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