)  Offers will be received from two or more [SDVOSBCs]; and

       (2)  Award will be made at a fair market price.

   FAR sect. 19.1405(a), (b).

   SBA regulations also provide that:

     the contracting officer should consider setting aside the requirement
     for 8(a), HUBZone, or [SDVOSBC] participation before considering setting
     aside the requirement as a small business set-aside.

   13 C.F.R. sect. 125.19.

   Generally, a procurement set-aside determination is a matter of business
   judgment within the contracting officer's discretion, which our Office
   will not disturb absent a showing that it was unreasonable. See Neal R.
   Gross & Co., Inc., B-2940924.2, Jan. 17, 1991, 91-1 CPD para. 53 at 2.
   Although the use of any particular method of assessing the availability of
   firms for a set-aside is not required, measures such as prior procurement
   history, market surveys, and advice from the agency's small business
   specialist may all constitute adequate grounds for a contracting officer's
   decision to set aside, or not to set aside, a procurement. See American
   Imaging Servs., Inc., B-246124.2, Feb. 13, 1992, 92-1 CPD para. 188 at 3.
   The assessment must be based on sufficient evidence so as to establish its
   reasonableness. See Rochester Optical Mfg. Co., B-292247, B-292247.2, Aug.
   6, 2003, 2003 CPD para. 138 at 5.

   The agency here asserts that it properly determined not to set aside the
   requirement for SDVOSBCs because, based on its market research, it did not
   have a reasonable expectation that two or more SDVOSBCs were interested in
   the procurement. It notes that only one other firm besides MCS responded
   to the February 2006 e-mail survey, and that the agency reasonably
   concluded that this firm was no longer interested when the firm did not
   respond to the "sources sought" notice issued in April 2006.

   We solicited and obtained the views of the Small Business Administration
   (SBA) regarding the propriety of the Air Force's decisions to not set
   aside this acquisition for SDVOSBCs or make a sole-source award to an
   SDVOSBC. The SBA disagrees with the contracting officer's actions here. We
   accord substantial weight to the fact that the contracting officer's
   determination has been reviewed by the SBA and found not to be reasonable.
   See USA Fabrics, Inc., B-295737, B-295737.2, Apr. 19, 2005, 2005 CPD para.
   82 at 6; SWR, Inc., supra, at 5 n.4. In its response, the SBA recognizes
   that only MCS, an SDVOSBC and the incumbent contractor, and the Florida
   SDVOSBC, which expressed interest in forming a joint venture, responded to
   the February 2006 e-mail survey; however, the SBA further asserts that the
   agency's disregard of the Florida SDVOSBC's expression of interest (which
   was based upon the assumption that the firm was no longer interested
   because it did not also respond to the "sources sought" notice) was
   unreasonable. As the SBA points out, the firm's lack of response to the
   "sources sought" notice may not evidence a lack of interest--the firm may
   not have seen the notice or it may have believed a response was
   unnecessary given that it had already expressed interest. SBA Report (Jan.
   26, 2007) at 4. Under these circumstances, the SBA argues, and we agree,
   that the agency should have followed up with the firm to clarify the
   firm's interest in the procurement to ascertain whether there was
   sufficient SDVOSBC interest to allow for a set-aside. See SWR, Inc.,
   B-294266, Oct. 6, 2004, 2004 CPD para. 219 at 6 (agency's two unanswered
   telephone calls to a HUBZone small business that had previously expressed
   interest in the procurement was not adequate evidence to support an
   agency's determination that the firm was no longer interested in the
   procurement).[1]

   Under the circumstances, we conclude that the Air Force failed to make
   reasonable efforts to ascertain whether this acquisition was suitable for
   an SDVOSBC set-aside. We acknowledge that, unlike the HUBZone and small
   business set-aside programs, which generally require set-asides if two or
   more HUBZone concerns or small business concerns are interested in
   submitting offers and award is expected to be made at a fair market price,
   see FAR sections 19.502-1, 19.1305, the decision to make an SDVOSBC
   set-aside is discretionary with the contracting officer. In this regard,
   the contracting officer "may," but is not required, to set aside the
   acquisition for SDVOSBCs, even where it is found that two or more SDVOSBCs
   are interested in submitting bids and award is anticipated to be made at a
   fair market price. However, as indicated above, applicable SBA regulations
   provide that a contracting officer should consider the propriety of
   setting aside an acquisition for SDVOSBCs before proceeding with a small
   business set-aside and it is implicit in this regulation that such
   consideration be reasonable. Consequently, we conclude that the Air Force
   should perform further market research from which it can reasonably
   determine whether this acquisition is appropriate for an SDVOSBC
   set-aside.

   SDVOSBC SOLE-SOURCE AWARD

   MCS also complains that, even if the agency were correct that there was
   insufficient interest from two or more SDVOSBCs to set aside the
   procurement for SDVOSBCs, the agency should have made a sole-source award
   to MCS.

   The agency asserts that FAR sect. 19.1406(a) precludes a sole-source award
   to an SDVOSBC where more than one SDVOSBC exists that can satisfy the
   requirement. FAR sect. 19.1406(a) states in pertinent part:

     A contracting officer may award contracts to [SDVOSBCs] on a sole source
     basis . . ., provided--

     (1) Only one [SDVOSBC] can satisfy the requirement . . .

   In this regard, and as discussed above, after MCS protested that a
   sole-source SDVOSBC award should be made, the agency reviewed the CCR and
   found more than one SDVOSBC potentially capable of performing this work
   (even though they were not contacted and did not express interest in
   submitting bids). CO Statement at 4. The Air Force's essential argument is
   that FAR sect. 19.1406(a) precludes making a sole-source award to an
   SDVOSBC if, as its later CCR review established, more than one SDVOSBC
   exists that can potentially perform the work.

   The protester and the SBA assert that the Air Force misinterprets FAR
   sect. 19.1406(a). The SBA argues that the FAR should be interpreted
   "logically and consistently" with the Small Business Act and the
   implementing SBA regulations, which provide that a contracting officer may
   consider making a sole-source award to an SDVOSBC unless more than one
   SDVOSBC is expected to submit a bid under the acquisition. SBA Report
   (Jan. 26, 2007) at 3.

   Our analysis here begins with the Veterans Benefit Act of 2003, which
   provides for sole-source contract awards to SDVOSBCs and states in
   pertinent part:

     (a)  Sole source contracts -- In accordance with this section, a
     contracting officer may award a sole-source contract to any [SDVOSBC] if
     --

       (1)     such concern is determined to be a responsible contractor with
       respect to performance of such contract opportunity and the
       contracting officer does not have a reasonable expectation that 2 or
       more [SDVOSBCs] will submit offers for the contracting opportunity; .
       . .

   15 U.S.C. sect. 657f.[2]

   The implementing SBA regulation similarly provides as follows:

     A contracting officer may award a sole-source contract to [an SDVOSBC]
     only when the contracting officer determines that:

     (a)  None of the provisions of . . . 13 C.F.R. sect. 125.19 apply.

   13 C.F.R. sect. 125.20.

   As relevant here, 13 C.F.R. sect. 125.19 provides that an acquisition may
   be set-aside for SDVOSBCs if there is "a reasonable expectation that at
   least two responsible SDVOSBCs will submit offers." Thus, both the Act and
   the implementing SBA regulations provide contracting officers with the
   discretion to make sole-source awards to SDVOSBCs where the prerequisites
   that would allow for an SDVOSBC set-aside have not been met.

   While the Air Force's position here would seem to be consistent with a
   literal reading of FAR sect. 19.1406(a), "a regulation must be interpreted
   so as to harmonize with and further and not conflict with the objective of
   the statute it implements." Trustees Of IndianaUniversity v. United
   States, 618 F.2d 736, 739 (Ct. Cl. 1980). The "plain meaning" and intent
   of the Veterans Benefit Act of 2003 is that a sole-source award to an
   SDVOSBC is permitted if the contracting officer does not have a reasonable
   expectation that two or more SDVOSBCs would submit bids. We think the FAR
   should be read consistent with the SBA statutory and regulatory language.
   To adopt the more restrictive interpretation of the FAR advocated by the
   Air Force here--that no sole-source award can be made where another
   SDVOSBC exists that could conceivably perform the contract, even where the
   firm has expressed no interest in the work--would, in our view, frustrate
   the intent of the Act itself by limiting sole-source SDVOSBC awards beyond
   what the statute clearly authorizes and contemplates.

   In fact, it is clear that the FAR was not intended to impose restrictions
   on awarding sole-source SDVOSBC contracts beyond the restrictions included
   in the Veterans Benefit Act of 2003. The Federal Register notice
   announcing the final FAR regulation responded to various comments on the
   draft regulation and discussed the relation between the SDVOSBC set-aside
   requirements of FAR sect. 19.1405 and those pertaining to sole-source
   SDVOSBC awards under FAR sect. 19.1406. The FAR Council stated that the
   regulation was intended to be "consistent with [15 U.S.C. sect. 657f],"
   and further stated as follows:

     If market research indicates that there is only one SDVOSBC source
     capable of satisfying the requirement at a fair and reasonable price,
     the contracting officer may award on a sole-source basis. If market
     research indicates two or more SDVOSBCs are capable of fulfilling the
     requirement, the contracting officer may set aside the requirement. In
     the event where only one acceptable SDVOSBC offer is received in
     response to the set-aside, the contracting officer may make award to
     that offeror.

   70 Fed. Reg. 14949 (Mar. 23, 2005).

   This language supports FAR sect. 19.1406(a) being interpreted, consistent
   with the Veterans Benefit Act of 2003 and SBA's implementing regulations,
   as allowing a sole-source award to an SDVOSBC when the requirements for
   setting aside the procurement for SDVOSBCs have not been met. Moreover, in
   reviewing the FAR case file on this regulation, we find nothing in the
   comments or in the FAR Council's responses that would suggest that the
   Council intended an inconsistent or more restrictive rule than was
   provided for in the Act and the corresponding SBA regulation.[3]

   Thus, the Air Force did not reasonably exercise its discretion in
   determining whether this acquisition was appropriate for award on a
   sole-source basis to an SDVOSBC because it erroneously believed that the
   FAR precluded such an award.

   RECOMMENDATION

   We recommend that the contracting officer conduct additional market
   research to ascertain the interest and capability of SDVOSBCs for this
   effort and determine whether this acquisition should be set aside for
   SDVOSBCs. In the event the agency determines that there is not a
   reasonable expectation of receiving bids from two or more SDVOSBCs, then
   the agency should consider whether to issue a sole-source SDVOSBC award.
   We also recommend that MCS be reimbursed the reasonable costs of filing
   and pursuing the protest, including reasonable attorneys' fees. Bid
   Protest Regulations, 4 C.F.R. sect. 21.8(d)(1) (2006). MCS's claim for
   costs, detailing the time expended and costs incurred, must be submitted
   to the agency within 60 days of receiving this decision. 4 C.F.R.
   sect. 21.8(f)(1).

   The protest is sustained.

   Gary L. Kepplinger
   General Counsel

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

   [1] The SBA also points out that the agency failed to seek the advice of
   an SBA representative on whether to set aside the procurement for
   SDVOSBCs, consulting only with the Air Force small business specialist.
   Furthermore, as evidence that this procurement may have been appropriate
   for an SDVOSBC set-aside, the SBA notes that another Air Force base in
   Colorado has successfully issued a solicitation as an SDVOSBC set-aside
   for the same or similar services.

   [2] The remaining statutory requirements for making a sole-source award to
   an SDVOSBC are not relevant here.

   [3] However, we do recognize that the plain wording of FAR sect. 19.1406
   is potentially at odds with that of the Act and the SBA regulations. By
   letter dated today, we are advising the FAR Council of the possible
   inconsistency in language with the applicable statute so that the Council
   may review the matter.