Audit agency reaffirms earlier ruling against HUBZone preference

The Government Accountability Office today denied Small Business Administration officials’ request to reconsider recent bid protest decisions that give some small businesses priority over others.

SBA’s request “is denied where newly raised information fails to show that our prior decision contains any errors of fact or law,” GAO’s Acting General Counsel Daniel Gordon wrote in a decision released today.

SBA and the Office of Management and Budget Director Peter Orszag contended GAO overreached its authority when it ruled that firms in historically underutilized business zones (HUBZones) should get priority over small businesses in the SBA’s 8(a) program or service-disabled, veteran-owned small businesses.

GAO’s rulings are not binding on federal agencies and are contrary to SBA regulations, Orszag wrote in a memo released to agencies July 10.

“If agencies were to follow the GAO decisions, the federal government’s efforts to procure goods and services from 8(a) small businesses and from [service-disabled, veteran-owned small businesses] through the other statutory programs may be negatively impacted,” Orszag wrote.

He also wrote that the rulings remove contracting officers' discretion to set aside a contract. Until administration attorneys finish their legal review, Orszag wrote that contracting officers should continue using SBA's view of the three types of small businesses. Federal agencies should not “prioritize HUBZone small businesses over” 8(a) or veteran-owned companies, he wrote.

The administration’s concerns come from a May 4 ruling on a protest by Mission Critical Solutions, a HUBZone company. GAO ruled that the Army made a mistake and didn’t consider whether at least two HUBZone businesses would bid on an information technology contract. Instead, the Army awarded the one-year, $3.45 million sole-source contract to Copper River Information Technology, a company owned by Alaska Natives. Law allows Alaska Native corporations to receive sole-source contracts of any size.

GAO based its decision on the Small Business Reauthorization Act of 1997. The legislation states that “a contract opportunity shall be awarded” on the basis of a set-aside competition among HUBZone companies. Meanwhile, Congress didn’t afford companies in SBA’s 8(a) program or companies owned by service-disabled veterans the same mandate. The law only says contracting officers may set aside a contract to those types of companies.

“We do not think SBA’s regulatory implementation of HUBZone and 8(a) statutes is reasonable since it fails to give effect to mandatory language of the HUBZone statute,” the decision in the Mission Critical Solutions case states.

GAO reached a similar conclusion in September 2008, when it considered a bid protest from International Program Group, another HUBZone company. The Marine Corps set aside a contract for service-disabled veterans before considering whether a HUBZone set-aside would be appropriate. GAO ruled against the Marines.