A "new" way to look at "beyond the scope of a contract"

It is a common principle in procurement regimes, and certainly one under Guam procurement law, that changes sought or made to a contract or a solicitation which are "outside the scope" of the original contract expectations require a new solicitation. It is improper to simply give the work to the incumbent contractor as an amendment or what have you.

The following GAO Decision was not exactly about that principle, but I extrapolated the lesson when I read it. The facts of the case require a bit of background about the Small Business Administration's role in US government contracting, which the Decision describes like this:

Section 8(a) of the Small Business Act authorizes SBA to contract with other government agencies and to arrange for the performance of those contracts by awarding subcontracts to socially and economically disadvantaged small businesses. These subcontracts may be awarded on a competitive or noncompetitive basis, based primarily on the size of the contracts. The Act affords SBA and contracting agencies broad discretion in selecting procurements for the 8(a) program.

Under the Act’s implementing regulations, SBA may not accept any procurement into the section 8(a) program if doing so would have an adverse impact on an individual small business, a group of small businesses in a specific geographical location, or other small business programs. The adverse impact concept is designed to protect small business concerns that are performing the same requirement under a government contract awarded outside the 8(a) program.

In this case, the government awarded a contract to one SBA qualified small business and another small business concern claimed to be adversely affected by the decision to award the particular contract. But, as we shall see, being SBA qualified as a "small business" is not the same thing as being a small business concern.

The protest grew out of restoration/construction work on the historic Kilauea Lighthouse, Kilauea Point National Wildlife Refuge, Kauai, Hawaii. There were a number of different structures and projects associated with the whole project, which the government characterized to be performed in two "phases".

Phase I of the project was the subject of an indefinite-delivery/indefinite-quantity multiple-award task order contract (MATOC). The protester, a small business concern, won the task order contract for Phase I under competitive bidding, not any 8(a) preference.

When it came time to award the Phase II work, the government initially put it out to competitive bid to the MATOC holders and chose its preferred contractor, but then decided to go with its preferred choice, a qualified 8(a) contractor, under the Section 8(a) SBA program instead of the original competitive bid process. The Decision doesn't say why, but government agencies have a quota of 8(a) monies to spend, and this could have been behind the reason to switch from competitive bid to a sole source 8(a) selection, especially since the competitive bid process had already qualified the preferred contractor.

But there was a hold up processing the SBA documentation, so the government back tracked and decided to go ahead and award the contract under the original MATOC plan.

At this point, the protester objected, saying that the Phase II work exceeded the scope of the original MATOC contract. Although the government initially rejected that protest, when the protester appealed to the GAO, the government again back tracked. It decided to terminate the task order contract, and to then award the Phase II work to the preferred contractor under an 8(a) sole source contract after all.

Now at this point, you need to recall that "the adverse impact concept is designed to protect small business concerns that are performing the same requirement under a government contract awarded outside the 8(a) program", and that the protester was performing under the existing contract requirement as a small business concern.

You also now need to know that "adverse impact" does not apply to a "new requirement", that is (as I understand this case), a different contract, one whose subject matter is outside the scope of the initial "requirement".

The case is, the Matter of: Ohana Industries, Ltd., File: B-404941, June 27, 2011.

FWS [had] represented to SBA that no small business contractor had performed this specific requirement during the preceding 24 months. [Thus,] SBA has advised our Office that an adverse impact analysis was not required because the Phase II work constituted a new, separate and distinct restoration/construction requirement.

Ohana contends that FWS incorrectly represented to SBA that the Kilauea Lighthouse restoration contract had not been previously awarded to a small business firm when, in fact, Ohana, a small business concern, had performed Phase I of the work. Ohana argues that FWS’s misinformation resulted in SBA concluding that an adverse impact determination was not required.

However, SBA regulations explicitly provide that an adverse impact determination need not be performed where a “new” requirement is offered to the 8(a) program. As is pertinent here, the regulations specifically note that “[c]onstruction contracts, by their very nature (e.g. the building of a specific structure), are deemed new requirements.”

Here, as noted above, SBA determined that the Phase II requirement constituted separate and distinct construction services, such that an adverse impact analysis was not required. SBA concluded that Ohana’s Phase I contract was limited to restoration/construction work on the lighthouse lantern, which is separate and distinct from the Phase II work, which involves work on the lighthouse, lightkeeper’s quarters, the oil storage building and the landing station.

While Ohana disagrees, arguing that the Phase II work simply is the completion of the lighthouse restoration work currently in progress, its disagreement, without more, does not demonstrate that SBA’s determination was made in bad faith or was otherwise inconsistent with applicable regulations. To the contrary, SBA’s determination was consistent with applicable SBA regulations, inasmuch as those regulations specifically define construction work as “new” work. Consequently, we have no basis to object to SBA’s determination that there was no requirement to conduct an adverse impact analysis prior to accepting the new, Phase II requirement under the 8(a) program.

To me, this may provide some bright lines, at least in construction cases, as to when work is in or beyond the scope of the original contract. Added work on separate property "by its nature" might be argued to be beyond the scope of a contract.

Notice, though, that this bright line test might be said to be based on the unique SBA regulations distinguishing new from old "requirements" and would have no persuasive effect outside the scope of SBA "requirement" determinations. However compelling that argument may or may not be, that was not how the Comptroller General applied it in this case.

The Comptroller General only referred to the regulatory distinction between new and old requirements to corroborate his conclusion that SBA's determination was not made in bad faith. That is, he didn't look to the regulation for the basis on which to make the determination that there was a new requirement. He only looked to the regulation to hold that the determination was made in good faith in the first instance.