Another Small-Business Win; Set-Asides Are Themselves “Competitive”

Here is another win for small-business contractors from the Court of Federal Claims.

In an effort to save its contract from a small-business set-aside for which it was ineligible, an incumbent contractor, Dynamic Educational Systems, Inc., (“Dynamic”) filed a pre-award bid protest challenging a solicitation for the operation of a Jobs Corps Center for the Department of Labor.

Dynamic argued, first, that the relevant organic law for the Job Corps centers, 29 U.S.C. sec. 2887 (a) (2) (A), required that “the Secretary shall select on a competitive basis an entity to operate a Jobs Corps center.” Dynamic said that a “competitive basis” requirement precluded small-business set-asides. This argument, however, had been rejected by the Court in 2012 in Res-Care, Inc. v. United States, on which our firm previously blogged. So, Dynamic nuanced its argument by citing language in the statute that the Secretary of Labor “shall enter into an agreement with a Federal, State, or local agency, an area vocational education school or residential vocational school, or a private organization, for the operation of each Job Corps center.” It argued that by listing all eligible contracting entities Congress intended for Job Corps center operators to be chosen on a competitive basis among all those eligible entities.

The Court rejected this argument, further establishing the rule that small-business set-asides are themselves competitive. It held that just because Congress listed entities eligible for a contract, it doesn’t follow that every procurement should be open to all those entities. The Court highlighted Congressional policy that small-business set-asides are themselves intended to promote competition: “It is the declared policy of the Congress that the Government should aid, counsel, assist, and protect, insofar as is possible, the interests of small-business concerns in order to preserve free competitive enterprise, to insure that a fair proportion of the total purchases and contracts or subcontracts for property and services for the Government . . . be placed with small-business enterprises . . .” (15 U.S.C. sec. 631 (a)).

Dynamic next argued two technicalities. The Court rejected both, but the points raised certainly seemed correct and the Court couldn’t directly rebuff either one. Rather, focusing on policy over literal interpretation, it resolved these technical issues in favor of the government.

First, Dynamic argued that the law required the agency to conduct a “Fair Proportion Determination” under 15 U.S.C. sec. 644 (a) to properly ensure that a fair proportion of small businesses within a particular industry get contracts. The government didn’t do this at the contract level. However, the Court held that that this determination could be made at a higher agency level. In order to reach this conclusion, the Court had to, in effect, rewrite the regulation concluding that the rule was miswritten as a result of “merely infelicitous drafting.” The Court was probably right on the policy but wrong on the reading of the regulation. This may be the subject of an appeal.

Second, Dynamic argued that the regulation that applied the FAR to this procurement was enacted without authority because it was enacted after the DOL’s statutory authority to do so lapsed. The government admitted the lapse, but characterized the rule as a “goal” rather than a pre-condition to rule-writing authority. The Court followed this logic and, also, identified a separate source of authority for the procurement.


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