Small Business Outscored By Large Company On Small Business Participation Factor

It sounds like a tale from Bizarro World: under a recent Department of Homeland Security solicitation, a small business received a “Neutral” score for the small business participation factor, while its large competitor was awarded a “Good” score for the same factor.

One might think that the GAO would sustain a bid protest, especially because the small business in question planned to self-perform nearly two-thirds of the contract work.  Think again.  The GAO denied the protest, holding that under the solicitation, offerors could only receive small business participation credit for subcontracting to small businesses, not for self-performing at the prime contract level.

The GAO’s decision in Optimal Solutions & Technologies, B-407467, B-407467.2 (Jan. 4, 2013) involved a task order solicitation under a DHS EAGLE IDIQ contract.  The task order solicitation called for the successful offeror to develop web and database applications for the U.S. Citizenship and Immigration Services.

The solicitation included four evaluation factors: technical capability, small business participation, past performance, and price.  For the small business participation factor, the solicitation stated that proposals would be evaluated “to determine the extent to which the Offeror provides the maximum practical opportunity for small business participation and the degree of commitment to implementing small business participation.”

The solicitation stated that the small business participation factor would be evaluated using two sub-factors, terms “Maximization of Small Business Opportunities” and “Participation in DHS Mentor-Protege Program.”  The Maximization sub-factor provided that proposed subcontracting to small businesses, HUBZones, SDVOSBs, WOSBs and SDBs would be evaluated.  The Mentor-Protege Program sub-factor gave credit for providing developmental assistance to small businesses as a mentor in the DHS’s mentor-protege program.

Optimal Solutions & Technologies, a small business, submitted a proposal.  OST apparently indicated that it would self-perform 65% of the work.

In evaluating OST’s proposal, the DHS determined that neither sub-factor under the small business participation factor applied to OST.  The DHS assigned OST a “not applicable” rating for each sub-factor, and an overall “Neutral” rating for the small business participation factor.

Metters Incorporated, a large business, received a “Good” score on the small business participation factor, although Metters apparently planned to subcontract much less than 65% of the work to small businesses.  Metters also outscored OST on the Technical Capability factor.  Although Metters proposed a slightly higher price, the DHS awarded the task order contract to Metters.

OST filed a GAO bid protest, challenging the award to Metters.  Among its arguments, OST contended that it was unreasonable for the DHS to assign it a “Neutral” score for small business participation, particularly when its large competitor received a higher score on the same factor.

The GAO wrote that the DHS “evaluated OST’s proposal under the two small business participation subfactors, and reasonably found that they did not apply to a small business concern like OST.”  The GAO continued, “[w]e find this to be consistent with the language of the solicitation,” which stated that the small business participation factor was to be evaluated using the two subfactors.  The GAO concluded, “[i]n light of the two ‘not applicable’ subfactor ratings, the ‘neutral’ rating assigned to OST for the small business participation factor was also reasonable.”  The GAO denied OST’s bid protest.

One can certainly argue that the GAO reached the correct result, given what it had to work with, but this is one of those decisions that just doesn’t feel right.  How can it be fair for a small business to be outscored by a large company on a small business participation factor, particularly where the small business intended to self-perform much more of the work than the large company intended to subcontract to small businesses?

In my view, the real culprit in the Optimal Solutions & Technologies case is the DHS, not the GAO.  In developing its solicitation, the DHS should have realized that small businesses might bid as prime contractors, and written the small business participation factor in a way that would allow small prime contractors to achieve high scores for their own self-performance.  Instead, the DHS apparently assumed that only large businesses would bid as prime contractors.  The result was an unfair solicitation, in which a contractor like OST could propose to have two-thirds of the overall contract work performed by a small business, but receive only a “Neutral” score under the small business participation factor.

Hopefully, rather than savoring the Optimal Solutions & Technologies GAO bid protest decision as a win, the DHS will learn a valuable lesson and draft its next solicitation with the understanding that “small business participation” is not necessarily limited to subcontracting.

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