GAO Finds that FEMA Reasonably Evaluated Stafford Act Set-Aside Eligibility

You’ve likely heard of small business set-asides, SDVOSB set-asides, 8(a) Program set-asides, HUBZone set-asides, and other set-aside categories regulated, for the most part, by the Small Business Administration. But have you ever heard of a Stafford Act set-aside?

If not, you might want to keep reading about GAO’s recent analysis where it assessed whether the awardee was eligible for the Stafford Act set-aside.

First, what is the Stafford Act? The Act provides the statutory authority for FEMA to respond to disasters. And the Act authorizes FEMA to set aside disaster relief contracts for individuals or firms residing or primarily doing business primarily in the designated disaster area (42 U.S.C. 5150).

The FAR elaborates on the statute, outlining the criteria for determining whether an offeror is considered to be residing or primarily doing business in the set-aside area (FAR 52.226-3). So, for instance, an offeror is considered to reside, or primarily do business in the set-aside area if the offeror, during the last twelve months, had its main operating office in the area and that office generated at last half of the offeror’s gross revenues and employed at least half of the offeror’s permanent employees (FAR 52.226-3(c)). But if an offeror doesn’t meet those criteria, the FAR provides an eight factor list of other criteria to consider whether an offeror resides or primarily does business in the set-aside area (FAR 52.226-3(d)).

The issue of whether offeror primarily did business in a set-aside area was at play in Falken USVI, LLC, B-416581.2 (Comp. Gen. Jan. 2, 2019).

There, in response to Hurricane Maria, FEMA sought armed guard services to safeguard federal employees, visitors, and property at facilities in the U.S. Virgin Islands, including St. Croix, St. Thomas, and St. John. The solicitation required each vendor to represent whether it resided or primarily did business in the designated set-aside area.

In reviewing set-aside eligibility, FEMA found that Falken, the eventual protester, did not meet the criteria for set-aside eligibility. FEMA awarded the contract to Ranger, a company that was found to a local, eligible business. In its protest, Falken challenged FEMA’s determination that Falken didn’t meet the Stafford Act set-aside eligibility criteria and that Ranger did.

In evaluating set-aside eligibility, FEMA first looked to whether Falken and Ranger met the eligibility requirements under FAR 52.226-3(c). And it found that neither did. Thus, it looked to FAR 52.226-3(d) to see whether they qualified using the eight enumerated factors.

With respect to Falken, FEMA found that it also didn’t also qualify under FAR 52.226-3(d). In so determining, FEMA noted:

  • Falken’s two operating offices in the U.S. Virgin Islands were established in 2017 and 2018, with a total of 113 employees at both locations.
  • Falken’s licenses were not issued until October 2017, after the company’s establishment in the U.S. Virgin Islands that same month.
  • Identified contracts between Falken and other U.S. Virgin Island businesses did not establish a history of local business relationships because all the contracts had arisen within the previous five months and had been for small dollar amounts.
  • Falken did not demonstrate which portion of Falken’s gross revenues were attributable to work performed in the set-aside area.

On the other hand, FEMA found that Ranger did establish its set-aside eligibility through the following:

  • Ranger filed its Articles of Incorporation 1993, and they were certified by the Lieutenant Governor for the Virgin Islands.
  • Ranger had established and operated two permanent offices in the U.S. Virgin Islands since 1996 and 1999, respectively.
  • Ranger had 204 current and permanent employees in the set-aside area and maintained the appropriate license for every year from 2012 to 2018.
  • Ranger filed tax returns for its business in the U.S. Virgin Islands from 2012-2016 showing gross receipts and sales each year.

GAO found FEMA’s evaluation kosher and that it reasonably evaluated Falken and Ranger’s set-aside eligibility:

On this record, we find that FEMA’s evaluation of Falken’s and Ranger’s quotations was reasonable, equal, and consistent with the stated evaluation criteria. The contracting officer thoroughly evaluated the information provided by both vendors in conducting the Stafford Act set-aside evaluation. Initially, the contracting officer reasonably concluded that neither firm met the criteria of FAR provision 52.226-3(c). The contracting officer then reviewed the information provided by the vendors based on the factors of FAR provision 52.226-3(d). As explained above, the record demonstrates that the contracting officer reasonably concluded that Falken had not satisfied the burden of demonstrating that it resides or primarily does business in the set-aside area, while Ranger provided sufficient information to demonstrate that it resides or primarily does business in the set-aside area.

Depending on where a disaster strikes, your business might become eligible for a Stafford Act set-aside. But remember that these set-asides are designed for well-established local businesses in the designated disaster area. Setting up shop shortly before a disaster (or shortly thereafter, for the matter) won’t qualify you for these unique contracts.