Tinton Falls Lodging Realty, LLC v. United States

• Decision Date: 02 September 2015
• Docket Number: No. 2014–5140.,2014–5140.
• Parties: TINTON FALLS LODGING REALTY, LLC, Plaintiff–Appellant v. UNITED STATES, DMC Management Services, LLC, Defendants–Appellees.
• Court: U.S. Court of Appeals — Federal Circuit

800 F.3d 1353

TINTON FALLS LODGING REALTY, LLC, Plaintiff–Appellant

v.UNITED STATES, DMC Management Services, LLC, Defendants–Appellees.

No. 2014–5140.

United States Court of Appeals, Federal Circuit.

Sept. 2, 2015.

Lee Dougherty, Offit Kurman, Attorneys at Law, Vienna, VA, argued for plaintiff-appellant. Also represented by Katherine Amanda Straw.

Nathanael Yale, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee United States. Also represented by Joyce R. Branda, Robert E. Kirschman, Jr., Deborah A. Bynum; Davis Young, Jeffrey Davenport, Military Sealift Command, United States Navy, Norfolk, VA.Jonathan Todd Williams, Piliero Mazza PLLC, Washington, DC, argued for defendant-appellee DMC Management Services, LLC. Also represented by Kathryn V. Flood.

Before DYK, REYNA, and CHEN, Circuit Judges.

Opinion

Opinion for the court filed by Circuit Judge CHEN.

Dissenting opinion filed by Circuit Judge REYNA.

CHEN, Circuit Judge.

Tinton Falls Lodging Realty, LLC (Tinton Falls) appeals from a final judgment of the United States Court of Federal Claims (Claims Court) entered in favor of appellees the government and DMC Management Services, LLC (DMC) after granting motions on the administrative record that DMC was eligible for an award of a small business set-aside contract. See Joint Appendix (J.A.) 3774–75. Tinton Falls claims this was error. We affirm.

Background

On February 19, 2013, the United States Department of the Navy, Military Sealift Command, in Norfolk, Virginia (MSC), issued contract Solicitation Number N3220513–R–6005 (the solicitation). The solicitation involved the management and coordination of lodging and transportation services for federal civil service mariners (CIVMARs) who were completing required training at the MSC Training Center in Freehold, New Jersey. J.A. 172, 178–79. MSC issued the solicitation as a total small business set-aside under North American Industrial Classification System (NAICS) code 721110 (“Hotels (except Casino Hotels)”). J.A. 172.

The scope of work for the solicitation required the winning contractor 1) to provide a sufficient number of rooms at lodging facilities (i.e. hotels) in the vicinity of the MSC Training Center for CIVMARs attending training throughout the life of the contract, and 2) to provide transportation to and from those hotels to the MSC Training Center. J.A. 248–51. The contractor was required to specify a primary hotel and two or more overflow, or backup, hotels. J.A. 248. More than half of the CIVMARs attending training had to be housed at the primary hotel at all times. Id. The solicitation noted that based on historical data, MSC would require around 65 hotel rooms each night. Id. This number of rooms, however, often varied between 25 and 120, and the contractor was expected to ensure a sufficient number of rooms were available to house CIVMARs for the duration of the contract, regardless of how many hotel rooms MSC might require each night. Id. The solicitation made clear that MSC would be responsible only for the actual number of hotel rooms needed each night to house CIVMARs attending training. Id.

For transportation services, the solicitation required the contractor to provide each CIVMAR with daily transportation to and from the MSC Training Center whenever classes were scheduled, including weekends and holidays. J.A. 251. The contractor was required to “coordinate daily” with the MSC point of contact to determine how many trips between the primary and overflow hotels and the training center were needed to accommodate each CIVMAR's training schedule and to ensure “timely logistical arrangements” for those trips. J.A. 250. As with the hotel rooms, the solicitation made clear that MSC would be responsible only for the actual number of trips needed to transport CIVMARs to and from the training center. J.A. 251.

The scope of work also required the contractor to perform various other services, such as forwarding copies of any police reports based on illegal acts by, and maintaining plans to provide emergency medical treatment and/or transportation to a hospital for, CIVMARs housed at the primary and overflow hotels. J.A. 249. The contractor was also required to verify the identity of each CIVMAR who checked into a primary or overflow hotel, maintain a daily sign-in record, and transmit this sign-in record to the MSC point of contact. J.A. 251.

Pursuant to Federal Acquisition Regulation (FAR) clause 52.212–2, MSC evaluated bidders based on their ability to satisfy the technical requirements of the solicitation, past performance on comparable government contracts (if any), and price. For the solicitation's technical requirements, bidders were evaluated based on four sub-factors: 1) general requirements of the primary and overflow hotels, 2) fire and safety policies and procedures of the primary and overflow hotels, 3) health and sanitation of the primary and overflow hotels, and 4) transportation to and from the primary and overflow hotels to the MSC Training Center. J.A. 222–24. For past performance, bidders had to provide evidence of performance within the past three years of a government contract with similar scope, magnitude, and complexity to the requirements of the solicitation. J.A. 255. For price, MSC indicated that it would evaluate bid proposals in accordance with FAR 15.404–1(b). J.A. 256.

MSC received bid proposals from multiple contractors. For reasons unclear from the record on appeal, MSC found all of the submitted proposals technically unacceptable, thus precluding award of the contract to any of the interested bidders. Appellee United States Br. at 9. MSC's contract review board then recommended that MSC establish a “competitive range” of bidders and hold discussions with those bidders in order to give them an opportunity to address MSC's technical concerns and revise pricing to remain competitive, in accordance with FAR 15.306(c) -(d). Id. The competitive range consisted of all the initial bidders, each of which revised and resubmitted its initial proposal. MSC accepted the bid proposal of Mali, Inc. (Mali), whose revised bid was the lowest-priced, technically acceptable, and otherwise eligible proposal.

Losing bidder DMC filed a size protest with the Area Office of the Small Business Administration (SBA). In evaluating the protest, the SBA Area Office found that Mali was not a small business. In particular, the Area Office determined that Mali, along with Tinton Falls and two other companies that had submitted bid proposals, were part of the same family of hotels operated under a parent entity called Hotels Unlimited, Inc. (Hotels Unlimited). J.A. 2745–53. After reviewing Mali's articles of incorporation, by-laws, financial statements, and income tax returns, the Area Office concluded that Mali was “affiliated” with Hotels Unlimited for purposes of the solicitation, and that the combined entity—which had annual receipts of above $30 million—did not qualify as a “small business concern” under the applicable NAICS code. J.A. 2752–53, 2770. Mali appealed this determination to the SBA's Office of Hearing and Appeals (SBA–OHA), which affirmed the Area Office's conclusion. J.A. 2779–83. Because DMC had submitted the next lowest-priced, technically acceptable bid proposal, it was then declared as the successful bidder. J.A. 2654.

Tinton Falls then filed a size protest with the MSC contracting officer. Tinton Falls explained that DMC intended to subcontract the lodging services portion of the contract—which accounted for more than 80% of the value of the contract—to hotels that did not qualify as small businesses. J.A. 3457, 3459. As a result, Tinton Falls alleged that DMC was unusually reliant upon its subcontractors and would not itself be performing the “primary and vital requirements of the contract”—i.e. , the provision of lodging services—and thus had a relationship with the subcontracted hotels that violated the “ostensible subcontractor rule,” 13 C.F.R. § 121.103(h)(4). J.A. 2830–37. The Area Office disagreed, concluding that 1) DMC would perform the majority of the primary and vital requirements of the contract—the management and coordination of lodging and transportation services to MSC—and 2) DMC was not unusually reliant on any of its subcontractors. J.A. 3459–64. Therefore, because DMC qualified as a small business under the applicable NAICS code and had no affiliates or ostensible subcontractors, it was an eligible small business for purposes of the solicitation. J.A. 3465.

Tinton Falls appealed to the SBA–OHA, arguing that the Area Office committed clear error in its decision. While Tinton Falls' appeal was pending at the SBA–OHA, the MSC contracting officer filed his own size protest of Tinton Falls and two other bidders with the Area Office, urging that these three entities (like Mali, the subject of the earlier determination) also did not qualify as small businesses. The protest asserted that the contracting officer believed the remaining acceptable bidders (other than DMC) were not small businesses under the applicable NAICS code due to their affiliation with Mali and Hotels Unlimited. J.A. 2786. The Area Office agreed, issuing a size determination that due to their affiliation with Mali, none of the remaining Hotel Unlimited entities qualified as a small business for purposes of the solicitation. J.A. 2815.

The SBA–OHA then rejected Tinton Falls' appeal and upheld the Area Office decision that the primary and vital requirements of the solicitation were a coordinated package of rooms, transportation, and other services. J.A. 3560. The SBA–OHA determined that DMC would be performing a significant portion of the contract's primary and vital requirements: coordinating hotel rooms and transportation services to meet MSC's needs. J.A. 3560–61. Thus, the SBA–OHA determined that DMC's relationship with its subcontracted hotels did not violate the ostensible contractor rule...