Decision: Agencies Are Not Required to Accept Size Standards Increased After Solicitation is Issued

April 22, 2016

By Patrick T. Rothwell

Recently, the U.S. Court of Federal Claims issued the decision in Orion Construction Co. v. United States, No. 15-1505C (Fed. Cl. April 1, 2016) which is a cautionary tale for all small business offerors regarding the risk of an inaccurate certification from simply misinterpreting which size standard applies to a particular solicitation.

In the case, the United States Naval Facilities Engineering Command Southwest (“NAVFAC”) issued a solicitation for “commercial and institutional building construction” companies under North American Industry Classification System (“NAICS”) code 236220, with a designated size standard of $33.5 million. More specifically, the solicitation, which was set aside for small businesses, called for the design and construction of multiple facilities. Under the terms of the solicitation, offers were to be evaluated in two phases.

In the first phase, offerors were required to submit narrative descriptions of their technical approach, experience, past performance, and safety approach and records. After evaluating these responses, NAVFAC chose the five most qualified offerors and invited them to submit narrative descriptions of their technical proposals and their price. Along with the phase two proposals, offerors were required to self-certify as small.

Between the time of the submission of phase one and phase two proposals, SBA revised the size standard associated with NAICS code 236220 to $36.5 million. After SBA revised the size standard, NAVFAC issued an amendment to the solicitation which did not mention the size standard increase, but, as previously mentioned, did ask for a certification of size as of the date of the phase two proposal submission. Although there were opportunities for offerors to ask questions to the agency regarding the solicitation which were incorporated into the solicitation via amendments, no inquiries regarding the size standard were received by the agency.

The plaintiff in this case submitted a phase two offer in response to the solicitation and certified that it was small under NAICS code 236220 and included the first page of the solicitation in the offer which had the old $33.5 million size standard. The plaintiff, which was the apparent successful offeror, was subsequently the subject of a size protest. Unfortunately for the plaintiff, it was found by SBA to be other than small under the old $33.5 million size standard due to an affiliation.

On appeal to the SBA’s Office of Hearings and Appeals (“OHA”), the plaintiff argued, among other things, that under the terms of the solicitation, NAVFAC required each offeror to certify that the offeror was a small business “at the time of Phase Two proposal submittal. Quoting the applicable regulation, 13 C.F.R. § 121.402(a), which states in relevant part that “[i]f SBA amends the size standard and it becomes effective before the date initial offers—including price—are due, the contracting officer may amend the solicitation and use the new size standard,” the plaintiff argued that by these terms, NAVFAC had, in effect, incorporated the new size standard for NAICS code 236220 into the solicitation. OHA rejected this argument.

Subsequently, the plaintiff filed a complaint at the U.S. Court of Federal Claims challenging OHA’s decision. The Court upheld OHA’s decision, finding that by requiring the offeror to self-certify as a small business “at the time of Phase Two proposal submittal,” NAVFAC had neither expressly, nor implicitly, amended the size standard to $36.5 million. The plaintiff further argued that NAVFAC’s failure to revise the size standard was arbitrary and capricious, noting that there was no documented reason why the size standard was not amended, and also that the size standard should be amended so as to promote the maximum possible small business participation in the competition. In response, the Court held that NAVFAC had no legal obligation to amend the size standard in the solicitation after the SBA updated its size standards. Because there was no legal obligation to amend the size standard, there was no requirement for NAVFAC to document the reason why it did not amend the size standard.

This shows that offerors should not rely solely upon the designated NAICS code of a particular solicitation in determining whether it can self-certify as small. The actual size standard in the solicitation must be consulted. If there is an increase in the size standard for a particular NAICS code between the time of the initial solicitation and the date of self-certification, contractors should be proactive in asking the agency to apply the updated size standard to the solicitation.

About the Author: Patrick Rothwell is an associate with PilieroMazza in the Government Contracts Group. He may be reached at prothwell@pilieromazza.com.

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