TITLE: B-299342, Alliance Detective & Security Service, Inc., April 13, 2007
BNUMBER: B-299342
DATE: April 13, 2007
*********************************************************************
B-299342, Alliance Detective & Security Service, Inc., April 13, 2007

   Decision

   Matter of: Alliance Detective & Security Service, Inc.

   File: B-299342

   Date: April 13, 2007

   Mary Ann Chase, Esq., for the protester.

   Kenneth B. Weckstein, Esq., Epstein Becker & Green, P.C., for C&D Security
   Management, Inc., an intervenor.

   Scarlett D. Grose, Esq., Department of Homeland Security, and John W.
   Klein and Kenneth Dodds, Small Business Administration, for the agencies.

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

   DIGEST

   In the absence of any countervailing reasons, agency should not exercise
   options under contracts set aside for small business concerns, where award
   was improperly made before referring pre-award size protests to the Small
   Business Administration (SBA) and to a firm that has been determined to be
   other than a small business by the SBA, and where the agency lifted a stay
   on contract performance, even though performance was not to commence for 3
   months, it had been apprised of the SBA size protest, and all evidence
   indicated that the awardee was a large business.

   DECISION

   Alliance Detective & Security Service, Inc. protests the award of two
   contracts to C&D Security Management, Inc. under request for proposals
   (RFP) Nos. HSCEBW-06-R-F00005 and HSCEBW-06-R-F00006, issued as small
   business set-asides by the Department of Homeland Security (DHS),
   Immigration and Customs Enforcement, for guard services in Massachusetts,
   Rhode Island, and Connecticut.[1] Alliance contends that C&D's contracts
   should be terminated because the Small Business Administration (SBA) has
   determined that C&D is not a small business concern.

   We sustain the protest.

   The RFPs were issued on April 4, 2006, as small business set-asides, with
   proposals due on May 19, 2006. The RFPs designated North American Industry
   Classification System (NAICS) code 561612 "Security Guards and Patrol
   Services," which has an average annual revenue ceiling of $11.5 million,
   as the appropriate size standard for small business participation.[2] RFPs
   sect. A, at 3. The base term of the contracts originally was from December
   1, 2006 through November 30, 2007, with four yearly options. RFPs, amend.
   1, at 3.

   DHS received 21 proposals in response to the RFPs, and C&D's proposal was
   determined to be the best value under each of the RFPs. On September 20,
   the contracting officer sent, via e-mail to all offerors, a notice of
   intent to award the contracts to C&D. The notice informed offerors that
   they had the opportunity to challenge the small business size status of
   C&D and that

     [t]he protest may be made orally, but must be confirmed in writing and
     shall contain the basis for the protest with specific, detailed evidence
     to support the allegation that C&D . . . is not a small business.

   Agency Report (AR), Tab A, Notice of Intent to Award, at 1.

   On September 22, DHS received an e-mail with two attachments from American
   Sentry, LLC, an offeror under both RFPs, questioning C&D's small business
   status. The attachments included calculations suggesting that C&D's
   revenues exceeded $11.5 million, an article from The Colorado Spring
   Business Journal posted on C&D's website that provided information
   regarding C&D's growth in the security firm services area, and a request
   that the contracting officer review this information. AR, Tab B, American
   Sentry E-mail to Contracting Officer. The contracting officer did not
   interpret this correspondence as an official protest and did not forward
   it to the SBA. Contracting Officer's Statement (COS) at 1. On September
   25, American Sentry again contacted the contracting officer, via
   telephone, to determine if she had reviewed the information and C&D's
   website. During the conversation, the contracting officer asked whether
   American Sentry was protesting C&D's size based on the information
   provided. American Sentry replied affirmatively, and on September 29
   submitted a written protest letter "formally, clearly, and unequivocally
   challenging the size of" C&D. Id.; AR, Tab F, American Sentry Size
   Protest.

   Meanwhile, on September 27, DHS received what it considered to be a
   written size protest from Alliance, another offeror under the RFPs. COS at
   2. Alliance's protest asked the contracting officer to request and review
   C&D's tax forms for the last 3 years so that she could be sure that C&D
   was under the designated NAICS revenue ceiling for these RFPs. AR, Tab C,
   Letter from Alliance to Contracting Officer, at 1-2.

   The contracting officer forwarded Alliance's September 27 protest as well
   as American Sentry's September 29 protest to the SBA on October 2. The
   contracting officer did not provide the SBA with the e-mail and attached
   information that had been provided to her by American Sentry on September
   22. AR, SBA Size Determination (Dec. 14, 2006), at 2.[3] Prior to
   referring these protests to the SBA, however, DHS made award under both
   RFPs to C&D. COS at 1-2.

   The SBA found Alliance's protest to be timely, but dismissed it on October
   3 because it was determined to be not sufficiently specific under the
   SBA's regulations. The SBA informed Alliance at that time that the SBA was
   currently considering another offeror's timely and specific protest of
   C&D's status as a small business. AR, Tab G, SBA Size Determination (Oct.
   13, 2006), at 1. Alliance did not appeal this determination.

   On October 13, the SBA determined C&D to be other than small and thus
   ineligible for award under the RFPs. The SBA found C&D to be affiliated
   with three other companies under the "common management" and "identity of
   interest" rules of 13 C.F.R. sect. 121.103(e), (f) (2006). Because of this
   affiliation, the SBA noted that C&D's size designation must take into
   account the annual receipts of all of the companies combined, not C&D
   alone, even though C&D proposed only itself to perform the work. The SBA,
   upon reviewing the combined receipts, determined that the average annual
   receipts for C&D and its affiliates exceeded the $11.5 million size
   standard, and therefore C&D was "ineligible for award, from a size
   standpoint, for this procurement." AR, Tab I, SBA Size Determination (Oct.
   13, 2006).

   In response to the SBA's determination, DHS issued a contract modification
   on October 23, suspending performance of work under the contracts until
   C&D's appeal of the SBA's size determination was complete. The
   modification stated:

     By mutual agreement of the parties, the performance period of the
     contract will be adjusted up to four months into the future, contingent
     upon the resolution date of the appeal with no revisions in price.
     Services will initiate on the first day of the second full calendar
     month after the affirmative appeal decision, but no earlier then
     February 1, 2007.

   AR, Tab J, Contract Modification, at 1-2.

   On October 31, C&D filed an appeal of the SBA's size determination with
   the SBA Office of Hearings and Appeals (OHA). C&D did not contest the
   merits of the SBA size determination, but asserted that American Sentry's
   protest was untimely and requested that the SBA determination be vacated.
   AR, Tab K, C&D Appeal Petition. On November 21, OHA issued its decision
   finding that American Sentry's September 22 e-mail (which had been
   provided to the OHA, although it had not been previously provided to the
   SBA) was "not specific," and thus did not constitute a valid protest,[4]
   and that American Sentry's written protest of September 29, which was
   filed more then 1 day after the September 25 telephone conversation with
   the contracting officer, was untimely.[5] As a result, OHA granted C&D's
   appeal and vacated the SBA's determination that C&D was other than small.
   AR, Tab L, SBA OHA Decision (Nov. 21, 2006), at 4-5.

   On November 21, DHS received OHA's decision. On November 27, the
   contracting officer lifted the stay of performance and issued a notice to
   proceed on C&D's contracts. AR, Tab O, SBA Size Determination (Dec. 14,
   2006), at 2. One day later, the Area Director of the SBA initiated a size
   protest of C&D's small business status with the SBA.[6] AR at 4. The SBA
   asserted that, even though OHA had vacated the earlier SBA determination
   for procedural reasons, the OHA's decision could not and did not change
   the financial structure or size of C&D as other than small. See AR, Tab O,
   SBA Size Determination (Dec. 14, 2006), at 2. The Area Director notified
   the contracting officer of its filing, but DHS did not stay performance of
   the contracts. As a result, the awardee began to incur start-up costs to
   prepare for a service start date of March 1, 2007.[7] AR at 4; Tab M, SBA
   E-Mail to Contracting Officer (Nov. 28, 2006); Tab P, Letter from DHS to
   the SBA (Dec. 15, 2006), at 1. C&D was notified of the protest and
   requested that the SBA grant an extension until December 11 for C&D to
   respond to the Area Director's protest; in its December 11 submission, C&D
   did not argue that it was small at the time its offer was submitted, but
   contended that DHS properly issued the notice to proceed. AR, Tab O, SBA's
   Size Determination (Dec. 14, 1006), at 2.

   The SBA's decision on the Area Director's protest was issued on December
   14. As in its first determination, the SBA again found C&D to be other
   than small because of its affiliations and therefore ineligible for award
   for these procurements. AR, Tab O, SBA Size Determination (Dec. 14, 2006),
   at 6. C&D did not appeal the SBA's second determination to the OHA.

   After receiving the SBA's December decision, DHS sent a letter to the SBA
   on December 15, informing the SBA that DHS intended to continue with C&D's
   performance on the contracts. AR, Tab P, Letter from DHS to the SBA (Dec.
   15, 2006), at 1. On January 5, 2007, Alliance timely protested to our
   Office DHS's failure to terminate C&D's contracts based on the SBA
   determination, in response to the SBA protest, that C&D was other than
   small.[8]

   Under 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).
   There are no time limitations on the SBA (or the contracting officer) on
   filing size protests, either before or after award, so SBA protests are
   considered timely by definition. 13 C.F.R. sect. 121.1004(b). Thus, we
   agree with the SBA that the SBA size determination here is applicable to
   these procurements and that C&D was ineligible for the awards. See AR, Tab
   O, SBA Size Determination (Dec. 14, 2006), at 6.

   Termination of even an otherwise properly awarded contract is appropriate,
   where a timely size protest was filed, the SBA ruled that the awardee was
   not a small business and that ruling was not appealed, and there were no
   countervailing circumstances that weighed in favor of allowing a business
   concern that is not small to continue performance. ALATEC Inc., B-298730,
   Dec. 4, 2006, 2006 CPD para. 191 at 5. In the absence of countervailing
   reasons, we view it as inconsistent with the integrity of the Small
   Business Act, 15 U.S.C. sections 631-657a (2000), for an agency to permit
   a large business, which was ineligible under the terms of the
   solicitation, to continue contract performance. Id.

   In this case, the contract awards were not proper when they were made.

   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 a protest, whichever comes 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.

   DHS awarded these contracts before it referred the pre-award Alliance and
   American Sentry size protests to the SBA for its determination, without a
   written determination from the contracting officer that the award was made
   to protect the public interest. While the SBA and OHA ultimately
   determined that these protests were procedurally defective, the
   disposition of the protests does not excuse DHS's failure to follow FAR
   sect. 19.302(h)(1). In this regard, the record shows that DHS never raised
   any questions concerning the procedural validity of these size status
   protests when referring the protests to the SBA.[9] Even though DHS stayed
   performance under these contracts, this was only done after the initial
   adverse SBA size determination in order to allow C&D to appeal this
   determination. Moreover, the record shows that C&D has been conclusively
   determined by the SBA to be other than small for these procurements and
   has not contested this determination.

   In light of DHS's failure to comply with the applicable FAR provision with
   regard to delaying award of the contracts, the issue to be considered here
   is whether there were countervailing circumstances that weighed in favor
   of allowing a business concern that is not small to continue performance.
   We first note that when DHS lifted the stay of performance on November 27
   in response to the OHA decision, actual contract performance was not
   scheduled to begin for more than 3 months, on March 1, 2007. The SBA
   almost immediately (on November 28) apprised DHS of its protest of C&D's
   size status. As stated above, under the applicable regulations, the SBA
   size determination based on the SBA protest is applicable to this
   procurement. C&D never challenged in its appeal to the OHA the merits of
   the SBA's well-documented determination on October 13 that C&D was other
   than small because of certain affiliations, the OHA only vacated the size
   determination on technical grounds, and there was no evidence in the
   record that indicated that C&D's small business self-certification was
   otherwise proper. Under these circumstances, we think the facts weigh
   against allowing a large business to perform these contracts.

   On the other hand, because of the transition period under these contracts,
   C&D has incurred substantial performance costs. While we have considered,
   but do not always accept, termination costs as an adequate countervailing
   reason to allow an award to a large business to stand, see, e.g., Hydroid
   LLC, supra, at 4; Tiger Enters, Inc., B-292815.3, B-293439, Jan. 20, 2004,
   2004 CPD para. 19 at 4-5, we find that the substantial costs incurred
   here, together with the protracted SBA size protest process, provide
   sufficient countervailing reasons not to disturb the base period award to
   C&D, even though it is a large business for purposes of these
   procurements. However, there are no countervailing reasons that justify
   allowing the potential exercise of the four yearly options available under
   these contracts. While C&D asserts that it now qualifies as a small
   business under the revised NAICS code size standard, to allow this
   contract to continue for the full 5-year term under these circumstances
   would, in our view, be inconsistent with the integrity of the procurement
   system and the Small Business Act, inasmuch as C&D was not eligible for
   award under the terms of these RFPs. See ALATEC Inc., supra, at 6.

   The protest is sustained.

   We recommend that DHS not exercise the options available under C&D's
   contracts and recompete the services. We also recommend that Alliance be
   reimbursed its costs of filing and pursing the protest, including
   reasonable attorney's fees. Bid Protest Regulations, 4 C.F.R. sect.
   21.8(d)(1) (2006). Alliance 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.

   Gary L. Kepplinger
   General Counsel

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

   [1] RFP No. HSCEBW-06-R-F00005 was for guard services in western
   Massachusetts and Rhode Island, and RFP No. HSCEBW-06-R-F00006 was for
   guard services in Connecticut.

   [2] Subsequent to the issuance of the RFPs, a revised size standard of $17
   million was established for this NAICS. This revised standard applies to
   solicitations issued on or after July 31, 2006, and hence does not apply
   to the current RFPs. 71 Fed. Reg. 37490 (June 30, 2006).

   [3] The SBA states that, had DHS provided the American Sentry September 22
   e-mail to the SBA, it would have dismissed that firm's September 29
   protest as untimely and filed its own protest at that time, as it
   ultimately did (see below at page 4 and note 6). AR, SBA Size
   Determination (Dec. 14, 2006), at 2 n.2.

   [4] SBA's regulations require size protests to be specific and provide
   that non-specific protests will be dismissed. 13 C.F.R. sect. 121.1007.

   [5] In order to be timely, size protests must be received by the
   contracting officer by the fifth working day after the contracting officer
   has notified the protester of the identity of the prospective awardee. 13
   C.F.R. sect. 121.1004(a)(2). A telephonic protest made within this period
   will be considered timely, provided that a written confirmation of this
   protest is filed within the 5-day period or postmarked no later than 1 day
   after the telephonic protest. 13 C.F.R. sect. 121.1005. Here, although
   American Sentry's telephonic protest was within the 5-day window, its
   September 29 written protest was filed outside that window and was
   postmarked more than 1 day after the telephonic protest.

   [6] The SBA may timely protest the small business representation of an
   offeror in a specific offer at any time prior to or after award, without
   regard to the time limits applicable to private party size protests, and
   such protests will apply to the procurement in question. FAR sect.
   19.302(a); 13 C.F.R. sect. 121.1004(b), (c).

   [7] DHS reports that although guards were not to be posted until March 1,
   2007, it generally allows 60 to 90 days transition time between the award
   date and the actual start of performance. AR at 4-5.

   [8] Alliance was not made aware of the adverse December 14 SBA size
   determination with regard to C&D until January 4, 2007. Protest at 2.

   [9] SBA regulations leave the decision as to what constitutes a sufficient
   size protest to the SBA, not the contracting officer. See Consolidated
   Constr., Inc., B-219107.2, Nov. 7, 1985, 85-2 CPD para. 529 at 4; FAR
   sect. 19.302(c)(2).