Federal Circuit Clarifies Distinction Between Bid Protest and Size Protest; Harmonia Holdings Group, LLC v. United States, Fed. Cir., 2020-1703

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COFC decision denying a protest is affirmed. The protester alleged the awardee was unduly reliant on a subcontractor and thus the contracting officer erred in not referring the awardee to the SBA for a size determination. The COFC dismissed this claim, finding that the protester was asserting a size protest, and that the COFC cannot decide a size protest in the first instance. But the Federal Circuit ruled that the COFC had misapprehended the difference between a size protest and a bid protest. The protester had not asserted a size protest, because it had not asked the court to make a size determination. Rather, the protester had alleged that the agency violated the FAR by not referring the matter to the SBA for a size determination. This argument was a valid bid protest theory. Although the protester asserted a bid protest theory, the Federal Circuit still reasoned that dismissal was appropriate because the theory failed to state a claim. Nothing on the face of the awardee’s proposal indicated that the awardee was unduly reliant on a subcontractor. Thus, the contracting officer did not err in failing to refer the matter to the SBA.

The U.S. Census Bureau issued an RFQ seeking statistical analysis and database programming services. The procurement was set aside for women-owned small businesses. Award would be made on a best value basis.

After evaluating quotations, the Census Bureau awarded the contract to Alethix, LLC. An unsuccessful offeror, Harmonia Holdings Group, filed a protest with the Court of Federal Claims. Harmonia challenged the technical evaluation of its proposal, arguing that the agency erred in simultaneously assessing strengths and risks to the same aspects of its proposal. Harmonia also alleged that the contracting officer violated the FAR by failing to refer Alethix to the SBA for a size determination. Additionally, Harmonia objected to the best value determination.

The COFC found in favor of the government. With regard to the technical evaluation and the best value determination, the COFC concluded that Harmonia had failed to prove that the agency acted arbitrarily. The COFC dismissed the argument concerning Alethix’s size, ruling that Harmonia had failed to exhaust its administrative remedies. The court reasoned that Harmonia should have availed itself of the SBA’s procedure for a size protest before raising this issue with the COFC. Harmonia appealed to the Federal Circuit.

Harmonia argued that the COFC had erred in dismissing its complaint concerning the contracting officer’s failure to refer Alethix to the SBA for a size determination. The COFC had determined that this claim raised a size protest that should have been brought to the SBA. The Federal Circuit concluded that the COFC had misapprehended the distinction between a size protest and a bid protest.

A size protest is an administrative challenge to an offeror’s size that is filed with the SBA. A bid protest challenges the actions an agency takes in connection with a procurement. The court reasoned that Harmonia’s COFC complaint had not asserted a size protest because it did not ask the court to make a size determination. In fact, Harmonia acknowledged that the COFC lacked jurisdiction to adjudicate a size protest in the first instance. Rather, Harmonia’s complaint had invoked the COFC’s bid protest jurisdiction by alleging that the agency violated FAR 19.3-01-1(b) by failing to refer Alehthix to the SBA. Thus, Harmonia’s complaint did not present a direct challenge to Alethix’s size but instead asked the court to resolve whether the contracting officer had properly followed regulatory requirement.

Thus, the COFC had erred in finding that Harmonia’s complaint asserted a size protest. Nevertheless, this error was not fatal. Harmonia argued that the Alethix’s proposal should have caused the contracting officer to question whether the company had violated the ostensible subcontractor rule—i.e., whether it was unduly reliant on one of its subcontractors. This should have prompted the contracting officer to refer Alethix to the SBA under FAR 19.301-1(b). But the court found that the complaint did not contain sufficient facts to state a plausible claim that the contracting officer had violated FAR 19.301-1(b).

First, nothing in FAR 19.301-1(b) suggests that a contracting officer has any affirmative obligation to conduct an independent investigation into an offeror’s small business representation. Rather, a contracting officer is generally entitled to rely on a small business’s certification. The only exception to this rule is when a proposal, on its face, suggests that an offeror is not small. In this case, however, there was nothing on the face of the Alethix’s proposal that should have led the agency to conclude the company was unduly reliant on a subcontractor. Indeed, whether a contractor is unduly reliant is a fact-specific inquiry. It was unlikely the face of the proposal would have revealed an ostensible subcontractor relationship.

Even assuming that the face of Alethix’s proposal suggested an ostensible subcontractor relationship, this would not be enough to establish that the contracting officer erred in not referring the matter to the SBA. To bring a successful protest, a protester must establish that the agency’s decision lacked a rational basis. To do this, Harmonia had to not simply show that the Alethix’s proposal contained some suggestion of an ostensible subcontractor relationship; it had to show that the indicia of a relationship was so compelling that the contracting officer abused their discretion in failing to refer the matter to SBA.

The factual allegations in Harmonia’s complaint did not state a plausible claim under this standard. Alethix’s proposal indicated that the company planned to hire several employees from the subcontractor. But this did not mean the company was unusually reliant on a subcontractor. In fact, the agency had found that Alethix had relevant experience and that its past performance on similar projects was a strength.

Aside from the size issue, the court found that that the agency had not erred in evaluating proposals. Under the circumstances, the Census Bureau had a reasonable basis for determining that an element of Harmonia’s proposal could constitute both a strength and a risk. It is certainly conceivable that an aspect of proposal can have potential advantages and potential risks.

The court also found Harmonia’s challenge to the best value determination meritless. The Census Bureau had found that Alethix’s higher-rated, higher-priced proposal offered the best value. The court noted that the solicitation had stated that agency more concerned with obtaining superior technical capabilities than with price. What’s more, Harmonia failed to identify any error in the agency’s determination that Alethix’s proposal offered innovations and efficiencies that other offerors could not match.

Harmonia is represented by Walter Brad English, Emily J. Chancey, Jon Davidson Levin, and Michael W. Rich of Maynard, Cooper & Gale, PC. The intervenor, Alethix, is represented Jonathan Michael Baker, Eric Ransom, and Zachary H. Schroeder of Crowell & Moring LLP. The government is represented by Bryan Michael Byrd, Jeffrey B. Clark, Robert Edward Kirschman, Jr., and Patricia M. McCarthy of the Department of Justice.

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