GAO: Agency Has Discretion on Type of Socioeconomic Set-Aside for Procurement

From a recent GAO decision it appears that the ends can, in fact, justify the means; at least when it comes procurement set-asides for HUBZone companies. The decision is Foxhole Technology, Inc. B-419577 (May 12, 2021). In this matter, Foxhole Technology, Inc., a service-disabled veteran-owned small business, protested the Department of Education’s decision to set aside an RFQ to supply cybersecurity services for HUBZone businesses. In its protest, Foxhole argued that the agency’s decision to set aside the procurement for HUBZone small business concerns was based on inadequate market research and was therefore not justified. GAO denied the protest.

The Department of Education was seeking contractors to provide highly adaptive cyber augmentation services and planned to issue a solicitation for those services under the Federal Service Supply (FSS) procedures. Before issuing its RFQ for the services, the agency conducted market research to determine if there were HUBZone small businesses capable of providing the services before issuing the RFQ as a set-aside. The agency first searched the GSA eLibrary website and found that there were 37 HUBZone small businesses registered under the appropriate GSA Special Item Number (SIN) for the procurement. The contracting officer then reviewed the contractor terms and conditions/pricelists of five randomly selected HUBZone small businesses identified in the search. Based on this review, the contracting officer concluded that there were at least five HUBZone businesses that would be able to meet the agency’s requirements for the procurement.

The agency subsequently requested that the Office of Small and Disadvantaged Business Utilization (OSDBU) provide a small business participation review clearance to support the contracting officer’s decision to set aside the procurement for HUBZone small businesses.  The OSDBU approved the set-aside, and the agency issued the RFQ to all HUBZone small businesses registered under the relevant SIN.

Foxhole protested the agency’s decision to set aside the procurement for HUBZone small businesses. In its protest, Foxhole alleged that the agency failed to perform adequate market research to demonstrate that proposals would be received from at least three vendors that could meet the requirements provided in the RFQ. According to Foxhole, while the agency’s market research of five random vendors from the list was sufficient to identify the existence of HUBZone vendors with the relevant SIN, it was inadequate to determine if three or more vendors capable of meeting the agency’s requirements would respond to the RFQ. After submitting the RFQ, the agency ultimately received three quotations from HUBZone vendors and determined that all three vendors were capable of performing the requirements.

In its review of Foxhole’s protest, GAO decided that even if it were to agree that the evidence before the contracting officer was not adequate to support the set-aside procurement for HUBZone small businesses, as a matter of policy, GAO would not disturb the agency’s decision to issue the RFQ as a HUBZone set-aside where subsequent events showed that sufficient HUBZone interest in the procurement did in fact exist.

This matter reflected GAO’s policy of leaving an agency’s determination to set aside a procurement as a business decision, in the agency’s discretion, absent a clear showing that the decision was unreasonable. GAO found that the Department of Education’s receipt of proposals from multiple HUBZone business after issuing the RFQ essentially validated its set-aside determination. GAO’s decision in upholding the Department of Education’s determination furthered the agency’s goal in utilizing a HUBZone business without compromising the integrity of the procurement. The decision was also consistent with the SBA’s goal in creating HUBZones, which is to provide federal contracting assistance for qualified small businesses that operate and employ workers in historically underutilized business zones in an effort to increase employment opportunities, investment, and economic development.

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