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Headquarters U.S. Air Force

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Sherry FreemanPrograms, DirectorAir Force Office of Small Business10 June 2009

Cases Impacting Small Business

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Introduction

Recent cases brought before the General Accounting Office (GAO) and US Court of Appeals may have far reaching implications for the Small Business Programs

GAO cases International Program GroupDelex Systems, IncMission Critical Systems

Court cases Rothe Development CorporationDynaLantic Corporation

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International Program Group, Inc.GAO B-400278, B400308

Background: International Program Group, Inc. (IPG), a Historically

Underutilized Business Zone (HUBZone) small business, protested the decision of the United States Marine Corps (USMC) to issue order No. M00681-08-P-0296 on a sole-source basis to Veteran Government Services (VGS), a service-disabled veteran-owned small business concern (SDVOSBC).

USMC issued solicitation No. M00681-08-T-010 as a set-aside for competition restricted to SDVOSBCs.

Both the order and solicitation are for support services for pre-deployment training exercises.

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International Program Group, Inc.GAO B-400278, B400308

Government Position: Sole source order - Due to short time constraints the

contracting officer (CO) considered a sole-source award to a HUBZone (IPG) but had concerns related to certain restrictions on HUBZone sole-source awards.

The CO then considered an SDVOSB set-aside but after market research, determined only one SDVOSB (VGS) was interested in competing for the contract. The CO therefore recommended and issued a sole-source award to that SDVOSB (VGS).

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International Program Group, Inc.GAO B-400278, B400308

Government Position: Solicitation - After considering 8(a), HUBZone, and

SDVOSB set-asides, the CO chose a SDVOSB set-aside, since the agency's parent activity made the least progress in obtaining its SDVOSB goal.

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International Program Group, Inc.GAO B-400278, B400308

GAO decision: Protest sustained Sept 19, 2009

HUBZone set-aside - CO shall award competitively to HUBZone when enumerated conditions are met (Rule of Two).Two or more HUBZone offers are expectedAward can be made at fair and reasonable price

CO may set-aside for SDVOSB when conditions are met. Two or more HUBZone offers are expectedAward can be made at fair and reasonable price

Note: SBA disagreed with the decision – CFR 13.607 which gives the programs parity; except a HUBZone set-aside must be considered before a small business set-aside.

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International Program Group, Inc.GAO B-400278, B400308

Status: FAR Case 2006-034 (Socio-economic parity) has been put on

hold indefinitely.

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Delex Systems, Inc. GAO B-400403

Background: Delex Systems, Inc. protested the terms of delivery order

proposal request (DOPR) No. N61339-08-R-0035, issued by the Department of the Navy, Naval Air Systems Command (NAVAIR) for its general aviation training products (GATP) program.

Delex primarily contends that the agency should have issued the solicitation as a small business set-aside (rule of two applies) rather than on an unrestricted basis.

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Delex Systems, Inc. GAO B-400403

Government Position: The Navy contends that FAR 19.502-2(b), the "Rule of Two"

does not apply to the issuance of task or delivery orders under ID/IQ contracts.

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Delex Systems, Inc. GAO B-400403

GAO decision: Protest sustained October 8, 2008

GAO stated the “Rule of Two” (FAR 19.502-2(b)) applies to task orders.

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Delex Systems, Inc. GAO B-400403

Status: Awaiting DoD Office of Legal Council decision to

concur/non concur with the GAO's opinion(s).

Note: GSA states that GAO’s ruling does not apply to orders issued under Federal Supply Schedules.

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Mission Critical Solutions (MCS)

GAO B-401057Background: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, protested 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. MCS argues that rather than awarding to Copper River on a sole-source basis, the agency should have competed the requirement among HUBZone small businesses.

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Mission Critical Solutions (MCS)

GAO B-401057Government Position:The Army asserts, that the point at which it was required to investigate whether HUBZone firms could be expected to compete was when the requirement was originally offered to SBA under the 8(a) program (i.e., December 2007).Any objection by the protester to the agency’s failure to investigate therefore should have been raised at that time and is now untimely.

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Mission Critical Solutions (MCS)GAO B-401057

GAO decision:Protest sustained May 04, 2009HUBZone program “shall” vs. Section 8(a) “discretion” of the contracting officer to let such a contract.

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Mission Critical Solutions (MCS)GAO B-401057

Status:An agency must set the acquisition aside for HUBZones if market research is positive (rule of two).Note: GAO and SBA disagree on the matter where a prior contract for the requirement has been previously performed by an 8(a) contractor.

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Rothe Development Corp

Background: In 1990, Air Force awarded contract for computer

services for Columbus AFB to Korean American owned business (small disadvantaged business (SDB)) - International Computer and Telecommunications ($5.75M) using the SDB Price Evaluation Adjustment Factor of 10 USC 2323.

Rothe Development Corp (not a SDB) was lowest bidder ($5.57M).

Rothe filed suit in 1998. Rothe claimed 10 USC 2323 was unconstitutional under the Equal Protection of the Fifth Amendment.

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Rothe Development Corp

Section 1207 of the National Defense Authorization Act of 1987 (10 U.S.C. § 2323) :

Among other things … Prescribes goal of 5% of total amount obligated for

contracts and subcontracts for socially and economically disadvantaged businesses (SDBs), Historically Black Colleges & Universities and Minority Institutions (HBCU/MI), Hispanic Serving Institutes, Native Hawaiian Institutes, and Alaska Native-serving Institutes.

Allows less than full & open competition – with 10% price evaluation factor for SDBs (including 8(a)’s) if agency has not reached 5% goal.

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Rothe Development Corp

Court decision: Federal Appeals Court ruled Nov 4, 2008 that 10 USC 2323,

as enacted in 2006 is unconstitutional and prohibits application of the current statute. Congress did not meet the narrow tailoring analysis required

for the strict scrutiny test when it extended the statute in 2006. There was no evidence (based on statistical evidence) that DoD

participated as a passive participant in pervasive nation wide racial discrimination.

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Rothe Development Corp

Government position: Case is being discussed by the Department of Justice and

the Office of the Secretary of Defense legal council for implications on how it will affect DoD small business programs. As preliminary guidance, effective February 26, 2009, “…any

activity, which includes but is not limited to the award of contracts and orders under contracts, advance payments, and the award of grants or scholarships or the addition of funds to existing grants and scholarships, that rely exclusively on the authority of 10 U.S.C. § 2323 should cease.”

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DynaLantic Corporation

Background:The Navy awarded contract for mobile flight simulators under 8(a) program.DynaLantic, a small business, previously designed/manufactured the simulator, was unable to compete because it was not an 8(a) firm.DynaLantic filed suit in 1995 contending that the Navy's decision to procure through the Section 8(a) program was unconstitutional and violated the Administrative Procedures Act. They sought injunctive relief.

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DynaLantic Corporation

Court decision:None yet. The Court instructed the parties to resubmit their motions for summary judgment.

On November 30, 2007, the parties completed additional briefings.

Decision by the Court on the resubmitted motions for summary judgment pending.

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IssuesLots of issues to be addressed:

IPG How will the proposed FAR parity case be affected? Does helping financially troubled areas vs. other programs

first –make sense? Delex

How does the re-representation rule play? If a company becomes large, would it be eligible for a small

business set-aside task/delivery order? “Rule of Two” vs.“Fair Opportunity”– will this ruling be

appealed? MCS

Will HUBZone set-asides trump follow on requirements currently in the 8(a) program?

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Issues

RotheHow will it affect 8(a) and other programs?How will if affect ANC’s, Indian Tribes?Does this mean that unless Congress takes action,

race based preferences are invalid? DynaLantic

How will it affect DoD use of 8(a)?

Waiting on OSD, FAR Council, and legal council guidance.Until then – technically, CO’s are still bound by

the current FAR and agency supplements there to.

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Questions????