TITLE: B-299368, International Filter Manufacturing, Inc., April 10, 2007
BNUMBER: B-299368
DATE: April 10, 2007
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B-299368, International Filter Manufacturing, Inc., April 10, 2007
Decision
Matter of: International Filter Manufacturing, Inc.
File: B-299368
Date: April 10, 2007
William Blakely, Esq., and Lauren P. DeSantis-Then, Esq., Polsinelli
Shalton Welte Suelthaus PC, for the protester.
Michael Walters, Esq., and Matthew Geary, Esq., Defense Logistics Agency,
and John W. Klein, Esq., and Kenneth Dodds, Esq., Small Business
Administration, for the agencies.
Sharon L. Larkin, Esq., and James A. Spangenberg, Esq., Office of the
General Counsel, GAO, participated in the preparation of the decision.
DIGEST
Protest that agency should have issued a solicitation for part kits as a
set-aside for historically underutilized business zone (HUBZone) small
business concerns is denied, where the agency's market research did not
reveal that the agency could reasonably anticipate receiving offers from
two or more HUBZone small businesses.
DECISION
International Filter Manufacturing Corp. (IFM) protests the decision of
the Defense Logistics Agency (DLA), Defense Supply Center Columbus (DSCC)
to issue request for proposals (RFP) No. SPM7M3-07-R-0008 for part kits on
an unrestricted basis rather than as a historically underutilized business
zone (HUBZone) set-aside.
We deny the protest.
IFM is a small disadvantaged, woman-owned, minority-owned, HUBZone
business concern that manufactures filters and assembles part kits. In the
past, IFM has provided fluid pressure filter part kits to the agency that
included its manufactured filters under a HUBZone set-aside contract. The
contract was set aside for HUBZone contractors because the filter, which
constituted a large portion of the kit, was manufactured by HUBZone small
business concerns, including IFM.
The RFP, issued in December 2006, sought 5,950 fluid pressure filter part
kits, National Stock Number (NSN) 4330-01-495-6900, with an option for an
additional 5,950 kits. The kit is comprised of the same group of 20 NSNs
as under the previous HUBZone set-aside contract, except that the filter
was now going to be provided by the agency as "government furnished
material." This was the first solicitation for a kit without seeking
filters from the offerors.
The RFP was issued on an unrestricted basis based on the market research
of the contract specialist and contracting officer, who consulted with a
DSCC technical representative, the DSCC Office of Small Business Programs,
and the Small Business Administration (SBA) Procurement Center
Representative (PCR) to determine whether the RFP should be set aside for
HUBZone small business concerns. The contract specialist first reviewed
the procurement history for the NSNs that comprised the kit and determined
that of the 19 NSNs (excluding the filter), only 1 had been historically
provided by a HUBZone concern, 3 others were provided by small businesses,
and the remaining 15 NSNs were provided by large businesses. Agency
Report, Tab 7, Defense Supply Center Philadelphia (DSCP) Analysis.
The contract specialist then asked a DSCC technical representative (a
"product specialist") to review a drawing of the kit to determine whether
the listed NSNs were manufactured by HUBZone concerns. Agency Report, Tab
3, Contract Specialist's Declaration, at 2. The DSCC technical
representative determined that the 19 NSNs contained a total quantity of
107 individual parts, and 5 of the NSNs (which contained 76 of the total
individual parts) were produced by two large businesses. Contracting
Officer's Statement at 2-3. Based on this, the contract specialist
determined that there was not a reasonable expectation that two or more
offers would be received from HUBZone small business concerns that could
manufacture at least 50 percent of the work as required by applicable
regulations.
The contracting officer reviewed the contract specialist's market research
and concurred with the results. Contracting Officer's Statement at 3. The
contracting officer consulted with both the DSCC Office of Small Business
Programs and the SBA PCR. The SBA PCR met with the contracting officer,
reviewed the technical drawing of the kit, and noted that many of the NSNs
listed on the drawing were "nuts, bolts, and washers produced pursuant to
military specifications which are the type of items normally mass produced
by large businesses and not the type of items which HUBZone Small Business
Concerns manufacture." Id. The PCR researched several of the NSNs in
"Haystack" and determined that they were not listed as items manufactured
by HUBZone small businesses.[1] Id. The SBA PCR agreed that it was
"appropriate" to issue the solicitation on an unrestricted basis, stating
that
based on our review of all drawings [and] expected sources, we concluded
that [HUBZone] products were not expected or sufficient [and] that even
those of [small businesses] were unlikely.
Agency Report, Tab 6, Small Business Coordination Record, at 2.
The agency issued the solicitation on an unrestricted basis and IFM
protested, contending that the RFP should have been set aside for HUBZone
small business concerns. IFM asserts that the agency's market research was
insufficient and "flawed," and does not support the determination to issue
the RFP on an unrestricted basis.
Contracting officers are generally required to set aside procurements in
excess of the simplified acquisition threshold for HUBZone small business
concerns, if the agency determines that offers will be received from two
or more HUBZone small businesses and that award will be made at a fair
market price. Federal Acquisition Regulation (FAR) sect. 19.1305(a), (b).
With regard to a HUBZone supply contract, the concern seeking award must
also be the manufacturer or supply the product of a HUBZone small business
concern. FAR sections 19.1303(d); 13 C.F.R. sections 125.6(c)(4),
126.601(e) (2006). To satisfy this requirement, a qualified HUBZone small
business concern may subcontract part of the HUBZone contract so long as:
the qualified HUBZone [small business concern] spends at least
50 [percent] of the manufacturing cost (excluding the cost of materials)
on performing the contract in a HUBZone. One or more qualified HUBZone
[small business concerns] may combine to meet this subcontracting
percentage requirement.
13 C.F.R. sect. 125.6(c)(4).
The set-aside determination itself 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-290924.2, 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 HUBZone
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. 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. Rochester Optical Mfg. Co., B-292247, B-292247.2, Aug. 6,
2003, 2003 CPD para. 138 at 5.
Here, we find that the agency's market research--which included a review
of the procurement history by the contract specialist and contracting
officer, a review of the drawings and NSNs by a DSCC technical
representative, and consultation with the DSCC Office of Small Business
Programs and SBA PCR--was sufficient to demonstrate that far less than 50
percent of the total cost the kit would be manufactured by HUBZone small
businesses and thus the RFP need not be issued as a HUBZone set-aside.
Although IFM asserts that more extensive market research efforts, such as
searching the Central Contractor Registration or Federal Logistics
Information Systems databases, would have revealed the existence of
additional HUBZone contractors that could supply some of the NSNs, IFM has
produced no credible evidence showing that 50 percent or more of the total
cost of the kits could be supplied by HUBZone small businesses, such that
the agency would have had a reasonable expectation of receiving offers
from two or more HUBZone small business concerns. IFM has provided
evidence showing only that, at most, two of the NSNs (excluding the
filter) could be provided by HUBZone small business concerns, which totals
only 0.7 percent of the estimated cost of the kits.[2] Protester's
Corrected Additional Statement, attach. 3.
IFM asserts that the agency's market research is "flawed" in a number of
ways. It contends that the DSCC analysis is not accurate, that the
agency's focus on procurement history is not a true indicator of whether
HUBZone or other small business concerns could provide the items, and that
the agency's discussion of the "number" of NSNs (rather than "cost" or
value of the kit) indicates that the agency did not reasonably evaluate
whether a HUBZone set-aside was appropriate. These arguments do not
provide a basis to sustain the protest.
We find significant that the SBA reviewed the agency's analysis, as well
as the protester's multiple submissions and evidence on this issue, and
concluded that "it does not appear that DSCC acted unreasonably" in
determining not to set aside the procurement for HUBZone small business
concerns.[3] SBA Report (Feb. 16, 2007) at 5. Although the SBA found some
"problems" with the agency's analysis (which led to the protester's
complaints above), the SBA noted that a DSCC technical representative, the
DSCC small business office, and the SBA PCR all "conducted tailored market
research to determine whether HUBZone [small business concerns] would
manufacture 50 percent or more of the cost of the Kit (excluding the
Filter Element), and all of these individuals concluded that was not the
case."[4] Id. at 4-5. Furthermore, the SBA's own research of the various
NSNs confirmed that fewer than 50 percent of the cost of the kits would be
manufactured by HUBZone small businesses. Id.; SBA Report (Mar. 23, 2007),
attach. A. Finally, the SBA reviewed the evidence provided by the
protester and concluded that the protester "has not established that the
DSCC contracting officer should have had a reasonable expectation of
receiving competitive offers from at least two HUBZone [small business
concerns] who can supply a Kit where at least 50 percent or more of the
components are manufactured by HUBZone [small business concerns] or [small
business concerns]." SBA Report (Mar. 23, 2007) at 2, attach. A. Based on
this, the SBA found, and we agree, that the agency reasonably determined
not to set aside the solicitation for HUBZone small business concerns.
In a "corrected additional statement" submitted after its comments on the
DLA and SBA reports, IFM, for the first time, asserted that the agency
should have set aside the procurement for HUBZone small businesses based
on 13 C.F.R. sect. 121.406(c), which provides that "kit assemblers," such
as IFM, need only show that 50 percent of the total value of the
components of the kit are manufactured by small businesses, without regard
to whether any of those businesses are HUBZone concerns. IFM raised this
argument only after the SBA, in its report, asserted that this regulation
applies to HUBZone procurements. This argument is untimely raised under
our Bid Protest Regulations, 4 C.F.R. sect. 21.2(a)(2), however, as the
protester is on constructive notice of regulations published in the Code
of Federal Regulations and should have protested this issue in its initial
protest if it believed this regulation was controlling. Environmental
Tech. Assessment Compliance Serv., B-258093, Dec. 13, 1994, 94-2 CPD para.
239 at 3. In any event, we disagree that the referenced "kit assembler"
regulation, which by its terms is applicable to small business and 8(a)
set asides, is also applicable to, or must be considering in evaluating,
HUBZone set-aside requirements. The HUBZone regulations, which are set
forth in 13 C.F.R. Part 126, do not make any reference to kit assembly or
to section 121.406(c), and neither the SBA nor the protester cite any
authority to support their position.
The protest is denied.
Gary L. Kepplinger
General Counsel
------------------------
[1] "Haystack" is a comprehensive parts and logistics management database
system that provides spare parts and tooling information on more than 100
million items that are located in the U.S. Federal Supply Catalog and in
over 40 military databases. An individual may search Haystack by NSN, part
number, "CAGE" code, company name, technical characteristics, product item
description data, and other parameters. DLA E-Mail to Protester's Counsel
(Feb. 24, 2007).
[2] Although IFM complains that the agency should have taken into account
that at least two HUBZone small businesses can manufacture the filter, the
agency need not have considered this in its set-aside analysis, given that
the filter will be provided as government furnished material.
[3] We accord substantial weight to the SBA's analysis. See USA Fabrics,
Inc., B-295737, B-295737.2, Apr. 19, 2005, 2005 CPD para. 82 at 6.
[4] IFM asserts that our decision in MCS Portable Restroom Serv.,
B-299291, Mar. 28, 2007, 2007 CPD para. __, supports its position that the
agency conducted inadequate market research. However, that case is
distinguishable. In MCS, the agency had in fact received expressions of
interest from a small disadvantaged veteran-owned small business that it
disregarded, the agency failed to consult the SBA while performing market
research, and the SBA did not support the protester's position during the
development of the protest. None of those circumstances exist here.