Link: GAO Opinion
Agency: Department of the Army
Disposition: Protest sustained.
Protest challenging propriety of solicitation provision–stating that offerors must meet requirements under Limitations on Subcontracting (LOS) clause separately for services and supply portions of work under solicitation–is sustained where provision is inconsistent with Small Business Act, which provides for application of either services or supply portion of LOS clause, but not both.
General Counsel P.C. Highlight:
TFab maintains that the RFP improperly applies the Limitations on Subcontracting (LOS) clause by applying it separately to both the supply and services portions of the contract. TFab contends that the clause does not provide for such a “hybrid application”; rather, properly applied, the clause requires the agency to determine the principal purpose of the contract–here, services or supplies, but not both–and then apply the paragraph of the LOS clause corresponding to that work. The RFP incorporated FAR sect. 52.219’14, the LOS clause, as follows: “LIMITATIONS ON SUBCONTRACTING (DEC 1996) (a) This clause does not apply to the unrestricted portion of a partial set-aside. (b) By submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract in the case of a contract for–(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern. (2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials. (3) General construction….. (4) Construction by special trade contractors…..”
GAO agrees with TFab that the LOS clause does not provide for dual application of the 50% requirement. The clause, on its face, establishes separate subcontracting limitations “in the case of a contract for” four distinct types of work. There is no language in the clause that contemplates a hybrid services/supply contract; more specifically, there is no language that provides for applying both paragraphs (b)(1) and (b)(2) in a single acquisition to require small business firms to agree to perform at least 50% of both services and supply work under a single contract. GAO reads the language of the clause as indicating that the applicable LOS clause paragraph is to be applied to entire contracts, rather than portions of contracts, and that the clause contemplates that the contracting agency must choose among the paragraphs.
GAO looks to the courts’ interpretation regarding the manner in which the Service Contract Act (SCA) and Walsh-Healey Public Contracts Act (WHA) are to be applied to contracts in AFL-CIO v. Donovan, 582 F. Supp. 1015, 1020 (D.D.C. 1984), aff’d, 757 F.2d 330 (D.C. Cir. 1985), to support its conclusion where it is interpreting an acquisition statute and associated regulations the provisions of which, like those of the SCA and WHA, apply to “contracts” rather than to particular services or supplies within a contract, and which, to be implemented, require an initial agency determination regarding applicability.
GAO interpretation also is consistent with SBA’s position regarding this issue. In response to a request for its views, SBA agrees that the Army’s application of the LOS clause to the services and supply portions of the requirement here is improper. SBA concludes that the Army’s attempt to apply both the services and supply provisions of the LOS clause is inconsistent with the act. GAO generally will give deference to an agency’s reasonable interpretation of its own regulations. Further, GAO agrees with SBA that the Army’s implementation of the LOS clause will have the practical effect of restricting competition. In this regard, while the Army is motivated to preclude a small business awardee from subcontracting with a large business to perform all of the service work or all of the supply work under the contract, applying the LOS clause to both the services and supply portions of the contract clearly will limit the small businesses that will be able to compete. Specifically, small business firms that can only perform either a majority of the services work or a majority of the supply work will not be able to compete; the pool of potential competitors will be limited to small businesses that can satisfy the requirements of both paragraph (b)(1) and paragraph (b)(2). The protest is sustained.