Dynamic Educational Systems, Inc. v. United States

In the United States Court of Federal Claims
No. 12-730C
(Originally Filed: February 15, 2013)
(Reissued: February 25, 2013)*
**********************
DYNAMIC EDUCATIONAL SYSTEMS,
INC.,
Plaintiff, Bid protest; Job Corps Centers;
Small Business Set-Asides;
v. Statutory Construction; Rule of
Two; Fair Proportion Analysis;
THE UNITED STATES, Workforce Investment Act
Defendant.
**********************
Gail Lindsay Simmons, Washington, DC, and Hopewell H. Darneille
III, Washington, DC, of counsel argued for plaintiff.
Amanda L. Tantum, Civil Division, Department of Justice, Washington,
DC, with whom are Stuart F. Delery, Principal Deputy Assistant Attorney
General, Jeanne E. Davidson, Director, and Patricia M. McCarthy, Assistant
Director, for defendant. David R. Koeppel, Department of Labor, Washington,
DC, with whom is Peter J. Dickson, of counsel.
_______________
OPINION
_______________
*
This opinion was originally filed under seal. Publication was deferred
pending parties’ review for redaction of protected material. After considering
the parties’ proposed redactions, the court adopted some of the suggested
redactions, which are indicated by brackets, and made other minor editorial
changes. The opinion is now prepared for release.
BRUGGINK, Judge.
This is a pre-solicitation protest of the Department of Labor’s (“DOL”)
decision to designate the contract for operation of the Montgomery, Alabama
Job Corps Center (“Montgomery center”) as a small business set-aside.
Plaintiff, Dynamic Educational Systems, Inc. (“DESI”), is the incumbent
contractor. Because of the small business size limitations the agency placed
on the follow-on procurement, DESI will be precluded from competing.
Currently before the court are a number of procedural motions,
defendant’s motion to dismiss part of plaintiff’s complaint for lack of
jurisdiction, and the parties’ cross-motions for judgment on the administrative
record. The motions are fully briefed, and we heard oral argument on
February 6, 2013. For the reasons explained below, we deny defendant’s
motion to dismiss for lack of jurisdiction, grant defendant’s motion for
judgment on the administrative record, and deny plaintiff’s cross-motion.
BACKGROUND
I. What constitutes the administrative record?
One of the numerous sources of contention in this protest has been the
question of what constitutes the administrative record (“AR”). That has not
been a simple question to answer for at least three reasons. First, the decision
to set aside the procurement for small businesses, although nominally ordered
by Carol Andry, the Contracting Officer for the Montgomery center, was at a
minimum done in close coordination with Jillian Matz, the Division Chief for
the Division of Job Corps Procurement in the Office of Contracts Management
(“OCM”), which is within the Education and Training Administration at the
Department of Labor (“ETA DOL”). The initial record produced by the
government was closely cabined around only what Ms. Andry had before her
and was minimal. Second, the decision to set aside the Montgomery center
arose from the sources sought notice (also known as a Request for Information
or RFI) for seven centers; i.e., not just the Montgomery center. Third,
plaintiff’s challenge to the “Rule of Two”1 determination, which set aside
1
Federal Acquisition Regulation part 19.502-2(b) is the source of the
(continued...)
2
operation of the Montgomery center for small businesses only, includes the
argument that it was irrational because the decision-makers (Ms. Matz at the
headquarters level) knew two relevant things not reflected in the record: that
there were dozens of other job center operation contracts around the country
being solicited contemporaneously; and second, that there were no more than
a handful of small businesses capable of performing the work.
In short, from plaintiff’s perspective, the administrative record should
include everything that Ms. Matz and others at the headquarters level knew
about all Job Corps Center contracts being solicited and the numbers of small
businesses either responding to RFI’s or to solicitations, or awarded contracts.
We declined to order that level of supplementation, although we did order
defendant to furnish all of the material generated in connection with the RFI
that included the Montgomery center.
Plaintiff, meanwhile, included an appendix to its motion for judgment
on the administrative record which, among other things, included materials to
which it had access from a similar RFI involving the Job Corps Center in
Gadsden, Alabama. We ordered defendant to inform the court of two things
about the materials in plaintiff’s appendix: whether it was available to the
decision-makers on the Montgomery RFI; and whether it was considered by
the decision-makers on the Montgomery RFI. Our assumption was that, if
material in plaintiff’s appendix was both available to the decision-makers and
considered by them in making the set-aside decision, then it should have been
included in the administrative record.
Whatever optimism we had that this process would yield a tidy
administrative record has disappeared in a blizzard of subsequent filings by
both parties. Defendant offered an affidavit of Ms. Andry in response to the
court’s inquiry. In substance, she states that she did not consider or rely on any
of the documents in plaintiff’s appendix when she made the decision to set
aside the Montgomery contract. Decl. Carol Andry ¶ 9, Jan. 25, 2013. Ms.
Andry, however, does concede that she was generally aware of other set-asides
occurring contemporaneously with Montgomery. Id. ¶ 10.2 Defendant also
1
(...continued)
Rule of Two and will be discussed in detail below.
2
Attached to Ms. Andry’s January 25 declaration is a chart showing the
(continued...)
3
offered the affidavit of Ronald Daitoku, Procurement Analyst in OCM
headquarters, who participated early on in the set-aside analysis by reviewing
all interested party submissions to the RFI that included Montgomery and
creating a spreadsheet with his analysis of responding businesses’ relevant
experience. Decl. Ronald Daitoku ¶¶ 1, 3, Feb. 5, 2013. He states that when
he analyzed each company’s relevant experience and created the spreadsheet,
he only considered the responses submitted to the RFI. Id. ¶ 4. Finally,
defendant offers the affidavit of Michael Bolden, Senior Contract Specialist
at OCM, who explains that he created a draft set-aside memorandum for the
Montgomery center and in doing so considered all the responses to the RFI,
including Montgomery and six other centers, as well as a spreadsheet that
analyzed the relevant experience of the interested small businesses, and the
set-aside memorandum prepared by other Contracting Specialists “around the
same time.” Decl. of Michael Bolden ¶¶ 1, 3-4, Feb. 5, 2013.
The three affidavits are uniform in their denial that any of the
documents in plaintiff’s appendix were relied upon when making the set-aside
determination. Yet, the declarants acknowledge that any of the RFIs, Pre-
solicitation Notices, Solicitations, and Award Notices for Job Corps Centers
that were posted on the Federal Business Opportunities website were publicly
accessible and therefore theoretically available to each of them. Mr. Daitoku
admits to having access to the Outcome Measurement System data, which
measures performance outcomes at each center. Daitoku Decl. ¶ 6. Ms. Andry
and Mr. Bolden deny having access to this data, but plaintiff avers that slightly
altered forms of the information are publicly available. See Andry Decl. ¶ 6;
Bolden Decl. ¶ 6. Plaintiff included the Outcome Measurement System data
in its appendix because, it alleges, the data demonstrates the flawed record that
small businesses have accumulated in operating Job Corps Centers.
Additionally, Mr. Bolden agrees that he had access to some of the
documents relating to the Dayton center set-aside because he was the
Contracting Specialist assigned to that center. Bolden Decl. ¶ 9. While all of
this information was available to Ms. Andry, Mr. Bolden, and Mr. Daitoku,
they did not consider it in making the set-aside decision for Montgomery.
2
(...continued)
RFI release and contract start dates for all Job Corps Centers by region.
4
Noticeably absent is any response on behalf of Ms. Matz. Defendant
takes the position that she was not one of the “decision-makers” on the
Montgomery set-aside.
Defendant sua sponte offered another affidavit from Ms. Andry on a
different matter. During a conference call, the court called attention to an
email from Ms. Andry to Ms. Matz dated June 26, 2012. The gist of that email
is the expression of Ms. Andry’s concerns about adequate competition from
small businesses when several solicitations or contract start dates run
concurrently. There is a response email in the administrative record from Ms.
Matz indicating interest in these concerns and suggesting a conference. There
is no mention in the administrative record of such a meeting. Defendant
therefore filed an affidavit on January 14, 2013, from Ms. Andry explaining
that such a meeting took place and what was done in response.
To clarify our position with respect to the affidavits, we will take them
into consideration for two purposes: to determine which of the materials
included in plaintiff’s appendix should be viewed as part of the administrative
record, i.e., if they were both available and taken into consideration, and to the
extent that Ms. Andry explains factually what happened in response to her
email prior to the set-aside decision.3
As to the lack of an affidavit from Ms. Matz, and with respect to the
bulk of the material in plaintiff’s appendix, which was either not available to
Ms. Andry, Mr. Bolden, or Mr. Daitoku, or not considered by them, we
acknowledge the substance of the material and the fact of no response from
Ms. Matz in connection with plaintiff’s arguments that the Rule of Two
decision for Montgomery could not be made in a vacuum, and that the criteria
used for the Rule of Two evaluation in Montgomery were insufficient.
In other words, if plaintiff is correct, for example, that it is relevant that
the Gadsden material shows both the same small businesses appearing in
response to that solicitation and that different standards were used by the
agency for applying the Rule of Two test, then we would have to consider
ordering the agency to supplement the existing administrative record. If, on
3
We agree with plaintiff that paragraphs 11, 12, 20, and 21 of Ms.
Andry’s January 14 declaration reflect post-decisional events or explanations
and are not properly part of the record.
5
the other hand, it would make no difference whether expanding the
administrative record showed that there is a small pool of interested small
businesses or that the use of a different standard for evaluating small
businesses was used for a different procurement, then the absence of the
material in the administrative record is also irrelevant.
For that reason, while defendant has moved to strike all of plaintiff’s
references in briefing to its appendix, we will only rule on that motion to the
extent it becomes necessary to do so, i.e., if the material would be relevant to
the outcome if the court were to consider it.
As to the two other attempts to add materials to the court’s
consideration, we can make clearer rulings. Defendant has offered to
supplement the record with the results of the solicitation that emerged after the
set-aside decision. Namely, seven putative small businesses actually submitted
offers. Ex. 1. We view that material as not relevant to the bona fides of the
prior set-aside decision, however. Plainly it was information not available to
the Contracting Officer at the time she made her decision. While it might be
relevant in the event the court were to consider a remedy,4 plaintiff has raised
questions about whether the court can take at face value that all seven offerors
would qualify as responsible small businesses. In any event, as we indicated
at the outset, the court will not need to consider a remand because we reject
plaintiff’s protest on the merits.
Nor will we take into the administrative record plaintiff’s notice of
February 5, 2013, to the effect that budget constraints have resulted in the
suspension of enrollment of new students at all Job Corps Centers. We view
that as irrelevant to any question before the court.
II. Factual Background
DESI currently operates a Job Corp Center in Montgomery, Alabama
under contract DOLJ08AU00020, which runs from October 1, 2008, until
September 31, 2013. AR 1. Montgomery is a job training facility with a
capacity of 132 residential female students, 132 residential male students, 43
non-residential female students, and 15 non-residential male students. AR 8.
4
If, for example, remand for a new Rule of Two determination would
be futile.
6
The current annual cost to run Montgomery is roughly $7.5 million. AR 6.
The contract carries a total value of $37,744,531.00 for two years of services
plus three unilateral option years. AR 1, 64.
Before issuing a formal solicitation for a new contract, the Department
of Labor Employment and Training Administration, through its Office of
Contracts Management (“OCM”), published a Sources Sought Notice for
Request for Information DOL121RI20503 on April 26, 2012. AR 64. The
purpose of a sources sought notice is to conduct market research regarding the
businesses, specifically small businesses, that operate in a particular industry
and that might be willing subsequently to compete for the work.
As part of the RFI, and pursuant to Federal Acquisition Regulation
(“FAR”) part 19.303(a), the contract for operation of a Job Corps Center was
assigned an industry category code: NAICS 611519. See 48 C.F.R. §
19.303(a) (2012); AR 1, 64, 69. Each industry category is assigned a code
through the North American Industry Classification System (“NAICS”)
maintained by the Office of Management and Budget (“OMB”). Using the
already-established NAICS codes, the Small Business Administration (“SBA”)
then imposes its own limitation on size and revenue to determine which
entities can be considered “small” within any industry category. 13 C.F.R. §
121.201 (2012). Respondents to either a RFI or later to a solicitation indicate
whether they should be considered small businesses in light of the particular
dollar limits for the job category identified by the contracting officer.
By selecting NAICS code 611519 (the only one applicable to Job Corps
Centers) the agency dictated the small business revenue limit associated with
that code, which was no more than $35.5 million in annual receipts. AR 64;
13 C.F.R. § 121.201. Therefore, if the contract for the operation of
Montgomery were designated for small businesses only, any business with
more than $35.5 million in annual receipts would be unable to qualify. DESI
has receipts in excess of $35.5 million and thus would be ineligible. See AR
1.
The sources sought notice was not solely for Montgomery. Rather, it
sought market information regarding seven Job Corps Centers: Paul Simon,
Dr. Benjamin L. Hooks, Detroit, Joliet, Earle C. Clements, and Little Rock.
AR 67-68.
7
On the same day the RFI applicable to Montgomery (“RFI-M”) was
issued, a second sources sought notice was prepared and issued regarding
operation of five other centers: Shriver, Tulsa, New Haven, San Diego, and
Sacramento (“RFI-S”). AR 545-45.11.5 Both RFIs were prepared and
released by OCM, which is located in Washington, DC. AR 64, 69. At OCM,
there is a division exclusive to Job Corps Center procurements. Ms. Matz is
the Division Chief for the Division of Job Corps Procurement within OCM.
See AR 576.1. Responses to both RFIs were directed to Mr. Daitoku and Ms.
Peni Webster-Lewis, who are both Procurement Analysts with OCM in its
Washington Headquarters office. AR 67. OCM also operates through
regional employees. Ms. Andry, the Contracting Officer for the Atlanta
Region, was eventually tasked with making the set-aside decisions for
Montgomery and Dr. Benjamin L. Hooks. AR 1, 571. In sum, through the
two sources sought notices issued on April 26, 2012, OCM sought market
information on twelve Job Corps Centers. AR 545.1, 545.4-45.6, 545.10-
45.11.
RFI-M explained that “Job Corps is a national residential training and
employment program administered . . . to address the multiple barriers to
employment faced by at-risk youth throughout the United States.” AR 64-65.
The proposed contracts would be cost-reimbursement with an incentive fee.
AR 3. The services sought included “educational and career technical skills
training,” operating the residential facility, providing meals and supervision for
the residents, job placement, health services, and center oversight and
management. AR 65. Although the sources sought notice was not limited to
small businesses, ETA encouraged “ALL QUALIFIED SMALL
BUSINESSES INCLUDING 8(A) FIRMS . . . TO PARTICIPATE.” AR 64.
The notice directed each interested business to submit a capability statement
to Mr. Daitoku, Procurement Analyst with the Office of Contracts
Management,6 indicating business size classification and the Job Corps Center
or Centers in which the business had an interest. AR 66-67. Potential
contractors were asked to include in the capability statement their prior
experiences running comparable facilities, providing similar services, and
5
The decimals numbers in the administrative record denote pages that
were added through later supplementation.
6
Ms. Webster-Lewis, Procurement Analyst with OCM, was listed as the
secondary point of contact. AR 67.
8
operating with comparable financial resources. AR 65-66. Specifically, OCM
requested responses to the following twelve capability requirements:
1. Experience providing a comprehensive academic and career
technical training program.
2. Experience providing food services, medical, dental, and
mental health care.
3. Experience managing and ensuring data integrity.
4. Experience protecting Personally Identifiable Information,
whether on paper, in electronic form or communicated orally.
In accordance with the Privacy Act of 1974, as amended.
5. Experience with facility and construction management.
6. Experience providing property management.
7. Experience providing residential management, residential
supervision, and meals.
8. Experience operating a program that is integrated with the
local workforce development systems, employers and the
business community.
9. Experience operating a job training program that reflects the
local labor market conditions of the place of contract
performance.
10. Experience operating a job training program that is
reflective of the workforce investment plans of the state where
the program is located and experience taking part in the local
workforce investment system of the program’s local [sic].
11. Access to financial resources sufficient to satisfy
requirements of operating a [Job Corps Center] operation for the
first 45 days of operation or the ability to obtain them, e.g., a
seven-figure bank line of credit, evidence of a positive cash
flow, etc.
9
12. Experience with the financial management of a cost
reimbursement type contract.
AR 65-66. OCM reserved “the right to compete any acquisition resulting from
this survey among small businesses or to make award to an 8(a) firm, based on
the responses received.” AR 64.
OCM received capability statements from six businesses in response to
RFI-M. AR 19. The following chart shows the size classification of each
business that responded and the Job Corps Centers in which it was interested:
Company Name Expressed Interest in Business Size
these Job Corp Centers
[ ] Montgomery Small Business
Paul Simon
Dr. Benjamin Hooks
Detroit
Joliet
Earle C. Clements
Little Rock
[ ] Dr. Benjamin Hooks Small Business
Detroit
[ ] Montgomery Small Business
Paul Simon
Detroit
Joliet
Little Rock
[ ] Montgomery Small Business
Paul Simon
Dr. Benjamin Hooks
Joliet
Little Rock
[ ] Montgomery Small Business
Paul Simon
Detroit
Joliet
Little Rock
10
[ ] Joliet Large Business
Little Rock
AR 19. As the chart shows, there were four responses from small businesses
expressing an interest in Montgomery. AR 19. DESI did not respond to the
sources sought notice, although it did not need to in order to respond to the
solicitation.
After Mr. Daitoku received the responses, a determination
memorandum (“memo”) addressing all seven centers was generated in OCM.
AR 571. Additionally, a DL1-2004 form was created for each center. This
form contains information about the originating agency (OCM), the contract
value and period of performance, whether the procurement will be conducted
as a set-aside, the NAICS code and small business size standard, past
procurement history, and includes a section in which DOL’s Office of Small
and Disadvantaged Business Utilization (“OSDBU”) Representative may state
whether he or she concurs with the chosen procurement method. AR 1. On
June 5, 2012, Mr. Daitoku e-mailed this memo, an analysis chart and a
partially completed DL1-2004 form for each of the seven Job Corps Centers
to Ms. Matz, Division Chief for the Division of Job Corps Procurement, and
Regional Contracting Officers Gail Thomsen and Ms. Andry. AR 571. The
memo concludes that five of the Job Corps Centers should be set aside because
the conditions of the FAR part 19.502-2(b) were met for all centers except Dr.
Benjamin L. Hooks and Earle C. Clements. AR 571.2. FAR part 19.502-2(b),
known as the Rule of Two, directs that the “contracting officer shall set aside
any acquisition over $150,000 for small business participation when there is
a reasonable expectation that: (1) Offers will be obtained from at least two
responsible small business concerns . . . ; and (2) Award will be made at fair
market prices.” 48 C.F.R. § 19.502-2(b) (2012).
According to Mr. Daitoku’s memo, there was a reasonable expectation
that two or more responsible small businesses would later respond to a
solicitation because [ ], [ ],
and [ ] each had either a current or recent
Job Corps Center prime contract. His assumption was that, because each had
previously been awarded a contract, each therefore had been found responsible
in the past and could be expected to continue competing for Job Corps Centers
at fair market prices. AR 571.2. In addition, the management staff of another
respondent, [ ], had experience operating Job Corps
11
Centers, and the company claimed to have the required financial resources.
AR 571.2. According to the memo and analysis chart, because the
Montgomery, Paul Simon, Detroit, Little Rock, and Joliet Job Corps Centers
had each received interest from at least two small business entities that
appeared to be responsible, the centers were to be set aside. AR 571.2-71.5.
The conclusions of the determination memo were memorialized in the DL1-
2004 forms, with one form for each Job Corps Center. AR 571.6-71.12.
Assuming they each agreed to the contents of the memo, Mr. Daitoku
asked Ms. Andry to sign the DL1-2004 forms for Montgomery and Dr.
Benjamin L. Hooks, Ms. Thomsen to sign for the Earle C. Clements Center,
and Ms. Matz to sign the remaining DL1-2004 forms and the memo for other
centers. AR 571. Signing would result in setting aside the procurement for
competition only from small businesses.
On June 26, 2012, Ms. Andry wrote to Ms. Matz expressing the
following concerns:
I spoke with [Ms. Webster-Lewis] and confirmed that the
release date for the [solicitations] was not considered in making
the set aside determinations. Four of these procurements
(Detroit, Joliet, Montgomery and Little Rock) will run
concurrently and have a contract start date of October 1, 2013.
Paul Simon has a start date of August 1, 2013. The overlapping
dates of these procurements will have an impact on adequate
competition. The most recent small business set-aside
procurements for center operations in the Atlanta Region were
Turner and Bamberg. These procurements were scheduled 5
months apart. While adequate competition existed for these
procurements, we had offers from two of the same companies
for both [solicitations]. The number of small businesses
currently operating Job Corps centers as prime contractors is
limited. It is very likely that one small business will be the
successful offeror on more than one of these procurements.
Small businesses do not have the capability to respond to
multiple [solicitations] that have the same closing date, as well
as, perform transition activities for multiple contracts during the
same month. The transition month for four of the contracts is
September 2013.
12
AR 572. Her concern, in short, was that the combination of a limited pool of
small businesses and overlapping dates to respond to solicitations would
dampen competition.
Based on material in the administrative record, it is clear that Ms.
Andry’s concerns were factually grounded. As of September 18, 2012, there
were only four independent small businesses7 and five subsidiary small
businesses,8 which operated 16 out of 125 Job Corps Centers. AR 498-503.
There are at least two other companies, Education and Training Resources and
Horizons Youth Services, that operate Job Corps Centers under contracts that
were small business set-asides, but each had outgrown the small business
designation during contract performance. AR 500.
To address the problem, Ms. Andry suggested some options: staggering
the solicitation and contract start dates, reevaluating the set-aside
determinations taking into account the limited number of small businesses and
the difficulty they would have meeting the challenges of overlapping
solicitations and contract start dates, or proceeding with the procurements as
set-asides but reissuing them as unrestricted if there was inadequate
competition. AR 572. In response, Ms. Matz agreed to schedule a meeting
with Ms. Webster-Lewis and others to discuss the issue. AR 572. Although
the content of the meeting is undocumented, Ms. Andry states in her first
affidavit that she “participated in a teleconference with Ms. Matz, Ms.
Webster[-Lewis], contracting officer Edmond (Tom) Pendleton, and other
participants, who I believe included contracting officer Gail Thomsen” on July
18, 2012. Decl. of Carol Andry ¶ 16, Jan. 14, 2013; see AR 651-52.
According to Ms. Andry, her concerns and solutions were discussed during the
teleconference, and there was “opportunity to give input about the process.”
Andry Decl. ¶ 17. The outcome of the teleconference was an agreement that
each regional contracting officer would be responsible for his or her own set-
aside determination and could decide the start dates for the contract. Id. “If,
after submission of proposals in response to [solicitations], the same
7
Those four small businesses are Career Opportunities, Inc., Education
Management Corporation, Odle Management Group, LLC, and Serrato
Corporation. AR 498-502.
8
The subsidiaries are Alutiiq Education and Training, Alutiiq
Professional Services, Chugach Education Services, Inc., Chugach
Government Services, and Chugach World Services. AR 498-99.
13
businesses were awarded multiple contracts, we could stagger the contract start
dates so that the small businesses would not be transitioning at two [Job Corps
Centers] at the same time.” Id. The contracting officer would simply extend
“the end date of the incumbent contractor’s contract to correspond with the
new contract’s start date.” Id.Reflecting the agreement reached at the teleconference, on August 3,
2012, Ms. Matz sent an e-mail to a team of OCM employees including Ms.
Andry, Mr. Pendleton, Mr. Bolden, and several others informing them that
“[w]e are going to move forward with the upcoming procurements based on
the market research outcomes as they stand. Please proceed with filling out the
DL1-2004 form and moving forward with your procurement. Then, submit the
form and signed memo to Ron Daitoku.” AR 577. In the same e-mail Ms.
Matz asked the recipients to wait until “we” finalize the model before releasing
the pre-solicitation notices. AR 577. Ms. Andry signed the DL1-2004 form
for Montgomery on August 3, 2012. AR 1.
On August 7, 2012, Mr. Daitoku supplied Mr. Bolden, Senior Contract
Specialist in the Office of Contracts Management, with three memoranda
containing the results of the market research, analysis, and small business set-
aside determination for the operation of twelve Job Corps Centers and the
provision of select services at an additional four Job Corps Centers.9 AR 670-
81. The first memorandum covered the Paul Simon, Montgomery, Dr.
Benjamin L. Hooks, Detroit, Joliet, Earle C. Clements, and Little Rock Job
Corps Centers. AR 671. Although [ ] was no longer
deemed responsible, this memorandum provided an analysis similar to the one
previously described and concluded that, out of the seven centers, only Dr.
Benjamin L. Hooks and Earle C. Clements should not be set aside. AR 672-
73.
The second memorandum addressed the Job Corps Centers that were
included in RFI-S: Shriver, Tulsa, New Haven, San Diego, and Sacramento.
AR 674. OCM received five responses to that notice. AR 675-76. The
responses and the interest expressed in each center is shown below.
9
The third memorandum dealt exclusively with contracts for
outreach/admission and career training services at four Job Corps Centers. AR
678. Contracts for theses services are assigned to a different NAICS code than
operations. AR 678-80.
14
Company Name Expressed Interest in Business Size
these Job Corp Centers
[ ] Shriver Small Business
Tulsa
Sacramento
[ ] Shriver Small Business
New Haven
San Diego
[ ] Shriver Small Business
Tulsa
New Haven
San Diego
Sacramento
[ ] Shriver Small Business
New Haven
San Diego
Sacramento
[ ] Did not specify Small Business
AR 675-76. Only two of the responding businesses, [ ]
and [ ], were found to be potentially
responsible. AR 676-77. These were also two of the businesses that had been
determined to be potentially responsible for the purposes of RFI-M. AR 672.
The Contracting Officer concluded that Shriver and Sacramento 10 should be
set aside. AR 676.
In a process that spanned the month of August, the individual set-aside
memoranda for each Job Corp Center were prepared. See AR 577-84. Mr.
Bolden drafted the set-aside determination memorandum specific to
Montgomery and Dr. Benjamin L. Hooks, which he sent to Ms. Andry on
10
Only one of the two capable entities expressed an interest in
Sacramento. AR 677. Sacramento’s “current contract awarded in 2008 was
solicited as a 100% small business set-aside and seven offers were received.”
AR 677. Based on the procurement history for the center, the Contracting
Officer determined that the Rule of Two was met. AR 677.
15
August 22, 2012. AR 584-85; see Decl. of Carol Andry ¶ 18. The
determination memorandum prepared by Mr. Bolden specifically for
Montgomery was similar to the analysis prepared for the sources sought notice.
Compare AR 585.2-85.3 with AR 672-73. Rather than conclude that the
potentially responsible entities will “continue to offer [] competitive
proposal[s] that [are] based on fair market price,” AR 673, Mr. Bolden also
indicated his expectation that the Rule of Two was satisfied because “it’s
anticipated that similar small businesses will provide a competitive proposal
that is based on fair market price.” AR 585.3. Ms. Andry approved of the
analysis. Andry Decl. ¶ 18. The only change to the document was the author’s
name. Compare AR 3-5 with AR 585.1-85.3.
At the end of August and the beginning of September, OCM was
compiling the set-aside memoranda, forms, and other supporting
documentation for the OSDBU so that it could review the determinations. AR
586-92. This process was conducted for up to 15 Job Corps Centers
concurrently. AR 702-03 (showing a chart of documents needed to submit to
OSDBU for its concurrence in the set-aside determinations of fifteen Job
Corps Centers and four additional contracts for services at Job Corps Centers).
OSDBU concurred in the set-aside determination for Montgomery on
September 18, 2012. AR 1.
Based on the capability statements received pertaining to Montgomery,
Ms. Andry, the Contracting Officer, determined that one of the small
businesses, [ ], was unable to perform the contract
because it “failed to provide sufficient information to show that [it] had the
capability to operate the Montgomery [Job Corps Center].” AR 5. She also
deemed the remaining three small businesses, [ ],
[ ], and [ ],
potentially responsible to perform the contract under all twelve capability
requirements. AR 5. In her analysis, Ms. Andry noted that the three small
businesses deemed responsible either currently operate or have recently
operated a Job Corps Center,11 and she therefore “anticipated that similar small
businesses will provide a competitive proposal that is based on fair market
price.” AR 5. Thus, Ms. Andry concluded that both requirements for setting
aside the contract for a small business pursuant to FAR part 19.502-2 had been
met. AR 5. On September 17, 2012, the DL1-2004 form was completed by
11
[....]
16
signatures from the Contracting Officer, Ms. Andry, as well as by a
representative from the OSDBU. Operation of the Montgomery center was
designated as a 100 percent small business set-aside.12 AR 1. OCM issued a
pre-solicitation notice on October 17, 2012, announcing to the public that it
anticipated issuing the solicitation for Montgomery on October 31, 2012, as a
100 percent small business set-aside. AR 71.
Plaintiff filed its complaint here on October 26, 2012. It sought a
preliminary injunction to prevent the agency from issuing a solicitation for
operation of the Montgomery center, which we denied. The solicitation,
DOL13UA20002, went forward as a small business set-aside on November 27,
2012. AR 141. While the initial pre-proposal conference and walk-through
for prospective bidders was cancelled, it was rescheduled and held on
December 6, 2012. AR 73, 141, 484. Proposals were received until January
30, 2013. AR 141. As mentioned earlier, seven businesses responded,
claiming they qualified as small businesses. Defendant did agree, however,
that it would not award any contract arising from that solicitation until after the
court rules.
DISCUSSION
I. Jurisdiction
Plaintiff raises three challenges to the set-aside determination. Two are
based on alleged violations of statutes. It contends that, before a procurement
may be set aside for small businesses, the procuring agency, in this case DOL
acting through Ms. Andry, had to make a preliminary determination pursuant
to 15 U.S.C. § 644(a) (2006) (“Section 644”), that a “fair proportion” of work
in that industry category should be set aside for small businesses. Plaintiff
contends that the set-aside is fatally flawed because that determination was not
made.
Plaintiff also contends that the agency’s small business set-aside
decision, based on application of the Rule of Two determination called for by
FAR part 19.502-2(b), constituted a violation of the Workforce Investment
12
Under FAR part 6.203, contracts may be set aside for small
businesses to fulfill statutory policies relating to small business concerns. 48
C.F.R. § 6.203.
17
Act, Pub. L. No. 105-220, 112 Stat. 936 (1998) (“WIA”), amending various
sections codified throughout Title 29. It asserts that any set-aside for small
business would violate the larger concerns for open competition mandated by
the WIA. Finally, plaintiff argues that even if FAR part 19.502-2(b) is not
incompatible with WIA, then its application here was arbitrary and capricious.
Pursuant to the Tucker Act, we have jurisdiction to “render judgment
on an action by an interested party objecting to a solicitation by a Federal
agency for bids or proposals for a proposed contract or to a proposed award .
. . or any alleged violation of statute or regulation in connection with a
procurement or a proposed procurement.” 28 U.S.C. § 1491(b)(1) (2006).
DOL ETA’s decision to designate the contract as a small business set-aside is
made “in connection with” a proposed procurement, and plaintiff alleges that
the decision was made in violation of applicable statute and regulations and
was arbitrary and capricious. See Sys. Appl’n & Techs. v. United States, 691
F.3d 1374, 1382 (Fed. Cir. 2012) (stating that the court has jurisdiction over
“objections related to a statutory or regulatory violation so long as those
objections are in connection with a procurement or proposed procurement”).
As to all of plaintiff’s claims, therefore–the asserted violations of Section 644
and the WIA, and that the Rule of Two determination was arbitrary and
capricious–we plainly have subject matter jurisdiction.
To establish economic interest or prejudice in a pre-award protest,
however, plaintiff also must demonstrate “a non-trivial competitive injury
which can be addressed by judicial relief.” Weeks Marine, Inc. v. United
States, 575 F.3d 1352, 1362 (Fed. Cir. 2009).13 Plaintiff need only show “a
direct economic stake in the solicitation being carried out in accordance with
applicable laws and regulations.” Weeks Marine, 575 F.3d 1362. At least with
respect to its arguments directed at the agency’s application of the Rule of
Two, DESI is an “interested party” because the set-aside determination
prevented DESI, the incumbent, from competing for the upcoming contract.
13
The test is distinct from the one for a post-award protest, which
requires the plaintiff to prove that the violation was prejudicial and “that, but
for the alleged error, it would have had a ‘substantial chance’ of winning the
contract.” Greenleaf Const. Co., Inc. v. United States, 67 Fed. Cl. 350, 356
(2005) ((quoting Banknote Corp. of Am., Inc. v. United States, 365 F.3d 1345,
1351 (Fed. Cir. 2004)) (citing Galen Med. Assocs., Inc. v. United States, 369
F.3d 1324, 1330 (Fed. Cir. 2004))).
18
“A deprivation of an opportunity to compete is sufficient economic harm to
demonstrate prejudice for purposes of standing.” Magnum Opus Techs., Inc.
v. United States, 94 Fed. Cl. 512, 533 (2010). Plaintiff is the incumbent
contractor and a prospective bidder “whose direct economic interest would be
affected by the award of the contract.” Am. Fed’n of Gov’t Empls., ALF-CIO
v. United States, 258 F.3d 1294, 1302 (Fed. Cir. 2001) (quoting 31 U.S.C. §
3551(2) (Supp. IV 1998)).
Defendant’s motion to dismiss challenges plaintiff’s standing only with
respect to Count II of the complaint, the claim that the DOL never made the
fair proportion determination contemplated by Section 644. Defendant
advances two arguments exclusively in support of the motion to dismiss that
count: 1) that DOL’s implementation of Section 644’s “fair proportion”
determination consists exclusively of high level policy judgments and non-
procurement activities and is thus beyond the court’s jurisdiction; and 2) DESI
lacks standing to challenge any such policy determinations or non-procurement
related activities for two reasons, namely, that large businesses like DESI are
not within the zone of protected interests contemplated by Section 644, and
because a change in the fair proportion analysis cannot be shown to benefit
DESI.
In principle we can agree with the assumption underlying both aspects
of defendant’s motion to dismiss. If indeed the Section 644 fair proportion
determination is fundamentally a policy judgment reflected in decisions of the
Executive Branch that are not directly connected to particular procurements,
then the court would be without jurisdiction. We could rephrase the argument,
or perhaps add to it ourselves: if the fair proportion determination is purely one
of “policy,” then there are no judicially enforceable means to evaluate a
“proper” determination. We could not order a remedy that the court could
meaningfully evaluate or enforce. Nevertheless, determining whether this
assumption is correct requires some examination of the broad framework
which has evolved in the last sixty years for introducing small business
preferences into the procurement apparatus for executive agencies. Defendant
argues that this apparatus includes the Rule of Two determination. Indeed, one
of defendant’s points in support of plaintiff’s asserted lack of standing is that
the fair proportion determination is implemented through the Rule of Two.
Defendant thus contends that the fair proportion and Rule of Two
determinations are interconnected, both in terms of statutes, regulations, and,
in this case, factually. We therefore defer separate consideration of the motion
19
to dismiss until after an examination of the law, facts, and all of the parties’
arguments.
II. Substantive Arguments
A. Section 2887
One provision of WIA, found at 29 U.S.C. § 2887(a)(2)(A), provides,
“Except as provided in subsections (a) to (c) of section 3304 of Title 41, the
Secretary shall select on a competitive basis an entity to operate a Job Corps
center.” 29 U.S.C. § 2887(a)(2)(A) (2006 & Supp. V 2011). Plaintiff
contends that the phrase “competitive basis” means “full and open
competition,” i.e., open to large as well as small businesses. We recently
rejected that argument in Res-Care, Inc. v. United States, 107 Fed. Cl. 136,
141-42 (2012). We concluded that, although setting aside a procurement only
for a small businesses does limit competition, it is not a non-competitive
process. We held that, “small business set asides are competitive.” Id. at 142.
Plaintiff here attempts to make a related argument which was not
squarely addressed in Res-Care. It adds a reference to 29 U.S.C. §
2887(a)(1)(A), which provides that the Secretary of Labor “shall enter into an
agreement with a Federal, State, or local agency, an area vocational education
school or residential vocational school, or a private organization, for the
operation of each Job Corps center.” Plaintiff argues that “Congress intended
for [Job Corps Center] operators to be chosen on a competitive basis among
all eligible entities and granted no authority to limit the pool of eligible
entities” except as provided in 41 U.S.C. § 3304(a)-(c) (Supp. V 2011). Pl.’s
Mot. J. AR 25. Plaintiff states that any regulation to the contrary is not entitled
to deference. See Chevron, U.S.A., Inc. v. Natural Res. Def. Council, Inc., 467
U.S. 837, 843-45 (1984).
We disagree. We see no reason to revisit our holding in Res-Care. The
list of eligible entities found in 29 U.S.C. § 2887(a)(1)(A) (2006 & Supp. V
2011) is just that: a list of entities that are eligible to be chosen to operate a Job
Corps Center. As defendant points out, there is nothing in the list which
dictates that every procurement should be open to all types of entities. We
note, moreover, that Congress specifically adopted preferential procurement
programs for small businesses in order to promote competition:
20
The essence of the American economic system of private
enterprise is free competition. Only through full and free
competition can free markets, free entry into business, and
opportunities for the expression and growth of personal
initiative and individual judgment be assured. . . . It is the
declared policy of the Congress that the Government should aid,
counsel, assist, and protect, insofar as is possible, the interests
of small-business concerns in order to preserve free competitive
enterprise, to insure that a fair proportion of the total purchases
and contracts or subcontracts for property and services for the
Government . . . be placed with small-business enterprises, to
insure that a fair proportion of the total sales of Government
property be made to such enterprises, and to maintain and
strengthen the overall economy of the Nation.
15 U.S.C. § 631(a) (2006).
In addition, plaintiff argues that the regulation directing ETA to apply
the FAR to Job Corps procurements, 20 C.F.R. §§ 670.300-670.320 (2012), is
unenforceable. The Job Corps specific regulation at issue provides that “the
Federal Property Administrative Services Act of 1949,” “Federal Acquisition
Regulation (48 CFR Chapter 1),” and “DOL Acquisition Regulation (48 CFR
Chapter 29)” apply to the procurement and selection of an entity “to operate
contract centers.” 20 C.F.R. § 670.310(a); see 20 C.F.R. § 670.320. By
referring to the FAR and DOLAR, these regulations make possible the
application of the Rule of Two in procurements for Job Corps Centers. See 48
C.F.R. §§ 19.502-2, 2919.502 (2012). Plaintiff claims that these regulations
were enacted ultra vires because DOL’s statutory authority to promulgate 20
C.F.R. part 670, 20 U.S.C. § 9276(c) (2006), expired on December 31, 1999,
before part 670 was adopted in its current form.
In order to transition to the system adopted by WIA, the Secretary of
Labor was given authority in 20 U.S.C. § 9276(c) to promulgate final
regulations, which were to be “developed and published in the Federal
Register” no later than December 31, 1999. The final rule was not
promulgated until August 11, 2000. Workforce Investment Act, 65 FR 49294-
01 (Aug. 11, 2000). However, the ETA provides the following explanation for
the delay:
21
the Act required the Secretary of Labor to issue this Final Rule
implementing provisions of the WIA under the Department’s
purview by December 31, 1999. While we were unable to meet
this deadline, we have endeavored to issue this Final Rule as
expeditiously as possible without compromising the quality of
the document. Under Secretary of Labor’s Order No. 4-75, the
Assistant Secretary for Employment and Training has been
delegated the responsibility to carry out WIA policies, programs,
and activities for the Secretary of Labor. We have determined
that this Final Rule, as promulgated, complies with the WIA
statutory mandate to issue a Final Rule and provides effective
direction for the implementation of WIA programs.
Workforce Investment Act, 65 FR 49294-01 (Aug. 11, 2000). The agency
treated the deadline as a goal, and not a pre-condition to maintenance of rule-
writing authority. We will not disturb that conclusion. The court’s bid protest
jurisdiction does not extend to striking down regulations. While we could
refuse to enforce a regulation that was squarely at odds with mandatory
procurement procedures set out by statute, that is not the case here. See Schism
v. United States, 316 F. 3d 1259, 1285 (Fed. Cir. 2002); Tasker v. United
States, 178 Ct. Cl 56 (1967). We do not view the possibility that DOL was late
in enacting a regulation as an “alleged violation of statute or regulation in
connection with a procurement.” 28 U.S.C. § 1491(b)(1) (2006).
In any event, 20 U.S.C. § 9276(c) (2006) was not the Secretary of
Labor’s only source of authority to enact regulations implementing the WIA.
Title 29 of the United States Code, Section 2939(a), empowers the Secretary
to “prescribe rules and regulations to carry out this chapter,” which includes
29 U.S.C. § 2887. 29 U.S.C. § 2939(a) (2006). Additionally, 5 U.S.C. § 301(2006) also vests the Secretary of Labor with the authority to “prescribe
regulations for the government of his department” and “the distribution and
performance of its business.” The Secretary of Labor therefore had broad
authority to direct the application of the typical procurement procedures as
outlined in the FAR and DOLAR to apply to procurements for Job Corps
Center operations.
B. The Fair Proportion Determination
Plaintiff claims that DOL failed to make the “fair proportion”
determination contemplated by 15 U.S.C. § 644(a) (2006). For purposes of
22
this argument, plaintiff assumes that the Rule of Two set-aside process called
for by FAR part 19.502-1(a) is not per se improper, but that it is independent
of a prior determination made under Section 644(a), which assesses whether
it is appropriate to contemplate a set-aside in order to maintain a “fair
proportion” of small-business participation in a particular industry category.
Section 644(a) is found in Title 15 (Commerce), Chapter 14a (Aid to Small
Business):
To effectuate the purposes of this chapter, small-business
concerns within the meaning of this chapter shall receive any
award or contract or any part thereof, and be awarded any
contract for the sale of Government property, as to which it is
determined by the Administration and the contracting
procurement or disposal agency . . . (3) to be in the interest of
assuring that a fair proportion of the total purchases and
contracts for property and services for the Government in each
industry category are placed with small business concerns . . . .
These determinations may be made for individual awards or
contracts or for classes of awards or contracts. . . . For purposes
of clause (3) of the first sentence of this subsection, an industry
category is a discrete group of similar goods and services. Such
groups shall be determined by the Administration in accordance
with the definition of a “United States industry” under the North
American Industry Classification System [NAICS], as
established by the Office of Management and Budget . . . .
15 U.S.C. § 644(a).
It is plaintiff’s position that this predicate determination as to a “fair
proportion” must be made by the contracting officer prior to the set-aside
determination made under FAR part 19.502-1(a). It points out that the Rule
of Two regulation contains the conjunction “and” when referring to the “fair
proportion” determination:
(a) The contracting officer shall set aside an individual
acquisition or class of acquisitions for competition among small
businesses when—
(1) It is determined to be in the interest of
maintaining or mobilizing the Nations full
23
productive capacity, war or national defense
programs; or
(2) Assuring that a fair proportion of Government
contracts in each industry category is placed with
small business concerns; and the circumstances
described in 19.502-2 [the “Rule of Two”] . . .
exist.
48 C.F.R. § 19.502-1(a) (emphasis added). When asked by the court during
oral argument how an individual contracting officer would be in a position to
know whether or not it was necessary to move a particular award toward small
businesses in order to maintain a fair proportion across the government within
a specific job category, counsel responded that this is the role, within a
particular agency, of the OSDBU. Plaintiff envisions that prior to any
procurement process in any executive agency, the contracting officer would
consult with a representative from the OSDBU and consider the current level
of small business participation within the industry category and the capacity
of those small businesses to take on new contracts prior to determining
whether setting aside a particular contract would be in the interest of assuring
a fair proportion. Depending on the outcome, this analysis presumably could
render application of the Rule of Two unnecessary. Plaintiff asserts that the
“fair proportion” analysis was not conducted in this case and that had it been
conducted, then Montgomery may not have been set aside.
Defendant does not disagree that a fair proportion determination has to
be made at some level, but argues that it looks very different from the contract-
specific process plaintiff calls for. It contends that the structure of Section 644
suggests that the determination contemplated by Section 644(a) is not made in
the context of individual contracts, but is reflected in high level policy
judgments made on an ongoing and iterative basis by the President and the
heads of agencies. According to defendant, it should not be assumed that
subsection (a) requires any particular form of a determination; Congress was
not literally insisting that the contracting officer make a formal study of what
impact a particular contract would have on the ratio of small to large
businesses in a specific industry category. Instead, discretion was left to the
Executive Branch to work out a means to accomplish an end. Defendant
argues that FAR part 19.502-2, the Rule of Two, is the means by which the
Executive Branch has chosen to satisfy the obligation to determine a fair
proportion of contracts to be awarded to small businesses.
24
This position was endorsed by the Comptroller General14 in Delex
Systems, Inc.:
The origin of the Rule of Two predates the FAR; when the FAR
was promulgated, the Office of Federal Procurement Policy
(OFPP) prepared a Federal Register notice seeking comments on
the rule’s inclusion in the new government-wide procurement
regulation. 49 Fed. Reg. 40135 (Oct. 3, 1984). This notice
explains that the Rule of Two is intended to implement the
Small Business Act language in 15 U.S.C. sect. 644(a), quoted
above, requiring that small businesses receive a “fair proportion
of the total purchases and contracts for property and services for
the Government.” Id. In addition, the notice advised that, in the
view of OFPP, “the FAR language complies with current law
and reflects the will of the Congress as expressed in the Small
Business Act.” Id. Thus, while the Rule of Two is not
specifically set out in the Small Business Act, it has been
adopted as the FAR’s implementation of the Act’s requirements
through notice and comment rulemaking.
B-400403, 2008 WL 4570635, at *5 (Comp. Gen. Oct. 8, 2008).
Admittedly, this interpretation assumes that the use of the conjunction
“and” in FAR part 19.502-1(a) was merely infelicitous drafting. Nevertheless,
we believe that clues within Section 644 itself, as well as within other code
provisions, and the difficulties attendant on implementing plaintiff’s
interpretation, suggest that defendant’s interpretation is correct.
Section 644 itself sets up a larger scheme of promoting small-business
contracting that seems incompatible with a prior, rigid, contract-by-contract
determination by contracting officers of whether a “fair proportion” has been
achieved. Subsection (g) of Section 644, for example, calls for the President
to set government-wide goals, in percentage terms for small business
participation in contracting:
14
The Comptroller General was subsequently renamed the Government
Accountability Office or GAO.
25
[t]he President shall annually establish Government-wide goals
for procurement contracts awarded to small business concerns
. . . . Notwithstanding the Government-wide goal, each agency
shall have an annual goal that presents, for that agency, the
maximum practicable opportunity for small business concerns.
15 U.S.C. § 644(g). The agency-wide goal will be set by the “head of each
Federal agency, after consultation with the Administration.” Id. §
644(g)(2)(A). The purpose of these goals is to “make consistent efforts to
annually expand participation by small business concerns from each industry
category in procurement contracts of the agency.” Id. § 644(g)(2)(D).
An enforcement mechanism of sorts exists in subsection (h), which calls
for annual reports to Congress and the President as to the agencies’ level of
success in meeting goals for small business contracting. Id. § 644(h).
Also integral to the operation of Section 644 is the appointment within
each agency of a Director of the Office of Small and Disadvantaged Business
Utilization. The OSDBU monitors performance in meeting goals and
encourages “unbundling” contracts to make them more accessible to small
businesses. In addition, one of the roles of the Director of OSDBU is to
make recommendations to contracting officers as to whether a
particular contract requirement should be awarded pursuant to
subsection (a) of this section, or section 637(a) of this title or
section 2323 of Title 10. Such recommendations shall be made
with due regard to the requirements of subsection (m) of this
section, and the failure of the contracting officer to accept any
such recommendations shall be documented and included within
the appropriate contract file.
Id. § 644(k)(10).
The “fair proportion” determination is also inextricably linked to the
process by which the Office of Management and Budget creates NAICS
industry codes and the Small Business Administration then assigns size
standards for each NAICS code. When the contracting officer selects “the
appropriate NAICS code and related small business size standard and [includes
it] in solicitations,” 48 C.F.R. § 19.303(a), the effect is to incorporate a
judgment made by the Small Business Administration as to what the
26
appropriate small-business size standard is for a particular industry category.
This standard can be adjusted, with the result that more or less companies are
able to compete as small businesses.
Congress was obviously aware of this interplay between the fair
proportion determination and the use of set-asides based on size standards.
When Section 644 was amended in 1986 by the National Defense
Authorization Act for Fiscal Year 1987, Pub. L. No. 99-661, § 921, 100 Stat.
3816, 3926-30 (1986), to add the requirement that the fair proportion
determination be made on an industry category basis, the Report of the House
Armed Services Committee noted the following:
The Small Business Act requires that a fair proportion of
the total purchases and contracts for property and services
needed by the Federal Government be placed with small
business concerns. One procedure for accomplishing this
objective is the small business set-aside program. . . .
....
. . . . The recommended provision allows the SBA flexibility to
evaluate the existing size standards and craft size standards
consistent with the objectives of the Act. The committee has
been advised that, in some industries such as the military boot
manufacturing industry, only manufacturers exist, all of whom
are classified as small businesses. An inappropriate reduction
in size could result in two or three companies being classified as
small, leaving the one or two companies not deemed small at a
significant disadvantage in bidding those contracts. In
circumstances such as those, the size standard should be reduced
to a sufficient degree that all potential offerors with similar
capabilities are treated similarly.
H.R. Rep. No. 99-718, at 256, 259 (1986). This strongly suggests that, even
if Section 644 was initially adopted on the assumption that some other device
would emerge to implement the “fair proportion” determination, Congress
understood that set-asides were being used to accomplish that end. By then,
of course, the Rule of Two was already in place. See 49 Fed. Reg. 40135-01
(Oct. 12, 1984).
27
In sum, we agree with defendant that the fair proportion determination
was satisfied when the Contracting Officer applied the appropriate NAICS size
standard, received the endorsement of the OSDBU, and then invoked the Rule
of Two. The mechanisms contemplated by Section 644–goal setting by the
executive branch and input from the OSDBU–and the industry specific
application of size standards by OMB and the SBA, all were implemented.
We conclude that nothing more was required to satisfy the “fair proportion”
requirement.
Although not necessary to the outcome, we also note that plaintiff was
never able to articulate a clear means by which a single contracting officer
could make a fair proportion determination in the context of a particular
procurement. Of necessity, this would seem to call for a much broader vantage
point, perhaps even outside the agency. Moreover, plaintiff was unable to
offer any reasonable likelihood that a remand for a “fair proportion”
determination would lead to a different outcome. Arguing that a new
determination “might” come out differently would not satisfy the requirement
of a non-trivial competitive injury. Nor could plaintiff offer any meaningful
guidelines for the court to apply in determining whether the agency’s
discretion had been abused.15
C. Application of the “Rule of Two”
Plaintiff’s final argument is that the agency was arbitrary and capricious
in the way it conducted its Rule of Two analysis. We disagree.
The Rule of Two states that the “contracting officer shall set aside any
acquisition over $150,000 for small business participation when there is a
reasonable expectation that: (1) Offers will be obtained from at least two
responsible small business concerns . . . ; and (2) Award will be made at fair
market price.” 48 C.F.R. § 19.502-2(b). It is worth highlighting the point that
the rule does not require that the particular companies who respond to the RFI
15
These considerations admittedly provide support for defendant’s
motion to dismiss for lack of a judicially enforceable remedy. Because we
view plaintiff’s substantive arguments as without merit, because we have
subject matter jurisdiction, because plaintiff is an interested party, and because
the jurisdictional concerns expressed in defendant’s motion are more
prudential in nature, we decline to dismiss this count for lack of standing.
28
actually be determined responsible. Rather, the test is simply whether it
appears likely that, when the solicitation later moves forward, at least two
responsible small businesses will appear.
Plaintiff offers several arguments to support the assertion that the Rule
of Two decision was arbitrary and capricious. They fall into two categories:
those that rely only on the materials that the government contends were
properly before the Contracting Officer, i.e., materials related solely to the
Montgomery Job Corps Center, and those arguments that rely on material
related to other Job Corps Centers.
As to the first category, plaintiff contends that Ms. Andry’s June 26
email evinces concerns about adequate competition that call into question the
reasonable expectation required under the Rule of Two. However, Ms. Andry
explains in her January 14 affidavit that her concerns were addressed during
a teleconference held July 18, 2012. Each contracting officer would handle the
set-aside determination for his or her own procurements and control—and if
necessary, adjust—the contract start date to accommodate the possibility that
a single small business contemporaneously was awarded more than one
contract. Decl. Carol Andy ¶¶ 16, 17. Despite her initial reservations, Ms.
Andry determined that a set-aside was reasonable.
Plaintiff also asserts that the set-aside decision was not reasonable
because the “relevant factors” of capability, capacity, past performance, and
award at fair market price were not thoroughly considered. Pl.’s Mot. J. AR
56. Plaintiff borrows the “relevant factors” from the FAR’s general standards
for determining whether a prospective contractor is “responsible” to be
awarded a contract. 48 C.F.R. § 9.104-1; see 48 C.F.R. § 9.103.
We begin with the reminder that, whether to set aside a solicitation for
small businesses “‘is a matter of business judgment within the contracting
officer’s discretion.’” Gear Wizzard, Inc. v. United States, 99 Fed. Cl. 266,
282 (2011) (quoting Benchmade Knife Co. v. United States, 79 Fed. Cl. 731,
738 (2007)). The “law does not require any particular method.” Id.; see
McKing Consulting Corp. v. United States, 78 Fed. Cl. 715, 724-25 (2007)
(holding that the Rule of Two was satisfied when the contracting officer relied
on market research and a history of successful procurements conducted as
small business set-asides); Otis Elevator Co., B-195873, 1979 WL 11672 at
*2 (Comp. Gen. Dec. 19, 1979) (rejecting plaintiff’s argument that inadequate
past maintenance service by the incumbent small business invalidated the
29
contracting officer’s reasonable expectation in the Rule of Two analysis).
Crucially, the contracting officer need not make affirmative determinations of
responsibility, Admiral Towing & Barge Co., B-291849 et al., 2003 WL
22309106, at *3 (Comp. Gen. March 6, 2003), but need only have “a
reasonable expectation that: (1) Offers will be obtained from at least two
responsible small business concerns . . . ; and (2) Award will be made at fair
market prices.” 48 C.F.R. § 19.502-2(b) (emphasis added); see The Protective
Group, Inc., B-310018, 2007 WL 4097385, at *4 (Comp. Gen. Nov. 13, 2007).
Past acquisition history may be relevant to the Rule of Two analysis, but
“it is not the only factor to be considered in determining whether a reasonable
expectation exists.” 48 C.F.R. § 19.502-2(b)(2). “The contracting officer may
consider and base its decision on such factors as prior procurement history, the
nature of the contract, market surveys, and/or advice of the agency’s small
business specialist.” MCS Mgmt., Inc. v. United States, 48 Fed. Cl. 506, 512,
514 (2000). Additionally, it is not required or practical at this stage of the
procurement process for the contracting officer to conduct a full responsibility
evaluation. Fermont Div., Dynamics Corp., 59 Comp. Gen. 533, 538-40
(1988). Rather, the contracting officer need only reasonably expect that likely
offerors will “be capable of surviving a future responsibility determination.”
Greenleaf, 67 Fed. Cl. at 358.
The small businesses responding to the RFI furnished the Contracting
Officer with substantial narrative descriptions of their experience and prior
history on related work. See AR 21-63. While it is true that the rationales
offered for finding the entities potentially responsible—which were relied on
to show a sufficient pool of available small businesses—consisted uniformly
of “currently operates JCC,” it is not irrational to assume that,“[s]ince these
three respondents have been awarded [Job Corps Center] contracts it’s
anticipated that similar small businesses will provide a competitive proposal
that is based on fair market price for the operation of the Montgomery Job
Corps Center.” AR 5. While the Rule of Two analysis was not extensive, an
extensive analysis was not required.
Plaintiff contends, however, that Ms. Andry’s analysis was too narrow.
It argues that to artificially limit the Rule of Two analysis to what was in front
of Ms. Andry is to ignore the evidence in the record that suggests that OCM
led the decision-making process and had before it all of the information
regarding Job Corps Center set-asides occurring contemporaneously across the
nation. While it may have been reasonable for Ms. Andry to conclude that the
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Rule of Two was satisfied when three small businesses with operations
experience expressed interest in the Montgomery center, plaintiff asserts that
it was not reasonable when OCM “decided to set-aside 13 [Job Corps Centers]
for competition amongst a maximum of three small businesses, which between
them operated only four [Job Corps Centers].” Pl.’s Mot. J. AR 50. In support
of its position, plaintiff cites material it included as an appendix to its motion
for judgment on the administrative record.
The materials outside the record furnished initially by the government
consist of notices posted on the Federal Business Opportunities website,
including RFIs, Pre-solicitation notices, Solicitations, and Award notices for
other Job Corps Centers, Outcome Measurement System data that is available
on DOL’s website, a Master Procurement Schedule for all Job Corps Centers,
and set-aside memorandum and OCM internal emails obtained from the
administrative records of other cases. If we admitted the material into the
administrative record, it would show, in substance, a pattern of set-asides made
in reliance on expressions of interest from a relatively limited pool of small
businesses. Plaintiff asks us to remand so that the Contracting Officer may
take into consideration all of this material in her set-aside decision. See Fla.
Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985) (“If the record before
the agency does not support the agency action, if the agency has not considered
all relevant factors, or if the reviewing court simply cannot evaluate the
challenged agency action on the basis of the record before it,” then the court
ought “to remand to the agency for additional investigation or explanation.”).
While at first glance the pattern established by this material might seem
problematic, we conclude that it is not the court’s role to second guess the
agency’s decision to rely on the mechanisms it had available to address the
problem. For example, after the solicitation, when the Contracting Officer
reviews proposals, she will conduct a responsibility determination pursuant to
FAR part 9.104-1, which takes into account all of the bidder’s “existing
commercial and governmental business commitments,” past performance,
capacity, and capability. If there are no acceptable offers from responsible
small businesses in response to a set-aside, then FAR part 19.502-2(a) states
that “the set-aside shall be withdrawn and . . . be resolicited on an unrestricted
basis.” In addition, if only one offer is received from a responsible small
business in response to a set-aside then the Contracting Officer has discretion
to withhold an award. 48 C.F.R. § 19.502-2(a). Even if only one offer is
received, moreover, that bidder would have been under the impression that it
was in competition with others at the time it priced its proposal. And if the
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proposals do not initially reflect a fair market price, then a fair price may be
negotiated pursuant to FAR part 15, and “[e]xcept as authorized by law, a
contract may not be awarded as a result of a small business set-aside if the cost
to the awarding agency exceeds the fair market price.” 48 C.F.R. § 19.501(g).
Ms. Andry’s largest concern with respect to the limited number of small
businesses available was that entities either would not bid, or would be unable
to prepare to commence performance on more than one contract at a time. As
to the first concern, we think it was not irrational to rely on the mechanisms
cited above to remedy problems with limited competition. As to the latter
concern, we think it was not irrational to rely on making adjustments to the
time of contract commencement. Any other outcome would require the court
to speculate about at least four variables: the entities submitting bids, the dates
of the solicitations announced by the government, the degree of overlap in the
interest by bidders, and finally, the contract performance start dates.
The Rule of Two is part of a larger framework in the FAR established
to benefit small businesses. All that is required is a reasonable expectation.
The threshold for meeting the criteria of the Rule of Two is purposefully low
and is counterbalanced by FAR provisions that provide direction in the event
of a failed set-aside. We conclude that, even if the materials related to other
Job Corps Centers were in front of us, the result here would be the same.
Therefore, we decline to include it in the administrative record because it is not
necessary for effective judicial review. Axiom Res. Mgmt., Inc. v. United
States, 564 F.3d 1374, 1381 (2009) (citing Camp v. Pitts, 411 U.S. 138, 142-
43 (1973)). The Contracting Officer’s decision to set-aside the Montgomery
center was not arbitrary and capricious.
CONCLUSION
For reasons explained above, we grant in part and deny in part
defendant’s January 14, 2013 motion to supplement the administrative record
with the first declaration of Ms. Andry. Defendant’s January 25, 2013 motion
to strike extra-record materials in plaintiff’s motion for judgment on the
administrative record is granted. Defendant’s motion of January 25, 2013 to
supplement the administrative record with declarations in response to the
court’s January 18, 2013 order, is granted. Plaintiff’s motion of February 4,
2013 for leave to notify the court of defendant’s suspension of all Job Corps
Center enrollment is denied. Defendant’s motions of February 5, 2013 for
leave to file a corrected motion to supplement the administrative record and for
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leave to supplement the administrative record with Declaration of Mr. Bolden
are granted. Plaintiff’s motion of February 12, 2013 for leave to file
supplement responses to the court’s oral argument inquiries is denied. We
deny defendant’s motion to dismiss Count II. We grant defendant’s motion for
judgment on the administrative record, and we deny plaintiff’s cross motion.
The clerk is directed to enter judgment accordingly.16 No costs.
s/ Eric G. Bruggink
ERIC G. BRUGGINK
Judge
16
Plaintiff’s motion of November 12, 2012 to strike defendant’s
response to plaintiff’s motion for a preliminary injunction is denied as moot.
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