Federal Court Gives Priority for SBA Set Asides to Hubzones

The U.S. Court of Federal claims recently ruled that federal contracting officers must give priority to companies in the Small Business Administration (SBA) Historically Under Utilized Business Zone (HUBZone) program before offering contracts to SBA 8(a) and other firms qualified for set aside programs under the SBA regulations.

The case, Mission Critical Solutions v. United States, involved a HUBZone company’s bid protest of the Army’s award of a sole-source contract to Copper River Information Technology, an 8(a) certified Alaska Native Corporation (ANC).  Mission Critical argued that the Army was not authorized to award the contract to Copper River on a sole-source basis because the statute provides that “a contract opportunity shall be awarded” and competition restricted to only HUBZone small businesses where at least two are expected to submit reasonable offers.  In comparison, the SBA 8(a) statute provided that the contracting officer “shall be authorized in his discretion” to award a procurement contract to an 8(a) certified bidder.  The court sided with Mission Critical holding that the “shall be awarded” language in the HUBZONE competition provision is mandatory such that a contract opportunity must be set aside for competition among qualified HUBZone small businesses whenever the “rule of two” is met.

In practice, this rule means that before placing a solicitation for an SBA set aside contract, the federal agency must first ascertain whether it will receive offers from at least two qualified HUBZone small businesses and whether the award will be made at a fair market price. To date, the Government Accountability Office of the Comptroller General has used this ruling as precedence to decide in favor of a HUBZone Business in a bid protest against the government where the award had gone to an 8(a) contractor.

This new requirement is in direct conflict with prior SBA policy. Historically, federal contracting officers have followed the “rule of parity” and considered all firms eligible for SBA contract awards equally without preference of one category over another. To date, the government has not yet filed an appeal.  And Congress has yet to enact legislation to change the language of the statute. Going forward, if contracting officers begin following the “rule of two” 8(a) certified ANCs could be significantly impacted.