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By W. Samuel Niece
Howrey LLP
The federal government sets aside many procurements for small businesses. Whether a business entity is a small business, and thus eligible for award, is determined by the applicable size standard from the North American Industry Classification System (NAICS), which is available at www.sba.gov/size/sizetable2002.html. The size standard for a given NAICS code sets an upper limit either on the number of employees or on the annual receipts an entity may have and be classified as a small business. These standards vary from one NAICS code to another. Thus, a business entity may be eligible, or not, depending on the particular NAICS code selected.
The procuring agency's Contracting Officer is responsible for selecting the NAICS code, but this determination can be appealed to the Small Business Administration's Office of Hearings and Appeals (OHA).
Advanced Systems Technology, Inc. (AST) was the incumbent contractor on two U.S. Army contracts at Fort Leavenworth, Kansas, and the White Sands Missile Range, New Mexico. In August 2005 the Army issued a follow-on solicitation for the work being performed by AST at Fort Leavenworth, specifying NAICS code 541710 (Research and Development in the Physical, Engineering and Life Sciences), which carried a size standard of 500 employees, under which AST qualified as a small business.
Competitor RhinoCorps, Ltd. appealed the Army's specification of NAICS code 541710 to OHA, arguing for 541330 (Engineering Services), which carries a size standard of $4.5 million in annual receipts. OHA went its own way and changed the NAICS code to 541690 (Other Scientific and Technical Consulting Services), which carries a size standard of $6.5 million in annual receipts and under which AST would be ineligible for award. (AST had fewer than 500 employees, but its annual receipts were greater than $6.5 million.) The Army duly amended the solicitation to change the NAICS code from 541710 (500 employees) to 541690 ($6.5 million annual receipts).
Nobody (the Army, OHA or RhinoCorps) gave AST notice of the RhinoCorps appeal. AST did not learn of it until it received the amendment changing the NAICS code to 541690 and thus making AST ineligible for award. AST promptly filed an appeal with OHA protesting the change and arguing that 541690 did not accurately reflect the contract work. OHA dismissed AST's appeal on the ground that in deciding the RhinoCorps appeal, it had already considered the 541710 code proposed by AST.
AST filed a complaint in the U.S. District Court for the District of Columbia alleging that OHA had violated the Administrative Procedures Act, 5 USC §551, et seq., and the due process clause of the Fifth Amendment. The District Court dismissed AST's complaint for lack of subject matter jurisdiction.
AST then filed a bid protest action in the U.S. Court of Federal Claims. The court issued a preliminary injunction enjoining the Army from awarding the Fort Leavenworth follow-on contract under NAICS code 541690. See, USCFC No. 05-1167C, available at www.uscfc.uscourts.gov/Opinions/Williams/
06/WILLIAMS.Adv.Sys.012306.pdf.
First, Judge Mary Ellen Coster Williams held that the court had jurisdiction under the Tucker Act as amended by the Administrative Dispute Resolution Act, 28 USC. §1491 (b) (1):
[T]he United States Court of Federal Claims... shall have jurisdiction to render judgment on any action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.
The statute's use of the conjunction "or" makes it clear that the court has jurisdiction over each of three types of actions:
| 1. | An action objecting to a solicitation by a federal agency for bids or proposals for a proposed contract or to a proposed award of a contract, i.e., a pre-award protest; or
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| 2. | An action objecting to the award of a contract, i.e., a post-award protest; or
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| 3. | An action objecting to any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.
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The plain language of the first prong of §1491 (b) (1) provides that the court has jurisdiction over "an action brought by an interested party to a solicitation" without delimiting the legal grounds on which such an objection may be based.
Turning to the substance of the protest, Judge Williams observed that OHA's process as applied had rendered AST ineligible to compete due to a change in the solicitation's NAICS code without affording AST an opportunity to participate. As the incumbent contractor, AST had both a substantial interest and an understanding of the work to be performed, and neither of the other parties (the Army and RhinoCorps) nor OHA could have adequately represented AST's viewpoint. Hearing AST's position would not have unduly burdened OHA and likely would have assisted its decision-making. OHA's assessment of all potentially applicable NAICS codes did not relieve it of its obligation to permit an interested person such a AST to appear before it and present its view. Accordingly, Judge Williams issued a temporary injunction to preserve the status quo ante until AST could be fully heard.
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For more information about the issues covered in this report, please contact W. Samuel Niece in our San Francisco office at 415-848-4979 or at nieces@howrey.com or contact your Howrey attorney. For more information about Howrey's Construction Practice Group, click here.
©2006 Howrey LLP
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