Recently, the U.S. Court of Federal Claims issued the decision in Orion Construction Co. v. United States, No. 15-1505C (Fed. Cl. April 1, 2016). This decision outlines how things can go wrong quickly when a small business offeror has an inaccurate certification from misinterpreting which size standard applies to the solicitation.
The United States Naval Facilities Engineering Command Southwest (“NAVFAC”) issued a solicitation for “commercial and institutional building construction” companies under North American Industry Classification System (“NAICS”) code 236220, with a designated size standard of $33.5 million. Offerors would be evaluated in two phases.
In the first phase, offerors had to provide narrative descriptions of their technical approach, experience, past performance, and safety approach and records. After this phase, NAVFAC would choose the five most qualified offerors and ask them to submit technical proposals and price. All offerors were required to self-certify as small. The solicitation provided that the agency would make an award based on best value to the government taking into consideration all of the factors from phase one and phase two.
After phase one of the procurement was completed but before phase two of the procurement started, the SBA increased the size standard for NAICS code 236220 from $33.5 million to $36.5 million.
NAVFAC issued an amendment to the solicitation. It did not specifically discuss the size standard increase, but did ask for a size certification as of the date of the phase two proposal submission. Offerors were given a chance to ask question, but no questions regarding the size standard were received by the agency.
Orion Construction submitted a phase two offer in response to the solicitation and certified that it was small under NAICS code 236220 and included the first page of the solicitation in the offer which had the old $33.5 million size standard. One of the other offerors submitted a size protest stating that Orion was not small under the applicable NAICS code. The SBA found that Orion was not a small business under the old $33.5 million size standard due to an affiliation.
Orion appealed to the SBA’s Office of Hearings and Appeals (OHA), and stated that under the terms of the solicitation, NAVFAC required each offeror to certify that the offeror was a small business “at the time of Phase Two proposal submittal. They went on to quote the applicable regulation, 13 C.F.R. § 121.402(a), which states “if SBA amends the size standard and it becomes effective before the date initial offers—including price—are due, the contracting officer may amend the solicitation and use the new size standard.” Orion said that by these terms NAVFAC had incorporated the new size standard for NAICS code 236220 into the solicitation. OHA rejected this argument.
Orion then filed a complaint at the U.S. Court of Federal Claims challenging OHA’s decision. The Court upheld OHA’s decision, finding that by requiring the offeror to self-certify as a small business “at the time of Phase Two proposal submittal,” NAVFAC had neither expressly, nor implicitly, amended the size standard to $36.5 million. Orion argued that NAVFAC’s failure to revise the size standard was arbitrary and capricious, noting that there was no documented reason why the size standard was not amended, and also that the size standard should be amended so as to promote the maximum possible small business participation in the competition. The Court held that NAVFAC had no legal obligation to amend the size standard in the solicitation after the SBA updated its size standards. Because there was no legal obligation to amend the size standard, there was no requirement for NAVFAC to document the reason why it did not amend the size standard.
So the bottom line is that you should never rely ONLY upon the designated NAICS code in the solicitation to determine with you can self-certify as small. You must look at the stated size standard in the solicitation. If the size standard increases for the NAICS code designated in the solicitation between the initial solicitation and the date of self-certification, you need to ask the agency to apply the updated size standard to the solicitation.