Opinion ID: 805808
Heading Depth: 2
Heading Rank: 1

Heading: The Government’s Merits-Based Argument

Text: In the underlying bid protest, the Government argued that the Small Business Act and the SBA’s implementing regulations did not require the Air Force to give priority to HUBZone small business concerns. DGR, 97 Fed. Cl. at 218. The Court of Federal Claims rejected the Government’s position because in the court’s view the Government’s interpretation of the Act “contradicted the plain meaning of the Small Business Act.” Id. at 219. In the subsequent EAJA action, the Government argued that its position in the bid protest litigation nevertheless was substantially justified because “interpretation of the statute was a novel issue . . . .” Id. The Court of Federal Claims rejected the Government’s justification argument, holding that “the unambiguous wording of the statute, and the existing case law precedent” rendered the Government’s merits-based argument in the underlying litigation “not reasonable.” Id. We cannot agree. While the Government’s position must be “more than merely undeserving of sanctions for frivolousness,” it is sufficient for purposes of establishing substantial justification that there was a “genuine dispute” such that “reasonable people could differ as to 11 DGR ASSOCIATES v. US [the appropriateness of the contested action].” Pierce, 487 U.S. at 565-66 (alteration in original) (citation omitted). At the time DGR initiated the underlying bid protest, presumptively reasonable people in all three branches of the Government had reached differing conclusions as to whether the Small Business Act permitted participating agencies to place the HUBZone and 8(a) programs on an equal footing. Of the various Government agencies to opine on the matter, the Small Business Administration, the Department of Justice, the Office of Management and Budget, and the Department of Defense all considered the SBA’s parity regulations to be consistent with the Act. The opposite conclusion had been reached by the Government Accountability Office in four separate decisions in three separate bid protests. 3 Even the Federal courts were split on the matter. Although the Court of Federal Claims in Mission Critical had concluded that the SBA’s parity regulations were inconsistent with the plain meaning of the Act, the District Court for the District of Hawaii had rejected a challenge to the regulations on the grounds that the regulations “sufficiently promote the congressional objective of parity between the HUBZone and 8(a) programs.” Contract Mgmt., 291 F. Supp. 2d at 1177. 4 3 Int’l Program Grp., Inc., B-400278, B-400308, 2008 CPD ¶ 172 (Comp. Gen. Sep. 19, 2008); Mission Critical Solutions, B-401057, 2009 CPD ¶ 9 (Comp. Gen. May 4, 2009); Small Bus. Admin.—Reconsideration, B- 401057.2, 2009 CPD ¶ 148 (Comp. Gen. July 6, 2009); DGR Assocs. Inc., B-402494, 2010 CPD ¶ 115 (Comp. Gen. May 14, 2010). 4 We note, however, that the District Court’s con- clusion in Contract Management regarding the SBA’s parity regulations is difficult to reconcile with the court’s ultimate conclusion that the Small Business Act “manDGR ASSOCIATES v. US 12 Thus, at the time DGR filed its bid protest in the Court of Federal Claims, there was a genuine dispute among all three branches of Government as to whether the Air Force was required to give priority to the HUBZone program over the 8(a) program. That alone should be sufficient reason to conclude that the Department of Justice’s merits-based argument in the underlying litigation was, if not actually correct, at least sufficiently grounded in law to be substantially justified under the relatively low threshold standard described above. There is more. Though the Congressional resolution of this issue came after the litigation in the Court of Federal Claims, there had been an earlier indication of the Congress’ view of the matter. Following the GAO’s Mission Critical decision, the Senate proposed amending the Act to clarify that when a contract could be awarded pursuant to more than one small business program, Federal agencies have discretion as to which program to apply. See H.R. 2647, 111th Cong. § 838 (July 23, 2009) (Engrossed amendment Senate). While the amendment was under consideration in the House, the Department of Justice issued its 2009 memorandum in reaction to the GAO’s Mission Critical decision. One and a half months later, the Senate receded, noting “that the Department of Justice has concluded that no change to the Small Business Act is required to ensure that contracting officers . . . have discretion whether or not to award contracts pursuant to the HUBZone program,” and “direct[ing] the Secretary of Defense to continue to administer the HUBZone program in a date[es] that participating agencies set aside contract opportunities to qualified HUBZone small business concerns when the statutory criteria are met.” Id. at 1174. 13 DGR ASSOCIATES v. US manner consistent with the Department of Justice opinion.” H.R. Rep. No. 111-288, at 789 (2009). In view of this clear statement from Congress affirming the SBA regulations at issue, it is difficult for us to conclude that the Government was not substantially justified in believing that the Small Business Act permitted participating agencies to place the HUBZone and 8(a) programs on an equal footing. We conclude, therefore, that the Court of Federal Claims made a clear error of judgment in weighing the factors relevant to the question of whether the Government’s merits-based argument was substantially justified.