Btas, Inc. v. United States

BTAS, INC., Plaintiff, v. THE UNITED STATES OF AMERICA, Defendant.

No. 20-1176C

United States Court of Federal Claims

Reissued: January 27, 2021^*

January 21, 2021

BID PROTEST

Samuel S. Finnerty, PilieroMazza PLLC, Washington, DC, for Plaintiff. Patrick R. Rothwell, Timothy F. Valley, Meghan F. Leemon, and Anna R. Wright, PilieroMazza PLLC, Washington, DC, Of Counsel.

Sonia W. Murphy, U.S. Department of Justice, Civil Division, Commercial Litigation Branch, Washington, DC, with whom were Douglas K. Mickle, Assistant Director, Robert E. Kirschman, Jr., Director, Jeffrey Bossert Clark, Acting Assistant Attorney General, for Defendant.

OPINION AND ORDER

KAPLAN, Judge.

The General Services Administration ("GSA") awarded plaintiff, BTAS, Inc. ("BTAS"), a small business set-aside contract. After one of BTAS's competitors filed a size protest with the Small Business Administration ("SBA"), the SBA's regional office and then its Office of Hearings and Appeals ("OHA") concluded that BTAS was ineligible to be treated as a small business because BTAS's average annual receipts over the preceding three years exceeded $38.5 million, the limit set forth in the applicable size standard.

In this bid protest, BTAS contends that OHA's ruling was inconsistent with law. It argues that as a result of an amendment to the Small Business Act contained in the Small Business Runway Extension Act of 2018, Pub. L. No. 115-324, 132 Stat. 4444 ("Runway Extension Act"), the SBA was obligated to use a period of no less than five years to calculate BTAS's averageannual receipts. It is undisputed that if a five-year rather than three-year period had been used, BTAS's average annual receipts would not have exceeded the $38.5 million ceiling.

The government opposes BTAS's claim on several grounds. First, it contends that BTAS waived its argument that the Runway Extension Act required the SBA to use the longer averaging period because BTAS did not raise it before the time for submitting offers had expired. In any event, according to the government, the provision of the Small Business Act that was amended by the Runway Extension Act, namely section 3(a)(2)(C)(ii), 15 U.S.C. § 632(a)(2)(C)(ii), does not apply to the SBA's size standards but rather to alternative standards that other agencies are statutorily permitted to issue subject to SBA approval. Further, according to the government, even if section 3(a)(2)(C)(ii) were applicable here, the five-year averaging period did not apply to offers submitted before January 6, 2020—the effective date of the final rule the SBA ultimately issued, which adopted a five-year averaging period.

For the reasons set forth below, the Court finds that the government's waiver argument lacks merit. It agrees, however, that section 3(a)(2)(C)(ii) does not impose limitations on the SBA's prescription of size standards; instead it applies to agencies and departments other than the SBA that lack independent statutory authority to promulgate size standards. Moreover, even if section 3(a)(2)(C)(ii) did apply to the SBA, the three-year averaging period required under existing regulations remained in effect until the SBA—after providing notice and an opportunity for public comment—amended its regulations to codify the five-year averaging period. Therefore, the government's motion for judgment on the administrative record is GRANTED, ECF No. 22, and BTAS's cross-motion is DENIED, ECF No. 21.

BACKGROUND

I. Statutory and Regulatory Overview

Under section 3(a)(1) of the Small Business Act, "a small-business concern" is defined as an enterprise "which is independently owned and operated and which is not dominant in its field of operation." 15 U.S.C. § 632(a)(1). Section 3(a)(2) of the Act, 15 U.S.C. § 632(a)(2), governs the establishment of the criteria that determine which business concerns fall within this definition.

First, subparagraph (A) of § 632(a)(2) states in pertinent part that "the [SBA] Administrator may specify detailed definitions or standards by which a business concern may be determined to be a small business concern for the purpose of this chapter or any other Act." Subparagraph (B) further specifies that the standards that the SBA promulgates "may utilize number of employees, dollar volume of business, net worth, net income, a combination thereof, or other appropriate factors." 15 U.S.C. § 632(a)(2)(B).¹

Pursuant to its statutory authority under subparagraphs (A) and (B) of section 3(a)(2), the SBA has issued regulatory "size standards" that "define whether a business entity is small and, thus, eligible for Government programs and preferences reserved for 'small business' concerns." 13 C.F.R. § 121.101(a). These "[s]ize standards have been established for types of economic activity, or industry, generally under the North American Industry Classification System (NAICS)." Id. The SBA's size standards are generally based on either the number of employees of the business or its annual receipts. 13 C.F.R. § 121.201; see also Palladian Partners, Inc. v. United States, 783 F.3d 1243, 1247 (Fed. Cir. 2015).

As the SBA's regulations state, "[f]ederal agencies or departments promulgating regulations relating to small businesses usually use SBA size criteria," but may employ their own standards in "limited circumstances" where "the SBA size standard is not suitable for their programs." 13 C.F.R. § 121.903(a). This option is subject to subparagraph (C) of section 3(a)(2), which provides that federal agencies or departments that wish to employ their own size standards must comply with certain statutory conditions. 15 U.S.C. § 632(a)(2)(C). Among other things, they must secure the approval of the SBA Administrator through the regulatory procedures the SBA has established, 15 U.S.C. § 632(a)(2)(C)(iii), see also 13 C.F.R. § 121.903(a)(5), and they must provide notice of their proposed standards for public comment, 15 U.S.C. § 632(a)(2)(C)(i).

In addition, subclause (II) of section 3(a)(2)(C)(ii) provides in pertinent part that "[u]nless specifically authorized by statute, no Federal department or agency may prescribe a size standard for categorizing a business concern as a small business concern, unless such proposed size standard" "provides for determining . . . the size of a business concern providing services on the basis of the annual average gross receipts of the business concern over a period of not less than 5 years." 15 U.S.C. § 632(a)(2)(C)(ii)(II). Significantly for the purposes of the issues in this case, before the Runway Extension Act was signed into law in December of 2018, the averaging period set forth in section 3(a)(2)(C)(ii)(II) of the Small Business Act was three years. The Runway Extension Act directed that the number "5" be substituted for the number "3." Beyond that change, however, section 3(a)(2), including the remainder of subparagraph (C), were unchanged.

II. The Procurement

GSA administers "One Acquisition Solution for Integrated Services—Small Business" ("OASIS SB"), a multiple award, indefinite delivery/indefinite quantity contract program that federal agencies and other entities can use to secure a variety of professional, scientific, and technical services. Admin. R. ("AR") Tab 30 at 3938, ECF No. 18; AR Tab 3 at 62, ECF No. 15. GSA originally awarded contracts under the Solicitation—No. GS00Q-13-DR-0002—in 2014. AR Tab 1 at 3, ECF No. 15. On April 29, 2019, GSA re-opened the Solicitation and added approximately 160 additional contractors to the Pool 3 contract vehicle, which includes small businesses that meet the size standard of $38.5 million under NAICS code 541330 (engineering services). AR Tab 3 at 61-62, 268.30.

On May 7, 2019, GSA held a presentation for potential offerors. See AR Tab 13 at 1163, ECF No. 15. The presentation included a slide addressing the impact on the procurement of the then only recently-enacted Runway Extension Act. Id. at 1269. GSA advised attendees that until the SBA issued further direction, agencies would continue to use the three-year standard to determine size status. Id.; see also AR Tab 7 at 643, ECF No. 15 (June 6, 2019 GSA response to question regarding the applicability of the Runway Extension Act stating that "[t]he SBA has released their response on this matter, which states that until the SBA issues further direction, agencies will continue to use the previous standard of 3 years when determining size status"). And GSA notified potential offerors that it "lack[ed] the authority to deviate from the SBA's current regulations, which specify a 3 year size standard, absent coordination and concurrence from the SBA." AR Tab 7 at 643 (Q&A 27); see also id. (Q&A 28); id. at 644 (Q&A 33); id. at 648 (Q&A 64); id. at 665-66 (Q&A 200).

In the meantime, on June 24, 2019, the SBA issued a notice in the Federal Register proposing that the three-year averaging period be changed to a five-year period. SBA Notice of Proposed Rulemaking, 84 Fed. Reg. 29399 (June 24, 2019). In the notice, the SBA asserted that the change was discretionary and not statutorily required. The SBA observed that it had long been the agency's position that the conditions set forth in section 3(a)(2)(C) of the Small Business Act (including the minimum averaging period) do not apply to the SBA's regulations, which are issued pursuant to section 3(a)(2)(A) and (B). According to the SBA, it was proposing to adopt the new five-year minimum averaging period "to promote consistency" with the size standards other agencies issued under section 3(a)(2)(C). Id.

On June 25, 2019, GSA issued Amendment 7 to the Solicitation. AR Tab 10 at 1102, ECF No. 15. Among other things, the Amendment stated that "[c]onsistent with the terms of the Solicitation regarding size status, GSA will not make determinations regarding the status of a concern as a small business." Id. at 1104. It further stated that "[s]hould matters concerning size status representations arise, they will be referred to the SBA in accordance with FAR...