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.