TITLE: B-299821.3, Eagle Home Medical Corporation--Costs, February 4, 2008
BNUMBER: B-299821.3
DATE: February 4, 2008
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B-299821.3, Eagle Home Medical Corporation--Costs, February 4, 2008

   Decision

   Matter of: Eagle Home Medical Corporation--Costs

   File: B-299821.3

   Date: February 4, 2008

   Gerald H. Werfel, Esq., Pompan, Murray & Werfel, for the protester.

   Merilee D. Rosenberg, Esq., Department of Veterans Affairs, for the
   agency.

   Guy R. Pietrovito, Esq., and James A. Spangenberg, Esq., Office of the
   General Counsel, GAO, participated in the preparation of the decision.

   DIGEST

   Government Accountability Office recommends that the protester be
   reimbursed for the costs of filing and pursuing its protest, where the
   agency unduly delayed taking corrective action until after the submission
   of the agency report and the protester's comments, and the protest was
   clearly meritorious.

   DECISION

   Eagle Home Medical Corporation requests that we recommend that the firm be
   reimbursed the costs of filing and pursuing its protest challenging the
   terms of request for proposals (RFP) No. VA-247-RP-0037, issued by the
   Department of Veterans Affairs (VA) for supplies and services supporting
   the provision of oxygen to veterans being served by the VA Medical Center,
   Atlanta, Georgia. Eagle contended that the RFP should have been set aside
   exclusively for small business concerns.

   We grant the request and recommend that the protester be reimbursed the
   reasonable costs of filing and pursuing its protest.

   The RFP, issued on an unrestricted basis, provided for the award of a
   requirements contract to provide oxygen and rental oxygen equipment for a
   base year with 4 option years. In addition to the supply of oxygen and
   rental equipment, the contractor would provide a variety of services,
   including equipment delivery and set-up, patient education, re-supply,
   emergency services (for delivery of oxygen), and reporting. RFP, Statement
   of Work, at 11-24.

   Eagle, a small business concern, protested that the RFP should have been
   set aside exclusively for small business concerns. Specifically, the
   protester argued that there were more than 40 responsible small business
   firms in Georgia capable of satisfying the RFP requirements. In this
   regard, Eagle complained that the agency failed to perform any market
   research to establish whether or not there were two or more responsible
   small business concerns capable of performing these requirements.

   Under Federal Acquisition Regulation (FAR) sect. 19.502-2(b), a
   procurement with an anticipated dollar value of more than $100,000, such
   as this one, must be set aside for exclusive small business participation
   when there is a reasonable expectation that offers will be received from
   at least two responsible small business concerns and that award will be
   made at a fair market price. Generally, a procurement set-aside
   determination in this context 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. Neal R. Gross & Co., Inc., B-240924.2,
   Jan. 17, 1991, 91-1 CPD para. 53 at 2. However, an agency must undertake
   reasonable efforts to ascertain whether it is likely that it will receive
   offers from at least two small businesses capable of performing the
   contract work. FAR sect. 19.202-2(a); Information Ventures, Inc.,
   B-294267, Oct. 8, 2004, 2004 CPD para. 205 at 3.

   According to the VA, the RFP here was based upon the agency's "national
   template" for acquiring these services and supplies. While the VA
   previously set aside the services described in this template for exclusive
   small business participation, the United States Court of Federal Claims,
   in reviewing two other solicitations based upon the same template had
   found that the Small Business Act's "non-manufacturer rule" applied to
   those procurements and that the set-aside decisions of these solicitations
   based upon the belief that this rule did not apply were improper.[1] See
   Rotech Healthcare, Inc. v. United States, 71 Fed. Cl. 393, 424 (2006),
   appeal dismissed, No. 2006-5121 (Fed. Cir. 2006). The VA contended here
   that the contracting officer had conducted market research but found no
   small business concerns that could satisfy the "non-manufacturer rule."
   Therefore, the contracting officer concluded that the solicitation should
   not be set aside for small business concerns; this determination was
   provided to the VA's Office of Small and Disadvantaged Business
   Utilization (OSDBU), which concurred with the contracting officer's
   decision. VA Agency Report at 2; VA Second Supplemental Agency Report,
   Statement of VA's OSDBU Senior Procurement Analyst.

   Eagle and the SBA[2] argued that, even if the non-manufacturer rule
   applies to the RFP, the VA's market research was inadequate.[3] In this
   regard, the SBA identified a number of small business manufacturers that
   it believes could provide the required supplies. See SBA Report, attach.
   1, Dynamic Small Business Search (DSBS) Results.

   Although the contracting officer in his report to our Office stated
   generally that he had searched for small business, section 8(a) small
   business, historically underutilized business zone small business, and
   service-disabled veteran-owned small business vendors that could satisfy
   the non-manufacturer rule and did not find any that would be able to
   perform the contract, there was little contemporaneous documentation or
   explanation from the agency describing the contracting officer's search.
   In this regard, the contracting officer only generally stated that he had
   identified a number of small business vendors in the Contractor Central
   Registration and contacted several vendors, but did not identify any of
   these vendors or state why he found that they could not satisfy the
   contract requirements or the non-manufacturer rule.

   The SBA, however, identified what it described to be several "small
   business manufacturers that make the required supplies." See SBA Report at
   9. In this vein, the protester provided an unrebutted affidavit of its
   president recounting a telephone conversation with the contracting
   officer, in which the president reported that he was informed by the
   contracting officer that the contracting officer was aware of small
   business vendors that could satisfy the non-manufacturer rule. Eagle's
   president also stated in this affidavit that he had called one of the
   small business vendors identified by the contracting officer and was
   informed by that firm that it had sent a letter to the contracting officer
   indicating that the firm was a small business and could satisfy the
   non-manufacturer rule. See Protester's Comments, exh. 2, Affidavit of
   Eagle's President, para. 5.

   The VA provided no specific response to the SBA's or Eagle's statements,
   despite several requests by our Office that the VA address them. Instead,
   the VA provided the statement of its OSDBU senior procurement analyst, who
   stated in extremely general terms that the contracting officer had
   informed her that he had contacted several, unidentified vendors and
   concluded that those firms could not perform the contract. Not only did
   the agency not provide any documentation supporting this statement, but
   the contracting officer's own statement (which was provided at the same
   time as that of the statement of the OSDBU senior procurement analysis)
   did not even mention his market survey or any calls allegedly made to
   small business vendors. In this regard, the VA failed to address in any
   respect the protester's statement that the contracting officer had
   informed Eagle's president that he was aware of small businesses that
   could satisfy the non-manufacturer rule.

   Subsequently, we scheduled a hearing to elicit testimony from the
   contracting officer and from a contracting officer in a related
   procurement that Eagle had also protested. Although the hearing was
   scheduled to occur in GAO's hearing room in Washington, D.C., at the VA's
   request we agreed to take the testimony of the two contracting officers by
   telephone. Prior to the hearing, the VA informed us that it would take
   corrective action in response to the protest; specifically, the VA stated
   that it would conduct new market research, including considering the
   potential offerors identified by the SBA, and determine whether there were
   small business concerns that could perform the RFP's requirements,
   although the VA generally asserted that the protest was not meritorious.

   Based upon the agency's proposed corrective action, we dismissed the
   protest as academic on October 10, 2007. Thereafter, Eagle timely
   requested that we recommend reimbursement of its protest costs.

   Where a procuring agency takes corrective action in response to a protest,
   our Office may recommend that the agency reimburse the protester its
   protest costs, where based on the circumstances of the case, we determine
   that the agency unduly delayed taking corrective action in the face of a
   clearly meritorious protest, thereby causing a protester to expend
   unnecessary time and resources to make further use of the protest process
   in order to obtain relief. 4 C.F.R. sect. 21.8(e) (2007); AAR Aircraft
   Servs.--Costs, B-291670.6, May 12, 2003, 2003 CPD para. 100 at 6. A
   protest is clearly meritorious when a reasonable agency inquiry into the
   protest allegations would show facts disclosing the absence of a
   defensible legal position. AVIATE L.L.C., B-275058.6, B-275058.7, Apr. 14,
   1997, 97-1 CPD para. 162 at 16.

   In a one-page response to Eagle's request for reimbursement, the VA
   generally disputes that Eagle's protest was clearly meritorious or that
   its corrective action was unduly delayed. In this regard, the VA contends
   that "the brevity of time allotted to the two contracting officers to take
   care of their family and personal needs before departing for a hearing in
   this protest in Washington, D.C. made it impossible for either of them to
   appear" and that the "loss of the opportunity for a hearing harmed the
   VA's ability to prove it had done its research properly." VA's Response to
   Eagle's Request for Reimbursement.

   We find that Eagle's protest was clearly meritorious and that the VA
   unduly delayed taking corrective action in the face of that protest. With
   respect to the merits of Eagle's protest, the contracting officer's
   judgment that there were not two or more small business manufacturers that
   could satisfy the RFP's requirements was unsupported by the
   contemporaneous record, and despite repeated requests from our Office, the
   VA did not substantively respond to the evidence provided by the protester
   and the SBA that, on its face, showed that the VA's market research was
   inadequate. The record also does not support the VA's contention now that
   its inability to produce the contracting officers for a hearing in
   Washington, D.C. "harmed" its ability to defend itself in this protest. In
   fact, although the contracting officers were originally requested to
   attend a hearing in GAO's hearing room in Washington, D.C., prior to the
   October 10 hearing date we informed the parties that the contracting
   officers' testimony would be taken by telephone and transcribed by a court
   reporter.[4] See GAO's Amended Confirmation of Hearing, Oct. 5, 2007, at
   1.

   With respect to the promptness of the agency's corrective action under the
   circumstances, we review the record to determine whether the agency took
   appropriate and timely steps to investigate and resolve the impropriety.
   See Chant Eng'g Co., Inc.--Costs, B-274871.2, Aug. 25, 1997, 97-2 CPD
   para. 58 at 4; Carl Zeiss, Inc.--Costs, B-247207.2, Oct. 23, 1992, 92-2
   CPD para. 274 at 4. While we consider corrective action to be prompt if it
   is taken before the due date for the agency report responding to the
   protest, we generally do not consider it to be prompt where it is taken
   after that date. See CDIC, Inc.--Costs, B-277526.2, Aug. 18, 1997,
   97-2 CPD para. 52 at 2.

   Here, the VA's proposed corrective action came not only after the agency
   filed its report on the protest but after our repeated requests for
   information and that the VA address the protester's comments and the SBA's
   views that indicated that the contracting officer erred in concluding that
   there were no small business manufacturers that could satisfy the RFP's
   requirements. Under the circumstances, we conclude that the VA's
   corrective action was unduly delayed.

   We recommend that Eagle be reimbursed the reasonable costs of filing and
   pursuing its protest. Eagle should submit its claim for costs, detailing
   and certifying the time expended and costs incurred, directly to the VA
   within 60 days of receipt of this decision. 4 C.F.R. sect. 21.8(f)(1).

   Gary L. Kepplinger
   General Counsel

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

   [1] The Small Business Act's non-manufacturer rule provides that the offer
   of a non-manufacturer small business concern under a small business
   set-aside for "any procurement contract for the supply of a product" can
   be considered, provided, among other things, that the small business
   concern represents that it will supply the product of a domestic small
   business manufacturer or processor, or a waiver of this requirement is
   granted by the Small Business Administration (SBA). 15 U.S.C.
   sect. 637(a)(17) (2000). This rule is also included in the SBA's
   regulations. 13 C.F.R. sect. 121.406 (2007).

   [2] The SBA submitted a report in response to our request for its views on
   the procurement.

   [3] Eagle and the SBA also disagreed that the non-manufacturer rule
   applies to the RFP, because, in their view, the RFP provides for the award
   of a services contract, although it includes the provision of supplies.

   [4] Ordinarily, we would not regard a protest as clearly meritorious where
   resolution of the protest required further record development such as a
   hearing to complete and clarify the record. See New England Radiation
   Therapy Mgmt. Servs., Inc.--Costs, B-297397.3, Feb. 2, 2006, 2006 CPD
   para. 30 at 4. However, where corrective action is taken by an agency
   after a hearing has been scheduled, we may still conclude that the protest
   is clearly meritorious, where, as here, that conclusion is otherwise
   established by the record. See The Salvation Army Cmty. Corrections
   Program--Costs, B-298866.3, Aug. 29, 2007, 2007 CPD para. 165 at 6 n.3;
   AAR Aircraft Servs.--Costs, supra, at 4.