Solutions v. The United States

• Decision Date: 18 February 2011
• Docket Number: No. 10-810 C,10-810 C
• Parties: MISSION CRITICAL SOLUTIONS, Plaintiff, v. THE UNITED STATES, Defendant.
• Court: U.S. Claims Court

MISSION CRITICAL SOLUTIONS, Plaintiff,

v.THE UNITED STATES, Defendant.

No. 10-810 C

United States Court of Federal Claims

Filed: February 18, 2011

Released for Publication: March 8, 2011¹

Bid Protest; HUBZone; Decertification; Qualified HUBZone SBC; 35% Employee Residency in HUBZone; "Attempt to Maintain" Safe Harbor

John R. Tolle, Barton, Baker, Thomas & Tolle, LLP, McLean, VA, for Plaintiff

Ellen M. Lynch, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, with whom were Tony West, Assistant Attorney General, Jeanne E. Davidson, Director, and Alan J. Lo Re, Assistant Director, Commercial Litigation Branch, Civil Division, United States Department of Justice; and Karen H. Holzen, Office of General Counsel, U.S. Small Business Administration, Washington, DC, of counsel

OPINION AND ORDER

DAMICH, Judge:

In this action, Plaintiff Mission Critical Solutions ("MCS") challenges its decertification by the Small Business Administration ("SBA") as a Historically Underutilized Business Zone ("HUBZone") small business concern ("SBC"). The effect of its decertification is that Plaintiff cannot compete for government contracts which require HUBZone qualification as a condition for bidding and award, including in particular Department of the Air Force Solicitation FA8773-10-R-0053, which is a 100% set-aside for HUBZone small businesses. Plaintiff seeks judgment on the Administrative Record ("AR"), declaratory relief that the SBA improperly decertified MCS as a qualified HUBZone SBC, and an injunction against the award of the Air Forcesolicitation pending the restoration of MCS to the HUBZone List.² Defendant has filed a cross-motion for judgment on the AR.

The central question in this matter is the interpretation of SBA regulations requiring that "at least 35% of the concern's employees must reside in a HUBZone" in order to receive SBA certification as a qualified HUBZone SBC. 13 C.F.R. § 126.200(b)(4). Plaintiff avers that it had already met the requirements of initial certification and that, although its actual employee residency in a HUBZone had fallen below 35%, it was meeting the alternative, "safe harbor" requirement of "attempt[ing] to maintain" the 35% threshold, pursuant to 13 C.F.R. § 126.103, while performing on an existing HUBZone contract. Accordingly, it argues that it remained a qualified HUBZone SBC when it bid for and was awarded a different Air Force contract in December 2009 ("the December 2009 contract"). The SBA, however, reads its regulations as requiring actual 35% employee residency in a HUBZone "at the time of initial offer and at the time of award" of a new HUBZone contract, pursuant to 13 C.F.R. § 126.601(c).

For the reasons explained below, the court DENIES Plaintiff's motion for judgment on the AR and GRANTS Defendant's cross-motion.

I. Background

Plaintiff MCS is a Florida corporation with a principal place of business in Tampa. It first obtained its SBA certification as a qualified HUBZone SBC in 2000. AR 2. It is not disputed that, at the time of its initial certification, it met the requirement that 35% of its employees reside in a HUBZone. In 2005, Plaintiff was awarded a HUBZone contract by the Department of the Army at Ft. Rucker Army Base, AL, for which the period of performance was May 16, 2005, through September 30, 2008. AR 308. In 2006, Plaintiff was awarded a HUBZone contract by the Air Force for work at Mt. Home AFB, Idaho, for which the period of performance began on October 1, 2006, and extends through September 30, 2011. Id.

Based on a program examination conducted by the SBA for the period of December 2, 2004, through April 27, 2007, Plaintiff was re-certified as a qualified HUBZone SBC. AR 4.

The SBA again undertook an examination of MCS in 2009. See AR 239, 242. MCS presented a binder of information, entitled "Small Business Administration 2009 HUBZone Certification Examination," to the SBA in that inquiry. In a cover letter to the SBA, dated May 16, 2009, enclosing its binder of information, MCS wrote, "Because MCS is currently performing on a HUBZone contract, the SBA has requested evidence that our firm is making an effort to reach and maintain the 35% residency goal. Enclosed are many examples of how hard MCS is working to achieve the target number." AR 3 (emphases added). It is a fair inference from the phrasing employed by MCS that it was acknowledging it had fallen below the 35% employee residency threshold, although the Administrative Record does not reflect when this dip first occurred.

On July 8, 2009, the SBA wrote to MCS to advise that it "proposed to de-certify your concern" for lack of eligibility. The SBA found that MCS "no longer meets th[is] requirement"that "at least 35% of a firm's employees must reside in a HUBZone." AR 239. In addition, the SBA found that Plaintiffs "attempts to maintain were not substantive" because only 12 of the company's 219-5.5%-employees lived in a HUBZone.³ Id.

According to Plaintiff, see Pl.'s Mot. for J. on AR ("Pl.'s Mot.") 3, it heard nothing back from the SBA until it received, by email, a letter dated July 7, 2010, again proposing decertification for failing to comply with the 35% HUBZone residency requirement. AR 242. The SBA's July 7, 2010, letter referred to its site visit to MCS in March of 2009, its review of the information MCS submitted in response to the site visit, and its finding that MCS was not in compliance with the 35% residency requirement. The letter indicated that MCS could respond with pertinent information about payroll and employee residence details. Id. at 242-44.

In a letter dated August 5, 2010, MCS responded to the SBA providing certain documentation as to its ongoing HUBZone contract at Mt. Home AFB, its offices and field locations, payroll and employee information, etc. In its letter, MCS asserted, "We believe we remain in compliance with CFR § 126.500 as we have an active HUBZone contract and can document our attempts to maintain our percentage of HUBZone employees during the performance of this contract."⁴ AR 252. MCS further explained,

Although the reports as supplied would suggest we are currently below our staffing goals, we have been diligent in our attempts to maintain the 35% of employees living in HUBZone areas which we believe is articulated in CFR sections § 126.200 and § 126.500, and as such has [sic] been historically interpreted by the SBA.

AR 253.

The SBA wrote again to MCS via facsimile on September 1, 2010. AR 362. In the letter, the SBA noted MCS's acknowledgement in May 2009, in response to the SBA March 2009 site visit, that it was not meeting the 35% residency requirement. The SBA further noted MCS's claim that it was, however, attempting to maintain that residency threshold. It also noted the MCS HUBZone contract for services at Mt. Home AFB, which, with the exercise of all option years, would end in 2011. Id. Aside from the Mt. Home AFB contract, the SBA expressed concern that "MCS has been awarded HUBZone contracts since the site visit was performed in March 2009, and since MCS's response indicated that at least 35% of its employees did not reside in a HUBZone." AR 363. One particular contract in question, Solicitation No. FA2521-09-R-0085, was issued on July 30, 2009; the response date was September 11, 2009, and the date of award to MCS was December 4, 2009. See id.

The SBA explained its position: if a "qualified HUBZone SBC submits an initial offer for another HUBZone contract and is ultimately awarded the contract, it must meet all of the HUBZone program's requirements at the time of submission of its initial offer and at the time of award, including the 35% residency requirement." Id. n.1 (emphasis in original). Accordingly, the SBA requested documentation that MCS met the 35% residency requirement both when it submitted its offer for and when it was awarded the December 2009 contract. AR 364.

MCS responded on September 30, 2010. AR 368-73. It explained that it did not need to meet the actual 35% residency requirement when it bid for and was awarded the December 2009 contract because it was, instead, complying with alternative, "safe harbor" regulations in its "attempt to maintain" residency targets during its ongoing Mt. Home AFB contract. "[T]he eligibility requirements for a qualified HUBZone SBC with an existing HUBZone contract are different than those for firms who are going through the HUBZone application process." AR 371. Accordingly, it took the position that the residency documentation requested by the SBA was not relevant to an investigation of whether MCS was eligible for award of the December 2009 contract. AR 372. The relevant inquiry, rather, for which it said the agency already had the appropriate documentation, was only whether MCS met the "attempt to maintain" criteria. Id. In conclusion, MCS offered, "If there is some additional information that you still need from MCS after the review of the response, MCS is happy to comply." AR 373.

On October 29, 2010, the SBA notified MCS that it had been de-certified and removed from the list of qualified HUBZone SBCs because it "does not meet and has not met the requirement that at least 35% of its employees reside in a HUBZone." AR 408. It explained that the "attempt to maintain" requirements only act as a safe harbor with respect to an existing contract. Once awarded a HUBZone contract, a qualified HUBZone SBC must "attempt to maintain" the 35% residency requirement "during the performance of that HUBZone contract." AR 410 (emphasis added). "While a firm may 'attempt to maintain' the 35% HUBZone residency requirement while performing on a contract, it must meet the requirement at the time of offer and award for any new HUBZone contract." Id. (emphasis added).

Plaintiff filed its protest in this court on November 22, 2010. In a telephonic status conference held on November 24, 2010, the Government advised the court that the closing date for offers for the 2010...