Administration, GAO clash in turf war

GAO denied SBA’s request to reconsider bid protest decisions that prioritize HUBZone businesses

The Government Accountability Office last week refused to reconsider its rulings that give priority to small businesses located in Historically Underutilized Business Zones (HUBZones) when setting aside contracts.

The two sides

Even when Congress passed the Small Business Authorization Act of 1997, lawmakers apparently disagreed over what its provisions for Historically Underutilized Business Zone businesses were. The Senate Small Business Committee at the time wrote a report stating:

"It should be noted that the HUBZone program is not designed to compete with SBA's 8(a) program. One of the amendments adopted by the committee during its markup of this legislation places a HUBZone small-business concern at the same level of contracting preference as an 8(a) small-business concern. The bill, as amended, gives the procuring agency's contracting officer the flexibility to decide whether to target a specific procurement requirement for the HUBZone program or the 8(a) program."

However, the legislative language differs from that interpretation.

"Notwithstanding any other provision of law...a contract opportunity shall be awarded pursuant to this section on the basis of competition restricted to qualified HUBZone small-business concerns if the contracting officer has a reasonable expectation that not less than 2 qualified HUBZone small-business concerns will submit offers and that the award can be made at a fair market price."

Now, experts say, the decision could lead to a struggle over who’s in charge. The Obama administration can disregard GAO rulings on bid protests — they are only recommendations — but if it does, it will be rejecting a clear directive in legislation, a former top acquisition official said.

The administration’s concerns come from a May 4 ruling on a protest by Mission Critical Solutions, a HUBZone company. GAO ruled that in making a sole-source award to an Alaskan native corporation, the Army didn’t consider whether at least two HUBZone businesses would be able to bid on an information technology contract. The Army awarded the one-year, $3.45 million sole-source contract to Copper River Information Technology.

The Small Business Administration and Office of Management and Budget Director Peter Orszag say GAO overreached its authority. GAO’s rulings are not binding on federal agencies and are contrary to SBA regulations, Orszag wrote in a memo released to agencies July 10. Orszag told contracting officers to consider the three types of small businesses as equals until a legal review is finished.

GAO based its decision on the Small Business Reauthorization Act of 1997, which states that agencies must determine situations in which two or more HUBZone companies can compete for a given contract and open it to competition if that is the case. Congress didn’t create the same mandate for companies in other small-business categories, including the 8(a) program or companies owned by service-disabled veterans.

Robert Burton, former deputy administrator at the Office of Federal Procurement Policy and now partner at Venable law firm, said the law is clear, and the administration's argument for disregarding the plain language is weak.

“The ‘shall’ and the ‘may’ have very, very distinct differences,” he said. “You've got to live by the ‘shall.’”

GAO last week denied SBA’s request to reconsider recent bid protest decisions that prioritize HUBZone businesses. SBA’s request “is denied where newly raised information fails to show that our prior decision contains any errors of fact or law,” GAO’s acting general counsel Daniel Gordon wrote.

In its May 4 ruling, GAO said SBA’s view of the three categories of small businesses doesn’t match law. “We do not think SBA’s regulatory implementation of HUBZone and 8(a) statutes is reasonable since it fails to give effect to mandatory language of the HUBZone statute,” GAO officials wrote.

Guy Timberlake, chief visionary and chief executive officer of the American Small Business Coalition, said GAO’s rulings keep agencies from reaching their small-business contracting goals — or reaching many small companies.

“OMB is making a righteous attempt to set things right where there is clearly an unsynchronized set of rulings,” said John Moliere, an advocate for service-disabled veterans and president of Standard Communications.

Moliere said a hastily drawn up bill could come as a result of this issue, and he is unsure if it would set things straight.

However, the language in the legislation wasn’t an accident, Burton said. The attorneys who draft legislation are aware of the difference between “shall” and “may."

He said the word "shall" likely was a compromise to temper lawmakers who didn’t get their way. Making changes to the law “is not just a minor technical correction,” he said. It instead would be a full-fledged fight to pass the bill.

“I don’t think it was a mistake that the words are what they are,” Burton said.

However, the Senate Small Business Committee offered its interpretation of the provision. It noted in its committee report from 1997 on the authorization bill “that the HUBZone program is not designed to compete with SBA’s 8(a) program.”

“This legislation places a HUBZone small-business concern at the same level of contracting preference as an 8(a) small business concern,” the report states. The bill gives the contracting officer the flexibility to decide whether to set aside the contract for the HUBZone program or the 8(a) program.

Nevertheless, Burton said, the committee report doesn’t trump the legislative language.

About the Author

Matthew Weigelt is a freelance journalist who writes about acquisition and procurement.

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Reader comments

Fri, Mar 19, 2010 Bill Davis

The GAO ruling ignored the exclusions in 19.1304 and in effect overrode FAR Part 8, because if HUBZone has priority over the 8a program (an exclusion) then it must also have priority over the Federal Prison Industries, the Javits-Wagner-O'Day act, Federal supply Schedules, and the 8a program. This ruling not only undermines the 8a program, it undermines all of Far Part 8, mandatory sources.

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