Federal court gives HUBZone program priority

A federal judge has thrown a wrench into the Obama administration’s small-business contracting policy by ruling that agencies must give priority to businesses in economically depressed areas when setting aside contracts for small businesses.

The U.S. Court of Federal Claims determined that the Small Business Act requires contracting officers to consider companies in the Small Business Administration’s Historically Underutilized Business Zone (HUBZone) program before opening contracts to firms in the 8(a) and service-disabled, veteran-owned small business set-aside programs.

The Obama administration had argued that the HUBZone preference was simply an option available to contacting officers, but not a requirement. But Federal Judge Emily Hewitt disagreed, noting the text of the provision left little room for debate.

“The court interprets the language of the HUBZone competition provision—‘shall be awarded’—to be mandatory,” the judge wrote in an opinion released March 2.

Related stories:
Audit agency reaffirms earlier ruling against HUBZone preference
Congress could end HUBZone priority in small-biz contracting

The case involved Mission Critical Solutions, a HUBZone company that had protested the Army’s award of a one-year, $3.45 million sole-source contract to Copper River Information Technology, a company owned by Alaska Natives. Mission Critical argued that the Army had failed to consider whether at least two HUBZone businesses would bid on the contract.

Hewitt’s ruling affirms the Government Accountability Office’s bid protest decisions in 2008 and 2009 that gave preference to HUBZone small businesses. The two GAO decisions contradicted SBA’s long-standing interpretation that the agency’s procurement programs should be treated equally when it comes to awarding contracts.

After last year’s case involving Mission Critical Solutions, Peter Orszag, director of the Office of Management and Budget, told contracting officers to disregard GAO’s decision. The decision had been written by then-GAO acting general counsel Daniel Gordon, who is now the administrator for federal procurement policy at OMB.

SBA still believes in its interpretation.

“SBA has consistently interpreted the Small Business Act to provide that federal contracting officers are to choose equally among all of SBA’s procurement and business development programs, without giving one preference over the others. This is the rule of ‘parity’ between the programs,” Jonathan Swain, SBA’s associate administrator for the Office of Communication and Public Liaison, said in a statement March 9 statement.

As agency officials review the court’s decision, “SBA will continue to present its views in that matter and in all ongoing judicial proceedings involving interpretation of the Small Business Act,” he said.

This debate over priority has spurred members of Congress recently to change the HUBZone program’s language in the law from “shall” to “may.”

The Senate approved an amendment to the fiscal 2010 National Defense Authorization Act that would have taken any priority away from the HUBZone program. However, the amendment was stripped before the bill became law. Senators and House members have also introduced bills to make all the small-business programs equal, but none have made it to a vote.

“During these difficult economic times, it is imperative that small-business contractors possess an equal opportunity to compete for federal contracts on the same playing field with each other,” Sen. Olympia Snowe (R-Maine), ranking member of the Small Business and Entrepreneurship Committee, said on March 8. Snowe introduced a parity bill in July 2009.

She also said the court’s ruling “highlights the critical need to enact small-business contracting parity once and for all.”

Justice Department lawyers argued before Hewitt that reaction by Senators and House members against GAO’s Mission Critical decision justifies SBA’s and the administration’s interpretation. However Hewitt wrote, “Congress’s statements about the proper interpretation of a statute subsequent to the statute’s passage are of little persuasive authority.”