In Steiner Construction Co., Inc., the Government Accountability Office (GAO) upheld the U.S. Coast Guard’s (USCG) award of a $1.19 billion small business set-aside shipbuilding contract to a business concern that was later determined to be other than a small business. The protestor argued that the Small Business Administration (SBA) Office of Hearing and Appeals (OHA) decision to vacate an earlier SBA Area Office’s size determination that found the awardee to be an eligible small business concern required that the USCG terminate the award.

On October 4, 2022, the SBA issued a size determination finding that the prospective awardee was an eligible small business and “manufacturer” for the small business set-aside procurement purposes. Following that determination, the USCG awarded the contract. The protestor appealed the SBA’s size determination to OHA, which subsequently vacated the SBA’s size determination and remanded the matter back to the cognizant SBA area office. After additional review, that office found the awardee was not an eligible small business because it was not a “manufacturer,” as the awardee planned to perform the work at leased facilities and not its own. OHA agreed with that conclusion. Nevertheless, the USCG allowed the awardee to continue with the contract, asserting that the agency was not required to terminate the award despite the SBA’s post-award findings.

At the GAO, the protestor maintained that the USCG was required to terminate the contract because OHA vacated the SBA area office’s determination of the awardee’s eligibility for contract award—a determination that the USCG relied on in making the award. The protestor argued that vacating the area office’s decision rendered the earlier eligibility decision a legal nullity, and in the absence of eligibility for the award, the USCG was required, under applicable regulations, to justify, in writing, its award to the awardee. In other words, because there had been, in effect, no size determination as to the potential awardee’s eligibility, the contracting officer had to explain in writing why the USCG could not wait for an eligibility determination to be made. As the protestor explained, the USCG made no such determination. The USCG disagreed with the premise of the protestor’s argument, stating that, consistent with the applicable regulations and regardless of what happened later, the agency made its award after the SBA area office determined the awardee was eligible for the award. Thus, the USCG was not required to make a written justification for the award.

The GAO agreed with the USCG finding first that the written justification referenced by the protestor applied only if the contracting officer determined that an award must be made for the protection of the public interest, despite a pending SBA size determination. The GAO noted that the contracting officer made the award after the SBA’s original determination that the awardee was eligible for award, an action permissible under the regulations. Next, the GAO stated that the protestor’s distinction between OHA’s vacation of the SBA area office’s eligibility determination as opposed to a mere reversal of that decision amounted to, effectively, a distinction without a difference and that prior GAO decisions allowed the award of a contract in such circumstances. Moreover, the GAO observed there was simply no way for the USCG to know that OHA would later vacate the eligibility determination, and so, there was no reason for the USCG to have prepared a written justification to proceed with award. Because the award was not made pursuant to the contracting officer’s written justification, a necessary predicate to the agency terminating the contract under the regulations relied on by the protestor, the GAO found there was no valid basis for the protest.

Small business regulations can be complicated and confusing at times, and the award of a small business set-aside contract to a business other than small can be frustrating. If you have any questions regarding small business regulations or any other matters related to contracting with the federal government, our Government Contracting Group is available to assist you on this or any other government contracting matters.