Link: GAO Opinion
Agency: Department of the Army
Disposition: Protest sustained in part, denied in part.
Keywords: HUBZone Price Preference
General Counsel P.C. Highlight: In a procurement not set aside for HUBZone companies, that procuring agency shall give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10 percent to all offers.
Explo Systems, Inc., a HUBZone small business contractor protests the award of a contract under a request for proposals (RFP), issued by the Department of the Army, for the demilitarization and disposal of eight families of conventional ammunition.
The RFP, which was issued on an unrestricted basis, contemplated the award of a fixed-price contract to the offeror whose proposal represented the best value to the government, on the basis of the following evaluation factors listed in descending order of importance: technical, past performance, price, and small business utilization.
The technical evaluation factor consisted of the following equally-weighted subfactors: program management plan, technical approach, safety approach, security approach and environmental approach. As is relevant here, with respect to the safety approach subfactor, the RFP stated that the agency would evaluate each offeror’s technical expertise to perform demilitarization operations, including the offeror’s safety program of demilitarization. With respect to the environmental approach subfactor, the RFP stated that the agency would evaluate each offeror’s compliance with all applicable environmental regulations, as well as the offeror’s approach for managing hazardous and non-hazardous waste streams during demilitarization operations.
With respect to the past performance factor, the RFP provided that the agency would evaluate each offeror’s recent and relevant experience for the offeror’s record of quality and on time delivery, based on the results of the past performance surveys.
With respect to the price factor, the RFP incorporated Federal Acquisition Regulation (FAR) clause 52.219-4, Notice of Price Evaluation Preference for HUBZone Small Business Concerns. Pursuant to this clause, the agency was required to “add a factor of 10 percent to the price of all offers,” except offers from HUBZone small business concerns that did not waive the evaluation preference, and otherwise successful offers from small business concerns.
Only two firms responded to the RFP, Explo and the eventual awardee. The source selection authority (SSA) conducted a best value tradeoff between proposals. In doing so, the SSA did not apply the HUBZone price evaluation preference, even though the awardee was a large business and Explo was a HUBZone concern, because Explo had submitted the lowest priced offer. The SSA determined that the advantages associated with the awardees’ superior technical proposal were worth the price premium, as compared to Explo’s lower technically rated and lower priced proposal.
Explo argues that the Army improperly failed to apply the HUBZone price evaluation preference provided for in 15 U.S.C. sect. 657a(b)(3)(A) (2006), as implemented in various regulations and incorporated into the RFP, in making its best value selection decision. To implement this statute, FAR sect. 19.1307 provides that agencies “shall give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10 percent to all offers,” except for offers from HUBZone small business concerns that have not waived the evaluation preference, or otherwise successful offers from small business concerns. Consistent with this FAR provision, and as required by FAR sect. 19.1309(b), the solicitation incorporated FAR clause 52.219-4, titled Notice of Price Evaluation Preference for HUBZone Small Business Concerns.
As noted above, the Army did not apply the price evaluation preference here. GAO states that it is well-settled that an agency must follow the ground rules of the competition set forth in the solicitation, and deviation from those stated ground rules is grounds to sustain the protest. Here, the unambiguous language of the solicitation required that the agency apply “a factor of 10 percent to the price of all offers” other than certain HUBZone or small business offers. The Army failed to do so here, and GAO sustains the protest on this ground.
The Army maintains that it properly did not apply the HUBZone price preference in making its best value selection decision because Explo already submitted the lowest priced offer. The Small Business Administration (SBA) agrees with the Army. Both agencies contend that the language of 15 U.S.C. sect. 657a(b)(3)(A), quoted above, only requires that a price evaluation preference be applied where the HUBZone offer is priced higher than the large business offer; the preference does not apply when a HUBZone offer is priced lower than the large business offer. GAO finds nothing in the plain language of the statute, or the legislative history of the statute, that expressly limits that application of a price preference in the manner argued by the agencies. Rather, the statute only identifies when a HUBZone offer must be considered lower in price–i.e., when the HUBZone offer is “not more than 10 percent higher” than the large business offer. In the context of a best value procurement where a cost/technical tradeoff is required, this statutory language can reasonably be interpreted to include HUBZone offers lower in price, since those offers are “not more than 10 percent higher” than the large business offer.
The Army also argues that the FAR provisions are not enforceable under the facts presented here. GAO notes that both FAR provisions have been in effect for many years, and its review of case law confirms that both FAR provisions have been routinely recognized, by the U.S. Court of Federal Claims and GAO, as implementing 15 U.S.C. sect. 657a(b)(3)(A), including in procurements where the solicitation contemplated the performance of a best value tradeoff. Neither the Army nor the SBA have cited, and GAO has not found, any case law or other authority to support the agencies’ position that the HUBZone price evaluation preference need not be applied in a best value procurement when the HUBZone offer is priced lower than the large business offer. In sum, GAO finds that the Army deviated from the solicitation requirement to apply the HUBZone price evaluation preference before performing its best value tradeoff, and GAO sustains the protest on this ground.
GAO sustains the protest because the Army deviated from the solicitation requirement to apply the HUBZone price evaluation preference during its evaluation and recommends that the agency apply the HUBZone price evaluation preference in accordance with the applicable FAR provisions and that it perform a new best value tradeoff decision. The protest is sustained in part and denied in part.