Protester’s appeal of an SBA size determination that found the contract awardee to be an eligible small business for the procurement is denied, where the awardee contributed significant value and crucial components to the final product, and where the awardee leased—albeit did not own—the facilities at which it manufactured the product.
As part of a small business set aside, the Air Force awarded a contract to build armored vehicles to Commander Innovations Inc. A disappointed bidder, Mistral Inc., filed a protest with the Small Business Administration, contending that Commander was not an eligible small business for the armored vehicle procurement. After SBA determined that Commander was eligible, Mistral appealed to the SBA’s Office of Hearings and Appeals.
Mistral argued that under SBA’s regulations, when a manufacturing or supply contract is set aside for small business, the awardee must manufacture the product purchased under the contract at its own facilities. Mistral contended that Commander was not a manufacturer of armored vehicles because it added nothing of value to the vehicles and it did not own its own manufacturing facilities because the facility it uses was leased.
The Administrative Judge noted that the relevant SBA regulation, 13 C.F.R. § 121.406(b)(2), sets forth three factors to consider in determining whether a putative small business concern is a manufacturer: (1) the proportion of total value in the end item added by the concern, (2) the importance of the elements added by the concern, and (3) the concern’s technical capabilities, including its plant, facilities and equipment.
As to the first factor, the administrative judge found that Commander’s contribution was over 71 percent of the total cost of the armored vehicles. While Commander proposed to purchase vehicles from General Motors, Commander would add a gun turret, armor, reinforcements to the frame and chassis, and modifications to the engine and drive train so the vehicle could perform to specifications. This strongly indicated that Commander was a manufacturer of the armored vehicles.
With regard to the second factor, the administrative judge determined that the components Commander proposed to add to the vehicles were important elements. Commander planned to completely transform the vehicle, making it armored and weaponized and able to accept a variety of military fuels.
But Mistral’s primary argument concerned the third, technical capabilities/facilities factor. Citing 13 C.F.R § 121.406(b)(2), which states that a small business concern must manufacture a product at “its own facilities,” Mistral contended a contractor must own and not lease the facility being used for manufacturing. In this case, the argument continued, Commander was merely leasing its facilities.
The administrative judge was not persuaded by this argument. The Judge noted that no statute or regulation requires a small business to own rather than lease the facilities. Moreover, neither the Solicitation nor the Commercial Item Description required the manufacturing facilities to be owned by contractor. The court concluded that there was no basis for concluding that the “its own facilities” phrase in the regulation requires a contractor to own its facilities in fee simple absolute. That Commander was leasing its facilities should have no bearing on its status as a manufacturer.
As a final argument, Mistral asserted an “ostensible subcontractor” claim—i.e., that a large subcontractor is performing most of the contract in lieu of small business prime contractor. The administrative judge found this claim “utterly meritless.” Mistral had provided no substantive evidence in support of this allegation, and the record showed that Commander’s subcontractors would perform only 15 percent of the value of the contract.
The administrative judge denied Mistral’s appeal and affirmed the SBA’s size determination.
Mistral Inc. is represented by David W. Lease of Smith, Lease & Goldstein. The awardee, Commander Innovations, is represented by Troy A. Kingshaven and Derric G. Oliver of Fenton & Keller.
