Allegiance Environmental Services

DOCUMENT FOR PUBLIC RELEASE
The decision issued on the date below was subject to a GAO Protective Order. This redacted version has been approved for public release.

Decision

Matter of:  Allegiance Environmental Services

File:  B-419670

Date:   June 22, 2021

DIGEST

Protest alleging that the Small Business Administration (SBA) improperly accepted a requirement under the 8(a) program without first performing an adverse impact analysis, when the requirement had previously been set aside for small business concerns, is denied.  An adverse impact analysis was not required because the requirement was for the award of an interim contract, which SBA considered to be a “new requirement” under SBA’s regulations.

KDHK Inc. d/b/a Allegiance Environmental Services (AES), a minority-owned, women-owned small business, of San Antonio, Texas, protests the decision by the Department of the Army, Health Contracting Activity, and the Small Business Administration (SBA) to offer (and for the SBA to accept) to the SBA’s section 8(a) business development (BD) program a requirement for healthcare housekeeping and related services at Tripler Army Medical Center (TAMC) in Hawaii.  The contract was awarded on a sole-source basis to Teya Enterprises, LLC., an Alaska Native Corporation (ANC) of Anchorage, Alaska.  The protester argues that the agency’s decision to offer the requirement to SBA, and SBA’s resulting acceptance, were improper.  According to AES, the procurement could not properly be placed into the 8(a) program without an adverse impact analysis, as required by SBA’s regulations.

We deny the protest.

BACKGROUND

On July 31, 2018, the Army awarded a small business set-aside contract to AES under request for proposals (RFP) No. W81K04-18-D-0021 for healthcare housekeeping and related services at TAMC.  Agency Report (AR), tab 3, RFP at 1.  The agency subsequently amended this indefinite-delivery, indefinite-quantity (IDIQ) contract four times, increasing the maximum value of the contract from $83,612,807.88 to $89,458,624.20.  Id. at 165.  The contract provided for a 5-year ordering period between August 1, 2018 and July 31, 2023, with a 6-month extension period.  Id. at 38.

Shortly after the agency made award to AES, a different firm filed a protest at the U.S. Court of Federal Claims in August 2018, challenging the agency’s award decision.  Among the challenges raised, the protester alleged procurement integrity violations, which were forwarded within the Army [DELETED].  [DELETED], the Court stayed further proceedings on the protest in October 2018.  As of the time of this decision, those proceedings remain [DELETED].  AR, tab 22, Court’s Denial of Req. to Lift Stay at 1; AR, tab 2a, Chief of Contracting Office’s Statement (CCOS).

Notwithstanding the protest challenging the award to AES, AES continued performance of its contract.  Two years later, in August 2020, the contracting officer administering AES’s contract became aware of the procurement integrity allegations.  AR, tab 2a, CCOS at 1.  Upon learning of the allegations, the contracting officer decided that it was not in the government’s best interest to continue placing orders under AES’s contract.  Accordingly, the Army decided to pursue an interim or “bridge contact” to continue the critical services at TAMC.  The agency explains that the bridge contract was issued to replace AES’s ongoing IDIQ contract, [DELETED], and provide time to pursue a new procurement strategy for these services.  Of relevance here, the management of this contract was also moving to a new requiring agency, the DHA[1] (Defense Health Agency).  AR, tab 2a, CCOS at 2; AR, tab 19, at 1‑2. 

On September 4, 2020, the Army offered the requirement to the SBA for acceptance into its 8(a) sole-source program.  AR, tab 5, SBA/Contracting Officer Emails at 6-7.  On September 8, SBA responded to the Army’s offer with questions and requests for clarification as to the actual nature of the procurement, i.e., whether the requirement should be viewed as a follow-on to the existing contract, or as a new requirement.  Id. at 5-6.  That same day, the Army responded that it considered any new contract for this requirement to be a follow-on contract.  AR, tab 5, SBA/Contracting Officer Emails at 4.  Later that day, the SBA responded to the Army’s reply.  In this email, the SBA explained that it could not accept a follow-on procurement into the 8(a) program due to the potential adverse impact on the incumbent small business contractor.  AR, tab 5, SBA/Contracting Officer Emails at 1.  The SBA’s response also explained that if the Army’s requirement were considered to be what it termed a “bridge contract,” it would be considered a new requirement, and would not trigger an adverse impact analysis.  Id. at 1. 

Upon further consideration, the Army’s chief contracting officer decided that the interim contract properly could be considered a bridge requirement because the intent of the contract was to provide an interim contract vehicle to replace the incumbent contract while DHA pursued its own procurement approach.  AR, tab 2a, CCOS at 3.  The contracting officer also noted that the contemplated interim contract was shorter in duration than the incumbent contract and represented less than 60 percent of the value of the incumbent contract.  Memorandum of Law (MOL) at 4

On September 10, 2020, the Army provided a revised offer letter to the SBA identifying a responsible 8(a) firm, and asked the SBA to accept the requirement into the 8(a) program as a “bridge contract (new requirement).”  AR, tab 6, SBA Offer Letter at 1-2.  The SBA issued a letter accepting the requirement into the 8(a) program later that day for an estimated dollar value of $51,171,398.69.[2]  AR, tab 7a, Revised SBA Acceptance Letter at 1. 

Ultimately, on March 1, 2021, the agency informed AES that it would discontinue issuing task orders under AES’s contract after the most recent task order issued to AES expired on April 30, 2021.  AR, tab 14, Discontinuation of Services Letter, at 1.  On March 5, 2021, the Army informed AES that the agency planned to award an interim contract on a sole-source basis to an ANC under the 8(a) program.[3]  Protest at 3.  On March 15, AES filed a protest with our Office challenging the award to Teya under the 8(a) program.  

DISCUSSION

The protester argues that the Army’s proposed sole source award is improper because the SBA accepted the procurement into the 8(a) program without first conducting an adverse impact analysis.  According to the protester, if an adverse impact analysis had been performed, SBA could not have accepted the requirement under the 8(a) program.  In this regard, the protester argues that it was entitled to a presumption of an adverse impact under the required review process set forth in 13 C.F.R. § 124.504(c)(1)(i)(A)‑(C).  For the reasons discussed below, we find that the Army’s proposed award was proper because the SBA followed its regulations by not conducting an adverse impact analysis under the circumstances presented in this case.

Section 8(a) of the Small Business Act authorizes the SBA to contract with other government agencies and to arrange for the performance of those contracts via subcontracts awarded to socially and economically disadvantaged small businesses.  15 U.S.C. § 637(a).  The Act affords the SBA and contracting agencies broad discretion when selecting procurements for the 8(a) program; our Office will not consider a protest challenging a decision to procure under the 8(a) program absent a showing of possible bad faith on the part of government officials or that regulations may have been violated.  4 C.F.R. § 21.5(b)(3); B&D Consulting, Inc., B‑413310 et al., Sept. 30, 2016, 2016 CPD ¶ 280 at 4.  

Under the Act’s implementing regulations, the SBA may not accept any procurement for award as an 8(a) contract if doing so would have an adverse impact on an individual small business, a group of small businesses in a specific geographical location, or other small business programs.  13 C.F.R. § 124.504(c).  The adverse impact review process is designed to protect small business concerns that are performing government contracts awarded outside the 8(a) program.  Id.  SBA presumes adverse impact to exist where a small business concern has performed the specific requirement for at least 24 months; the small business is performing the requirement at the time it is offered to the 8(a) program, or its performance of the requirement ended within 30 days of the procuring activity’s offer of the requirement to the 8(a) program; and the dollar value of the requirement that the small business is or was performing is 25 percent or more of its most recent annual gross sales.  13 C.F.R. § 124.504(c)(1)(i). 

The requirement for the SBA to conduct an adverse impact analysis generally does not apply to new requirements, however.  13 C.F.R. § 124.504(c)(1)(ii).  The SBA regulations define a new requirement as one that previously has not been procured by the relevant procuring activity.  Id.  The SBA regulations also establish that:

[t]he expansion or modification of an existing requirement may be considered a new requirement where the magnitude of change is significant enough to cause a price adjustment of at least 25 percent (adjusted for inflation) or to require significant additional or different types of capabilities or work.

13 C.F.R. § 124.504(c)(1)(ii)(C).  These regulations explain that an adverse impact analysis is not required for a new requirement because “no small business could have previously performed the requirement and, thus, SBA’s acceptance of the requirement for the 8(a) BD program will not adversely impact any small business.”  13 C.F.R. § 124.504(c)(1)(ii)(A). 

Here, the crux of the parties’ dispute turns on the question of whether the requirement at issue constitutes a “new” requirement as contemplated by SBA’s regulations.  If it is new, as argued by the Army and SBA, the regulations outlined above do not require SBA to conduct an adverse impact analysis before accepting the requirement under the 8(a) program and making award to Teya.  If the requirement is not new, however, as argued by AES, the SBA should have performed an adverse impact analysis to consider the impact on AES before accepting the requirement into the SBA’s 8(a) program. 

AES first argues that the contract at issue cannot be considered a new requirement because the value of the work has not changed by at least 25 percent based on a comparison of “equivalent periods of performance.”  Protester Response to SBA Comments at 6-7.  In support of its position, the protester asserts that the SBA regulation 13 C.F.R. § 124.3 explicitly states, after a revision finalized in October 2020, that performance will be evaluated based on an “equivalent periods” measurement as opposed to total value differences between follow-on and existing contracts.  Id.  When equivalent periods are compared, AES asserts that the contract values are nearly identical.  The protester notes that its contract is valued at $88,837,753 for 66 months, whereas Teya’s contract is valued at $40,000,000 for 30 months.  Protester Response to SBA comments at 8.  Accordingly, AES notes that its contract is valued at $1,346,027 per month while the Teya contract is valued at $1,333,333 per month.  Id.  at 8. 

At our Office’s invitation, the SBA provided its views on the protest.  As a general matter, we accord great weight to the SBA’s interpretations of regulations it promulgates, such as those regarding the section 8(a) program.  Agency Mgmt. Concepts, Inc., B-411206, B-411206.2, Apr. 21, 2015, 2015 CPD ¶ 133 at 4.  In its response to the protest, SBA maintains that the requirements at issue were properly considered to be “new” because they are for a “bridge contract.”  SBA Comments at 4‑5.  SBA explains that it generally considers bridge contracts to be “new” requirements for purposes of the application of 13 C.F.R. § 124.504(c)(1)(ii) because they are fundamentally different from any previously awarded contract.  Id.  at 4.  SBA notes that, “a bridge contract is widely understood to be a short-term, stop-gap measure to continue the performance of critical services while the agency finalizes a more comprehensive procurement strategy.”  Id.  at 4.  SBA goes on to explain that “[i]n general, SBA considers a bridge contract to be a new requirement for purposes of adverse impact because, by its nature, the procurement does not adequately reflect the agency’s true requirement in terms of contract duration, price, or--in some cases--scope[.]”  Id.  at 4.

Turning to the protester’s specific argument about the 25 percent provision, SBA maintains that the protester’s application of this provision is misplaced.  As explained by SBA, “[b]y definition, a bridge contract is fulfilling critical recurring or ongoing needs while the agency finalizes its long-term procurement strategy” therefore “the monthly value of a bridge contract should be identical to or nearly identical to the monthly value of the underlying agency requirement.”  SBA Supp. Comments at 3.  Consequently, SBA points to another recent revision to its regulations, 13 C.F.R. § 124.504(c)(4), which states that “SBA does not typically consider the value of a bridge contract when determining whether an offered procurement is a new requirement.”[4]

SBA’s application of its regulations in this case is consistent with its long standing position before our Office that bridge contracts are viewed as “new” requirements for purpose of the application of the adverse impact rule.  See, e.g., B&D Consulting, Inc., supra at 6 (agreeing with SBA that an adverse impact analysis was not necessary where the agency awarded bridge contract); GOV Servs., Inc., B-414374, May 11, 2017, 2017 CPD ¶ 143 (adverse impact analysis not required where agency awarded bridge contract); eAlliant, LLC, B-407332.4, B-407332.7, Dec. 23, 2014, 2015 CPD ¶ 58 (sole-source bridge contract was reasonably considered to be a new requirement); Azimuth, Inc., B-409711, B-409711.2, July 21, 2014, 2014 CPD ¶ 218 (SBA reasonably determined that bridge contract was a new requirement); NANA Servs., LLC, B‑297177.3, B-297177.4, Jan. 3, 2006, 2006 CPD ¶ 4 (explaining that SBA generally views bridge contracts as new requirements when there is a large price reduction and time reduction from the original contract, and where the bridge contract was clearly a stopgap to allow for a corrective action to take place).

Moreover, we reject the protester’s argument that application of the 25 percent rule is controlling.  By its terms, 13 C.F.R. § 504(c)(1)(ii) merely establishes that a requirement “may” be considered new if the change in dollar value from an existing requirement is at least 25 percent.  This provision acts essentially like a safe-harbor, creating a presumption that a requirement is new where it meets the 25 percent threshold.  The regulation does not, however, limit the definition of new requirements to only those cases where the dollar value has changed by 25 percent.  This is consistent with the recent changes to SBA’s regulations establishing that for purpose of considering whether a bridge contract constitutes a new requirement, SBA “does not typically consider the value of a bridge contract[.]”  13 C.F.R. § 504(c)(4). 

Setting aside the application of the 25 percent rule, AES argues that the contract should not be considered a new requirement because it cannot reasonably be considered a “bridge contract.”  Protester Response to SBA Comments at 2.  AES makes several arguments in support of its position.  Id.  First, AES argues the proposed contract cannot be considered a “stop-gap measure to continue the performance of critical services[,]” because the Army itself created the need for services by discontinuing use of the contract, which AES had been capably performing.  Id.  As a related argument, AES maintains that it can continue performance under its existing IDIQ contract, such that an award to Teya is unnecessary.  Id.  Second, the protester argues that bridge contracts are by SBA’s own definition “short-term” in duration and the 30 month term of Teya’s contract cannot reasonably be considered “short-term.”  Id. at 3.  In sum, the protester asserts that the Army simply relies on the contracting officer’s “random characterization” of the proposed sole source award as a “bridge contract.”  Id.  We find the protester’s arguments unavailing.

As an initial matter, we reject AES’s contention that the contract award to Teya cannot reasonably be considered a necessary stop-gap measure to continue the performance of critical services.  To the contrary, the Army concluded that it should not continue using AES’s contract [DELETED].  As explained by the contracting officer, discontinuing usage of AES’s contract was considered to be in the best interest of the government to ensure that public funds are expended with “the highest degree of public trust and an impeccable standard of conduct.”  AR, tab 2a, CCOS at 1.  Such a conclusion was eminently reasonable when questions lingered about the integrity of the award to AES and the procurement process in general.  The Army also reasonably concluded that the services could not be interrupted because they are critical to ensure uninterrupted healthcare housekeeping services to the TAMC, the Veterans Administration (VA), and their associated clinics and administrative buildings within the U.S. Army Garrison-Hawaii.  AR, tab 4, SBA Offer Letter.

When faced with the dilemma presented by a need to discontinue using AES’s contract, and the corresponding need to continue receiving critical services, the Army decided to award an interim contract.  In addition, the contract was awarded for a period of performance that would allow the government to continue to obtain the required services while it worked towards competitively awarding a contract for the government’s full requirement.  These facts present the quintessential circumstances of what is often referred to as a “bridge contract.”  See, e.g., GOV Servs., Inc., supra (6-month janitorial services contract awarded on a sole source basis under SBA’s 8(a) program was a “bridge contract” when used as a temporary measure to afford the agency additional time to complete corrective action taken in response to other protest); NANA Servs., LLC, supra (where our Office describes a “bridge contract” as a vehicle to enable the Navy to acquire services for a relatively short period of time, rather than replacing an existing contract);  Chapman Law Firm Company, LPA., B‑296847 Sept. 28, 2005, 2005 CPD ¶ 175 (agency reasonably awarded a “bridge contract” to incumbent to meet the agency’s temporary needs for such services during a delay caused by litigation). 

Turning to the protester’s next argument--that the 30 month period of performance is not short term, thereby disqualifying the contract from being considered a bridge contract--under the circumstances, we have no basis to conclude that the period of performance precludes the contract from reasonably being considered a bridge contract.  In support of their conclusion, both the Army and SBA note that the contract as originally awarded was for an ordering period of 66 months, more than double the length of the contemplated contract.  In their view, the length of the prior contract supports a conclusion that the contract is by its nature a bridge contract because it is significantly shorter in duration than the contract awarded to AES.  While the protester may disagree with this assessment, we have no basis to find the determination unreasonable.  See generally B&D Consulting, Inc., supra at 2 (where the bridge contract contemplated a 1‑year base period, 1‑year option, as well as an optional extension to the final ordering period, for up to 6 months).

In conclusion, the question of whether a requirement is accepted under the 8(a) program is a matter for determination by SBA and not this Office.  Our review of SBA determinations under the 8(a) program are limited to determining whether SBA has followed its own regulations.  Because of the broad discretion afforded SBA by statute, judgmental decisions under section 8(a) will not be questioned, absent a showing of fraud or bad faith on the part of Government officials.  4 C.F.R. § 21.5(b)(3); B&D Consulting, Inc., supra at 4. 

Here, SBA concluded that the requirements accepted for award to Teya constituted “new” requirements because they were for the award of a bridge contract that would allow the agency to continue performance of necessary requirements for a relatively short period of time while it continued to work toward a procurement of the agency’s complete requirements.  The protester has failed to demonstrate that the SBA did not follow its own regulations when it decided to accept the requirements under the 8(a) program as “new” requirements.  As the regulations contemplate, once the requirements are properly considered “new,” there is no need to consider the decision’s impact on the protester  The protester also has not otherwise alleged fraud nor bad faith on the part of any government official in making this decision.

The protest is denied.

Thomas H. Armstrong
General Counsel