The U.S. Government Accountability Office decision, In the Matter of Steiner Construction Company, Inc., B-421254.9 (December 4, 2023), is a good reminder that timing counts when determining eligibility for small business set-aside contracts.
This case arose from an award of a Small Business Administration contract that was issued as a small business set-aside by the Department of Homeland Security. The contract was for the design and production of twenty-seven vessels for the U.S. Coast Guard. The two primary competitors for the contract were Steiner Construction Company, Inc. and Birdon America, Inc.
On October 4, 2022, the SBA’s Area Office determined that Birdon was an eligible small business for procurement purposes. The next day, the Coast Guard awarded the contract to Birdon. Steiner challenged the Area Office’s size determination on the ground that Birdon “could not be considered a manufacturer,” since Birdon could not establish that it would build the vessels in its own facilities. On March 15, 2023, 161 days after the award of the contract, the SBA Office of Hearing and Appeals vacated the Area Office’s determination that Birdon was an eligible small business on that basis. Despite the fact that Birdon was not a small business, the Coast Guard nevertheless decided to continue with performance of the contract.
Steiner then protested the Coast Guard’s decision to proceed. Steiner argued the contract should have been terminated because the SBA Office of Hearing and Appeals vacated the Area Office’s determination rather than reversed it. Steiner argued that the SBA Area Office’s initial determination that Birdon was a small business was a “legal nullity” due to the vacation of that order, and that in the absence of a determination, the contract could not be awarded to Birdon without a written justification under FAR 19.302(g). Therefore, Steiner argued, FAR 19.302(h) required the Coast Guard to terminate the contract.
FAR 19.302(g) states:
(1) After receiving a protest involving an offeror being considered for award, the contracting officer shall not award the contract until the SBA has made a size determination or 15 business days have expired since SBA’s receipt of a protest, whichever occurs first; however, award shall not be withheld when the contracting officer determines in writing that an award must be made to protect the public interest.
(2) If SBA has not made a determination within 15 business days, or within any extension of time granted by the contracting officer, the contracting officer may award the contract after determining in writing that there is an immediate need to award the contract and that waiting until SBA makes its determination will be disadvantageous to the Government.
(3) SBA may, at its sole discretion, reopen a formal size determination to correct an error or mistake, if it is within the appeal period and no appeal has been filed with OHA or, a final decision has not been rendered by the SBA Area Office or OHA.
(4) If a protest is received that challenges the small business status of an offeror not being considered for award, the contracting officer is not required to suspend contract action. The contracting officer shall forward the protest to the SBA (see paragraph (c)(1) of this section) with a notation that the concern is not being considered for award, and shall notify the protester of this action.
FAR 19.302(h) provides:
An appeal from an SBA size determination may be filed by any concern or other interested party whose protest of the small business representation of another concern has been denied by an SBA Government Contracting Area Director, any concern or other interested party that has been adversely affected by an SBA Government Contracting Area Director’s decision, or the SBA Associate Administrator for the SBA program involved. The appeal must be filed with the Office of Hearings and Appeals, Small Business Administration, Suite 5900, 409 3rd Street, SW., Washington, DC 20416, within the time limits and in strict accordance with the procedures contained in Subpart C of 13 CFR 134. It is within the discretion of the SBA Judge whether to accept an appeal from a size determination. If a post-award appeal is submitted to OHA within the time limits specified in Subpart C of 13 CFR 134, the contracting officer shall consider suspending contract performance until an SBA Judge decides the appeal. SBA will inform the contracting officer of its ruling on the appeal. SBA’s decision, if received before award, will apply to the pending acquisition. If the contracting officer has made a written determination in accordance with (g)(1) or (2) of this section, the contract has been awarded, the SBA rulings is received after award, and OHA finds the protested concern to be ineligible for award, the contracting officer shall terminate the contract unless termination is not in the best interests of the Government, in keeping with the circumstances described in the written determination. However, the contracting officer shall not exercise any options or award further task or delivery orders.
Steiner argued that because the October 4 decision was a legal nullity, the Coast Guard could only have proceeded with written justification pursuant to FAR 19.302(g)(1,2), and the agency was compelled to terminate the award because “the [Coast Guard] has made a written determination in accordance with (g)(1) or (2) of this section, the contract has been awarded, the SBA rulings is received (sic) after award, and OHA finds the protested concern to be ineligible for award.”
The Coast Guard countered by stating the FARs require only that the awarding agency possess a formal size determination from the SBA before making an award. On the date of the award, the Coast Guard had a formal size determination from the SBA. Therefore, the award of the contract was proper.
The Government Accountability Office agreed with the Coast Guard and denied Steiner’s petition. The GAO held that the contract was permissible under FAR 19.302(f)(2) because the Coast Guard had a valid SBA size eligibility determination at the time it awarded the contract. The GAO rejected Steiner’s arguments that the Coast Guard needed written justification pursuant to FAR 19.302(g)(1,2), because the agency had no way of knowing the SBA decision was going to be vacated several months later. The GAO also held that FAR 19.302(h), which imposes a duty to terminate government contracts, only applies “[i]f the contracting officer has made a written determination in accordance with (g)(1) or (2) of this section, the contract has been awarded, the [SBA’s ruling] is received after award, and OHA finds the protested concern to be ineligible for award.” The GAO held that FAR 19.302(h) did not apply in this instance, because the award was not made prior to the SBA’s decision pursuant to a written justification provided per FAR 19.302(g)(1,2). Therefore, FAR 19.302(h) was not applicable.
The gist of this decision is that competing entities that seek small business contracts must act quickly with regard to SBA size determinations. Protestors cannot rely on the OHA overturning an SBA size determination to protest an SBA bid successfully. The decision indicates that, for efficiency’s sake, parties should treat a contract award with a certain finality—at least in terms of size determination. The GAO did leave an open question as to whether there is room to argue that the Coast Guard “should have known” that the size determination would be vacated.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice for your situation, you should contact an attorney.