Harmonia Holdings Grp., LLC v. United States

• Decision Date: 08 June 2021
• Docket Number: 2020-1703
• Citation: 999 F.3d 1397
• Parties: HARMONIA HOLDINGS GROUP, LLC, Plaintiff-Appellant v. UNITED STATES, ALETHIX, LLC, Defendants-Appellees
• Court: U.S. Court of Appeals — Federal Circuit

999 F.3d 1397

HARMONIA HOLDINGS GROUP, LLC, Plaintiff-Appellant

v.UNITED STATES, ALETHIX, LLC, Defendants-Appellees

2020-1703

United States Court of Appeals, Federal Circuit.

Decided: June 8, 2021

Walter Brad English, Maynard, Cooper & Gale, PC, Huntsville, AL, argued for plaintiff-appellant. Also represented by Emily J. Chancey, Jon Davidson Levin, Michael W. Rich.

Bryan Michael Byrd, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee United States. Also represented by Jeffrey B. Clark, Robert Edward Kirschman, Jr., Patricia M. McCarthy.

Jonathan Michael Baker, Crowell & Moring LLP, Washington, DC, for defendant-appellee Alethix, LLC. Also represented by Eric Ransom, Zachary H. Schroeder.

Before Lourie, Mayer, and O'Malley, Circuit Judges.

Mayer, Circuit Judge.

Harmonia Holdings Group, LLC ("Harmonia") appeals the final judgment of the United States Court of Federal Claims dismissing in part and denying in part its post-award protest. See Harmonia Holdings Grp., LLC v. United States , 147 Fed. Cl. 756 (2020) (" Federal Claims Decision "). For the reasons discussed below, we affirm.

I. BACKGROUND

The United States Census Bureau ("Bureau" or "agency") issued a request for quotations ("RFQ") seeking statistical analysis system and database programming support services. See J.A. 10536. The RFQ stated that the Bureau intended to issue a time and materials task order which would be set aside for woman-owned small businesses, J.A. 10531, and that contract award would be made on a best-value basis, considering price as well as four non-price factors. J.A. 10598, 10601; see also J.A. 10591–96.

The Bureau's technical evaluation team assigned Harmonia's proposal nine strengths, no weaknesses, and two risks¹ under factor one, the technical factor. J.A. 11163–64. It assigned Harmonia strengths for its proposals to cross-train its development staff and to introduce an extract, transform, and load ("ETL") automation tool. J.A. 11163. The agency considered these elements strengths because they could provide efficiencies. J.A. 11163. According to agency evaluators, however, while these aspects of Harmonia's proposal were considered strengths, they also presented certain risks. J.A. 11164. Specifically, the evaluators expressed concern that Harmonia's proposed cross-training and use of an ETL automation tool could result in delays in contract performance. J.A. 11164.

On September 5, 2019, the contracting officer issued an award decision memorandum, explaining that he found no meaningful differences in the proposals submitted by Harmonia and Alethix, LLC ("Alethix") with respect to factors two, three, and four, and that the tradeoff analysis was therefore "rooted in the differences in strengths, weaknesses, and risks for" factor one, the technical factor. J.A. 11214. The contracting officer further stated that Alethix's proposal "demonstrated significant strengths presenting numerous benefits to the Government" and that Alethix presented "strengths that go beyond the approaches and present greater benefits to the [Bureau] than the technical strengths submitted by [Harmonia and another offeror]." J.A. 11214–15. On September 6, 2019, the Bureau awarded the contract to Alethix. J.A. 11315–16.

Harmonia then filed a protest at the Court of Federal Claims. Its amended complaint included three counts. See J.A. 66–81. Count I challenged the Bureau's technical evaluation of proposals, J.A. 77–78, Count II alleged that the contracting officer violated 48 C.F.R. § 19.301-1(b) (2019) (" FAR 19.301-1(b)")² by failing to refer Alethix to the Small Business Administration ("SBA") for a size determination, J.A. 78–79, and Count III challenged the agency's best-value determination, J.A. 79–80.

The Court of Federal Claims granted the government's motion for judgment on the administrative record with respect to Counts I and III, concluding that Harmonia had failed to demonstrate that the Bureau acted arbitrarily, capriciously, or in contravention of the terms of the solicitation in evaluating proposals or in making its best-value determination. See Federal Claims Decision , 147 Fed. Cl. at 784–89. Although Harmonia argued that the Bureau erred in assigning it risks for its proposed cross-training of development staff and peer-testing of software code, the court determined that the agency had rationally concluded that despite the potential benefits of cross-training and peer-testing, there was a risk that contract performance could be delayed as a result of the implementation of such practices. Id . at 784–86. The court rejected, moreover, Harmonia's assertion that the Bureau's "evaluation errors infected the source selection decision, rendering it irrational and contrary to the [s]olicitation's terms." Id . at 788 (internal quotation marks omitted).

The court dismissed Count II of Harmonia's amended complaint because it concluded that Harmonia had failed to exhaust its administrative remedies. Id . at 775–77. In the court's view, it was without authority to consider Harmonia's claim that the contracting officer violated FAR 19.301-1(b) by failing to refer Alethix to the SBA because Harmonia had not availed itself of the SBA's procedures for bringing a size protest. See Federal Claims Decision , 147 Fed. Cl. at 778.

Harmonia then filed a timely appeal to this court. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(3).

II. DISCUSSION

A. Standard of Review

"We review the grant of a motion for judgment on the administrative record in a bid protest action de novo." Off. Design Grp. v. United States , 951 F.3d 1366, 1371 (Fed. Cir. 2020) ; see XOtech, LLC v. United States , 950 F.3d 1376, 1379 (Fed. Cir. 2020). We likewise conduct a de novo review of the grant of a motion to dismiss. See Sharifi v. United States , 987 F.3d 1063, 1066 (Fed. Cir. 2021) ; Athey v. United States , 908 F.3d 696, 705 (Fed. Cir. 2018). "In a bid protest case, the inquiry is whether the agency's action was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law and, if so, whether the error is prejudicial." Glenn Def. Marine (ASIA), PTE Ltd. v. United States , 720 F.3d 901, 907 (Fed. Cir. 2013) (citing 28 U.S.C. § 1491(b)(4) ).

B. The Regulatory Framework

Congress enacted the Small Business Act of 1953, 15 U.S.C. §§ 631 – 651, in an effort to "aid, counsel, assist, and protect ... the interests of small-business concerns in order to preserve free competitive enterprise [and] 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." Id . § 631(a) ; see Flexfab, L.L.C. v. United States , 424 F.3d 1254, 1256 (Fed. Cir. 2005). To further this objective, certain government procurements, such as the one at issue here, are set aside for small business concerns. See 15 U.S.C. § 644(a) ; Kingdomware Techs., Inc. v. United States , ––– U.S. ––––, 136 S. Ct. 1969, 1973, 195 L.Ed.2d 334 (2016) ("In an effort to encourage small businesses, Congress has mandated that federal agencies restrict competition for some federal contracts.").

The SBA is vested with authority to establish "detailed definitions or standards by which a business concern may be determined to be a small business concern" for purposes of federal law. 15 U.S.C. § 632(a)(2)(A). The "SBA uses the North American Industry Classification System (‘NAICS’) to determine which entities qualify as small business concerns" and "specifies the maximum number of employees or maximum annual receipts which a company may have in order to qualify as a small business within a particular NAICS code." Palladian Partners, Inc. v. United States , 783 F.3d 1243, 1247 (Fed. Cir. 2015) ; see 13 C.F.R. § 121.201.

An entity may, in certain circumstances, lose its status as a small business concern when it is affiliated with a large business. See 13 C.F.R. § 121.103 ; see also Tinton Falls Lodging Realty, LLC v. United States , 800 F.3d 1353, 1361 (Fed. Cir. 2015) ("In determining affiliation, [the] SBA considers factors such as ownership, common management, previous relationships with or ties to another concern, contractual relationships, and joint ventures between entities."). Of relevance here, a contractor and its "ostensible subcontractor" will be treated as part of a joint venture, and therefore affiliates, for size determination purposes. 13 C.F.R. § 121.103(h)(2). Pursuant to SBA regulations, an "ostensible subcontractor" is defined as "a subcontractor that is not a similarly situated entity ... and performs primary and vital requirements of a contract, or of an order, or is a subcontractor upon which the prime contractor is unusually reliant." Id .

C. The Distinction Between a Size Protest and a Bid Protest

The Court of Federal Claims dismissed Count II of Harmonia's amended complaint because it concluded that Harmonia had failed to exhaust its administrative remedies. See Federal Claims Decision , 147 Fed. Cl. at 775–77. In the court's view, Count II stated a size protest and yet Harmonia had not filed a claim with the contracting officer seeking a size status determination from the SBA. See id .

We agree that a disappointed bidder must generally exhaust its administrative remedies at the SBA before seeking judicial review of a size protest. See 13 C.F.R. § 121.1101(a) (explaining that an offeror may appeal a formal size determination made by an SBA Government Contracting Area Office to the SBA's Office of Hearings and Appeals ("OHA") and that "[t]he OHA appeal is an administrative remedy that must be exhausted before judicial review of a formal size determination may be sought in a court"); see also Palladian Partners , 783 F.3d at 1261 (concluding that an offeror's "failure to participate in [a] pending OHA appeal was a failure to exhaust its administrative remedies"). We conclude, however, that the Court of...