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.
