Court puts HUB-Zone firms at top of small business pecking order
By Robert Brodsky firstname.lastname@example.org March 8, 2010
The U.S. Court of Federal Claims has rearranged the small business
contracting hierarchy with a ruling that firms in low-income neighborhoods
take priority in federal awards.
The court's decision, which was unsealed on March 2, stated that agencies
now must consider whether companies in a Historically Underutilized
Business Zone can compete for a contract before awarding it under another
small business program or on a sole-source basis. The ruling by Chief Judge
Emily Hewitt supports an earlier Government Accountability Office decision
and is a departure from recent Office of Management and Budget and Justice
The case boiled down to whether the HUB Zone program took precedence
over the 8(a) program -- in which businesses are owned by socially or
economically disadvantaged individuals. While the service-disabled veteran-
owned small business program was not at issue, the court ruled it should be
treated the same as the 8(a) program. All three categories are eligible for
set-aside small business contracts.
The plaintiff in the case, Mission Critical Solutions of Tampa, Fla., protested
the Army Office of the Judge Advocate General's January 2009 award of a
sole-source $10.5 million information technology pact to Copper River
Information Technology, an 8(a) Alaska native contractor.
Mission Critical, which is an 8(a) and HUB Zone business and was the
incumbent contractor, complained that it should have been able to compete
for the award. The Federal Acquisition Regulation requires agencies to open
contracts to Historically Underutilized Business Zone companies if
procurement officials have a reasonable expectation that two qualified HUB
Zone businesses will submit offers at a fair market price, Mission Critical
Hewitt agreed, noting that set asides for 8(a) companies were optional. "The
8(a) statute explicitly affords discretion both to the [Small Business
Administration] and to agency contracting officers in deciding whether to
place a contract opportunity in the 8(a) program," she said.
She added, "The plain meaning of the HUB Zone statute requires a contract
opportunity to be competed among qualified HUB Zone small business
concerns whenever the specified criteria are met, notwithstanding other
provisions of law--including those found within the Small Business Act itself."
Hewitt said the HUB Zone statute was "unambiguous and mandatory."
Contracts still can be placed in the 8(a) program when the specified criteria
in the HUB Zone statute are not met, she said.
The decision also prevents the Army from awarding the IT contract to
Copper River unless it first considers whether HUB Zone firms can compete
for the work. Mission Critical Solutions is operating under a bridge contract
until the matter is resolved.
The court's ruling is virtually identical to a decision GAO reached last May
after Mission Critical Solutions and another small business contractor
protested the Army's contract award. GAO sustained the protests and later
denied SBA's request for reconsideration.
But, in a move that many legal experts considered unprecedented, OMB in
July 2009 directed agencies to ignore GAO's recommendations because they
would "significantly limit the discretion contracting officers have historically
The memorandum from OMB Director Peter R. Orszag stated that GAO's
decisions "are not binding on federal agencies and are contrary to
regulations promulgated by the Small Business Administration that provide
for 'parity' among the three small business programs."
Last August, the Justice Department's Office of Legal Counsel issued an
opinion disagreeing with GAO's interpretation of the HUB Zone statute. The
memo argued that its opinion -- rather than GAO's decision -- was binding
for executive branch agencies.
When the Army announced it intended to use the Justice memo as the basis
for awarding the contract to Copper River, Mission Critical protested to the
Court of Federal Claims.
OMB on Monday declined requests to discuss the court's ruling or comment
on whether the Obama administration would challenge the case with the
U.S. Court of Appeals for the Federal Circuit.
Ralph White, acting managing associate general counsel in GAO's
procurement law division, said he was not surprised by the court's ruling.
"We based our view on the priorities set in the statute," he said.
Although it previously disagreed with GAO's decision, SBA said it was
reviewing the ruling.
"SBA has consistently interpreted the Small Business Act to provide that
federal contracting officers are to choose equally among all of SBA's
procurement and business development programs ... without giving one
preference over the others," agency spokesman Jonathan Swain said. "This
is the rule of 'parity' between the programs."
Congress attempted to intervene in the dispute last July, as the Senate
approved an amendment to the fiscal 2010 National Defense Authorization
Act that would have placed the three small business programs on an equal
footing when competing for contracts. But the amendment, introduced by
Sens. Mary Landrieu, D-La., and Olympia Snowe, R-Maine, was stripped out
during conference committee negotiations.
A source familiar with the negotiations said the Office of Legal Counsel told
Congress the provision was unnecessary in light of its memo. The
amendment also reportedly became entangled in a jurisdictional dispute
between the House and Senate small business and armed services
A spokeswoman said Landrieu plans to reintroduce the amendment as a
stand-alone bill in the near future. Snowe's office, meanwhile, urged the
Senate to pass the Small Business Contracting Programs Parity Act, a stand-
alone bill Snowe introduced in 2009 to make the programs equal.
The matter also could be resolved through a regulatory change. A proposed
FAR rule, filed in March 2008, would have clarified that no order of award
preference exists among small business programs. That rule remains under