By: Edward T. DeLisle
On August 27th, we posted an article regarding the recent Court of Federal Claims case, DGR Associates, Inc. v. United States. In that case, the protesting contractor took the position that the government agency, the Air Force, failed to follow the direction of Congress in determining how to set aside contracts for small and small, disadvantaged businesses. It proffered that the legislation which created the HUBZone program clearly gave HUBZone companies priority over other small and small, disadvantaged businesses. The statute reads in relevant part:
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.
In agreeing with the GAO’s position regarding this issue, the Court reached the following conclusion:
On the issue of statutory interpretation, the language of the Small Business Act granting priority to the HUBZone program could not be more clear. By using the phrases "notwithstanding any other provision of law…a contract opportunity shall be awarded on the basis of competition to qualified HUBZone small business concerns, "Congress established a priority for the HUBZone program over other competing small business programs.
The Court then proceeded to set forth the remedy associated with its finding:
By this decision, the Court enters a permanent injunction requiring the Air Force and the Small Business Administration to terminate the unlawful contract awarded to General Trades & Services, and to determine whether the criteria of 15 U.S.C. § 657a(b)(2)(B) are met, such that the contracting opportunity at issue must be set aside and awarded on the basis of restricted competition to a qualified HUBZone small business concern. Defendant is enjoined from awarding the contract in a manner that is inconsistent with this decision.
The Court could not have been clearer. The Air Force was required to assess whether the contract could have been set aside for HUBZone concerns. If the Air Force reached the conclusion that at least two HUBZone companies could perform the work at a fair price, then the contract had to be set aside for HUBZones. While at this point it is not clear what happened following the Court’s decision, based upon two recent GAO decisions, it is obvious that the Air Force and at least one other government agency don’t intend to follow the Court’s directive in other cases.
Matter of: Rice Services, Inc. B-403746, issued by the GAO on September 16, 2010, involved a decision by the Air Force to set aside a contract for 8(a) small business concerns. The protester took the position that the contract should have been set aside for HUBZone companies. In response to the protest, the GAO asked the Air Force "whether it had acted in reliance on the DOJ Memorandum Opinion." In DGR Associates, Inc., the Air Force based its position on a memorandum issued by the Department of Justice, which concluded that the Small Business Act did not require HUBZone prioritization. The GAO, and then the Court of Federal Claims, disagreed with the DOJ’s position. Nonetheless, in response to the GAO’s question in the Rice Services matter, it is clear that the Air Force refused to budge:
[Consistent] with our prior position, the Air Force intends to follow the Memorandum Opinion issued by the Office of Deputy Assistant Attorney General, Office of Legal Counsel, Department of Justice, concluding that there is no statutory requirement to prioritize the HUBZone small business program.
Undeterred, the GAO sustained the protest. Following the reasoning set forth in DGR Associates, Inc., the GAO stated that the language of the HUBZone statute clearly mandated that HUBZone’s were to be given priority over other small and small, disadvantaged businesses. As a result, it issued a recommendation to the Air Force that it "undertake reasonable efforts to ascertain whether it will receive offers from at least two HUBZone concerns…at a fair market price."
In Matter of: Rice Services, Inc. B-402966.2, also issued by the GAO on September 16, 2010, the same protester made an identical challenge, this one involving the Defense Commissary Agency. The DCA attempted to set aside a contract for service-disabled, veteran-owned small businesses and, in doing so, took the same position as the Air Force, that is, that it could do so without first considering whether the contract should be set aside for HUBZone contractors. The DCA suffered the fate as the Air Force. The GAO sustained the protest.
The above illustrates the current tug-of-war between certain executive agencies, as well as the judicial branch, of our government. While one can guess as to what Congress may have intended when it established the HUBZone program, the language of the statute is clear. The Court of Federal Claims and the GAO had no choice but to rule as they did in the cases cited above. If Congress was simply sloppy in drafting the HUBZone program’s enabling legislation, which was probably the case, then only Congress can fix the problem. It will be interesting to see how this battle plays out in the weeks and months to come.
Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.