Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-96-05073/USCOURTS-caDC-96-05073-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 8, 1997 Decided September 30, 1997

No. 96-5073

IMS, P.C.,

APPELLANT

v.

AIDA ALVAREZ, ADMINISTRATOR,

UNITED STATES SMALL BUSINESS ADMINISTRATION,

APPELLEE

Appeal from the United States District Court 

for the District of Columbia 

(No. 96cv00023)

Russell J. Gaspar argued the cause for appellant, with 

whom Paralee White was on the briefs.

Glenn P. Harris, Trial Attorney, United States Small 

Business Administration, argued the cause for appellee. Eric 

H. Holder, Jr., United States Attorney at the time the brief 

was filed, John D. Bates, R. Craig Lawrence, and Wyneva 

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Johnson, Assistant United States Attorneys, were on the 

brief.

Before: EDWARDS, Chief Judge, WALD and GARLAND, Circuit 

Judges.

Opinion for the Court filed by Circuit Judge WALD.

WALD, Circuit Judge: IMS, P.C. ("IMS"), a corporation 

that provides architectural and engineering services, brought 

an action in the United States District Court for the District 

of Columbia to challenge the refusal by the Small Business 

Administration ("SBA") to revise IMS's participation term in 

the SBA's section 8(a) program for socially and economically 

disadvantaged businesses. IMS's dispute with the SBA arose 

after the passage of the Business Opportunity Development 

Reform Act of 1988, Pub. L. No. 100-656, 102 Stat. 3853 

(codified as amended at 15 U.S.C. § 631 et seq. (1994)) 

("BODR Act"), which provided for revised participation terms 

for section 8(a) program participants. Pursuant to the Act, 

the SBA notified IMS, a participant in the section 8(a) 

program, that it would be given a revised program term of 

nine years from its first section 8(a) contract, which the SBA 

had determined to be a contract performed by IMS in January 1987. IMS objected to the new term, claiming that its 

participation term should not be calculated from the date of 

the January 1987 contract because that contract was brought 

into the section 8(a) program in violation of an agency regulation precluding acceptance of a contract that was previously 

the subject of specified forms of solicitation. See 13 C.F.R. 

§ 124.301(b)(8) (1987) (subsequently amended and renumbered 13 C.F.R. § 124.309(a) (1997)). The SBA reviewed IMS's 

claims, concluded that the term had been correctly calculated, 

and refused IMS's request to revise it.

The district court held that the SBA's decision to include 

the January 1987 contract in the section 8(a) program did not 

violate the agency's regulations and dismissed the suit for 

failing to state a valid claim and, in the alternative, entered 

summary judgment on behalf of the SBA. See IMS, P.C. v. 

Lader, No. 96-23 (D.D.C. Feb. 12, 1996) (unpublished bench 

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opinion) ("Bench Op."). Because we find that IMS has failed 

to establish that the SBA violated 13 C.F.R. § 124.301 (1987) 

when it accepted IMS's contract with the Veterans Administration ("VA") into the section 8(a) program, we affirm the 

district court's decision to grant the SBA's motion for summary judgment.1

I. BACKGROUND

In December 1985, IMS was accepted into the Small Business Administration's section 8(a) program, which provides 

"small business concerns owned and controlled by socially and 

economically disadvantaged individuals" with "contract, financial, technical, and mangement [sic] assistance." See 15 

U.S.C. § 631(f)(2) (1994) (footnote omitted). The company 

was initially granted a four-year Fixed Program Participation 

Term that was to begin on the date of the company's first 

__________

1 The district court clearly relied on materials outside the pleadings in ruling on the motion to dismiss. See Bench Op. ("I don't see 

any history developed that that really is not what they meant and 

not how they practiced. That's been argued, but I don't see that in 

the administrative record. I don't see any interpretations or opinions offered that that's not what it means."). Under Rule 12(b)(6) 

of the Federal Rules of Civil Procedure, the motion to dismiss must 

therefore be converted into a motion for summary judgment. See

FED. R. CIV. P. 12(b) ("If, on a motion asserting the defense 

numbered [12(b)](6) to dismiss for failure of the pleading to state a 

claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the court, the motion shall 

be treated as one for summary judgment and disposed of as 

provided in Rule 56...."). For this reason, we will treat the 

district court's action as only a grant of summary judgment. Our 

standard of review of a grant of summary judgment under Federal 

Rule of Civil Procedure 56 is de novo. See Tao v. Freeh, 27 F.3d 

635, 638 (D.C. Cir. 1994) ("Our review of the grant of summary 

judgment is de novo, applying the same standards as the district 

court.") (citations omitted) (footnote omitted). Summary judgment 

is appropriate when all of the submissions "show that there is no 

genuine issue as to any material fact and that the moving party is 

entitled to a judgment as a matter of law." FED. R. CIV. P. 56.

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section 8(a) contract award, subject, under the rules then in 

effect, to limited extension.

In late August 1986, the Engineering Department of the 

VA Medical Center in Batvia, New York selected IMS to 

perform a small project. IMS claims, and the SBA offers no 

evidence to disprove, that IMS was chosen to perform the 

project after the VA orally solicited several small disadvantaged businesses to submit proposals. The Medical Center 

was apparently unaware that IMS was a section 8(a) program 

participant when it selected the company for the project. 

Accordingly, it was not until after the solicitation and selection of IMS that the project was designated a section 8(a) 

project.

In November 1988, Congress enacted the BODR Act, which 

modified the program term for section 8(a) program participants. The final rules implementing the changes required by 

the Act provided that program participants as of September 

1, 1988, would be given a revised program term of "the 

greater of nine years from the date of the Participant's first 

contract pursuant to section 8(a) or the Participant's Fixed 

Program Participation Term (FPPT) expiration date, including any extension thereof, plus 18 months." 13 C.F.R. 

§ 124.110(c) (1989).

In a letter dated December 14, 1988, the SBA informed 

Iqbal Singh, the president of IMS, that the BODR Act 

provided IMS with a revised term of participation in the 

section 8(a) program of nine years from IMS's first contract 

under the program, which the SBA had determined to be 

IMS's January 1987 contract with the VA. The letter requested that Mr. Singh sign and return the letter, which he 

did without objection.

Between 1989 and 1994, IMS contacted the SBA several 

times in an effort to change its program term. IMS claimed 

then, as it does now, that the VA contract was not the proper 

starting point of IMS's section 8(a) program term because the 

contract was brought into the program only after the VA had 

engaged in a public solicitation for offers and selected IMS. 

The SBA maintained in each of its responses that it had found 

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no basis for IMS's contention that the VA contract was 

inappropriately brought into the program.

In August 1995, IMS submitted additional materials to the 

SBA in support of its continuing request to change its program term.2 The SBA's District Counsel, Mollie Gaughan, 

reviewed the material presented by IMS and concluded that 

"[t]here is no evidence in the contract file to support the 

premise that solicitation was previously published" and, 

therefore, "the program participation date was properly established." Memorandum from Mollie B. Gaughan, District 

Counsel, to Michael McHale, Deputy Administrator Minority 

Enterprise Development (Oct. 4, 1995). In response to Ms. 

Gaughan's memorandum, the SBA's Acting Deputy Associate 

Administrator, Michael McHale, wrote a memorandum in 

which he outlined his decision to reject IMS's request to 

extend its program term. In his memorandum, he noted: 

"The documentation provided by your office indicates that 

proper offer acceptance procedure was followed in taking the 

requirement into the 8(a) program." Memorandum from 

Michael P. McHale, Acting Deputy Associate Administrator, 

to Millie B. Gaughan, District Counsel (Oct. 31, 1995). On 

November 1, 1995, Franklin Sciortino, SBA's District Director for Buffalo, New York, wrote to Mr. Singh at IMS 

advising him that the Central Office had denied IMS's request for a new participation term expiration date. See

Letter from Frank J. Sciortino, District Director, to Iqbal 

Singh, President, IMS, P.C. (Nov. 1, 1995).

In January 1996, IMS filed a complaint seeking judicial 

review of the SBA's refusal to amend its section 8(a) program 

term and requesting injunctive relief to prevent the expiration of its term. On February 12, 1996, the district court 

dismissed the suit for failing to state a valid claim and, in the 

alternative, entered summary judgment on behalf of the SBA. 

This appeal ensued.

__________

2 The materials included affidavits from Mr. Singh and VA employee Janet Kline describing how the VA had conducted the 

procurement that led to the contract with IMS in 1987.

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II. ANALYSIS

A. SBA's Interpretation of the Regulations

IMS claims that SBA's acceptance of the 1987 VA contract 

into the section 8(a) program violated the SBA's own rules 

and regulations, and therefore IMS's term expiration dates 

based upon that contract must be set aside by this court. In 

particular, IMS alleges that the SBA's decision to accept the 

contract into the section 8(a) program was contrary to its own 

regulation precluding acceptance of a contract that was previously the subject of a public solicitation. See 13 C.F.R. 

§ 124.301(b)(8) (1987). The district court rejected IMS's 

claims, noting that "the reading of 13 C.F.R. 124.301 (1987) 

and the language therein is exclusive language. That is ... 

the regulation limited public solicitations to those in the form 

of an invitation to bid, a request for proposal, or a request for 

a quotation." See Bench Op. We agree with the district 

court that IMS has failed to establish that the SBA's acceptance of the 1987 contract into the section 8(a) program 

violated 13 C.F.R. § 124.301 (1987).

This court has previously noted that it is a "well-settled 

rule that an agency's failure to follow its own regulations is 

fatal to the deviant action." Mine Reclamation Corp. v. 

Federal Energy Regulatory Comm'n, 30 F.3d 1519, 1524 

(D.C. Cir. 1994) (citations omitted) (internal quotation marks 

omitted); see Vitarelli v. Seaton, 359 U.S. 535, 539-40 (1959); 

Service v. Dulles, 354 U.S. 363, 372-73 (1957); Union of 

Concerned Scientists v. Atomic Energy Comm'n, 499 F.2d 

1069, 1082 (D.C. Cir. 1974). If the SBA failed to follow its 

own regulations in designating the 1987 VA contract as a 

section 8(a) program project, this could be fatal to the SBA's 

designation of the contract as a section 8(a) project and, 

therefore, depending on the circumstances, to its decision to 

establish IMS's participation term on the basis of that contract.3

__________

3 This court rejects the SBA's contention that under 13 C.F.R. 

§ 124.110(d) (1989) it did not have the statutory authority to revise 

a program term once it was set even if the contract on which the 

term was based was granted in violation of federal regulations. 

Contrary to the SBA's claim, if the designation of IMS's 1987 

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13 C.F.R. § 124.301(b)(8)(i) (1987) was promulgated as a 

regulation in late 1986. It read:

(8) SBA will not accept for 8(a) award proposed procurements not previously in the section 8(a) program if 

any of the following circumstances exist:

(i) Public solicitation has already been issued for the 

procurement as a small business set-aside in the form of 

an Invitation for Bid (IFB), Request for Proposal (RFP) 

or a Request for Quotation (RFQ). Providence of a 

general intent to set aside, such as Procurement Information Notices (PIN's), annual procurement forecasts or 

past procurements by set aside, is insufficient reasons 

[sic] to preclude the procurement from 8(a) consideration.

Id. IMS contends that this regulation prohibits the SBA 

from accepting into the section 8(a) program any contract for 

which a public solicitation has been issued. The company 

claims that the SBA violated this regulation when it admitted 

IMS's 1987 contract with the VA into the section 8(a) program because the VA had issued an oral solicitation that was 

the functional equivalent of a Request for Quotation and had 

selected IMS to perform the contract before the contract was 

accepted in the section 8(a) program. For this reason, IMS 

argues, its participation term in the section 8(a) program 

cannot be based on this contract.

The SBA presents a more restrictive reading of the regulation. Under its interpretation, which is entitled to substantial 

deference, see Lyng v. Payne, 476 U.S. 926, 939 (1986) (noting 

that it is an "established proposition that an agency's construction of its own regulations is entitled to substantial 

deference") (citations omitted), the transferral of the contract 

into the 8(a) program would only be invalid if the VA had 

already issued one of three specific types of public solicitation: an Invitation for Bid, Request for Proposal, or Request 

for Quotation. In this view, the fact that the VA had issued 

__________

contract with the VA as a section 8(a) contract had violated 13 

C.F.R. § 124.301(b)(8) (1987), the SBA could have revised IMS's 

program term.

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an oral solicitation that was arguably the functional equivalent of a Request for Quotation is irrelevant. The contract 

was eligible for inclusion in the SBA's section 8(a) program 

because the VA had not issued one of the three specified 

forms of public solicitation.

We find the SBA's interpretation of 13 C.F.R. § 124.301 

(1987) to be reasonable. Indeed, it is more reasonable than 

that offered by IMS.4 Although the portion of the regulations that applies to the SBA does not itself define the terms 

"Invitation for Bid," "Request for Proposal," or "Request for 

Quotation," these terms are used to refer almost exclusively 

to written documents throughout the federal regulations that 

govern contracting by negotiation under the federal acquisition regulations system. See, e.g., 48 C.F.R. § 15.402 (1996); 

48 C.F.R. § 15.406 (1996); 48 C.F.R. § 15.407 (1996); 48 

C.F.R. § 15.410 (1996). Tellingly, the portion of the federal 

regulations that governs acquisitions by the Department of 

Veterans Affairs does so as well. See, e.g., 48 C.F.R. 

§ 852.210-75 (1996) (requiring that a particular written provision be included in all invitations for bids, requests for 

proposals, and requests for quotations issued for items that 

are required to conform to technical industry standards); 48 

C.F.R. § 814.201 (1996) (requiring that all invitations for bids 

be serially numbered at time of issue); see also 38 C.F.R. 

§ 43.36(g)(2) (1996) (referring to requests for proposals and 

invitations for bids as "procurement documents"). All of this 

indicates that these terms in the SBA regulations have clear 

__________

4 Because we find that the SBA's reading of 13 C.F.R. § 124.301 

(1987) is more plausible than that offered by IMS, we need not 

consider whether the manner in which the SBA articulated its 

interpretation should affect the degree of deference it warrants. 

See Huffman v. Western Nuclear Inc., 486 U.S. 663, 674 n.9 (1988); 

cf. Securities Indus. Ass'n v. Board of Governors of the Fed. 

Reserve Sys., 468 U.S. 137, 143 (1984) ("post hoc rationalizations by 

counsel for agency action are entitled to little deference") (citations 

omitted); American Horse Protection Ass'n, Inc. v. Lyng, 812 F.2d 

1, 6 (D.C. Cir. 1987) ("We are adjured to take a critical view of an 

agency's 'post hoc rationalization' ....") (citations omitted).

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and specific meanings that do not encompass oral solicitations 

of the type allegedly used by the VA in its 1987 procurement.

Because the SBA's more restrictive interpretation of 13 

C.F.R. § 124.301 (1987) is consistent with the rest of the 

federal regulations and with the plain meaning of the regulation, we find it entirely reasonable. Under this interpretation 

of the regulations, even if the VA issued an oral solicitation to 

IMS and other small businesses in mid-1986, the SBA did not 

violate its own regulations when it accepted the contract into 

the section 8(a) program in early 1987. IMS has therefore 

failed to establish that its section 8(a) program term is 

incorrect.

B. The Arbitrary and Capricious Claim

In its motion for summary judgment, IMS contended that 

the SBA's failure to correct IMS's program term was arbitrary, capricious, and contrary to law. The company claimed 

that the SBA had not examined the relevant data or articulated a satisfactory explanation for its action. It further alleged 

that there was no rational connection between the facts and 

the choice SBA made. In response, in its motion to dismiss, 

or in the alternative, cross motion for summary judgment, the 

SBA claimed that its refusal to change IMS's term in the 

section 8(a) program was based upon a rational evaluation of 

the facts and therefore was not arbitrary, capricious, or 

contrary to law. It noted that the SBA had notified IMS of 

its revised program term in 1986 and that IMS had acknowledged that decision without objection. The SBA further 

claimed that when IMS raised objections to its program term 

several years later, SBA officials carefully reviewed IMS's 

factual allegations but concluded that they were inconsistent 

with specific documents in the SBA's files.5 The district 

__________

5 The SBA's memorandum of points and authorities in support of 

its motion cited three separate reviews of IMS's request by SBA 

officials. One review was conducted in September 1995 by Betty 

Perno, the Assistant Director for the 8(a) program in the Buffalo 

SBA office. In a memorandum to the District Counsel in that 

office, she concluded that the documents in the SBA's file showed 

that the SBA's contract with IMS had been awarded under the 8(a) 

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court concluded that the SBA's decision not to revise IMS's 

program term was not arbitrary and capricious because "their 

record contains substantial evidence that the SBA fairly 

considered the IMS allegations and concluded they did not 

warrant a change in the program date and that affects the 

use of qualifications to continue in this program." See Bench 

Op.

Because we affirm the district court's ruling that the SBA 

did not violate 13 C.F.R. § 124.301 (1987) when it admitted 

IMS's 1987 contract with the VA into the section 8(a) program, IMS's claim that the SBA's actions were arbitrary and 

capricious necessarily fails since there is no conclusion that 

the SBA could have reached other than that the expiration 

date of IMS's section 8(a) program term was correct. The 

__________

program and had not been subject to earlier non-8(a) solicitation. 

She also noted that IMS's claims were supported only by affidavits 

and that IMS had provided no other documentation to support its 

claims. A second review was conducted in October 1995 by Mollie 

Gaughan, the Buffalo District Counsel. In her memorandum to 

Michael McHale, the Deputy Administrator for the 8(a) program in 

SBA's Central Office, she indicated that she had found no support 

for the statements contained in the affidavits submitted by IMS. 

Rather, she observed that the affidavits were "in direct conflict" 

with documents contained in the files. Finally, the SBA Central 

Office reviewed IMS's request and concluded that the SBA's award 

of the 1987 contract to IMS was consistent with SBA procedures. 

See Defendant's Memorandum of Points and Authorities in Support 

of Its Motion to Dismiss or, in the Alternative, Cross Motion for 

Summary Judgment and Opposition to Plaintiff's Motion for Summary Judgment, at 18-26. It should be noted that Ms. Gaughan's 

memorandum mentions that the SBA's file did not include a statement from the procuring agency that the proposed procurement 

had not been offered previously by public solicitation under a small 

business set aside, as was required by the regulations. However, 

the memo also indicated that such a statement had been made by an 

SBA employee and concluded that it was a matter of agency 

discretion whether the omission of the procuring agency's statement 

was fatal. See Memorandum from Mollie B. Gaughan, District 

Counsel, to Michael McHale, Deputy Administrator Minority Enterprise Development (Oct. 4, 1995), at 3.

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agency's conclusion that there is "no evidence in the file to 

support the premise that the solicitation was previously published" 6

is entirely consistent with the ground on which we 

have based our ruling, although admittedly, at the time it 

made its decision, the agency did not point to the specific 

publication requirements of 13 C.F.R. § 124.301 (1987) as it 

later did in its motion to dismiss, or in the alternative, for 

summary judgment.

C. The Supplemental Affidavits

IMS submitted four affidavits to the district court in support of its Request for a Temporary Restraining Order and 

its Motion for Summary Judgment.7IMS claimed that the 

affidavits, while not contained in the agency record, merely 

elaborated on information that was in the record and should 

therefore be permitted. The district court granted SBA's 

motion to strike the affidavits. We affirm the district court's 

decision.

It is a widely accepted principle of administrative law that 

the courts base their review of an agency's actions on the 

materials that were before the agency at the time its decision 

was made. See Puerto Rico Higher Educ. Assistance Corp. 

v. Riley, 10 F.3d 847, 850-51 (D.C. Cir. 1993) ("We base our 

review of the Department's actions on the materials that were 

before the Department at the time its decision was made.") 

(citation omitted); Walter O. Boswell Mem'l Hosp. v. Heckler,

749 F.2d 788, 792 (D.C. Cir. 1984) ("If a court is to review an 

agency's action fairly, it should have before it neither more 

nor less information than did the agency when it made its 

decision."). As the Supreme Court noted in 1985, "The task 

__________

6

See Memorandum from Mollie B. Gaughan, District Counsel, to 

Michael McHale, Deputy Administrator Minority Enterprise Development (Oct. 4, 1995), at 3.

7 The affidavits were: (1) Affidavit of Iqbal M. Singh (Jan. 5, 

1996) (with attachments); (2) Supplemental Affidavit of Iqbal M. 

Singh (Jan. 17, 1996) (with attachments); (3) Affidavit of Janet 

Kline (with attachment) (Jan. 17, 1996); (4) Statement of Albert 

Iamicelli, a VA employee familiar with the 1987 contract (Jan. 16, 

1996).

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of the reviewing court is to apply the appropriate APA 

standard of review, 5 U.S.C. § 706, to the agency decision 

based on the record the agency presents to the reviewing 

court." Florida Power & Light Co. v. Lorion, 470 U.S. 729, 

743-44 (1985) (citing Citizens to Preserve Overton Park v. 

Volpe, 401 U.S. 402 (1971)); see also Camp v. Pitts, 411 U.S. 

138, 142 (1973) (per curiam) ("In applying [the arbitrary and 

capricious] standard, the focal point for judicial review should 

be the administrative record already in existence, not some 

new record made initially in the reviewing court."). It is not 

necessary that the agency hold a formal hearing in compiling 

its record, for "[t]he APA specifically contemplates judicial 

review on the basis of the agency record compiled in the 

course of informal agency action in which a hearing has not 

occurred." Florida Power, 470 U.S. at 744.

Both parties agree that the affidavits submitted by IMS 

were not available to the SBA at the time it made its decision 

regarding IMS's participation term. IMS claims, however, 

that the district court should have considered the affidavits as 

part of the administrative record because they merely elaborated on details already included in the record. In addition, 

IMS argues that "even if the affidavits constituted extraneous 

evidence, they still should have been considered by the Court 

under various exceptions which permit supplementation of the 

administrative record." Appellant's Brief at 23.

We find no legal support for IMS's assertions. Even if 

IMS were correct in its claim that information that elaborates 

on details already in the record could be considered by the 

court, the affidavits in question could not be considered 

because they provide significant new information about the 

circumstances surrounding the 1987 contract that is not available in the administrative record. Moreover, the affidavits do 

not appear to fall within any of the accepted exceptions to the 

principle that the court cannot consider information that falls 

outside the agency record. As the district court concluded, 

IMS has not demonstrated that the agency failed to examine 

all relevant factors or to adequately explain its grounds for 

decision, or that the agency acted in bad faith or engaged in 

improper behavior in reaching its decision. This is not a case 

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where the agency failed "to explain administrative action [so] 

as to frustrate effective judicial review." Pitts, 411 U.S. at 

142-43. Nor has IMS made the "strong showing of bad faith 

or improper behavior" required to justify supplementing the 

record. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 

402, 420 (1971).

The affidavits contain information that should have been 

submitted to the agency before this dispute reached the 

courts. To allow the affidavits to be considered now would be 

to permit ex post supplementation of the record, which is not 

consistent with the prevailing standards of agency review. 

See AT&T Info. Sys. v. General Serv. Admin., 810 F.2d 1233, 

1236 (D.C. Cir. 1987) ("we have repeatedly applied [the rule 

against supplementing the agency record] to bar introduction 

of litigation affidavits to supplement the administrative record") (citations omitted); Walter O. Boswell Mem'l Hosp., 749 

F.2d at 793 (noting that the court had struck portions of an 

amicus brief that discussed affidavits not available to the 

agency at the time of its decision). As this court held in 

Walter O. Boswell Memorial Hospital v. Heckler, if the 

parties to a case "wish to contest the merits of the case by 

referring or submitting to the District Court any material 

that does not appear in the ... administrative record, they 

may do so only by joint stipulation." Id. at 794.

III. CONCLUSION

For the foregoing reasons, we hold that IMS has failed to 

establish that the SBA's acceptance of IMS's 1987 contract 

with the VA into the section 8(a) program violated federal 

regulations. We also hold that the district court properly 

excluded the supplemental affidavits that the appellant filed 

in support of its claims on the basis that they were not part of 

the administrative record. The district court's decision 

granting the SBA's motion for summary judgment is therefore

Affirmed.

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