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.