When is a HUBZone set-aside not really a HUBZone set-aside?  According to one GAO bid protest decision, when Federal Prison Industries (also known as UNICOR) submits an offer.

In Tennier Industries, Inc., B-403946.2 (June 29, 2012), the Defense Logistics Agency set-aside a procurement for HUBZone contractors, but awarded the contract to Federal Prison Industries rather than a HUBZone company.  One might think that the GAO would sustain a bid protest.  Instead, the GAO held that the award to FPI was A-OK.

The Tennier Industries GAO bid protest involved a DLA procurement to manufacture and deliver extreme cold/wet weather trousers.  The DLA set-aside the procurement for HUBZone participants.

Federal Prison Industries, which is not a HUBZone participant, submitted an offer.  After evaluating FPI’s offer and the offers of eight other companies (all of which, presumably, were HUBZone participants), the DLA determined that FPI’s offer represented the best value to the government, and made award to FPI.

Tennier Industries, Inc., a HUBZone participant, filed a GAO bid protest.  Tennier alleged that because FPI is not a HUBZone participant, the DLA should not have considered FPI’s offer.  Tennier also alleged that FPI would not comply with FAR 52.219-3(c), a limitation of subcontracting provision applicable to HUBZone procurements for supplies.  FAR 52.219-3(c) requires that at least 50 percent of the cost of manufacturing (less material costs) be performed by HUBZone participants.

Although Tennier’s arguments sound compelling, the GAO denied Tennier’s bid protest.  The GAO held that under FAR 8.601(e), agencies are encouraged to purchase FPI supplies and services to the maximum extent practicable.  To that end, FAR 8.602 requires that, when an item is listed on the FPI Schedule, the agency shall either procure the item from FPI or conduct a competition, giving FPI a “fair opportunity” to compete.  The GAO held, essentially, that FAR 8.602 requires FPI to be given a “fair opportunity” to compete even for a contract set-aside for HUBZone participants.

The GAO also rejected Tennier’s contention that FPI would not comply with FAR 52.219-3(c).  The GAO held that “because FPI is not a HUBZone, nor indeed a small business concern, limitations imposed under FAR § 52.219-3 on subcontracting by a ‘HUBZone small business concern’ do not apply to FPI.”

The Tennier Industries GAO bid protest decision demonstrates that, at least for supply procurements, FPI may be entitled to compete in set-aside competitions.  Although Tennier Industries involved the HUBZone program, there is no reason in my mind why the same logic would not apply to 8(a), SDVOSB, WOSB, and ordinary small business set-aside procurements.  For small supply contractors without the resources to effectively compete against FPI, Tennier Industries may be a troubling decision indeed.