Federal Court Upholds Agency’s 40% Small Business Subcontracting Goal

The United States Court of Federal Claims has denied a challenge to the Transportation Security Administration’s establishment of a 40% small business subcontracting goal–measured by total contract price, not total subcontracting dollars.

In Firstline Transportation Security v. The United States, No,. 12-601C (2012), Judge Thomas Wheeler  rejected arguments that the TSA’s 40% small business subcontracting goal was unreasonable, contrary to the FAR, and improperly established a partial small business set-aside.

The Firstline Transportation Security case involved a TSA solicitation for passenger and baggage screening services at the Kansas City, Missouri International Airport (which happens to be my home airport, not that it is at all relevant to the case).  The solicitation established a 40% small business subcontracting goal, measured by the offeror’s total contract price.

Firstline Transportation Security, Inc. filed a pre-award bid protest with the Court, challenging the small business subcontracting goal.

Firstline argued that the goal violated FAR 52.219-9 and FAR Subpart 19.7, which reference small business goals in terms of a percentage of total subcontracting dollars, not total contract dollars.  Firstline also contended that the goal limited full and open competition and improperly created a partial small business-set aside, contrary to FAR 19.502-3(a) and the Competition in Contracting Act.  Finally, Firstline contended that the TSA had failed to adequately analyze either the feasibility of the 40% standard or its impact on cost and the quality of performance.

Judge Wheeler rejected each of these arguments.

First, Judge Wheeler held that although FAR 52.219-9 and FAR Subpart 19.7 speak of small business goals in terms of a percentage of total subcontracting dollars, “nothing in the FAR affirmatively prohibits an agency from establishing such goals in terms of total contract value.”  Judge Wheeler agreed with the government that the adoption of a subcontracting goal based on total contract value was a permissible exercise of the TSA’s contracting discretion.

Second, Judge Wheeler wrote that Firstline’s arguments about restrictions on competition lacked merit “because the 40 percent standard is a goal, not a requirement.”  Moreover, Judge Wheeler held, “the solicitation does not artificially limit the field of offerors; rather, it simply reconfigures the terms on which potential offerors must compete.”

Finally, Judge Wheeler rejected the notion that the TSA was required to analyze the feasibility of the 40% goal before adopting it, writing that merely because the FAR “provides a ‘back end’ set of standards according to which a contracting officer must evaluate proposed subcontracting plans does not necessarily compel the conclusion that an agency must affirmatively research these considerations at the ‘front end’ of a solicitation.”  The Court denied Firstline’s bid protest.

The  Firstline Transportation Security case suggests that procuring agencies have the authority to establish ambitious subcontracting goals–including goals based on total contract value.  For small subcontractors, it’s a win, though how big a win remains to be seen.  The answer depends on whether the 40% goal in Firstline Transportation Security remains an exception from the norm, or whether the TSA and other procuring agencies use the flexibility afforded by this case to implement aggressive small business subcontracting goals on other procurements.

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