Alliance Detective & Security Service, Inc.
B-299342: Apr 13, 2007
Alliance Detective & Security Service, Inc. protests the award of two contracts to C&D Security Management, Inc. under request for proposals (RFP) Nos. HSCEBW-06-R-F00005 and HSCEBW-06-R-F00006, issued as small business set‑asides by the Department of Homeland Security (DHS), Immigration and Customs Enforcement, for guard services in Massachusetts, Rhode Island, and Connecticut. Alliance contends that C&D's contracts should be terminated because the Small Business Administration (SBA) has determined that C&D is not a small business concern.
We sustain the protest.
B-299342, Alliance Detective & Security Service, Inc., April 13, 2007
In the absence of any countervailing reasons, agency should not exercise options under contracts set aside for small business concerns, where award was improperly made before referring pre-award size protests to the Small Business Administration (SBA) and to a firm that has been determined to be other than a small business by the SBA, and where the agency lifted a stay on contract performance, even though performance was not to commence for 3 months, it had been apprised of the SBA size protest, and all evidence indicated that the awardee was a large business.
Alliance Detective & Security Service, Inc. protests the award of two contracts to C&D Security Management, Inc. under request for proposals (RFP) Nos. HSCEBW-06-R-F00005 and HSCEBW-06-R-F00006, issued as small business set'asides by the Department of Homeland Security (DHS), Immigration and Customs Enforcement, for guard services in
The RFPs were issued on
DHS received 21 proposals in response to the RFPs, and C&D's proposal was determined to be the best value under each of the RFPs. On September 20, the contracting officer sent, via e-mail to all offerors, a notice of intent to award the contracts to C&D. The notice informed offerors that they had the opportunity to challenge the small business size status of C&D and that
[t]he protest may be made orally, but must be confirmed in writing and shall contain the basis for the protest with specific, detailed evidence to support the allegation that C&D . . . is not a small business.
Agency Report (AR), Tab A, Notice of Intent to Award, at 1.
On September 22, DHS received an e-mail with two attachments from American Sentry, LLC, an offeror under both RFPs, questioning C&D's small business status. The attachments included calculations suggesting that C&D's revenues exceeded $11.5 million, an article from The Colorado Spring Business Journal posted on C&D's website that provided information regarding C&D's growth in the security firm services area, and a request that the contracting officer review this information. AR, Tab B, American Sentry E'mail to Contracting Officer. The contracting officer did not interpret this correspondence as an official protest and did not forward it to the SBA. Contracting Officer's Statement (COS) at 1. On September 25, American Sentry again contacted the contracting officer, via telephone, to determine if she had reviewed the information and C&D's website. During the conversation, the contracting officer asked whether American Sentry was protesting C&D's size based on the information provided. American Sentry replied affirmatively, and on September 29 submitted a written protest letter formally, clearly, and unequivocally challenging the size of C&D.
Meanwhile, on September 27, DHS received what it considered to be a written size protest from
The contracting officer forwarded
The SBA found
On October 13, the SBA determined C&D to be other than small and thus ineligible for award under the RFPs. The SBA found C&D to be affiliated with three other companies under the common management and identity of interest rules of 13 C.F.R. sect. 121.103(e), (f) (2006). Because of this affiliation, the SBA noted that C&D's size designation must take into account the annual receipts of all of the companies combined, not C&D alone, even though C&D proposed only itself to perform the work. The SBA, upon reviewing the combined receipts, determined that the average annual receipts for C&D and its affiliates exceeded the $11.5 million size standard, and therefore C&D was ineligible for award, from a size standpoint, for this procurement. AR, Tab I, SBA Size Determination (
In response to the SBA's determination, DHS issued a contract modification on October 23, suspending performance of work under the contracts until C&D's appeal of the SBA's size determination was complete. The modification stated:
By mutual agreement of the parties, the performance period of the contract will be adjusted up to four months into the future, contingent upon the resolution date of the appeal with no revisions in price. Services will initiate on the first day of the second full calendar month after the affirmative appeal decision, but no earlier then
February 1, 2007.
AR, Tab J, Contract Modification, at 1-2.
On October 31, C&D filed an appeal of the SBA's size determination with the SBA Office of Hearings and Appeals (OHA). C&D did not contest the merits of the SBA size determination, but asserted that American Sentry's protest was untimely and requested that the SBA determination be vacated. AR, Tab K, C&D Appeal Petition. On November 21, OHA issued its decision finding that American Sentry's September 22 e-mail (which had been provided to the OHA, although it had not been previously provided to the SBA) was not specific, and thus did not constitute a valid protest, and that American Sentry's written protest of September 29, which was filed more then 1 day after the September 25 telephone conversation with the contracting officer, was untimely. As a result, OHA granted C&D's appeal and vacated the SBA's determination that C&D was other than small. AR, Tab L, SBA OHA Decision (
On November 21, DHS received OHA's decision. On November 27, the contracting officer lifted the stay of performance and issued a notice to proceed on C&D's contracts. AR, Tab O, SBA Size Determination (
The SBA's decision on the Area Director's protest was issued on December 14. As in its first determination, the SBA again found C&D to be other than small because of its affiliations and therefore ineligible for award for these procurements. AR, Tab O, SBA Size Determination (
After receiving the SBA's December decision, DHS sent a letter to the SBA on December 15, informing the SBA that DHS intended to continue with C&D's performance on the contracts. AR, Tab P, Letter from DHS to the SBA (
Under SBA's regulations, A timely filed protest applies to the procurement in question even though a contracting officer awarded the contract prior to receipt of the protest. 13 C.F.R. sect. 121.1004(c). There are no time limitations on the SBA (or the contracting officer) on filing size protests, either before or after award, so SBA protests are considered timely by definition. 13 C.F.R. sect. 121.1004(b). Thus, we agree with the SBA that the SBA size determination here is applicable to these procurements and that C&D was ineligible for the awards. See AR, Tab O, SBA Size Determination (
Termination of even an otherwise properly awarded contract is appropriate, where a timely size protest was filed, the SBA ruled that the awardee was not a small business and that ruling was not appealed, and there were no countervailing circumstances that weighed in favor of allowing a business concern that is not small to continue performance. ALATEC Inc., B'298730,
In this case, the contract awards were not proper when they were made.
FAR sect. 19.302(h)(1) provides:
After receiving a [size] protest involving an offeror being considered for award, the contracting officer shall not award the contract until (i) the SBA has made a size determination or (ii) 10 business days have expired since SBA's receipt of a protest, whichever comes first; however, award shall not be withheld when the contracting officer determines in writing that an award must be made to protect the public interest.
DHS awarded these contracts before it referred the pre-award
In light of DHS's failure to comply with the applicable FAR provision with regard to delaying award of the contracts, the issue to be considered here is whether there were countervailing circumstances that weighed in favor of allowing a business concern that is not small to continue performance. We first note that when DHS lifted the stay of performance on November 27 in response to the OHA decision, actual contract performance was not scheduled to begin for more than 3 months, on
On the other hand, because of the transition period under these contracts, C&D has incurred substantial performance costs. While we have considered, but do not always accept, termination costs as an adequate countervailing reason to allow an award to a large business to stand, see, e.g., Hydroid LLC, supra, at 4; Tiger Enters, Inc., B-292815.3, B-293439, Jan. 20, 2004, 2004 CPD para. 19 at 4-5, we find that the substantial costs incurred here, together with the protracted SBA size protest process, provide sufficient countervailing reasons not to disturb the base period award to C&D, even though it is a large business for purposes of these procurements. However, there are no countervailing reasons that justify allowing the potential exercise of the four yearly options available under these contracts. While C&D asserts that it now qualifies as a small business under the revised NAICS code size standard, to allow this contract to continue for the full 5-year term under these circumstances would, in our view, be inconsistent with the integrity of the procurement system and the Small Business Act, inasmuch as C&D was not eligible for award under the terms of these RFPs. See ALATEC Inc., supra, at 6.
The protest is sustained.
We recommend that DHS not exercise the options available under C&D's contracts and recompete the services. We also recommend that
Gary L. Kepplinger
 RFP No. HSCEBW-06-R-F00005 was for guard services in western
 Subsequent to the issuance of the RFPs, a revised size standard of $17 million was established for this NAICS. This revised standard applies to solicitations issued on or after
 The SBA states that, had DHS provided the American Sentry September 22 e-mail to the SBA, it would have dismissed that firm's September 29 protest as untimely and filed its own protest at that time, as it ultimately did (see below at page 4 and note 6). AR, SBA Size Determination (
 SBA's regulations require size protests to be specific and provide that non-specific protests will be dismissed. 13 C.F.R. sect. 121.1007.
 In order to be timely, size protests must be received by the contracting officer by the fifth working day after the contracting officer has notified the protester of the identity of the prospective awardee. 13 C.F.R. sect. 121.1004(a)(2). A telephonic protest made within this period will be considered timely, provided that a written confirmation of this protest is filed within the 5-day period or postmarked no later than 1 day after the telephonic protest. 13 C.F.R. sect. 121.1005. Here, although American Sentry's telephonic protest was within the 5-day window, its September 29 written protest was filed outside that window and was postmarked more than 1 day after the telephonic protest.
 The SBA may timely protest the small business representation of an offeror in a specific offer at any time prior to or after award, without regard to the time limits applicable to private party size protests, and such protests will apply to the procurement in question. FAR sect. 19.302(a); 13 C.F.R. sect. 121.1004(b), (c).
 DHS reports that although guards were not to be posted until
 SBA regulations leave the decision as to what constitutes a sufficient size protest to the SBA, not the contracting officer. See Consolidated Constr., Inc., B'219107.2,