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CO’s Mistaken Belief That a Class Waiver Applies to Procurement is Not Binding; SBA No. SIZ-5986, Size Appeal of Cypher Analytics Inc. d/b/a Crown Point Systems
Appeal of the area office’s size determination is denied, where the appellant will not provide the end items of a small business supplier and therefore did not meet the size standard of the procurement, and where a class waiver of the nonmanufacturer rule did not apply to the items being procured. While the CO announced that a waiver did apply, the area office concluded this conclusion was mistaken, and OHA declined to allow COs to issue class waivers through error.
Cypher Analytics Inc. d/b/a Crown Point Systems appealed the SBA area office’s determination that it is not an eligible small business for the procurement at issue, because Cypher is not the manufacturer of the end items being acquired and does not qualify as a nonmanufacturer.
The Navy’s Space and Naval Warfare Systems Center Pacific issued a solicitation for various types of computer equipment, including desktops, notebooks, and tablets, as a small business set-aside under NAICS code 334111, Electronic Computer Manufacturing, with a corresponding size standard of 1,250 employees. The solicitation also stated that the small business size standard for a concern submitting an offer in its own name, but which proposes to furnish an item which it did not itself manufacture, is 500 employees. The agency also stated that a class non-manufacturer rule waiver would apply to the solicitation.
After Cypher was identified as the apparent awardee, a disappointed offeror filed a size protest alleging that the appellant will not itself manufacture the computer equipment described in the RFP and therefore must meet the lower size standard. The protester argued the class waiver applied only to mainframe computers, not to personal computers.
The CO forwarded the size protest to SBA, disputing the protester’s contention that the class waiver applied only to mainframe computers. The agency argued that stand-alone work stations were the modern equivalent of a mainframe computer, and the docking stations and accessories identified in the RFP are comparable to mainframe periphery equipment. The agency also argued the protest was untimely, because it did not relate to the size standard but to the class waiver to the nonmanufacturer rule.
However, the area office concluded that Cypher is not eligible for the procurement, finding that the Navy incorrectly applied the class waiver and that Cypher did not qualify as a nonmanufacturer. The area office explained that Cypher did not meet the final element of the test of the nonmanufacturer rule, which is that the prime contractor will supply the end item of a small business manufacturer, processor, or producer made in the United States, or obtains a waiver of this requirement. First, the area office noted that Cypher had proposed to supply computers made by Dell EMC, a large business.
Second, the area office determined that the class waiver applied only to mainframe computers, not to the type of devices sought by the solicitation. In fact, when the waiver was issued in the Federal Register, SBA specifically stated that computers smaller than mainframes were not covered. The are office also found this waiver had not been revised, even though SBA had reviewed the waiver to determine if it was still necessary.
In its appeal, Cypher argued that by overruling the CO’s representation that the class waiver applied to the products being procured, the area office effectively invalidated SBA policy making COs responsible for determining the applicability of class waivers. Specifically, the appellant noted that SBA regulations stipulate that a waiver cannot be applied to a procurement unless the CO first notifies prospective offerors of the waiver at the time the solicitation is issued. Therefore, according to Cypher, if the CO notifies offerors that a class waiver applies, that waiver must apply, even if the CO was mistaken. To do otherwise would undermine the CO’s assertions that a class waiver applies to a procurement.
The appellant also argued that the protester’s challenge was an untimely protest of the solicitation terms and that instead the protester should have contested the NAICS code assigned to the RFP or the RFP’s terms.
In response to the appeal, the CO agreed that the protest should have been dismissed. According to the CO, while styled as a size protest, the substance of the challenge was not size, as the protester did not challenge Cypher’s self-certification as a small business nor allege any facts to suggest the appellant is not small. The CO agreed that the protest should be viewed as an untimely NAICS code appeal and challenge to the class waiver.
In its own response, SBA disputed the assertion that a CO’s error should render a waiver of the nonmanufacturer applicable to a procurement, as only SBA has the authority to grant such a waiver. SBA noted that Cypher did not argue that it met the requirements of the nonmanufacturer rule or that it will supply products made by a small business. Instead, it argued the waiver should apply because the CO said so. SBA argued this assertion was without support.
OHA denied the appeal, finding the class waiver did not apply to the products being procured. OHA noted that SBA specifically excluded personal computers from the waiver when it was issued and that OHA itself had previously examined the scope of the waiver and concluded that it did not extend to non-mainframe computers, even if those computers had comparable capabilities.
Accordingly, OHA held the area office correctly concluded that there is no class waiver covering the end items in this procurement, and therefore, that Cypher was not compliant with the nonmanufacturer rule or eligible for award.
OHA also found no merit to the assertion that a CO’s error in applying a waiver should be controlling. Both the Small Business Act and accompanying regulations make clear that only SBA may grant a class waiver of the nonmanufacturer rule. Further, a proper class waiver is the result of notice and comment rulemaking. According to OHA, to give effect to a CO’s erroneous belief that a class waiver applies would, essentially, allow individual COs to create new class waivers, bypassing SBA and circumventing notice and comment requirements, which would be contrary to law. Thus, OHA explained that COs are required to give notice of a class waiver, but may not unilaterally issue one by mistake.
OHA also rejected the appellant’s contention that the underlying protest was untimely, finding tha the protest alleged a violation of the nonmanufacturer rule, which goes directly to size and eligibility for award. While GovSmart could have filed a NAICS code appeal and/or a bid protest against the RFP, it was not required to do so in order to preserve its right to subsequently bring a size protest.
Cypher Analytics, Inc. d/b/a Crown Point Systems is represented by Steven J. Koprince, Ian P. Patterson, and Robert D. Kampen of Koprince Law LLC. The government is represented by Lynda F. Hall, Contracting Officer, Space and Naval Warfare Center Pacific; and by Christopher R. Clarke, Office of General Counsel, Small Business Administration.
Successful Protester Loses Costs For Lack of Supporting Documentation; GAO B-416381.6, AeroSage, LLC—Costs
Request that GAO recommend the agency reimburse the protester the costs it incurred pursuing its successful protest is denied, where the protester repeatedly declined to provide documents substantiating its costs. GAO also denied the protester’s request for reimbursement of the costs incurred to pursue its claim, because the delay in resolving the claim was due to the protester’s failure to substantiate its costs. GAO dismissed a portion of the request totaling $350, because the agency agreed to pay that amount.
AeroSage LLC asked GAO to recommend that the Defense Logistics Agency reimburse it $26,450 for the costs of filing and pursuing its protest of a request for proposals for the delivery of fuel products in New England.
GAO had sustained a portion of AeroSage’s protest, finding that DLA failed to consider that two of ten contract line item numbers were valued between $3,500 and $150,000, and accordingly did not set them aside for small businesses. All other allegations were dismissed or denied.
AeroSage submitted a certified claim to DLA, which asked for additional supporting information. After the parties failed to reach agreement, AeroSage filed this request with GAO.
In its request, AeroSage argued that it should be reimbursed the cost of pursuing its protest and its claim. AeroSage sought $26,450, for over 110 hours of work allegedly performed by its president, at $250 per hour, in pursuit of both the protest and subsequent claim. In response, the agency explained that it could not reach an agreement with AeroSage because the claim lacked sufficient supporting documentation.
GAO found that AeroSage’s first certified claim consisted of a letter to DLA; a printout of a page from a payroll website; and a table with columns for: dates, hours, a billable rate per hour, and total costs. The protester later amended its claim to include a letter from AeroSage’s certified public accountant and a revised table with columns to also include a description of work performed, and identification of the entity for which the work was performed.
Based on these submissions, GAO found DLA reasonably concluded that AeroSage failed to provide the cost data necessary to support the billable hourly rate requested by AeroSage for its president, Mr. Snyder. For example, the letter from the CPA did not include payroll or tax records or explain the method used to calculate Snyder’s hourly rate. Accordingly, GAO declined to recommend reimbursement for these hours.
GAO dismissed AeroSage’s request for reimbursement of the $350 EPDS filing fee, as the agency did not dispute this amount.
Next, GAO considered AeroSage’s request for reimbursement of the costs it incurred pursuing its claim with GAO. However, GAO explained that it would do so only if the protester could show the agency’s responses were unreasonably delayed. GAO found DLA had responded in a timely fashion to AeroSage’s claim and requested specific documents it would need to verify the claim costs. In some cases, several weeks passed without a response from AeroSage. GAO found that any delay in resolving the claim appeared to have been caused by AEroSage’s failure to provide the information requested by the agency and failure to timely respond to the agency’s inquiries. Consequently, GAO had no basis to recommend reimbursement of these costs.
AeroSage LLC is represented by David M. Snyder. The government is represented by Howard M. Kauffer, Matthew Vasquez, and Christopher S. Colby, Defense Logistics Agency. GAO attorneys Young S. Lee and Peter H. Tran participated in the preparation of the decision.
Section 809 Panel Proposes Significant Curtailing of Pre-Award and GAO/COFC Protest Process for Commercial-Item Acquisitions
Much that has been written about the bid protest reforms in the Section 809 Panel’s final report has focused on Recommendations 66-69, which expressly address (and propose changes to) the protest process at the U.S. Government Accountability Office (“GAO”) and the Court of Federal Claims (“COFC”). But the 809 Panel’s most impactful recommended changes to the protest process actually may be contained in Recommendation 35 (“Rec. 35”). There, in the context of a discussion of “updating” the Department of Defense’s (“DoD”) process for the acquisition of commercial and related items and services, the 809 Panel proposes to eliminate entirely GAO/COFC protests for such acquisitions valued at less than $15 million (and likely many above that threshold as well).
As discussed further in this article, the implementation of Rec. 35 may have unstated consequences that could ripple across both DoD and civilian agency acquisitions.
Section 809 Panel Proposes Significant Curtailing of Pre-Award and GAO/COFC Protest Process for Commercial-Item Acquisitions
Much that has been written about the Section 809 Panel’s final report has focused on Recommendations 66-69, which expressly address (and propose changes to) the protest process at the U.S. Government Accountability Office (“GAO”) and the Court of Federal Claims (“COFC”). But the 809 Panel’s most impactful recommended changes to the protest process actually may be contained in Recommendation 35 (“Rec. 35”). There, in the context of a discussion of “updating” the Department of Defense’s (“DoD”) process for the acquisition of commercial and related items and services, the 809 Panel proposes to eliminate entirely GAO/COFC protests for such acquisitions valued at less than $15 million (and likely many above that threshold as well).
As discussed further below, the implementation of Rec. 35 may have unstated consequences that could ripple across both DoD and civilian agency acquisitions.
A. Recommendation 35: An Entirely Different Protest Process for Acquisitions of “Readily Available” Goods and Services
Rec. 35 proposes that DoD “[r]eplace commercial buying and existing simplified acquisition procedures and thresholds with simplified, readily available procedures for procuring readily available products and services and readily available products and services with customization.” The recommendation stems from the 809 Panel’s belief that to operate effectively, DoD must be able to procure readily available items and services as would a private sector company, without the current FAR-based constraints.
In Rec. 35, the 809 Panel proposes replacing DoD’s current commercial-buying framework with two newly-defined categories of products and services: “readily available” (“RA”) and “readily available with customization” (“RAC”). These two categories would greatly expand the concept of “commercial items.” The 809 Panel defines RA products and services as those “that require no customization by the vendor and can be ordered directly by customers, to include products and services that only governments buy.” RAC products and services are defined as those “sold in the private sector, including to other public-sector customers, for which customization or manufacturing that is consistent with existing private-sector practices is necessary to meet DoD’s needs.” The only acquisitions not covered under these two categories are those for which “DoD finance[s] development . . . to provide a defense-unique capability.”
The breadth of these definitions is important given the 809 Panel’s recommendations for acquiring these goods and services and, significant here, challenging those acquisitions:
- No Advance Public Notice. Procurements for RA goods or services—whether customized or not—valued at less than $15 million would have no public solicitation or bidding process. Instead, a DoD contracting officer would need only to conduct sufficient market research to confirm that the goods and services being acquired were, in fact, readily available. The lack of public notice or solicitation precludes the possibility of pre-award protests. And following award in such procurements, the procuring agency would need only post a notice of the award, and make the contracting file publicly available.
- Limited Award Challenges. GAO and the COFC would no longer have jurisdiction to consider protests arising out of RA procurements—customized or not—below the $15 million threshold. Instead, contractors wishing to challenge an award would be able to file only a post-award, agency-level protest, limited only to the question of whether the agency conducted adequate market research and reasonably concluded that the goods or services in question were readily available. (Procurements where a traditional solicitation is issued would generally remain subject to the GAO’s and COFC’s bid protest jurisdiction (subject to other recommendations contained in the 809 Report).
B. Impact of Recommendation
By their very terms, the procedures proposed in Rec. 35 would drastically change the way commercial items are procured. And given the expansive definitions of RA and RAC, there are few things—beyond major defense acquisition programs—that would not qualify. Indeed, the 809 Panel acknowledges that under these broad definitions in the report, “nearly all of the services DoD procures should meet the definition of readily available with customization.” Moreover, because the 809 Panel proposes that DoD may use the RA procedures for procurements in excess of the $15 million threshold with only authorization at the local level by the “chief of the contracting office,” DoD could use these procedures for procurements well in excess of $15 million with minimal, if any, transparency.
If implemented, these procedures also could have a ripple effect across DoD procurements in a variety of ways, and affect non-DoD procurements as well.
First, the new acquisition procedures would eliminate pre-award public scrutiny—and protests—of RA and RAC procurements where there is no public solicitation. This could stifle opportunity for small businesses and nontraditional contractors to access DoD procurements in favor large, traditional contractors with deep connections to DoD. This also would allow DoD to operate a huge swath of its expenditure of taxpayer funds unchecked at the pre-award stage, precluding both public scrutiny and eliminating potential offerors’ ability to challenge the ground rules of the procurement where the agency’s procurement may unduly restrict competition, improperly favor one offeror over another, or otherwise violate procurement law or regulation.
Second, the new procedures would significantly circumscribe the post-award protest process. The procedures completely remove oversight outside of DoD itself by eliminating GAO/COFC jurisdiction and leaving only agency-level protests. And even what is left within DoD can hardly be described as a protest. By limiting agency-level protests to the question of whether an agency conducted sufficient market research to determine commercial availability, Rec. 35 removes all other traditional grounds of protest—i.e., equal treatment of offerors, realism of proposed pricing, sufficient consideration of apparent organizational conflicts of interest, rationality of award decision, etc.
The ability to bring these types of traditional protest grounds serve not only to protect the investment of individual offerors in a given procurement, but to safeguard the integrity of the procurement system. Under the 809 Panel’s proposal, for the acquisition of RA products/services—with or without customization—where a solicitation is not issued, there would be nearly zero outside oversight of DoD procurement decisions. And although the 809 Panel asserts that releasing the “contract file” would increase transparency, even if true, that transparency is offset by the minimal information that would be included in the file and the lack of a viable mechanism to act on it.
Third, the limitation of protests proposed by the 809 Panel would also call into question the decades of legal precedent at GAO and COFC that contractors and agencies rely upon when planning acquisitions and bidding on procurements. And this uncertainty would likely have a severe impact on agency and contractor productivity and efficiency when it comes to planning and executing a procurement. Without a process to incentivize compliance, DoD agencies using RA procedures may choose to ignore established decisional law, adversely affecting an offeror’s ability to understand the legal boundaries of the agency’s procurement process.
Moreover, the proposed changes in Rec. 35 (and others) will create separate procurement and protest systems for the DoD and civilian agencies. Historically, this bifurcated approach created significant confusion, inefficiency, especially among the contractor community and particularly for those companies who operate in both the DoD and civilian spaces. These concerns eventually prompted the departure from the old Armed Services Procurement Regulation (“ASPR”)/Federal Procurement Regulation (“FPR”) split and the development of unified procedures under the FAR. Rather than propelling procurement to the future, the 809 Panel essentially seeks to revert to bygone days. As such, contractors once again will have to adapt not only to the new DoD processes, but also to the different, civilian agency procurement process.
All of these issues demonstrate that the RA procedures proposed by the 809 Panel may create significant upheaval in the DoD procurement community that could dramatically change how contractors will need to operate with regard to DoD procurements. But despite its “bold” proposals, the 809 Panel cites to very little by way of studies or research to support the benefits—much less the necessity—of these recommendations. Indeed, just last year the RAND Corporation released a comprehensive study of DoD procurements that found that bid protests were not a significant impediment to the procurement process. Thus the drastic revisions to the DoD protest process appear to be simply change for change sake, at best a solution in search of a problem.
Although improvements to the procurement process are always worth considering, the drastic measures called for in Rec. 35 threaten to upend decades of established legal principles in the procurement arena, and make the process less, not more, transparent for the public and for contractors. Contractors should take heed when examining their positions on these important issues and continue to monitor congressional activity in this area going forward as these reforms likely will dramatically impact many defense contractors’ business.
 In putting forward its belief that drastic changes are needed, the 809 Panel makes no distinction between the procurement of cutting-edge technology advancements from nontraditional businesses and the procurement of office supplies or custodial services for a support agency office.
 Although the report identifies a $15 million maximum for use of its new market research process, it also authorizes the process for RA and RAC procurements of any value in excess of $15 million if the “chief of the contracting office” authorizes use of the process in writing. No criteria govern use of this authority. The 809 Panel references FAR subpart 2.1, Definitions, for the definition of “chief of the contracting office,” but that term is not defined in the FAR. The term “contracting office” is defined essentially as any “office that awards or executes a contract.”
 Publicly posted contracting files would include identification of the products/services procured and the price paid, the contracting officer’s market research, and a “short award decision document” when the awardee was chosen based on factors other than price.
Protester Ignored Warnings That Failing to Verify Accounting System Would Render Proposal Unacceptable; GAO B-413104.25, Graham Technologies LLC
Protest challenging the exclusion of the protester’s proposal from consideration for award is denied, where the solicitation and pre-submission communications from the agency clearly stated that offerors must provide verification of an adequate accounting system, not merely contact information for the cognizant auditors. GAO found the protester’s interpretation of the solicitation would render significant portions of the solicitation instructions superfluous.
Graham Technologies LLC protested the National Institutes of Health (NIH)’s exclusion of its proposal from further consideration for award of one of multiple IT supplies and services contracts, arguing that its proposal complied with the solicitation’s instructions.
The solicitation established a two-phase evaluation process. During the first phase, the agency would review proposals for four criteria on a pass/fail basis. The four criteria were compliant proposal; verification of an adequate accounting system; IT services for biomedical research, health sciences, and healthcare; and domain-specific capability in a health-related mission. The agency failed Graham’s proposal for not demonstrating an adequate accounting system and excluded it from further consideration.
In its protest, Graham argued that its proposal complied with the solicitation. Specifically, the solicitation required offerors to provide the contact name and contact information of its representative at its cognizant DCAA, DCMA, federal civilian audit agency, or third-party accounting firm and submit, if available, a copy of the Pre-Award Survey of Prospective Contracting Accounting System (SF 1408), provisional billing rates, and/or forward pricing rate agreements.
Graham explained that it provided the contact name and information for its DCAA representative and therefore satisfied the requirement. According to the protester, the solicitation’s use of the term “if available” indicated that additional information was not necessary to satisfy the solicitation’s requirements and therefore it was not reasonable for the agency to eliminate its proposal for failing to provide a DCAA audit report.
In response, the agency argued the solicitation did not permit offerors to essentially self-certify the adequacy of their accounting systems. Rather, by requiring offerors to provide verification from cognizant audit agencies, NIH would obtain independent verification that offerors’ accounting systems had been audited and determined adequate. Id.
GAO found the protester’s interpretation unreasonable. The solicitation stated that the agency would evaluate the offeror’s evidence of an adequate accounting system and warned that failing to furnish verification would result in the rejection of a proposal as unacceptable during phase 1. Further, the solicitation provided instructions on how an offeror could verify its accounting system. Read as a whole, GAO found the agency’s interpretation of the solicitation to be reasonable. Graham’s interpretation, in contrast, would render sections of the solicitation instructions meaningless.
Further, during the solicitation question and answer period, NIH specifically addressed questions regarding the accounting verification requirement. GAO found that Graham ignored the agency’s repeated statements that offerors must submit verification of an adequate accounting system. Finally, GAO found the agency’s conclusion itself reasonable and in accordance with the solicitation.
Graham Technologies LLC is represented by Eden Brown Gaines of Brown Gaines, LLC. The government is represented by Christine Simpson, Department of Health and Humans Services. GAO attorneys Young H. Cho and Peter H. Tran participated in the preparation of the decision.