Source: http://wifcon.com/pd52_21914.htm
Timestamp: 2018-10-16 20:29:20
Document Index: 166401188

Matched Legal Cases: ['§ 125', '§ 21', '§ 125', '§ 16', '§ 21', '§ 21', '§ 121', '§ 52', '§ 52', '§ 852', '§ 52', '§ 125', '§ 125', 'art 19', '§ 52', '§ 52', '§ 52', '§ 52', '§ 52', '§ 52', '§ 2305', '§ 52', '§ 19', '§ 2', '§ 252', '§ 2', '§ 2', '§ 31', '§ 31', '§ 31', '§ 31', '§ 252', '§ 644', '§ 644', '§ 3554', '§ 19', '§ 125', '§ 19', '§ 125', '§ 19', '§ 19']

FAR 52.219-14: Limitations on Subcontracting
New Quotations were received from six offerors, four of which, including Crosstown and FGMG, were found technically acceptable. Agency Report (AR) at 2. FGMG submitted the lowest-priced quotation. Id. The contracting officer (CO) found FGMG to be a responsible offeror and made award to FGMG.
Crosstown challenges the award to FGMG, arguing that FGMG has only one employee, is not a courier services company, and has no prior government contracts for medical courier services of similar scope. Protest at 3. The protester asserts therefore that the awardee’s quotation “strongly evidences” the awardee’s noncompliance with Federal Acquisition Regulation (FAR) clause 52.219-14 (Limitation on Subcontracting). Comments at 2. In this regard, Crosstown asserts that, although FGMG’s teaming agreement indicates that FGMG will provide 51 percent of the direct labor and its teaming partner will provide no more than 49 percent of the labor, “[b]eyond this general representation, no other support is given that this [subcontracting] requirement would be met.” Id. at 2. Crosstown points to several asserted uncertainties with regard to the teaming agreement and posits a scenario under which FGMG would not comply with the subcontracting requirements. Id. at 3.
First, we note that the protester’s argument regarding FGMG’s alleged noncompliance with the requirements of FAR clause 52.219-14 is misdirected, in that this clause was not incorporated into the solicitation. Instead, the RFQ included VA Acquisition Regulation (VAAR) clause 852.219-10, VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside. RFQ at 34-35. This clause provides as follows in subsection (c):
(c) Agreement. A service-disabled veteran-owned small business concern agrees that in the performance of the contract, the concern will comply with the limitation on subcontracting requirements in 13 C.F.R. § 125.6.
Section 125.6, in turn, provides as follows with regard to services contracts:
An agency’s judgment as to whether a small business offeror can comply with a limitation on subcontracting clause is generally a matter of responsibility and the contractor’s actual compliance is a matter of contract administration. Ashridge, Inc., B‑408469, Sept. 27, 2013, 2013 CPD ¶ 250 at 7. Neither issue is one that our Office will consider. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability, which our Office may consider. EcoAnalysts, Inc., B-406233 et al., Mar. 19, 2012, 2012 CPD ¶ 169 at 3; TYBRIN Corp., B‑298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5. Such circumstances, however, are not present here.
In this regard, the protester points to no part of FGMG’s quotation in which FGMG indicates an intention not to comply with the RFQ’s subcontracting limitations. In addition, VA advises that nothing on the face of FGMG’s quotation led it to conclude that FGMG would not comply with the RFQ’s subcontracting limitations and our review of the quotation gives us no basis to question the agency’s judgment. See ACME Indus., Inc., B‑414023, Jan. 13, 2017, 2017 CPD ¶ 22 at 4 (no basis to question agency’s judgment regarding awardee’s compliance with subcontracting limitations where nothing on the face of the awardee’s proposal led the agency to conclude that the firm would not comply with the solicitation’s requirements in that regard).
The protest is denied. (Crosstown Courier Service, Inc. B-414752: Sep 1, 2017)
As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration. Geiler/Schrudde & Zimmerman, B-412219 et al., Jan. 7, 2016, 2016 CPD ¶ 16 at 7. Neither issue is one that our Office generally reviews. 4 C.F.R. § 21.5(a), (c); Geiler/Schrudde & Zimmerman, supra, at 7‑8. As our Office has consistently held, however, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal acceptability. See e.g., Geiler/Schrudde & Zimmerman, supra, at 8; Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4; TYBRIN Corp., B‑298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5, 6. See also 13 C.F.R. § 125.5(b)(ii). This is because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award. Geiler/Schrudde & Zimmerman, supra, at 8; Addx Corp., B-404888, May 4, 2011, 2011 CPD ¶ 89 at 3-4.
An offeror, however, need not affirmatively demonstrate compliance with the subcontracting limitations in its proposal. Dorado Serv., Inc., B-408075, B‑408075.2, June 14, 2013, 2013 CPD ¶ 161 at 12. Rather, such compliance is presumed unless specifically negated by other language in the proposal. The plain language of the subcontracting limitation clause provides that the act of proposal submission itself is sufficient to demonstrate agreement to be bound by the limitation. FAR clause 52.219-14(c)(1) (“By submission of an offer . . . the Offeror/Contractor agrees that . . . [a]t least 50 percent of the cost of the contract performance incurred for personnel shall be expended for employees of the concern.”). Accordingly, where an offeror submits a proposal in response to an RFP that incorporates FAR clause 52.219-14, the offeror agrees to comply with the limitation, Dorado Serv., Inc., supra, at 12, and in the absence of any contradictory language, the agency may presume that the offeror agrees to comply with the subcontracting limitations.
Of course, this presumption may be rebutted by other language in the proposal. It is the protester, however, that bears the burden to affirmatively demonstrate that the awardee’s proposal takes exception to the limitations on subcontracting. Id. (“[T]he protester confuses the applicable standard by attempting to shift to the awardee and the agency the burden of affirmatively demonstrating that the awardee’s proposal will comply with the limitation on subcontracting requirement.”); KAES Entprs., LLC, B‑408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 3 (“[I]t is the protester who bears the burden of demonstrating that the proposal should have led the agency to conclude that the awardee did not comply with this limitation; simply arguing that the awardee’s quotation did not contain sufficient information to demonstrate whether the awardee will comply does not meet this burden.”).
This burden is met where the protester demonstrates that the awardee has specifically taken exception to the subcontracting limitation. Sealift, Inc., supra, at 5; Addx Corp., supra, at 3; Reliable Builders, Inc., supra, at 5; TYBRIN Corp., supra, at 6. That is, the protester must identify information in the offeror’s proposal that shows the offeror has not agreed to comply with the subcontracting limitation. Mere assumptions, inferences, and speculation are generally insufficient to demonstrate noncompliance. See Dorado Serv., Inc., supra, at 12. Here, we conclude that nothing on the face of WTS’s technical proposal or the associated attachments should have led the VA to determine that WTS had taken exception to the subcontracting limitation.
The RFP did not prohibit the use of subcontractors. RFP § 16.1, at 42. Thus, WTS’s references to “independent contract driver,” without more, do not demonstrate that it took exception to the subcontracting limitation. Furthermore, although EMT highlights several instances in which WTS refers to independent contract drivers, EMT fails to point to any language indicating that WTS intends to rely almost exclusively upon independent contract drivers for this effort. Moreover, as explained above, the references to independent contract drivers are contained in internal training manuals and safety plans that were attached to WTS’s proposal. Considering the nature of these documents and their apparent applicability to a wide-variety of contexts, we fail to see that their references to independent contractors demonstrate noncompliance with the subcontracting limitation clause.
Additionally, even if WTS has relied heavily on independent contractor drivers to perform prior contracts, as EMT seems to allege, see Protest at 4-6, there is no indication that WTS intends to do so here. Rather, WTS’s proposal indicates that it has not yet hired its full fleet of drivers. AR, Exh. F, WTS Technical Proposal, Part I, at 20. At the time of proposal submission, it had retained only 25 percent of its driver fleet. Id. Upon receipt of a required certificate from the local county board, WTS intends to hire “a sufficient number of drivers and vehicles to ensure timely service[.]” Id. The proposal also states that “additional drivers can be easily added to meet all contract requirements.” Id. We have previously held that an offeror is not prohibited from hiring additional personnel as needed to complete the project or to comply with the subcontracting limitations. Geiler/Schrudde & Zimmerman, supra, at 9. There is no indication from WTS’s proposal that it intends to hire independent contractor drivers exclusively.
In sum, EMT fails to point to any portion of WTS’s proposal in which WTS states an intent to rely almost exclusively on independent contract drivers. In the absence of any such indication, we conclude that there was nothing on the face of the proposal that should have led the agency to conclude that WTS had not agreed to comply with the subcontracting limitation. (Express Medical Transporters, Inc. B-412692: Apr 20, 2016) (pdf)
With respect to subcontracting, NCS/EML argues that the awardee’s offer failed to comply with FAR clause 52.219‑14, limitations on subcontracting. We dismiss this aspect of NCS/EML’s protest. While the solicitation was set aside for small businesses, the RFP did not incorporate FAR clause 52.219-14. Indeed, NCS/EML’s protest acknowledges that the clause was not included in the solicitation. Accordingly, this allegation is factually and legally insufficient, and we will not consider it. 4 C.F.R. §§ 21.1(c)(4), 21.5(f); Excalibur Laundries, Inc., B‑405814, B‑405814.2, Jan. 3, 2012, 2012 CPD ¶ 1 at 6 (allegation that the awardee’s proposal did not comply with FAR clause 52.219-14 is factually and legally insufficient where the solicitation--set aside for small businesses--did not incorporate the clause). (NCS/EML JV, LLC, B-412277, B-412277.2, B-412277.3: Jan 14, 2016) (pdf)
GSZ contends that ISS will not comply with the subcontracting limitation in VAAR clause 852.219-10, arguing that it is “impossible” for ISS to spend 15 percent of the cost of the contract performance on its own employees because ISS’s proposal lists only four ISS employees in the “key personnel” portion of its technical proposal. Protest at 3‑4; Protester’s Comments (Nov. 20, 2015) at 6, 8. GSZ contends that ISS would need to spend at least $1,299,450 on those four employees, resulting in an hourly rate that is not sustainable in the construction industry. Protester’s Comments (Nov. 20, 2015) at 6. We find no merit to this argument.
As a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation clause is a matter of responsibility, and the contractor’s actual compliance is a matter of contract administration. RaloidCorp., B‑297176, Nov. 10, 2005, 2005 CPD ¶ 205 at 4; Ecompex, Inc., B‑292865.4, et al., June 18, 2004, 2004 CPD ¶ 149 at 5. Neither issue is one that our Office generally reviews. See 4 C.F.R. § 21.5(a), (c). However, as our Office has consistently held, where a proposal, on its face, should lead an agency to conclude that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of proposal’s acceptability. Sealift, Inc., B-409001, Jan. 6, 2014, 2014 CPD ¶ 22 at 4; MindPoint Grp., LLC, B-409562, May 8, 2014, 2014 CPD ¶ 145 at 2; TYBRIN Corp., B‑298364.6, B‑298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5, 6. This is because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award. Addx Corp., B‑404888, May 4, 2011, 2011 CPD ¶ 89 at 3-4.
The VA did not directly address GSZ’s argument. Instead, in its report responding to the protest, the VA submitted a size determination issued by the SBA for ISS in connection with a different procurement. AR, Tab J, SBA Size Determination No. 04-2015-058. The agency argued that GSZ’s protest should be denied because the “SBA recently affirmed ISS as a small business” and found that ISS “is not unusually reliant on its subcontractors to complete the work required.” AR at 5. We conclude, however, that the SBA’s size determination is not relevant to GSZ’s arguments here because it pertains to an entirely different procurement, which was issued under a different North American Industry Classification System code, with a different corresponding size standard, and which had a different statement of work. See 13 C.F.R. § 121.1007 (stating that a protest of size status, and thus the resulting formal size determination, must relate to a particular procurement). The SBA’s size determination is also not relevant because it does not address GSZ’s arguments here, which pertain to the technical acceptability of ISS’s proposal, not its status as a small business concern.
Although the VA did not directly respond to GSZ’s arguments, we conclude that nothing on the face of ISS’s proposal should have led the VA to conclude that ISS would not comply with the subcontracting limitation. First, contrary to GSZ’s allegations, an offeror’s number of employees, without more, does establish that the offeror takes exception to the subcontracting limitation. See Reliable Builders, Inc., B‑402652, B-402652.3, June 28, 2010, 2010 CPD ¶ 260 at 4, 5 (allegations that a firm lacks office space, licenses, and staff does not provide a basis for finding that the firm takes exception to the subcontracting clause in its proposal); Raloid Corp., supra, at 4 (allegations that an offeror does not have adequate facilities, equipment, or employees to perform the contract does not provide evidence that the firm cannot or will not comply with the subcontracting clause). See also KAES Enter., LLC, B‑408366, Aug. 7, 2013, 2013 CPD ¶ 192 at 2-3 (protest alleging that awardee’s employees could perform only 27 percent, not the 51 percent required by the subcontracting clause, is denied where there was nothing on the face of the proposal to indicate the awardee would not comply with the clause).
Moreover, although ISS’s proposal lists four “key personnel,” by name, as required by the RFP, there is no indication in the proposal that those four individuals comprise the entirety of ISS’s workforce on the project or that ISS would not hire additional personnel as needed to complete the project or to comply with the subcontracting limitations. In this regard, the awardee’s proposal states that, as the prime contractor, “ISS will have overall responsibility for the operation, quality, safety, and outcome of the project and will self-perform general construction work on the project.” AR, Tab I, ISS’s Technical Proposal, at 2. The proposal also states that ISS will self-perform pipefitting, demolition, and mechanical supply. Id. at 6.
ISS’s proposal states that the remainder of the work will be performed by one of its three subcontractors. Id. Notably, ISS’s team includes a subcontractor that is also an SDVOSB, who will perform all electrical construction, electrical trades, and fire alarm installation. Id. at 2, 5, 6. Thus, because the subcontracting limitation clause expressly allows an SDVOSB concern to rely upon “the employees of other eligible [SDVOSB] concerns” in order to satisfy the 15 percent limitation, VAAR clause 852.219-10(c)(3), we find that ISS’s proposal, on its face, did not furnish any basis for finding that it took exception to the clause. (Geiler/Schrudde & Zimmerman B-412219, B-412219.2, B-412219.3: Jan 7, 2016) (pdf)
In our view, nothing on the face of M&M’s proposal takes exception to the RFP’s limitation on subcontracting, or suggests that the awardee will not comply with that limitation in performing the contract. As relevant here, M&M’s proposal states that it will be responsible for overall contract performance; that it will make the gloves; and that it will be responsible for all of the manufacturing and shipping. AR, Tab 6, M&M’s RFP Response, at 71. The agency states that after analyzing M&M’s proposal, it determined that M&M will manufacture and produce the end items in accordance with the small business set-aside clause, as well as perform work for at least 50 percent of the costs of manufacturing the supplies of the end item in accordance with the limitations on subcontracting requirements. AR at 10-11. Under these circumstances there is no basis for us to conclude that M&M’s proposal, on its face, should have led the agency to conclude that M&M could not and would not comply with the limitation on subcontracting clause. (Promotions Plus, Inc., B-409318: Mar 10, 2014) (pdf)
As a threshold matter, the agency asserts that MindPoint is not an interested party to pursue this protest because MindPoint, on the face of its proposal, took exception to the requirement that employees of MindPoint will perform at least 50 percent of the cost of contract performance incurred for personnel. Motion to Dismiss, Mar. 19, 2014 at 2-3. The protester asserts that it properly considered one of its two proposed systems administrators--an independent contractor--to be an employee for the purpose of calculating whether MindPoint would meet the minimum percent cost of performance requirement.
Where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. TYBRIN Corp., B-298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5. Such a noncompliant proposal may not form the basis for an award. See KIRA, Inc., B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD ¶ 153 at 3.
Here, we agree with the agency that on its face, MindPoint’s proposal takes exception to the 50-percent subcontracting limitation. In this regard, MindPoint’s final proposal revision (FPR) contains the required Table B1, with proposed staff and annual costs, for each of 10 labor categories. See AR, Tab 17, MindPoint FPR at 20. MindPoint represented that it would itself perform 53.3 percent of the contract effort using 7 individuals, including Systems Administrator MS, all generally designated as “MindPoint Group” in Exhibit 1.3, Team MindPoint Group Support Resources Breakdown. FPR, Exhibit 1.3, at 10. Using those figures, the agency calculates that, without the contribution of Systems Administrator MS, the proposal committed MindPoint to perform only 45 percent of the personnel costs of performance with its own employees. Email from Agency to GAO, Apr. 7, 2014. The protester does not dispute that calculation. In essence, to avoid violating the limitations on subcontracting provision of the solicitation, MindPoint must include the contribution of Systems Administrator MS in its calculation of the percentage of labor cost to be performed by MindPoint employees.
As noted by the agency, however, the protester’s proposal elsewhere indicated that Systems Administrator MS would, in fact, be a MindPoint independent contractor. See Agency’s Reply to Protester’s Opposition to Request for Dismissal at 6-7. In this regard, the systems administrator’s resume indicates that he is currently employed by another firm. AR, Tab 17, MindPoint FPR at 48. Further, the systems administrator’s letter of commitment states that he will be an independent consultant, and not an employee of MindPoint, for the contemplated contract: “I am committed to remaining as a member of Team MindPoint Group in support of the National Security Division and as an independent consultant to MindPoint Group for the duration of the contract.”[1] AR, Tab 8, MindPoint Initial Technical Proposal at 49. Likewise, MindPoint’s price proposal lists the systems administrator as a “1099 Consultant,” referring to the 1099 Internal Revenue Service form used for independent contractors. MindPoint FPR at 20. As such, the agency notes, MindPoint treated the systems administrator the same way that it did all of the other subcontracted employees (and different from the way it treated MindPoint employees) for the purpose of calculating fringe benefit costs, overhead cost, and profit. Id.
The protester’s argument that the agency should have instead considered its Systems Administrator MS to be an employee rests entirely on information not contained in MindPoint’s proposal, purporting to show that the systems administrator “would function more akin to an employee of MindPoint than a subcontractor.” See Protester’s Response to Request for Dismissal at 5-6, citing Exh. A, Decl. of MindPoint President & Exh. B, Teaming Agreement. It is an offeror’s responsibility to submit an adequately written proposal that establishes its capability and the merits of its proposed approach in accordance with the evaluation terms of the solicitation. See Verizon Fed., Inc., B-293527, Mar. 26, 2004, 2004 CPD ¶ 186 at 4. An offeror that does not affirmatively demonstrate the merits of its proposal risks rejection of its proposal. HDL Research Lab, Inc., B-294959, Dec. 21, 2004, 2005 CPD ¶ 8 at 5. Here, since the protester’s own proposal repeatedly treated the systems administrator as an independent contractor or consultant rather than as an employee, there is no basis to question the agency’s conclusion that the individual is not an employee of MindPoint.
As a result, MindPoint’s proposal was unacceptable, and, because there is another acceptable offer, MindPoint is not an interested party to pursue the remaining issues in its protest. See Tetra Tech Tesoro, Inc., B-403797, Dec. 14, 2010, 2011 CPD ¶ 7 at 6.
The protest is dismissed. (MindPoint Group, LLC, B-409562: May 8, 2014) (pdf)
SumCo next argues that the contracting officer had an affirmative responsibility to determine whether DCM could comply with the limitations on subcontracting incorporated into the contract at FAR § 52.219-3 and FAR § 52.219.14. The firm asserts that the agency could not make such an affirmative determination based on DCM’s lump sum bid, and that the bid, on its face, should have led the contracting officer to conclude that DCM could not and would not meet the relevant subcontracting limitations. Supp. Comments at 4. SumCo asserts that the agency was required to inquire further of DCM to determine the work allocation between the firm and its subcontractor. Protest at 4; Comments at 3-9. The firm argues that, had it made such an inquiry, the agency would have found that DCM was not a responsible bidder and rejected its bid. Comments at 9.
An agency’s judgment as to whether a small business offeror can comply with a limitation on subcontracting provision is generally a matter of responsibility. Ashridge, Inc., B-408469, Sept. 27, 2013, 2013 CPD ¶ 250 at 6. However, our Office has consistently held that where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. EcoAnalysts, Inc., B- 406233 et al., Mar. 19, 2012, 2012 CPD ¶ 169 at 3. In this regard, a proposal that fails to conform to a material term or condition of the solicitation, such as the subcontracting limitation, is unacceptable and may not form the basis for an award. Id.
The agency responds that DCM’s bid did not contain any information on its face that led the agency to conclude that DCM could not or would not comply with the relevant subcontracting limitations. Memorandum of Law at 9. We agree with the agency. The submitted bid was a lump sum bid, which was not broken down into components, such as prime contractor work and subcontractor work. IFB at 3; Supp. AR, Exh. 2, DCM Bid, at 3. Further, nothing else on the face of the bid would lead to the conclusion that DCM could not or would not comply with the relevant subcontracting limitations. See generally Supp. AR, Exh. 2, DCM Bid. The bid, on its face, does not evidence any nonconformance to a material term or condition of the solicitation, and was thus acceptable for award. (SumCo Eco-Contracting LLC, B-409434, B-409434.2: Apr 15, 2014) (pdf)
DBI contends that the agency should have found Conquistador’s quotation unacceptable for failing to comply with the RFQ’s limitation on subcontracting. Protest at 1. The protester argues that Conquistador does not intend to provide more than 50 percent of the labor costs because, in the protester’s view, Conquistador proposes to subcontract virtually the entire project to a non-SDVOSB. Id. at 2; Protester’s Comments at 2-4.
The VA argues that, on its face, Conquistator’s quotation generally indicates its intent to comply with the subcontracting limitation. AR at 3. The agency also points out that the RFQ did not require vendors to provide in their quotations specific proof of compliance, such as a breakdown of labor hours. Id.
As discussed above, the solicitation included a limitation on subcontracting clause, VAAR § 852.219-10(c)(1), which provides that, for service contracts, an SDVOSB concern must perform at least 50 percent of the personnel costs. As a general matter, an agency’s judgment as to whether a small business vendor will be able to comply with a subcontracting limitation presents a question of responsibility not subject to our review. Chant Engineering Co., Inc., B-402054, Dec. 29, 2009, 2010 CPD ¶ 16 at 2. However, where a quotation, on its face, should lead an agency to the conclusion that a vendor has not agreed to comply with the subcontracting limitation, the matter is one of the quotation’s acceptability. Id.
In our view, nothing on the face of Conquistador’s quotation, including the terms of its proposed subcontracting agreement, takes exception to the RFQ’s limitation on subcontracting, or suggests that the awardee will not comply with that limitation in performing the contract. As relevant here, Conquistador’s quotation states that it will be responsible for overall contract performance; that it will market recyclables; that it will prepare and submit monthly reports and disposal records; and that it will perform all billing and administrative functions. AR, Tab B, Conquistador’s Quotation, at 18. The quotation states that the key subcontractor will perform all aspects of refuse and recyclables collection. Id. Moreover, the subcontracting agreement explicitly states that in no event will Conquistador perform less than the percentage required by the subcontracting limitation and that Conquistador does not intend to be “unusually reliant” upon the subcontractor in the performing the contract. Id. at 10, 13.
DBI disputes that Conquistador’s quotation is facially compliant with the subcontracting limitation, because Conquistador’s subcontracting agreement provides that the key subcontractor would perform the waste removal, hauling, and container cleaning tasks, which the protester insists comprise almost the entirety of the requirement. Protester’s Comments at 2-4; Protester’s 2nd Supp. Comments at 3-7. DBI contends that, under the terms of the subcontracting agreement, Conquistador would only perform limited administrative or professional functions that, according to the protester, are insignificant, discretionary, or performed by VAMC staff. Id.
The VA explains that the procurement is primarily for management of the hospital’s waste removal and recycling program and requires a significant amount of professional and administrative work. 2nd Supp. AR, Tab J, Declaration of Chief of Environmental Management Services, at 1. In contrast, the agency argues, the waste and recycling removal tasks that the key subcontractor will perform are limited to picking up and transporting waste, which are a relatively small portion of the contract. Id. at 2.
We agree with the agency that the solicitation here calls for significantly more work than transporting waste. As discussed above, the solicitation calls for full-service recycling management, and it requires the contractor to perform (in addition to picking up and transporting waste) numerous data collection, reporting, compliance, training, and consulting tasks. Specifically, the contractor must: (1) track solid waste and recycling data, and provide monthly reports of this information; (2) maintain bills of lading and provide monthly and yearly summaries of this information; (3) document credits received for materials and reimburse the agency for such credits; (4) provide monthly forecasts, supported by at least two trade publications, of material pricing; (5) comply with waste regulations at various governmental levels, and submit mandatory reports in that regard; (6) appropriately handle and destroy medical records, and submit monthly certifications of destruction; (7) provide recyclability analysis, including laboratory and economic analysis; (8) provide a quarterly newsletter; (9) provide a monthly web posting; and (10) provide a training video, in-house training sessions, and walk-through trainings. RFQ at 4-7.
Contrary to the protester’s suggestion, these tasks are not limited, insignificant, or reserved for VAMC staff, and we are persuaded by the agency that these tasks require a significant amount of professional and administrative work. Although DBI disputes and minimizes the amount of labor required to perform some of the tasks enumerated above, the RFQ does not support DBI’s conclusion that the professional and administrative work is only a small part of the contract. Furthermore, the intervenor has provided a detailed breakdown of its expected labor hours, convincingly showing that the professional and administrative work performed by Conquistador is more than three times that of the waste removal work performed by the key subcontractor, consistent with our interpretation of the RFQ above. AR, Tab G, Declaration of Conquistador President. Accordingly, based on our review of the record, we find no basis to question the VA’s determination that the awardee would comply with the RFQ’s subcontracting limitation, and DBI’s arguments to the contrary simply reflect its disagreement with the agency. (DBI Waste Systems, Inc., B-408304, B-408304.2, Aug 5, 2013) (pdf)
KAES Enterprises contends that Energy Pro was ineligible for award because the firm failed to comply with the applicable limitation on subcontracting. Therefore, the protester contends, Energy Pro’s quotation should have been rejected as nonresponsible and unacceptable. Protest at 2. The protester argues that Energy Pro’s staff is unable to complete “at least 50 Percent” of the work on its own. In its comments, the protester analyzed the number of hours of work required under the contract versus the number of individuals employed by Energy Pro, and it concluded that, at most, Energy Pro staff could only be expected to perform 27 percent of the work required under the contract. Comments at 1-2. Therefore, the protester contends, Energy Pro’s proposal should have been rejected as noncompliant with the subcontracting limitation.
With regard to contracts for services, FAR § 52.219-14(c)(1) provides that “at least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.” As a general matter, an agency’s judgment as to whether a small business offeror will be able to comply with this subcontracting limitation presents a question of responsibility not subject to our review. Dorado Servs., Inc., B-408075, June 14, 2013, 2013 CPD ¶ __ at 11; Spectrum Sec. Servs., Inc., B-297320.2, B-297320.3, Dec. 29, 2005, 2005 CPD ¶ 227 at 6. However, where a quotation, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the quotation’s acceptability. See Dorado Servs., Inc., supra at 11; TYBRIN Corp., B-298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5.
Here, as set forth above, the solicitation asked offerors to provide, as a percentage, the “total estimated amount of work under this contract that your firm will complete (excluding subcontractors).” RFQ at 36. In response, the awardee’s quotation stated that it would perform 51 percent of the work itself. AR, Tab 6, Energy Pro Quotation, at 7. The protester has not identified any portion of the awardee’s quotation that, on its face, should have led the agency to the conclusion that Energy Pro had not agreed to comply with the subcontracting limitation. Instead, the protester argues that Energy Pro did not provide any supplemental data to support its claim that the firm would perform at least 50 percent of the cost of the contract itself. Comments at 1. However, it is the protester who bears the burden of demonstrating that the proposal should have led the agency to conclude that the awardee did not comply with this limitation; simply arguing that the awardee’s quotation did not contain sufficient information to demonstrate whether the awardee will comply does not meet this burden. Dorado Servs., Inc., supra at 12. Finally, we note that the protester’s arguments appear to rely on a misunderstanding of the FAR provision. The provision requires that at least 50 percent of the cost of contract performance incurred for personnel be incurred by the prime contractor. Thus, the protester’s arguments regarding the number of hours of work to be performed by the prime contractor versus the subcontractor are unconvincing.
We find that there is nothing on the face of Energy Pro’s quotation, nor has the protester directed us to anything on the face of Energy Pro’s quotation, that evidences that the firm will not comply with the solicitation’s subcontracting limitation provision. As a result, we see no basis to conclude that the agency acted improperly in accepting Energy Pro’s quotation. (KAES Enterprises, LLC, B-408366, Aug 7, 2013) (pdf)
EcoAnalysts contends that the EPA’s decision to reject its proposal as technically unacceptable on the basis that it did not meet the RFP’s limitation on subcontracting requirement was unreasonable.
As a general matter, an agency’s judgment as to whether a small business offeror will be able to comply with a subcontracting limitation presents a question of responsibility for review by the SBA. See 13 C.F.R. § 125.6(f); Spectrum Sec. Servs., Inc., B-297320.2, B-297320.3, Dec. 29, 2005, 2005 CPD ¶ 227 at 6. However, our Office has consistently held that where a proposal, on its face, should lead an agency to the conclusion than an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007 CPD ¶ 18 at 6; KIRA Inc., B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD ¶ 153 at 3; National Med. Staffing, Inc.; PRS Consultants, Inc., B-238694, B-238694.2, June 4, 1990, 90-1 CPD ¶ 530 at 4. In this regard, a proposal that fails to conform to a material term or condition of the solicitation, such as the subcontracting limitation, is unacceptable and may not form the basis for an award. TYBRIN Corp., B 298364.6, B-298364.7, Mar. 13, 2007, 2007 CPD ¶ 51 at 5.
Here, the agency reasonably found, and our review confirms that, EcoAnalysts’ proposal included only 46.5 percent of the firm’s personnel cost in its direct labor base. EcoAnalysts admitted to the EPA that it proposed to incur less than 50 percent of the direct labor, and in its protest, EcoAnalysts acknowledges that its proposal reflected that its share of the direct labor costs incurred for personnel was only 46.5 percent, which is less than required to comply with the limitation on subcontracting requirement. See AR, Tab R.2, EcoAnalysts Letter to EPA, at 1-2; Protest at 17 n.4.
EcoAnalysts nevertheless argues that it was unreasonable for the EPA to conclude that EcoAnalysts “could not and would not comply with the subcontracting limitation” and reject its proposal, given EcoAnalysts’ assurances to the EPA in its November 22 letter (and previously to the SBA) that EcoAnalysts would comply with the subcontracting limitation requirements. EcoAnalysts also argues that in determining that the firm would not incur at least 50 percent of the costs of personnel, the EPA and the SBA unreasonably ignored the bulk of the personnel costs for laboratory services to be performed under the contract by EcoAnalysts personnel, which were included in its cost proposal as other direct costs (ODC).
As noted above, for purposes of complying with the subcontracting limitation requirement, the applicable regulation requires the cost incurred for personnel to be based on direct labor costs and any overhead which has only direct labor as its base, plus the concern’s G&A rate multiplied by the labor costs. 13 C.F.R. § 125.6(e)(2). This definition does not appear to include the consideration of labor costs embedded in ODCs. The ODCs here are for laboratory services and were a plug number ($22,050,000) included in all offerors’ cost proposals. The ODC plug number accounts for such elements as labor, equipment, supplies, materials, and other non-labor costs. In any case, EcoAnalysts provided no information in its proposal as to the personnel costs for its own employees for the laboratory services that would allow the agency to consider them in determining whether that firm would satisfy the subcontracting limitation. Thus, the agency reasonably disregarded the ODCs in determining EcoAnalyst’s compliance with the subcontracting limitation. See Addx Corp., B-404888, May 4, 2011, 2011 CPD ¶ 89 at 4 (for purposes of determining compliance with subcontracting limitation the agency should rely upon the contents of the proposal).
Although EcoAnalysts offered to, and states that it could, comply with the requirement, the proposal was reasonably found to be technically unacceptable as submitted. EcoAnalysts’ offers to comply with the subcontracting limitation do not render acceptable a proposal that is noncompliant on its face. TYBRIN Corp., supra, at 5-6. To make EcoAnalysts’ proposal acceptable would have required the EPA to conduct discussions and allow EcoAnalysts to revise its cost proposal. However, the agency was not obligated to conduct discussions with EcoAnalysts for this purpose, where, as here, the agency made award without discussions to other offerors with technically acceptable proposals. See Orincon Corp., B-276704, July 18, 1997, 97-2 CPD ¶ 26 at 4-6. (EcoAnalysts, Inc., B-406233, Mar 19, 2012) (pdf)
The protester's first argument is without merit. Where a proposal, on its face, demonstrates that an offeror is taking exception to the subcontracting limitation clause, the proposal is technically unacceptable. TYBRIN Corp., B‑298364.6, B‑298364.7, Mar. 13, 2007, 2007 CPD para. 51 at 5. This is so because the limitation on subcontracting is a material term of the solicitation, and a proposal that fails to conform to a material term or condition of a solicitation is unacceptable and may not form the basis for an award. Id. To the extent that the protester is arguing that the [task order proposal request] TOPR did not notify offerors that it incorporated the limitation on subcontracting clause, as previously noted, the protester's underlying Seaport-E contract provided it with notice that the limitation on subcontracting clause would be incorporated into any TOPR set aside for small business. AR, Tab 10, at 24. In addition, the TOPR itself advised offerors of the clause's incorporation. TOPR, amend. 2, at 27.
The protest is denied. (Addx Corporation, B-404888, May 4, 2011) (pdf)
Chant argues that Clover's quotation should have been found unacceptable because it showed that Clover would not incur at least 50% of the personnel costs, as required under the LOS clause. Protest at 5. However, either subparagraph (1) or subparagraph (2) of the LOS clause applies, but not both, depending upon whether the contract is one for services or supplies. The contract here is for the construction, fabrication, assembly, and testing of a hydraulic system, components and new operating machinery, and thus falls under the supplies requirement at subparagraph (2) (as reflected in the agency's analysis above which we have no basis to question). Accordingly, subparagraph (1), establishing the 50% of personnel costs requirement, does not apply. See TFab Mfg., LLC, B-401190, June 18, 2009, 2009 CPD para. 127 at 3-4. (Chant Engineering Company, Inc., B-402054, December 29, 2009) (pdf)
The RFP, issued on July 9, 2008 as a total small business set-aside, provided for the award of an indefinite-delivery, indefinite quantity contract. Contracting Officer’s Statement (COS) at 3. The RFP called for both hardware requirements and engineering services requirements. COS at 2‑3. The RFP incorporated FAR sect. 52.219‑14, the LOS clause, as follows:
(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--
(3) General construction..…
(4) Construction by special trade contractors..…
Proposals were received from several small businesses, including TFab. COS at 3. The contracting officer questioned TFab regarding its compliance with the LOS clause, since TFab’s proposal specifically indicated “an approximately 95 percent exemption” from the 50% subcontracting rule for the required services. Id. at 3-4. The contracting officer was concerned “that the protester’s proposal for how the services CLINS were to be performed amounted to a significant pass through to a large business.” Id. at 4. On February 12, the contracting officer issued RFP amendment No. 17, which clarified the manner in which the Army intended to apply the LOS clause, as follows:
V. Offerors are cautioned that this acquisition is a Small Business Set‑Aside and is subject to the requirements of FAR clause 52.219-14, Limitations on Subcontracting. This acquisition contains both Supply and Service contract line items, both of which are separately subject to FAR clause 52-219-14, Limitations on Subcontracting. Offerors are cautioned that CLINs described as Cost Plus Fixed Fee CLINs are considered to be an important part of this procurement and not incidental to the production/fixed fee CLINs. Accordingly, offerors must meet the requirements for Small Business Set-Aside with regard to these CLINS.
RFP, Amend. No. 17, sect. A-16.V. All offerors, including the protester, submitted revised proposals by the March 17 closing time. COS at 4. This protest was filed prior to the closing time.
We agree with the protester 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. Paragraph (b)(1) establishes subcontracting limitations, not with regard to services generally, but with regard to “a contract … for Services.” Similarly, paragraph (b)(2) establishes subcontracting limitations, not with regard to supplies generally, but with regard to “a contract … for Supplies.” 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. We read 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.
In AFL-CIO v. Donovan, 582 F. Supp. 1015, 1020 (D.D.C. 1984), aff’d, 757 F.2d 330 (D.C. Cir. 1985), the court reached a similar conclusion in interpreting applicability of the Service Contract Act (SCA), 41 U.S.C. sections 351-358 (applicable to contracts “the principal purpose of which is to furnish services”) and the Walsh-Healey Public Contracts Act (WHA), 41 U.S.C. sections 35-45 (applicable to contracts “for the manufacture or furnishing of materials, supplies, articles, and equipment”), statutes in para materia with subsection 15(o) and the LOS clause. Specifically, in interpreting the relevant provisions of the SCA, the court found that text that “refers to ‘the contract’ without any reference to line item specifications” indicated that the SCA “was intended to apply to entire contracts, not to individual line items.” Agencies’ implementation of the SCA and WHA is consistent with this interpretation; the contracting agency must make a determination whether a requirement is for services or supplies in order to determine which of the two statutes is applicable to an acquisition. See Information Handling Servs., 70 Comp. Gen. 35 (1990), 90-2 CPD para. 306 at 3 (regulations implementing the SCA and WHA contemplate an initial determination by the procuring agency as to which statute applies to a particular procurement); Tenavision, Inc., B-231453, Aug. 4, 1988, 88‑2 CPD para. 114 at 2 (regulatory scheme implementing these statutes envisions an initial determination by the contracting agency as to which statute applies to a particular procurement). This determination requires identification of the principal purpose of the contract. See AFL-CIO v. Donovan, 757 F.2d 330, supra, at 345 (SCA applies only when principal purpose of contract is for services); Southern Packaging & Storage Co. v. U.S., 458 F. Supp. 726, 734 (D.S.C. 1978), aff’d, 618 F.2d 1088, 1090 (4th Cir. 1980) (acquisition of field rations would be exempt from coverage under SCA if found to be subject to provisions of WHA); Department of Labor Regulations, 29 C.F.R. sect. 4.117 (2009).
We find the courts’ interpretation regarding the manner in which the SCA and WHA are to be applied to contracts supportive of our conclusion here, where we are 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.
Our interpretation also is consistent with SBA’s position regarding this issue. In response to our 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 points out that the FAR LOS clause requirements parallel those under subsection 125.6(a) of its own regulations, 13 C.F.R. sect. 125.6(a), which also implement subsection 15(o) of the Small Business Act, 15 U.S.C. sect. 644(o).[2] Consistent with our interpretation, it is SBA’s position that these provisions “established one performance requirement that applies to a ‘contract for the procurement of supplies’ and a different performance requirement that applies to a ‘contract for services.’” SBA Comments at 3. SBA concludes that the Army’s attempt to apply both the services and supply provisions of the LOS clause is inconsistent with the act. Id. at 4. We generally will give deference to an agency’s reasonable interpretation of its own regulations. See Blue Rock Structures, Inc., B-293134, Feb. 6, 2004, 2004 CPD para. 63 at 8 (SBA’s interpretation of statute that it is responsible for implementing entitled to substantial deference and, if reasonable, should be upheld).
Further, we agree with SBA that the Army’s implementation of the LOS clause will have the practical effect of restricting competition. In this regard, while, as discussed, 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) (“50 percent of the cost of contract performance incurred for personnel”) and paragraph (b)(2) (“50 percent of the cost of manufacturing the supplies”).
Accordingly, we sustain the protest. (TFab Manufacturing, LLC, B-401190, June 18, 2009) (pdf)
As a general matter, an agency’s judgment as to whether a small business offeror will be able to comply with a subcontracting limitation presents a question of responsibility for review by the SBA. See 13 C.F.R. sect. 125.6(f); Spectrum Sec. Servs., Inc., B-297320.2; B-297320.3, Dec. 29, 2005, 2005 CPD para. 227 at 6. However, our Office has consistently held that where a proposal, on its face, should lead an agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability. Continental Staffing, Inc., B-299054, Jan. 29, 2007, 2007 CPD para. 18 at 6; KIRA Inc., B-287573.4; B‑287573.5, Aug. 29, 2001, 2001 CPD para. 153 at 3; National Med. Staffing, Inc.; PRS Consultants, Inc., B-238694; B-238694.2, June 4, 1990, 90-1 CPD para. 530 at 4. Our Office has also long held that a proposal that fails to conform to a material term or condition of the solicitation, including the subcontracting limitation, is unacceptable and may not form the basis for an award. KIRA Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra, at 3-4 (sustaining protest that the award of a contract was improper where the awardee’s proposal evidenced noncompliance with the subcontracting limitation); see Vanderbilt Shirt Co., B-236016, Oct. 10, 1989, 89‑2 CPD para. 333 at 2 (agency properly rejected the protester’s bid as nonresponsive where the bid provided that the protester would not comply with the subcontracting limitation). As set forth above, the record establishes that it was clear to the Air Force that CENTECH’s proposal as submitted and as evaluated provided that 43.2 percent of the cost of contract performance incurred for personnel would be expended for CENTECH employees and, accordingly, that “the CENTECH GROUP did not meet the subcontracting limitation requirements set forth in statute and regulation.” AR (B-298364.6), Tab 9, Determination of Non-Responsibility; see Tab 10, Memorandum from the Contracting Officer to CENTECH, Rescission of Contract (Sept. 8, 2006); Tab 12, Request for COC (Sept. 15, 2006); AR (B-298364.2) at 2; Contacting Officer’s Statement (B-298364.2) at 4. Given the Air Force’s determination that CENTECH’s proposal failed to comply with a material term of the solicitation (the subcontracting limitation) and, accordingly, that the proposal could not form the basis for award under the RFP, the agency should have found CENTECH’s proposal to be unacceptable, rather than finding CENTECH nonresponsible and forwarding the matter to the SBA for its consideration. See Continental Staffing, Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra. The fact that the SBA has now determined CENTECH to be a responsible contractor does not alter our view here. Although the SBA’s determinations of responsibility and its issuance of COCs are generally not for review by our Office, Bid Protest Regulations, 4 C.F.R. sect. 21.5(b)(2) (2006), the issues of a proposal’s acceptability and the award of a contract to an offeror based upon a proposal that fails to comply with a material term of a solicitation are matters initially within the purview of the contracting agency and subject to review by our Office. See, e.g., L-3 Communications Westwood Corp., B‑295126, Jan. 19, 2005, 2005 CPD para. 30 at 5; CACI Techs., Inc., B-296946, Oct. 27, 2005, 2005 CPD para. 198 at 5. The SBA disagrees with our Office’s view that where a proposal, on its face, should lead the contracting agency to the conclusion that an offeror has not agreed to comply with the subcontracting limitation, the matter is one of the proposal’s acceptability, rather than the offeror’s responsibility. SBA Submission (Jan. 23, 2007) at 4. Specifically, the SBA points out here that “[w]ith respect to whether or not a [small business concern] will meet its subcontracting limitation requirement, the SBA’s regulations provide that ‘[c]ompliance will be considered an element of responsibility.’” Id.; see 13 C.F.R. 125.6(f). Again, as set forth above, the issue here does not concern whether a bidder or offeror can or will comply with the subcontracting limitation requirement during performance of the contract (where we recognize that the matter is one of responsibility (or in certain cases, contract administration, see, e.g., Raloid Corp., B‑297176, Nov. 10, 2005, 2005 CPD para. 205 at 4)), but rather, whether the bidder or offeror has specifically taken exception to the subcontracting limitation requirement on the face of its bid or proposal. Given that the determination in this latter, limited circumstance involves the evaluation of a bid or proposal for compliance with a material term of the solicitation, the determination is one of responsiveness or acceptability, rather than responsibility. Continental Staffing, Inc., supra; KIRA Inc., supra; National Med. Staffing, Inc.; PRS Consultants, Inc., supra; Vanderbilt Shirt Co., supra.
Accordingly, we sustain the protest on this basis. While we find that CENTECH’s proposal could not form the basis for award under this RFP, the record reflects that CENTECH submitted its proposal with the understanding that it would be found to meet or exceed the subcontracting limitation requirement, given the AFMC memorandum that allowed for the performance of work requirement imposed by the Limitation on Subcontracting clause to be met by the “cooperative efforts” of CENTECH and its small business subcontractors. Additionally, although discussions were held with the four offerors that had submitted proposals, the matter of CENTECH’s proposal’s compliance with the requirements of the Limitation on Subcontracting clause was never raised with CENTECH during discussions because of the Air Force’s reliance on the AFMC memorandum. Accordingly, CENTECH was deprived of meaningful discussions regarding its proposal’s failure to comply with the requirements of the Limitation on Subcontracting clause. See FAR sect. 15.306(d)(3); Lockheed Martin Corp., B-293679 et al., May 27, 2004, 2004 CPD para. 115 at 7; see Special Operations Group, Inc., B-287013; B-287103.2, Mar. 30, 2001, 2001 CPD para. 73 at 7 (awardee whose proposal should have been rejected for failing to comply with a material term of the solicitation was deprived of meaningful discussions where this issue was not raised by the agency during its conduct of discussions). (TYBRIN Corporation, B-298364.6; B-298364.7, March 13, 2007) (pdf)
Raloid also questions whether DET will comply with the limitations on subcontracting provision at Federal Acquisition Regulation (FAR) sect. 52.219-14 contained in the RFP because, in its view, DET does not have adequate facilities, equipment, or employees to manufacture the adapters. The FAR limitations on subcontracting provision requires that a prime contractor perform at least 50 percent of the cost of the contract incurred for personnel with its own employees. An agency’s judgment as to whether a small business offeror will comply with the limitations on subcontracting provision is a matter of responsibility and the contractor’s actual compliance with the provision is a matter of contract administration. Coffman Specialties, Inc., B-284546, B-284546.2, May 10, 2000, 2000 CPD para. 77 at 5. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, the proposal may not form the basis for an award. KIRA, Inc., B-287573.4, B‑287573.5, Aug. 29, 2001, 2001 CPD para. 153 at 3. There is nothing on the face of DET’s proposal evidencing that the firm cannot and will not comply with the RFP’s subcontracting limitation provision. Accordingly, we have no basis to question the agency’s reliance on DET’s representations in concluding that DET agreed to perform as required. (Raloid Corporation, B-297176, November 10, 2005) (pdf)
Highland contends that Chenega's performance of the work will be less than 50 percent of the contract value, as allegedly indicated by its proposal's cost and pricing schedules. In this regard, Highland argues that in computing Chenega's compliance with the 50percent rule its overhead costs, general and administrative (G&A) costs, and profit must be excluded from the total contract cost, but that the agency's analysis did not do this. Highland also asserts that agency's analysis was flawed because the production quantities and the option CLINs should have been excluded from the analysis since such future orders beyond the initial prototypes are "speculative," and that only the SDD work (which will primarily be subcontracted to Radian) should be used to determine compliance with the 50percent rule.
As a general rule, an agency's judgment as to whether a small business offeror will comply with the subcontracting limitation is a matter of responsibility, and the contractor's actual compliance with the provisions is a matter of contract administration. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal's technical acceptability; a proposal that fails to conform to a material term or condition of the solicitation such as the subcontracting limitation is unacceptable and may not form the basis for an award. KIRA, Inc. , B-287573.4, B-287573.5, Aug. 29, 2001, 2001 CPD 153 at 3.
As indicated by the subcontracting clause (quoted above), the standard for compliance with the 50percent rule is different depending whether the contract is for services or for supplies. Compare Phoenix Sys. & Techs., Inc. , SBA No. 3220 (Nov. 29, 1989) (supply contract) with SM Sys. & Research Corp., Inc. , SBA No. 3241 (Jan. 9, 1990) (service contract). [19] The contract here is a single integrated development and production requirements contract for a 5-year term, with optional CLINs for certain incidental services or items. While there may be some incidental services included in the contract, this is a contract for supplies, as indicated by the inclusion of the clause implementing the Walsh-Healey Public Contracts Act, 41 U.S.C. 35-45 (2000), in the RFP, and the designation of this procurement under North American Industry Classification System Code 333319, "Other Commercial and Service Industry Machinery Manufacturing."
Much of Highland's argument that Chenega will not satisfy the 50-percent rule is based on its assertion that the award was only for CLIN0001AA for the SDD prototype--work that will be primarily performed by Radian--and that the production quantities in the contract cannot be considered in determining Chenega's compliance with the subcontracting limitation because they are "speculative." This argument does not account for the fact that the production quantities are part of the contract as a whole and thus are required to be considered in determining compliance with the subcontracting limitation, and that the award of the SDD prototype was merely the initial order under the contract. For contracts without option years, as here, the subcontracting limitation applies to the contract as a whole, not to individual delivery or task orders. [20] MCA Research Corp. , B-278268.2, Apr. 10, 1998, 98-1 CPD 129 at 6 n.5.
To determine compliance with the 50-percent rule in a supply contract, SBA's Office of Hearings and Appeals has stated that the total contract cost (including profit) less materials and subcontracting costs is to be compared with all subcontracting costs less the subcontractor's materials costs. See Marwais Steel Co. , SBA No. 3884 (Feb.10, 1994); Phoenix Sys. & Techs., Inc. , supra . Highland's argument that Chenega's overhead costs, G&A costs, and profit need to be excluded from the computation of the total contract cost is based upon decisions of the SBA's Office of Hearings and Appeals involving service contracts. See e.g. , SM Sys. & Research Corp., Inc. , supra . The rule for supply contracts is that overhead costs, G&A costs and profit should not be excluded from the computation of the total contract cost; rather, only material and subcontracting costs are to be excluded from the total contract cost. Phoenix Sys. & Techs., Inc. , supra . When Chenega's overhead costs, G&A costs and profit are properly included in the calculation of Chenega's total contract cost, our review indicates that Chenega's proposal complies with the 50percent rule, i.e. , that Chenega planned to perform work for more than 50 percent of the cost of manufacturing the supplies, not including the cost of materials. Mechanical Equipment Company, Inc.; Highland Engineering, Inc.; Etnyre International, Ltd.; Kara Aerospace, Inc., B-292789.2; B-292789.3; B-292789.4; B-292789.5; B-292789.6; B-292789.7, December 15, 2003 (pdf)
The Limitations on Subcontracting clause applies only to solicitations (or portions thereof) that are set aside for small business competition or the 8(a) program. See FAR 19.508(e) ("The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in solicitations and contracts for supplies, services, and construction, if any portion of the requirement is to be set aside for small business and the contract amount is expected to exceed100,000"). See also FAR 19.811-3(e) ("The contracting officer shall insert the clause at 52.219-14, Limitations on Subcontracting, in any solicitation and contract resulting from this subpart [ i.e. , subpart 19.8 (The 8(a) Program)]"). Accordingly, since the solicitation at issue here was unrestricted, the clause has no application to it (despite the fact that it was incorrectly incorporated by reference). With regard to FAR 52.203-6, the protesters have furnished no argument in support of their allegation that B&R's stated intention to subcontract with [deleted] would violate the clause, and we see no basis for such an argument. Section 52.203-6 prohibits a contractor from entering into an agreement with an actual or prospective subcontractor, or otherwise acting in a manner, "which has or may have the effect of restricting sales by such subcontractors directly to the Government of any item or process (. . .) made or furnished by the subcontractor under this contract or under any follow-on production contract." There is no evidence in the record here that B&R has entered into an agreement with [deleted], or otherwise acted in a manner, that violates the above provision. (Superior Optical Labs, Inc.; Diversified Ophthalmics, Inc., B-294662; B-294662.2, December 9, 2004) (pdf)
It is undisputed that accepting IBM's proposal and using IBM to perform maintenance for all computers and laser printers (other than the few IBM 4028 laser printers) would place COMTek in violation of the limitation in the Federal Acquisition Regulation (FAR) on subcontracting where a solicitation is set aside for small business and the contract amount is expected to exceed $100,000. In this regard, under FAR § 52.219‑14(b)(1), which was included in the solicitation, in the case of a contract for services, “[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.” (Integration Technologies Group, Inc., B-291657, February 13, 2003) (txt version)
However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal's technical acceptability; a proposal that fails to conform to a material term or condition of the solicitation such as the subcontracting limitation is unacceptable and may not form the basis for an award. Coffman Specialties, Inc., B-284546, B-284546.2, May 10, 2000, 2000 CPD para. 77 at 5. (KIRA Inc., B-287573.4; B-287573.5, August 29, 2001)
In any event, the record shows that the evaluators noted that this issue was not entirely verifiable prior to award, and that NASA will ensure Infinity's compliance with the subcontracting limitation provision. Further, based on our review of Infinity's proposal, there is nothing to suggest that the firm took exception to the subcontracting limitation provision. Given that an agency is permitted wide discretion in this area, and in light of the agency's explanation in response to this allegation, we see no basis to conclude that NASA abused its discretion in selecting Infinity's proposal for award. (Symtech Corporation, B-285358, August 21, 2000)
We have held that an agency need not consider subcontractor experience where the solicitation contemplates award of a service contract to a section 8(a) firm, and includes the provision at Federal Acquisition Regulation (FAR) sect. 52.219-14, which imposes a limitation on subcontracting to an amount less than 50 percent of the cost of contract performance. USATREX Int'l, Inc. supra at 4. In such cases, the agency properly may determine that only the offeror's own capabilities are relevant for purposes of discriminating among the proposals. Since the RFP here provided for award of a service contract and contained the cited FAR provision, we think it properly could limit its evaluation to the prime contractor?s capabilities. (North State Resources, Inc., B-282140, June 7, 1999)
New Crosstown Courier Service, Inc. B-414752: Sep 1, 2017 TFab Manufacturing, LLC, B-401190, June 18, 2009 (pdf)
Express Medical Transporters, Inc. B-412692: Apr 20, 2016 (pdf) Integration Technologies Group, Inc., B-291657, February 13, 2003) (txt version)
NCS/EML JV, LLC, B-412277, B-412277.2, B-412277.3: Jan 14, 2016 (pdf)
Promotions Plus, Inc., B-409318: Mar 10, 2014 (pdf)
MindPoint Group, LLC, B-409562: May 8, 2014 (pdf)
SumCo Eco-Contracting LLC, B-409434, B-409434.2: Apr 15, 2014 (pdf)
DBI Waste Systems, Inc., B-408304, B-408304.2, Aug 5, 2013 (pdf)
KAES Enterprises, LLC, B-408366, Aug 7, 2013 (pdf)
EcoAnalysts, Inc., B-406233, Mar 19, 2012 (pdf)
Addx Corporation, B-404888, May 4, 2011 (pdf)
TYBRIN Corporation, B-298364.6; B-298364.7, March 13, 2007 (pdf)
Raloid Corporation, B-297176, November 10, 2005 (pdf)
Mechanical Equipment Company, Inc.; Highland Engineering, Inc.; Etnyre International, Ltd.; Kara Aerospace, Inc., B-292789.2; B-292789.3; B-292789.4; B-292789.5; B-292789.6; B-292789.7, December 15, 2003 (pdf)
Superior Optical Labs, Inc.; Diversified Ophthalmics, Inc., B-294662; B-294662.2, December 9, 2004 (pdf)
KIRA Inc., B-287573.4; B-287573.5, August 29, 2001
Symtech Corporation, B-285358, August 21, 2000
EAA Capital Company, LLC, B-282377.2, June 23, 1999 (non-appropriated funds)
North State Resources, Inc., B-282140, June 7, 1999 (experience evaluation)
D. Whether The Federal Bureau Of Investigation’s Contract Award To Strategic Operational Solutions Violated FAR 52.219-14(c)(1).
1. Plaintiff’s Argument.
Lynxnet (“Plaintiff”) argues that the FBI violated FAR 52.219-14(c)(1) (requiring that “[a]t least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern[]”), because “STOPSO proposed an Industrial Hygienist in a ‘1099’ position (i.e., an independent contractor),” so that 50 percent of the personnel cost of contract performance was not for STOPSO employees. Pl. 8/29/14 Mem. at 2 (citing AR Tab 13, at 2527 (statement in STOPSO’s proposal that reads: “STOPSO will attempt to source [the Industrial Hygienist] position as a 1099 if it enables us to provide this highly qualified position at a reasonable rate for the [G]overnment.”)). Plaintiff also relies on REDACTED February 5, 2014 letter, indicating that his employment was contingent on STOPSO receiving the contract award. Pl. 9/10/14 Opp. & Reply at 8–9 (citing AR Tab 4b, at 1287). In addition, “[t]he nature of an Industrial Hygienist’s specialized skills, the STOPSO proposal, and the Solicitation SOW all confirm that STOPSO’s proposed Industrial Hygienist is an independent contractor.” Pl. 8/29/14 Mem. at 16. Therefore, STOPSO’s actual employee cost, excluding the Industrial Hygienist, is 49.93%, or short of the 50% LOS Requirement. Pl. 8/29/14 Mem. at 18–19.
Plaintiff insists that compliance with the LOS Requirement is a matter of proposal acceptability. Pl. 8/29/14 Mem. at 12–13; Pl. 9/10/14 Opp. & Reply at 4. Therefore, the FBI should have rejected STOPSO’s proposal for noncompliance with a material solicitation requirement. Pl. 8/29/14 Mem. at 21–23. “[T]he issue is not whether STOPSO could comply with the requirements of the LOS clause, but rather whether STOPSO agreed it would comply with the requirements of the clause.” Pl. 8/29/14 Mem. at 21 (emphasis in original). In the alternative, STOPSO’s proposal is unacceptably ambiguous, and “the FBI’s acceptance of STOPSO’s offer despite its conditional nature . . . was an improper waiver . . . of the Solicitation’s LOS [R]equirement.” Pl. 8/29/14 Mem. at 22–23.
2. The Government’s and Strategic Operational Solutions’ Response.
The Government and STOPSO respond that Plaintiff misinterpreted the statement that “STOPSO will attempt to source this position as a 1099 if it enables [STOPSO] to provide this highly qualified position at a reasonable rate for the [G]overnment.” AR Tab 13, at 2527. “STOPSO simply alerted the FBI to the fact that, during contract performance, STOPSO might classify REDACTED as an independent contractor as a potential way to save cost (i.e., lower the proposed ‘employee’ rate of $ REDACTED/hour).” Int. 9/5/14 Mem. at 13; see also Int. 9/5/14 Mem. at 24–25 (stating that STOPSO was “committing to . . . full compliance with the LOS clause”); Gov’t 9/15/14 Reply at 4 (referring to the conditional statement as “a performance-related aside”).
The Government and STOPSO further contend that Plaintiff’s characterization of REDACTED as a subcontractor “ignores the record.” Gov’t 9/5/14 Mem. at 1; Int. 9/5/14 Mem. at 4 (complaining that Plaintiff “cherry-picked a single phrase to characterize STOPSO’s proposal as something other than what it was, while ignoring the rest of STOPSO’s proposal”). STOPSO adds that this sentence was “unnecessary and had no material impact on the proposal.” Int. 9/5/14 Mem. at 13; see also Gov’t 9/15/14 Reply at 2–5 (explaining that the sentence does not eviscerate STOPSO’s compliance with the LOS Requirement). In fact, the staffing matrix in STOPSO’s Technical Volume properly informed the FBI that REDACTED would be a prime contractor hire. Gov’t 9/5/14 Mem. at 11–12; Int. 9/5/14 Mem. at 7. By coding REDACTED position with a “P”, STOPSO “unequivocally proposed the Industrial Hygienist as a prime employee.” Gov’t 9/15/14 Reply at 4 (citing AR Tab 4b, at 1287); Int. Mot. at 7 (citing AR Tab 4c, at 1179).
The Government and STOPSO also refute Plaintiff’s characterization of REDACTED February 5, 2014 letter, arguing that the contingency “clearly related to a condition precedent required to occur before REDACTED would be employed—not whether he would be brought on as a subcontractor or prime employee.” Gov’t 9/15/14 Reply at 6; Int. 9/15/14 Reply at 6–7. STOPSO also notes that “all personnel on the contract, whether the employee currently worked for STOPSO or not” signed identical letters of intent. Int. 9/15/14 Reply at 6.
In addition, the Government and STOPSO cite other record evidence that confirms that REDACTED was a prime contractor employee. STOPSO’s proposal provided the FBI with a labor rate build-up for each of its employees, but not for subcontractors. Int. 9/5/14 Mem. at 8–12. These build-ups included proposed overhead, including fringe benefits. Int. 9/5/14 Mem. at 11. STOPSO emphasized that fringe benefits applied only to employees. Int. 9/5/14 Mem. at 11–12. Specifically, the labor rate build-up included a REDACTED profit/fee for STOPSO employees. In contrast, STOPSO included a REDACTED handling fee for subcontractors. Int. 9/5/14 Mem. at 9–10. STOPSO created a labor rate build-up for the Industrial Hygienist position that included both fringe benefits and a REDACTED profit/fee. Int. 9/5/14 Mem. at 8–12. STOPSO did not include REDACTED or the Industrial Hygienist position when listing its proposed subcontractors. Gov’t 9/15/14 Reply at 4 (citing AR Tab 13, at 2528–30); Int. 9/5/14 Mem. at 7–8. STOPSO listed only three “Proposed Probable Subcontractors”— REDACTED, REDACTED, and REDACTED —as “Team STOPSO.” Gov’t 9/5/14 Mem. at 13 (citing AR Tab 13, at 2528); Int. 9/5/14 Mem. at 7 (citing AR Tab 4b, at 1111). Finally, STOPSO unconditionally accepted all conditions of the contract, including compliance with the LOS Requirement. Gov’t 9/5/14 Mem. at 13 (citing STOPSO’s statement at AR Tab 13, at 2496 that it “thoroughly underst[oo]d all requirements of the solicitation and its amendments” and intended to “unconditionally accept all terms and conditions with no exceptions”).
3. The Court’s Resolution.
Plaintiff’s noncompliance with the LOS Requirement argument is based on the following statement in STOPSO’s nearly 500-page proposal: “STOPSO will attempt to source [the Industrial Hygienist] position as a 1099 if it enables [STOPSO] to provide this highly qualified position at a reasonable rate for the [G]overnment.” AR Tab 13, at 2527 (emphasis added). STOPSO’s staffing matrix, however, identified this individual as a STOPSO employee. AR Tab 4b, at 1179. This is not inconsistent with REDACTED February 5, 2014 letter that states: “The position is contingent upon contract award and funding for Solicitation #DJF-14-1200-0000040[.]” AR Tab 4b, at 1287. Nothing in this letter provides any indication that REDACTED was a subcontractor. In fact, the Administrative Record contains numerous letters of intent from Plaintiff indicating that other potential employee positions were conditional or contingent. See generally AR Tab 3b, at 408–523.
Plaintiff also suggests that the combination of REDACTED specialized skills, duties, advanced degrees, and high hourly wage establish that the Industrial Hygienist position was that of a subcontractor. Pl. 8/29/14 Mem. at 16–17. But, references to the Industrial Hygienist position elsewhere in STOPSO’s proposal do not support that contention. Notably, STOPSO’s labor rate build-up for the Industrial Hygienist position included fringe benefits and a REDACTED profit/fee attributed only to employees. AR Tab 13, at 2515.13 In addition, STOPSO did not list REDACTED as a proposed subcontractor nor include the REDACTED subcontractor handling fee in the labor rate build-up for the Industrial Hygienist position. AR Tab 4a, at 1083; AR Tab 4b, at 1111; AR Tab 13, at 2516; AR Tab 13, at 2528.
For these reasons, the court has determined that the FBI’s contract award to STOPSO did not violate FAR 52.219-14(c)(1). (Lynxnet, Inc. v. U. S. and Strategic Operational Solutions, Inc., No. 14-735, November 18, 2014) (pdf)
A. Limitation on Subcontracting
Hyperion argues that [Offeror A], [Offeror B], and TCSC submitted proposals that facially show they will be unable to comply with FAR § 52.219-14, “Limitations on Subcontracting,” which was incorporated into the solicitation. Pl.’s Br. at 14-15; see also AR 5-177. FAR § 52.219-14 requires that offerors submitting a proposal in response to a solicitation designated as a small business set-aside agree that “[a]t least 50% of the cost of the contract performance incurred for personnel shall be expended for employees of the [small business].” FAR § 52.219-14(c)(1). Hyperion concludes that a proposal in response to this solicitation can only meet the requirement by self-performing at least some installation work in Jordan. Pl.’s Br. at 16 (“[The solicitation] requires that eligible [o]fferors and proposed prime [c]ontractors deliver with their own forces in [Jordan] services required for Installation and for System Testing.”). Hyperion supports this conclusion by pointing to the Independent Government Cost Estimate, which estimated that of the services being delivered, [***]% must be delivered in-country – specifically, that Installation would constitute [***]% and System Testing would constitute [***]%. Pl.’s Statement of Facts ¶¶ 20-21, ECF No. 18.
Hyperion correctly states, see Pl.’s Br. at 28-29, and the government acknowledges, that “a proposal that, on its face, leads an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation is technically unacceptable and may not form the basis for an award.” Def.’s Cross-Mot. at 13 (quoting Centech Grp., 554 F.3d at 1038 (internal citations and quotations omitted)); see also Chapman Law Firm v. United States, 63 Fed. Cl. 519, 526-28 (2005), aff’d, 163 Fed. Appx. 889 (Fed. Cir. 2006). “A subcontracting limitation, including the [limitation-on-subcontracting] clause, is a material R[equest ] F[or ]P[roposal] term and a condition of a solicitation to which the offeror must agree in its proposal.” Centech Grp., 554 F.3d at 1038. In Centech, a contract awardee lost the award upon protest by another offeror because the awardee’s proposal stated that it would incur only 43.2% of the contract’s labor costs. Id. at 1033. The court noted that the pertinent question was not whether the awardee could comply with the limitation-on-subcontracting clause, but rather whether it would comply with the limitation. Id. at 1040. Similarly, in Blount, Inc. v. United States, 22 Cl. Ct. 221 (1990), the court held that the Bureau of Prisons properly declared Blount’s proposal non-responsive because Blount proposed to perform only 10% of the work itself, rather than the 20% required by a Performance of Work clause in the solicitation for a construction contract. 22 Cl. Ct. at 228. The court explained that “a bid which takes exceptionto the self-performance requirement of the solicitation must be rejected as nonresponsive in order to prevent the bidder from achieving an unfair competitive advantage over other bidders and to ensure that the government evaluates all bids on an equal basis.” Id. at 230.
The government seeks to distinguish Centech Grp. and Blount by arguing that in those instances, the awardees affirmatively represented that they would not comply with the self-performance requirements. Def.’s Cross-Mot. at 12-13, 29-30. In this case, the government argues, no offeror affirmatively represented that it would not comply, and in fact, by submitting proposals, all offerors agreed to comply. Id. at 13, 29. Thus, as the government would have it, the proposals submitted by TCSC, [Offeror B], and [Offeror A] were not facially non-compliant, rendering adherence to FAR § 52.219-14 an issue of contract administration and not acceptability. Def.’s Cross-Mot. at 11. The government further contends that disputes over contract administration can only be brought pursuant to the Contract Disputes Act and fall outside the court’s jurisdiction over this protest. Def.’s Cross-Mot. at 11-13.
In short, the parties agree that the 50% self-performance requirement applies to this procurement, but they disagree over whether the Army could have reasonably concluded that the other three offerors’ proposals demonstrated that they would comply with the self-performance requirements. As an initial matter, the court concurs with the government that the independent government cost estimate is not conclusive regarding the contract’s division of labor, see Def.’s Cross-Mot. at 30 n.8, and the court accordingly will focus on the proposals to determine whether they support a reasonable belief on the part of the government’s procuring authority that the offerors would comply with the limitation on subcontracting.
TCSC’s proposal, priced the lowest at $8,622,068.00, included a detailed price breakdown. TCSC summarized its labor costs according to CLIN number, AR 26-2070, and provided a detailed classification of costs for the long-haul and last-mile trenching and laying, AR 26-2074 to -75. The government argues that the spreadsheet summarizing labor costs according to CLIN number affirmatively demonstrates that TCSC would comply with the 50% self-performance requirement. Def.’s Cross-Mot. at 29-30. TCSC’s total labor costs according to its labor summary per CLIN number were $[***]. See AR 26-2070.14 According to this spreadsheet, TCSC would self-perform at least [***]% of the labor costs, those for program management support and engineering and design. Def.’s Cross-Mot. at 29-30. Further inquiry into the spreadsheets underlying this summary, however, reveals an apparent mis-categorization of labor as a material cost.
The installation of the fiber optic cable in Jordan requires labor intensive trenching and laying of cable. Nonetheless, TCSC’s “labor” costs for trenching and laying the long-haul cable and the last-mile cable were only $[***] and $[***], respectively. AR 26-2074 to -75. These labor costs are suspiciously low. The same spreadsheets show “other material” costs listed under “material,” contrasted to labor, which amount to $[***] for the last-mile trenching and laying and $[***] for the long-haul trenching and laying. Id. Immediately following these spreadsheets in TCSC’s proposal, a descriptive “price analysis” appears for the “Labor” and “Material” costs. AR 26-2092. One of these “Material” costs is “civil work,” a cost associated only with long-haul and last-mile trenching and laying. The proposal states:
Civil work (1AD, 1AE): prices obtained through several quotations, we have reduced the risk significantly through a thorough survey and through experience we gained during accelerated[, i.e., referring to a prior project]. We also conducted an independent audit on cost realism which proves that the job can be carried out for the prices we quoted. Further we have kept a reserve in our fee for unforeseen contingencies. These prices are competitive due to the current extra capacity in the market.
AR 26-2092. This commentary makes no sense unless “civil work” means labor.
This interpretation is supported and informed by other pricing spreadsheets included by TCSC in its proposal, which are particular to the costs for long-haul and last-mile trenching and laying. TCSC states that it will pay its subcontractors $[***] and $[***] specifically for excavation for the last-mile and long-haul trenching and laying, respectively. AR 26-2081 to -91. On these same spreadsheets, TCSC includes a separate cost for equipment and materials, leading the court to believe that the $[***] and $[***] figures are for subcontractor labor. See id. In short, TCSC’s pricing spreadsheets reflect an inappropriate categorization of subcontractor labor costs as “material costs.” This miscategorization, intentional or not, is improper and should have led the Army to question TCSC’s ability to comply with the limitation on subcontracting in this labor-intensive contract. TCSC’s labor costs for subcontractors are markedly higher than those it quoted, rendering it impossible for TCSC itself to provide 50% of overall labor costs. It is readily apparent, on the face of TCSC’s proposal, that it would not and could not comply with the limitations on subcontracting incorporated into the solicitation, and the Army should have found its proposal to be technically unacceptable. See Centech Grp., 554 F.3d at 1038.
Like TCSC, [Offeror A] submitted a detailed price spreadsheet as part of its proposal. See AR 23-1700 to -01. [Offeror A] stated that [***] would be its major subcontractor for the project and that an [***] employee would be the Project Manager. AR 6-233 to -242 (resume of proposed project manager, [***]). The proposal also stated that the field installation teams would mostly be composed of [***] engineers and technicians. AR 6-235. The price spreadsheet submitted by [Offeror A] confirms that it proposed to spend $[***], on labor in total. Of that total cost, $[***] was to be spent on “Labor in Jordan.” AR 23-1700. The labor costs for the project manager and the labor costs associated with the physical trenching and laying, to be performed by [***] technicians and engineers, represented $[***]. Id. The remaining “Labor in Jordan” costs total $[***]. To meet the subcontracting limit, only an additional $[***] could be spent on subcontractor labor costs. The spreadsheet lists [***] other positions under the “Labor in Jordan” heading that are relevant to both program management and laying and trenching, but whose job descriptions are not provided, such as (1) a telecom engineer, (2) a transmission technician, (3) an accountant, (4) a draftsman, (5) a tea office boy, and (6) an executive office manager. See AR 6-233 to -35, AR 23-1700. Some of these positions represent significant labor costs. For example, the telecom engineer and the transmission technician combined represent $[***] in labor costs. AR 23-1700. The proposal does not indicate whether [Offeror A]’s employees, [***]’s employees, or a third-party’s employees will fill these positions. [Offeror A] ambiguously states that “[i]nstallation and maintenance support will be at various identified locations within [Jordan]. . . . These activities will be managed by our staff at our offices in Amman.” AR 6-258 (emphasis added). The court cannot determine which of these remaining positions would be filled by [Offeror A]’s employees, though compliance with the limitation on subcontracting mandates that at least some of these would be.
The salient question in this respect is whether [Offeror A]’s proposal demonstrates that it would comply with the 50% self-performance requirement, not whether it could. It is numerically possible that [Offeror A] could comply, but it is very unlikely that nearly all of the remaining “Labor in Jordan” costs would be filled by as-yet unnamed [Offeror A] employees. See Centech Grp., 554 F.3d at 1040 (“[T]he issue was not whether Centech could comply with the requirements of the [limitation-on-subcontracting] clause . . . [but] whether, in its proposal, Centech agreed that it would comply . . . .”). In Chapman Law Firm, the awardee of a small business set-aside contract failed to demonstrate a facial compliance with the incorporated limitation on subcontracting in its initial proposal. Chapman Law Firm, 63 Fed. Cl. at 527. The contracting agency initiated written discussions with the awardee, commenting on its relationship with a subcontractor to perform a significant portion of the work and inquiring into how the awardee intended to comply with the limitation-on-subcontracting requirement. Id. The awardee responded by (1) expressing its ability to comply with the 50% self-performance requirement, (2) providing job descriptions for seven of the awardee’s own employees who would be working on the contract, (3) stating it would conduct quarterly audits to ensure compliance with the limitation on subcontracting, (4) clarifying the chain of command, and (5) limiting the tasks to be performed by the subcontractor. Id. Given this clarification by the awardee, the court found that the agency’s determination that the awardee would comply with the limitation on subcontracting was not “irrational.” Id. at 528. In this case, the Army did not engage in discussions with [Offeror A] regarding its ability to comply with the limitation on subcontracting despite the facial implausibility of its ability to comply, even though it engaged in discussions about other issues of technical compliance. Without further inquiry, it was unreasonable for the Army to believe that [Offeror A] would be able to comply with the limitation. See Transatlantic Lines LLC v. United States, 68 Fed. Cl. 48, 53-54, 57-58 (2005) (setting aside a contract award and holding that contracting officer did not have reasonable basis for determining that awardee would meet the limitation-on-subcontracting clause when awardee chose to subcontract most of the labor services needed to perform the contract and only reserved a few managerial positions of unspecified salary and duties for its own employees).
[Offeror B] was the second-lowest bidder, with a final proposed price of $[***]. [Offeror B] wrote its proposal largely referring to itself as “[***]TEAM,” describing a team comprised of [Offeror B] and its major subcontractor, [***]. See, e.g., AR 7-473 to -77. [Offeror B] proposed to use [***] for “all Jordan-based installation work including all trenching, laying, backfilling, manhole installation and construction, fiber installation and splicing, equipment, machinery, tools, and all coordination with the host nation of Jordan.” AR 7-486. [Offeror B], however, also proposed to have at least [***] full-time [Offeror B] employees stationed in Jordan, including a project manager, [***]. See AR 7-483, -486. [Offeror B] provides little further detail regarding its pricing and how much of its proposal represents money being paid to the subcontractor. [Offeror B] estimated it would spend $[***] on program management and engineering and design combined. AR 24-1779 to -80. The description of these costs included the labor costs associated with the program manager, the field engineers/quality auditors, and documentation support. Id. For the trenching and laying of the long-haul and last-mile fiber optic cable, [Offeror B] estimated it would spend $[***]. AR 24-1777 to -78. Its description of the trenching and laying costs does not include any breakdown of labor versus material costs; nor does it include an indication of what tasks will be performed by [Offeror B]’s employees or [***]’s employees. Although [Offeror B] states that it will have a number of full time [Offeror B] employees dedicated to the project, unlike [Offeror A], it omits any information about whether those employees would constitute at least 50% of all personnel costs. Because subcontracting all or nearly all of the most labor intensive aspect of the contract, the trenching and laying, would likely render an offeror non-compliant with the limitation-on-subcontracting clause, the contracting officer had no reasonable basis to conclude that [Offeror B] would comply with the requirement. Overall, like [Offeror A]’s proposal, [Offeror B]’s proposal demonstrates a significant likelihood that it would not comply with the limitation on subcontracting, and it was irrational for the Army to find otherwise. See Transatlantic Lines LLC, 68 Fed. Cl. at 53-54, 57-58; cf. Chapman Law Firm, 63 Fed. Cl. at 527-28. (Hyperion, Inc. v. U. S., No. 13-1012C, April 17, 2014) (pdf)
B. The Proper Analytical Framework for Compliance with a Limitations on Subcontracting Clause
1. Formula for Measuring Compliance with the Limitations on Subcontracting Requirement
Where applicable to contracts for supplies, the text of FAR 52.219-14(c)(2) requires that a contractor “shall perform work for at least 50 percent of the cost of manufacturing the supplies [provided the government], not including the cost of materials.” 48 C.F.R. § 52.219-14(c)(2). What is obvious from this regulatory text is that the cost of materials is not included in the comparison of the cost of the work performed by the contractor to the overall cost of manufacturing of the finished product, in this case parkas and trousers. What is less obvious from the text of this regulation, however, is the formula which should be used to determine compliance with the requirement. The parties vigorously dispute the issue; unfortunately for plaintiff, the only persuasive authority on this issue favors the government’s and Tennier’s position.
The GAO has adopted the following formula for determining whether a contractor is in compliance with the limitations on subcontracting clause in FAR 52.219-14(c)(2):
[T]he total contract cost (including profit) less materials and subcontracting costs is to be compared with all subcontracting costs less the subcontractor’s materials costs.
Mech. Equip. Co., B-292789.2, 2004 CPD ¶ 192, 2003 WL 23782511, at *18 (Comp. Gen. Dec. 15, 2003) (Mechanical Equipment) (citing Marwais Steel Co., SBA No. 3884 (Feb. 10, 1994); Phoenix Sys. & Techs., Inc., SBA No. 3220 (Nov. 29, 1989) (Phoenix Systems)). Furthermore, the contractor’s total costs figure should include overhead costs, general and administrative (G & A) costs and profit. Id. (citing Phoenix Systems). Thus, although the text of FAR 52.219-14(c)(2) might be assumed to require a simple comparison of the labor costs of the prime contractor and the labor costs of all of its subcontractors, both the GAO and the Small Business Administration (SBA) have found that a more comprehensive formula is required to determine compliance with this regulation. Id.
Plaintiff attempts to rebut Mechanical Equipment and Phoenix Systems by reference to various accounting standards set forth in the FAR or developed by the Financial Accounting Standards Board (FASB). Pl.’s Mot. at 11-13. None of plaintiff’s arguments are supported by caselaw, decisions of the GAO, or decisions of the SBA. The general accounting principles cited by plaintiff are less pertinent to this case than the decisions of the GAO and the SBA which have specifically addressed compliance with FAR 52.219-14(c)(2). The court recognizes the GAO’s expertise in this area and defers to its interpretation of FAR 52.219-14(c)(2). See, e.g., Centech, 554 F.3d at 1038 n.4 (“While not binding authority on this court, the decisions of the Comptroller General are instructive in the area of bid protests.” (citing CHE Consulting, Inc. v. United States, 552 F.3d 1351, 1355-56 (Fed. Cir. 2008); Planning Research Corp. v. United States, 971 F.2d 736, 740 (Fed. Cir. 1992))). Thus, in this case, the court holds that Mechanical Equipment and Phoenix Systems provide the proper formula to test a contractor’s compliance with the limitations on subcontracting clause.
2. Review of an Agency’s Acceptance of a Proposal Where the Limitations on Subcontracting Clause Applies
The court now turns to a separate issue, an agency’s acceptance of a proposal and its representations as to subcontracting. The parties present a variety of articulations of the analytical framework for the review of an agency’s acceptance of a proposal which may or may not indicate, on its face, that the awardee will comply with the limitations on subcontracting clause. Plaintiff, in its response brief, suggests that the proposal must clearly show on its face that the contractor will comply with this requirement:
The issue in this situation is not whether Tennier took exception to the Limitations on Subcontracting clause or otherwise indicated that it would not comply. The issue is whether Tennier clear[ly] showed that it would comply.
Pl.’s Resp. at 3 (citing Carson Helicopter Servs., Inc., B-299720, 2007 CPD ¶ 142, 2007 WL 2325299 (Comp. Gen. July 30, 2007); Mine Safety Appliances Co., B-247919, 92-2 CPD ¶ 150, 1992 WL 224484 (Comp. Gen. Sept. 3, 1992)). Neither of these GAO decisions cited by plaintiff in its response brief, however, addresses the requirements of the limitations on subcontracting clause at issue in this case. The court is not persuaded that the particular analytical framework presented in plaintiff’s response brief captures the essence of the inquiry required here.
Defendant, relying on an excerpt from a passage in Centech where the Federal Circuit was quoting language in a GAO decision, argues in its reply brief that “‘[t]he issue here does not concern whether [Tennier] can or will comply with the subcontracting limitation requirement . . . but rather, whether [Tennier] has specifically taken exception to the subcontracting limitation requirement on the face of its . . . proposal.’” Def.’s Reply at 2 (quoting Centech, 554 F.3d at 1034-35) (alteration in original). Although the passage is accurately quoted, it is not part of the holding in Centech – this particular passage is only presented as part of the history of the appeal then before the Federal Circuit. The court must therefore reject the analytical framework cited in defendant’s reply brief, as well.
The proper analytical framework for the review of an agency’s decision to accept a proposal (and its representations as to subcontracting that will comply with FAR 52.219-14) is succinctly provided by a different statement in Centech:
[A] proposal that, on its face, leads “an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation” is technically unacceptable and “may not form the basis for an award.”
554 F.3d at 1038 (quoting Chapman Law Firm v. United States, 63 Fed. Cl. 519, 527 (2005)). This approach is echoed in a number of GAO decisions, one of which was cited by plaintiff. See Pl.’s Mot. at 6-7 (citing Global Assocs. Ltd., B-271693, 96-2 CPD ¶ 100, 1996 WL 509228 (Comp. Gen. Aug. 2, 1996)). In that decision, the GAO stated that
the protest allegation here challenges the agency’s determination that [the awardee’s] proposal was acceptable, and is based upon the representations in the proposal . . . as to whether the proposal complied with the subcontracting limitation. Protests such as this, which are directed at the awardee’s proposal, challenge the reasonableness of the agency’s determination of technical acceptability . . . .
Global Associates, 1996 WL 509228, at *4 (citations omitted and emphasis added). Thus, the court reviews the reasonableness, or rationality, of the agency’s acceptance of the proposal (and its representations as to subcontracting), in light of the requirements set forth in FAR 52.219-14.
In other words, unless a proposal “leads” the agency to question the awardee’s subcontracting of contract work as a possible violation of the limitations on subcontracting clause, it is generally reasonable for the agency to accept the proposal and determine compliance with that clause after the award decision has been made:
As a general rule, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation is a matter of responsibility, and the contractor’s actual compliance with the provision is a matter of contract administration. Orincon Corp., B-276704, July 18, 1997, 97-2 CPD ¶ 26 at 4. However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal’s technical acceptability; a proposal that fails to conform to a material term or condition of the solicitation such as the subcontracting limitation is unacceptable and may not form the basis for an award. Coffman Specialties, Inc., B-284546, B-284546.2, May 10, 2000, 2000 CPD ¶ 77 at 5.
KIRA Inc., B-287573.4, 2001 CPD ¶ 153, 2001 WL 1073392, at *3 (Comp. Gen. Aug. 29, 2001) (emphasis added).
Following Centech, Global Associates and KIRA, this court must determine whether Tennier’s proposal, on its face, should have led the agency to conclude that Tennier would not comply with the limitations on subcontracting clause. If Tennier’s proposal was facially infirm in this regard, and the agency did not confirm that Tennier would comply with FAR 52.219-14, the award decision challenged here was not rational and cannot stand. If, on the other hand, Tennier’s proposal would not have led the agency to doubt the awardee’s compliance with FAR 52.219-14, Excel’s protest must fail.
C. Was Tennier’s Proposal Facially Compliant with the Limitations on Subcontracting Clause?
Plaintiff contends that Tennier’s subcontractors will perform more than 50 percent of the work of manufacturing the parkas and trousers for the awarded contract. More importantly for this bid protest, plaintiff argues that Tennier’s proposal should have led the agency to question whether Tennier would comply with the limitations on subcontracting clause:
Tennier’s proposal, wherein it listed five (5) subcontractors, including three (3) . . . who would be performing all of the sewing operations, should have caused DLATS to at least inquire to verify that Tennier would be incurring 50% of the cost of manufacturing the Parkas and Trousers (not including materials) . . . .
Pl.’s Mot. at 9. Plaintiff relies on the Ortega declaration for a breakdown of manufacturing labor costs, and states that “Excel calculated the labor being provided by Tennier versus the labor being provided by [Tennier’s] subcontractors.” Id. at 10. According to plaintiff, “Tennier will only be performing 47.61% of the work (not including the cost of materials), while its subcontractors will be performing 52.29%.” Id. In plaintiff’s view, the information Tennier provided in its proposal regarding its subcontracting of various manufacturing processes should have led the agency to inquire as to Tennier’s willingness to comply with FAR 52.219-14.
The court cannot agree for a number of reasons. First, the proposal Tennier provided DLATS does not contain a statement that Tennier would not comply with the limitations on subcontracting clause. Second, the proposal includes a long list of the manufacturing processes which would be performed either by Tennier or by its subcontractors, a list which includes such operations as cutting, quilting, sewing, assembly, finishing, inspecting, packing and shipping. See AR at 178. It is certainly not obvious to the average reader, or the court, that this detailed division of tasks proposed by Tennier, with ten listed operations equally divided between the contractor and its roster of subcontractors, should have led the agency to inquire as to Tennier’s willingness to comply with FAR 52.219-14.
The government argues that “there is nothing on the face of Tennier’s proposal that showed that Tennier was not agreeing to incur by itself ‘at least 50 percent of the cost of manufacturing supplies, not including the cost of materials,’ as required by the Limitations on Subcontracting clause.” Def.’s Mot. at 14-15 (citations omitted). Having reviewed the administrative record, as supplemented by the Ortega declaration and the Eisen affidavit, the court must agree with defendant. Tennier’s proposal, on its face, would not lead the agency to conclude that Tennier would not comply with the limitations on subcontracting clause. Furthermore, Excel’s calculations of labor costs do not show any significant error on the part of DLATS, as explained below.
Defendant argues that there are at least two problems with plaintiff’s contention that Tennier was only committing to perform 47.61% of the contract work. First, Excel’s calculations are based on an assumption that Tennier and its subcontractors pay their workers the federal minimum wage. Def.’s Mot. at 16; see also Pl.’s Mot. at 10. According to intervenor-defendant, “Tennier has many employees who will work under this contract who are paid very significantly in excess of” the minimum wage. Tennier Mot. at 5 n.2; see also Eisen Aff. ¶ 12. Thus, at least one of plaintiff’s assumptions regarding labor costs appears to be questionable.
Second, and perhaps more importantly, Excel’s calculations comparing Tennier’s labor costs and the labor costs of its subcontractors are not equivalent to the formula for determining compliance with the limitations on subcontracting clause discussed supra. As defendant notes, Excel’s calculations do not take into account profit or G & A, which are necessary cost components of the proper formula testing compliance with FAR 52.219-14. Def.’s Mot. at 16-17 (citing Mechanical Equipment and Phoenix Systems). Because Excel’s calculations supporting its allegation that Tennier would not comply with the limitations on subcontracting clause do not contain all of the necessary cost elements, the court cannot rely on Excel’s conclusions as accurate.
Defendant also notes that none of the cost elements which are necessary for an accurate application of the compliance formula set forth in Mechanical Equipment are specified in Tennier’s proposal. Id. at 17. The government therefore argues that “prior to contract award, there was no such cost information on the face of Tennier’s proposal – or any other offeror’s proposal, for that matter – to indicate that Tennier would not comply with the subcontracting limitation requirement.” Id. (citing Precision Standard, Inc. v. United States, 69 Fed. Cl. 738, 755 (2006)). The court agrees with the government that, in the circumstances of this procurement, there was no information on the face of Tennier’s proposal which would have led the agency to conclude that Tennier would not comply with FAR 52.219-14.
Intervenor-defendant offers substantially the same arguments as the government. In Tennier’s view, Excel’s calculations showing Tennier’s proposed non-compliance with the limitations on subcontracting clause are “speculative, hypothetical and incorrect [because they have] not adhered to the required standards for interpreting the cost of manufacture provisions of the Limitation[s] on Subcontracting clause.” Tennier Mot. at 9. The court cannot disagree. Although the court does not adopt all of intervenor-defendant’s legal analyses, in this case “the procuring agency’s reliance on the [awardee’s] de[ ]facto promise to comply with the provisions of the [limitations on subcontracting] clause was rational.” Id.
There was nothing on the face of Tennier’s proposal which would have led the agency to the conclusion that Tennier would not comply with the limitations on subcontracting clause. DLATS rationally considered Tennier’s proposal to be acceptable, and the award to Tennier survives this court’s review. (Excel Manufacturing, Ltd., v. U. S. and Tennier Industries, Inc., No.13-361C, July 24, 2013) (pdf)
Section 2305(b)(1) of the CICA states that "[t]he head of an agency shall evaluate . . . competitive proposals and make an award based solely on the factors specified in the solicitation." 10 U.S.C. § 2305(b)(1). The March 31, 2006 Solicitation states that the master, officers, and crew of the vessel be appointed or hired by the owner, and the crew "shall be deemed to be the servants and agents of the Owner at all times." AR 1509. The FAR requires that: "[b]y submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract . . . at least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern." 48 C.F.R. § 52.219-14(b)(1). In addition, a contractor awarded a small business set-aside contract for services must show that at least 50 percent of the labor costs incurred will be performed by the company’s own employees.
See 48 C.F.R. § 19.508(e) (requiring that contracting officers include FAR 52.219-14, Limitations on Subcontracting, "in solicitations and contracts for supplies, services and construction, if any portion of the requirement is to be set aside for small business and the contract amount is expected to exceed $100,000.").
Here, the issue is whether a “subcontractor” includes employees hired through an agent. The FAR does not define “subcontractor.” See 48 C.F.R. § 2.101 (Definitions). The Small Business Subcontracting Plan, however, defines a “subcontract” as “any agreement (other than one involving an employer-employee relationship) entered into by a Federal Government prime Contractor or subcontractor calling for supplies or services required for performance of the contract or subcontract.” 48 C.F.R. § 252.219-7004(a) (emphasis added); see also BLACK’S LAW DICTIONARY 1464 (8th ed. 2004) (defining a “subcontractor” as “[o]ne who is awarded a portion of an existing contract by a contractor . . . . For example, a contractor who builds houses typically retains subcontractors to perform specialty work such as installing plumbing, laying carpet, making cabinetry, and landscaping”). Therefore, if an employer-employee relationship existed between TAL and the Bonito’s crew, there was no violation of the Limitation on Subcontracting. See 48 C.F.R. § 2.219-14(b).
The FAR also does not define “employee” or “employer-employee” relationship. See 48 C.F.R. § 2.101 (Definitions). The Internal Revenue Service, however, uses the common law test to determine if an employer-employee relationship exists. See 26 C.F.R. § 31.3121(d)-1(c)(1) (“Every individual is an employee if under the usual common law rules the relationship between him and the person for whom he performs services is the legal relationship of employer and employee.”). An employer-employee relationship exists under the common law when:
the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which that result is accomplished. . . . The right to discharge is also an important factor indicating that the person possessing that right is an employer. Other factors characteristic of an employer, but not necessarily present in every case, are the furnishing of tools and the furnishing of a place to work, to the individual who performs the services. In general, if an individual is subject to the control or direction of another merely as to the result to be accomplished by the work and not as to the means and methods for accomplishing the result, he is an independent contractor. An individual performing services as an independent contractor is not as to such services an employee under the usual common law rules.
26 C.F.R. § 31.3121(d)-1(c)(2); see also BLACK’S LAW DICTIONARY 564 (8th ed. 2004) (defining “employee” as “A person who works in the service of another person (the employer) under an express or implied contract of hire, under which the employer has the right to control the details of work performance.”).
In this case, TAL’s crewing agency appeared to operate as a headhunter or an employment agency. See AR 1921; see also AR 1940-41. In either event, Sealift failed to establish that the crewing agent had the “right to control and direct” the Bonito’s crew. See 26 C.F.R. § 31.3121(d)-1(c)(2). Instead, the record indicates that TAL controlled the members of the crew. See AR 1921 (“We utilize the services of a manning company . . . to find crew for our vessels.”) (emphasis added). The record also contains no evidence that the crewing agency had the “right to discharge” Bonito crew members after they were hired. See AR 1921; see also 26 C.F.R. § 31.3121(d)-1(c)(2). In addition, TAL furnished the crew members with “tools” and “a place to work.” See AR 1921. Therefore, Sealift failed to establish that the crewing agent was “awarded a portion of an existing contract” by TAL. See BLACK’S LAW DICTIONARY 1464 (8th ed. 2004) (“Subcontractor”).
For these reasons, the court has determined that TAL’s use of a crewing agent did not establish a subcontract relationship, and TAL’s proposal properly complied with the March 31, 2006 Solicitation. See 48 C.F.R. § 252.219-7004(a) (defining a subcontract as “any agreement . . . other than one involving an employer-employee relationship”) (emphasis added); see also AR 1860. (Sealift, Inc., v. U. S., No. 07-627C, July 11, 2008) (pdf)
In deciding whether an agency was justified in following a GAO recommendation, this Court determines whether GAO's decision was rational. The Court's review is not de novo. Honeywell, 870 F.2d at 648. In this procurement, the Air Force has taken corrective action based upon GAO’s determination that Centech’s proposal was unacceptable because it failed to meet the LOS clause. GAO recognized that the Air Force had erroneously informed offerors that they could meet the LOS clause on a collective basis and that the Air Force’s mistaken guidance had led Centech and another offeror to submit proposals which did not comply with the clause. As a result, GAO recommended reopening discussions to permit all offerors to submit revised proposals based upon a correct interpretation of the LOS clause. In addition, because over two years had passed since the original RFP was issued, the Air Force invited updates to proposals and endeavored to revise its evaluation procedures to meet other allegations in Tybrin’s GAO protest.
The LOS clause incorporated into the solicitation required an offeror to perform at least 50 percent of the contract costs with its own personnel. Plaintiff contends that GAO’s conclusion that its proposal was unacceptable was wrong because compliance with the LOS clause was not required to be evaluated as a condition for award, but instead should have been examined after award, once the Air Force’s actual requirements were defined and the costs of performance of the labor by the prime and subcontractors could be ascertained. Under Plaintiff’s theory, its representation in its proposal that it would perform only 43.2 percent of the labor costs itself did not render its proposal unacceptable because its failure to meet that clause was not a failure to meet a mandatory, material requirement of the solicitation, but was a matter of post-award contract administration. Thus, in Plaintiff’s view, its original contract award should be reinstated.
Plaintiff’s theory cannot succeed here for two reasons. First, the Small Business Act, 15 U.S.C. § 644(o), provides that a concern may not be awarded a contract as a small business unless it agrees that at least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern. The Small Business Act, 15 U.S.C. § 644(o), plainly requires the small business prime contractor to agree to perform at least 50 percent of the cost of personnel with its own personnel. It is undisputed that Centech’s proposal, on its face, did not do that. As such, Centech’s proposal violated the mandate of the Small Business Act, which makes the prime contractor’s agreement to perform 50 percent of the labor costs itself a prerequisite to obtaining the award. See Transatlantic Lines LLC v. United States, 68 Fed. Cl. 48, 52 (2005) (“a contractor awarded a small business set-aside contract for services must show that it will incur at least fifty percent of its labor costs on the contract from its own employees”).
Secondly, GAO correctly determined that Centech’s proposal was unacceptable because it failed to comply with the LOS clause -- a mandatory, material solicitation requirement. Plaintiff contends that because compliance with the LOS clause was not expressly stated in Section M as an evaluation factor for award, it was not a mandatory requirement, and the clause could be satisfied post award as a matter of contract administration. However, under the terms of the solicitation, the percentage of labor costs performed by a prime versus a subcontractor impacted an offeror’s proposed bottom-line costs, and costs were to be evaluated based upon the model in the RFP. Because the mix of prime-subcontractor labor here affected the cost evaluation, compliance with the LOS clause had to be evidenced in offerors’ proposals. As such, the LOS clause was implicated in the evaluation and was not simply a matter of post-award contract administration. As the Court in Blount, Inc. v. United States, 22 Cl. Ct. 221, 228 (1990) recognized:
In requiring the contractor to self-perform 20 percent of the work under the contract, the clause directly impacted bid price. The selfperformance requirement limited the amount of work which could be subcontracted under the contract. A contractor can generally achieve considerable savings by subcontracting work to firms with lower cost structures who are capable of performing the project with less expense. As such, a contractor may gain a sizeable bid pricing advantage by subcontracting more work than its competitors . . . Since compliance with the “Performance of Work” clause invariably affected bid price, the “Performance of Work” clause constitutes a material term of the IFB. Vanderbilt Shirt Co., 69 Comp. Gen. 20 (1989).
Because Centech’s proposal did not comply with both a mandatory statutory requisite for award and a material solicitation provision which impacted offerors’ evaluated costs, the proposal, as GAO held, was technically unacceptable and ineligible for award. Chapman, 63 Fed. Cl. at 527 (stating that “a proposal that fails to conform to a material term and condition of the solicitation, such as the subcontracting limitation, is unacceptable and may not form the basis for an award”).
Centech further contends that it deserves its original award because it could and would actually meet the LOS clause post-award -- as determined by the SBA’s responsibility assessment, which used different prime-sub labor mixes and costs than those evaluated. The problem with this argument is that Centech would not in fact be receiving award based upon its original proposal or the original solicitation. The original solicitation, evaluation and award were premised on legal error -- that a small business could meet the LOS clause collectively with its subcontractors. As such, that original award is illegal, void ab initio and a nullity, and cannot be reinstated by the Court. Nor can Centech with a wink and a nod alter its proposal after the evaluation during a responsibility assessment to change a material proposal term, recognizing that it had to meet the 50 percent requirement itself. FAR 15.305(a); see also Prestex Inc. v. United States, 320 F.2d 367, 372 (Ct. Cl. 1963).
To allow Centech alone to alter its offer by changing the proposed labor mix and percentage of costs it would incur for its own personnel to be above 50 percent would change the ground rules for Centech but not other offerors. This would violate fundamental tenets of procurement law requiring that offerors submit proposals to the same requirements and be evaluated against those same requirements.
In sum, Centech has not demonstrated that the Air Force’s corrective action was arbitrary, capricious, or an abuse of discretion. As such, Centech cannot meet the first requisite for injunctive relief. Because Centech has not demonstrated success on the merits, the Court need not examine the other factors for injunctive relief. Forest City, No. 07-546C (Fed. Cl. Nov. 19, 2007), slip op. at 43; Info. Tech. & Applications Corp. v. United States, 51 Fed. Cl. 340, 357 n.32 (2001), aff’d, 316 F.3d 1312 (Fed. Cir. 2003) (“Absent success on the merits, the other factors are irrelevant.”). Nonetheless, it is clear on this record that Centech is not entitled to the injunctive relief it seeks -- reinstatement of its erroneous original award -- relief which would merely reinstate and perpetuate an illegality. (The Centech Group, Inc., v. U. S. and Tybrin, Inc., 07-513C, Filed December 7, 2007, Refiled December 13, 2007) (pdf)
Lynxnet, Inc. v. U. S. and Strategic Operational Solutions, Inc., No. 14-735, November 18, 2014 (pdf) Hyperion, Inc. v. U. S., No. 13-1012C, April 17, 2014 (pdf)
Excel Manufacturing, Ltd., v. U. S. and Tennier Industries, Inc., No.13-361C, July 24, 2013 (pdf)
The Centech Group, Inc., v. U. S. and Tybrin, Inc., 07-513C, Filed December 7, 2007, Refiled December 13, 2007 (pdf)
We have stated that “a procurement agency’s decision to follow [GAO’s] recommendation even though that recommendation differed from the contracting officer’s initial decision was proper unless [GAO’s] decision itself was irrational.” Honeywell, Inc. v. United States, 870 F.2d 644, 648 (Fed. Cir. 1989). In this case, we agree with the Court of Federal Claims that the Air Force acted properly when it followed GAO’s recommendation to solicit revised proposals for the ARDTEAS contract. Centech submitted a proposal that, on its face, showed that Centech was not agreeing to incur by itself “[a]t least 50 percent of the cost of contract performance . . . for personnel,” as required by the LOS clause.
Pursuant to 31 U.S.C. § 3554(b)(1), GAO is required to recommend that an agency take specific corrective action if an award does not comply with a statute or regulation, including terminating the contract and awarding a contract consistent with the requirements of the statute and regulations. See Honeywell, 870 F.2d at 648. In Orincon, GAO noted that, “[a]s a general matter, an agency’s judgment as to whether a small business offeror will comply with the subcontracting limitation is a matter of responsibility, and the contractor’s actual compliance with the provision is a matter of contract administration.” 97-2 Comp. Gen. (West) at 4. GAO further stated: “However, where a proposal, on its face, should lead an agency to the conclusion that an offeror could not and would not comply with the subcontracting limitation, we have considered this to be a matter of the proposal’s technical acceptability.” Id. Since Centech’s proposal did not offer to provide what the RFP requested, it was not responsive to the RFP. It therefore was unacceptable and could not serve as the basis for contract award. Under these circumstances, GAO’s recommendation to solicit revised proposals for the contract plainly was rational. It therefore was proper for the Air Force to follow GAO’s recommendation.
Our conclusion is not changed by the fact that, in structuring its proposal, Centech apparently relied upon the later-retracted Policy Memorandum. The Air Force Material Command could not, through the Policy Memorandum, alter the requirements of the LOS clause, which was mandated by statute and regulation. See United States v. Amdahl Corp., 786 F.2d 387, 392–93 (Fed. Cir. 1986) (“Administrative actions taken in violation of statutory authorization or requirement are of no effect.”); cf. Lyng v. Payne, 476 U.S. 926, 937 (1986) (noting that “not all agency publications are of binding force” and that “an agency’s power is no greater than that delegated to it by Congress”). In short, the Policy Memorandum could not override the LOS clause. We thus reject Centech’s argument that the presence of the Policy Memorandum (prior to its retraction) meant that Centech submitted a proposal which reflected agreement to comply with the LOS clause.
We take due notice of the procurement regulation at 48 C.F.R. § 19.601(d) and the SBA regulation at 13 C.F.R. § 125.6(f). The former provides that “[w]hen a solicitation requires a small business to adhere to the limitations on subcontracting, a contracting officer’s finding that a small business cannot comply with the limitation shall be treated as an element of responsibility and shall be subject to the COC process.” 48 C.F.R. § 19.601(d). The latter provides that “[c]ompliance [with the LOS clause is] considered an element of responsibility and not a component of size eligibility.” 13 C.F.R. § 125.6(f). Centech cites these regulations in making its argument that GAO and the Air Force should have deferred to the SBA’s determination that Centech would comply with the LOS clause. These two regulations do not change the result in this case, however. The reason is that, as GAO stated in its decision, the issue was not whether Centech could comply with the requirements of the LOS clause—the matter to which § 19.601(d) is directed. See 19 C.F.R. § 19.601(d) (referring to “a contracting officer’s finding that a small business cannot comply with the [subcontracting] limitation” (emphasis added)). Rather, the issue was whether, in its proposal, Centech agreed that it would comply with the requirements of the LOS clause.5 The record fully supports GAO’s determination that, in its proposal, Centech did not agree to comply with the clause. The Air Force acted rationally in following GAO’s recommendation based upon that determination.
For the foregoing reasons, we affirm the decision of the Court of Federal Claims denying Centech’s request for declaratory and injunctive relief. (The Centech Group, Inc., v. U. S. and Tybrin Corporation, No. 08-5031, February 3, 2009.) (pdf) Also see The Centech Group, Inc., v. U. S. and Tybrin, Inc., 07-513C, Filed December 7, 2007, Refiled December 13, 2007 (pdf) and TYBRIN Corporation, B-298364.6; B-298364.7, March 13, 2007 (pdf)
The Centech Group, Inc., v. U. S. and Tybrin Corporation, No. 08-5031, February 3, 2009.
Also see The Centech Group, Inc., v. U. S. and Tybrin, Inc., 07-513C, Filed December 7, 2007, Refiled December 13, 2007 (pdf) and TYBRIN Corporation, B-298364.6; B-298364.7, March 13, 2007 (pdf)