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GAO Interprets HUBZone as Mission Critical

May 7, 2009 by
Filed under: Government Contracting 

The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release.

Protest is sustained where contracting agency did not consider whether two or more qualified Historically Underutilized Business Zone (HUBZone) small businesses could be expected to submit offers and whether award could be made at a fair market price, as required by the HUBZone statute, 15 U.S.C. sect. 657a, prior to deciding to award contract to an Alaska Native Corporation on a sole-source basis.

DECISION

Mission Critical Solutions (MCS) of Tampa, Florida, a firm that is both an 8(a) program participant and a qualified Historically Underutilized Business Zone (HUBZone) small business, protests the Department of the Army’s award of a sole-source contract for information technology (IT) support for the Office of the Judge Advocate General to Copper River Information Technology, LLC, of Anchorage, Alaska, an Alaska Native Corporation. The protester argues that rather than awarding to Copper River on a sole-source basis, the agency should have competed the requirement among HUBZone small businesses.

GAO sustained the protest.

BACKGROUND

The agency reports that prior to January 2008, the IT support services at issue here were provided by a large business. In December 2007, the Army notified the Small Business Administration (SBA) that the effort was appropriate for set-aside under SBA’s 8(a) program and that it intended to award a sole-source contract to MCS (the protester). SBA accepted the requirement into the 8(a) program and authorized the Army to negotiate directly with MCS. On January 31, 2008, the Army awarded MCS a 1-year contract for approximately $3.45 million.

Near the conclusion of the 1-year period of performance, the Army determined that it would structure the follow-on contract for the services to include a base and 2 option years. Because this raised the anticipated value of the contract to an amount in excess of $3.5 million, a sole-source award to the incumbent contractor was precluded by Federal Acquisition Regulation (FAR) sect. 19.805-1; as relevant here, that provision states that, unless SBA accepts the requirement on behalf of a concern owned by an Indian tribe or an Alaska Native Corporation, an acquisition offered to SBA under the 8(a) program must be awarded on the basis of competition limited to eligible 8(a) firms if (1) there is a reasonable expectation that at least two eligible and responsible 8(a) firms will submit offers and that award can be made at a fair market price, and (2) the anticipated total value of the contract, including options, will exceed $3.5 million (for non-manufacturing acquisitions). The Army then determined that an 8(a) Alaska Native Corporation firm, Copper River Information Technology, LLC, was capable of performing the requirement. On December 17, 2008, the Army notified SBA that, if SBA concurred, it intended to award a contract to Copper River. On December 23, SBA accepted the requirement on behalf of Copper River. The Army awarded a contract to Copper River on January 13, 2009. The protester learned of the award on January 22 and protested to our Office on January 29.

RELEVANT DISCUSSION [IN PART]

The protester challenges the agency’s decision to make award on a sole-source basis to Copper River, arguing that the HUBZone statute, 15 U.S.C. sect. 657a (2006), requires that the procurement be set aside for competition among HUBZone small businesses. As explained below, we conclude that it was improper for the agency to proceed with a sole-source award to Copper River without considering whether a set-aside for HUBZone concerns was required.

The HUBZone Program was established by Title VI of the Small Business Reauthorization Act of 1997, Pub. L. No. 105-135, to provide federal contracting assistance to qualified small business concerns located in historically underutilized business zones in an effort to increase employment opportunities, investment, and economic development in those areas. See FAR sect. 19.1301(b). Section 602(b)(1)(B) of the Act, 15 U.S.C. sect. 657a, provides that, “notwithstanding any other provision of law,” “a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to qualified HUBZone small business concerns if the contracting officer has a reasonable expectation that not less than 2 qualified HUBZone small business concerns will submit offers and that the award can be made at a fair market price.” (Emphasis added.) We have interpreted this language to mean that a HUBZone set-aside is mandatory where the enumerated conditions are met. International Program Group, Inc., B-400278, B‑400308, Sept. 19, 2008, 2008 CPD para. 172 at ___.

The statutory language authorizing the 8(a) program differs from the language authorizing the HUBZone program in that it gives the contracting agency the discretion to decide whether to offer a contracting opportunity to SBA for the 8(a) program. In this connection, the statute provides in relevant part as follows:

In any case in which [SBA] certifies to any officer of the Government having procurement powers that [SBA] is competent and responsible to perform any specific Government procurement contract to be let by any such officer, such officer shall be authorized in his discretion to let such procurement contract to [SBA] upon such terms and conditions as may be agreed upon between [SBA] and the procurement officer.

15 U.S.C. sect. 637(a)(1)(A) (2006).

In a case regarding the HUBZone program, the Ninth Circuit distinguished the mandatory language of the HUBZone statute from the discretionary language of the 8(a) statute as follows:

[A]s the district court noted, “Congress has used the term ‘shall’ to mandate that certain contracting opportunities be set aside for competition restricted to HUBZone small businesses. With regard to the 8(a) program … Congress has … le[ft] to agency discretion the initial offer and acceptance of contracts into the 8(a) Program.” [Citation omitted.] The text of the Section 8(a) Program is materially different from that of the HUBZone Program. Accordingly, the discretionary nature of the Section 8(a) Program cannot be imported into the HUBZone Program thereby eliminating the mandatory aspect of the HUBZone Program.

Contract Mgmt. Indus., Inc. v. Rumsfeld, 434 F.3d 1145, 1149 (9th Cir. 2006)

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